If you look at purchasing a piece of land, you may be surprised by the price that you will pay.
Many people think that buying a home is a lot, but you can spend quite a bit on a piece of land as well.
There are many reasons the price of land can be high.
You will have no control over some of these things, but it does help to understand why land is so expensive.
Why Is Land So Expensive? (Top 10 Reasons)
Potentially the biggest factor in why land is so expensive is where the land is located.
When land is near an area where people want to live, you can expect to pay quite a bit more for it.
The more expensive lots are going to be in the mountains or near the ocean.
These plots of land are valuable because they are in areas where people want to spend time.
If these lots of land have ocean access, they are probably going to cost even more money.
You can control the price you pay for land by choosing locations where land might be a little less desirable.
Of course, the problem with this is that you are going to need to live in that area.
Purchasing a piece of land in an area you are going to want to live in could end up costing you quite a bit of money.
Try and look at the long-term direction of real estate in the area as well.
Is the spot thriving, or is it starting to fall apart and deteriorate?
Look at the trends over the last five to ten years and see how they are looking and which way they are headed.
This should give you a better indication of what the future of the area is going to be like.
Be very careful when you make your decisions about the location and the spot that you ultimately plan to end up.
2. Limited Supply
Land is a finite resource.
There is no way for us to create more land, and because of that, it is quite precious.
It is important to make sure that you purchase land while it is still available because people believe that, at some point in time, there may not be any new land available to purchase.
The limited supply and the idea that the land is one day going to be sold off completely will make the prices continue to go up.
Limited supply is something that comes up quite often as a principle in business.
Supply will impact the pricing for years to come as there is nothing that can be done to overcome this issue.
Of course, this is no reason to run out and buy a piece of land this minute, but there are reasons to think about making an investment at some point.
The land will likely get passed down to your family when you are gone, and that is a great way to keep land in the family.
Understand that, if there were unlimited land, the overall pricing would be quite a bit cheaper, but people would not value it with such importance.
3. Potential for Long-Term Income
Land is subject to inflation, and we will get into that in a little bit.
However, there is additional potential for long-term income when you purchase a piece of land.
If you were to take a piece of land and develop a house on it, you would be able to sell the finished product for quite a bit of money.
This is how many builders go about making a living.
They go into an area, purchase a piece of land at a reasonable price and then build a home at cost.
Then they compare the costs in the local market and determine a price for a brand-new home in that area.
Many people like the concept of a brand-new home and the fact that they will be the only ones to have lived in the home.
This makes the pricing on the brand-new homes quite high, and therefore, there is plenty of room for profit.
This concept is widely known, and that is why the pricing of land continues to go up.
This process is not going to be easy for builders to continue doing without having to pay the consequences of business getting difficult.
It’s a good thing that some of the prices continue to go up to keep it out of the hands of real estate investors.
However, this also makes things harder for an individual homeowner who simply wants to purchase and build their own home.
Even though the home will be a primary residence, most people would like to make money on the home that they purchase and build.
4. Interest Rates
Interest rates have a large impact on the cost of land.
There are two reasons interest rates are going to make land more expensive.
The first is that, if you purchase land and then have to pay interest on the loan you used to buy it, the total cost you pay for your land will be quite a bit higher.
Sometimes this is the only way to purchase a piece of land and be able to afford it.
The interest rates at the current time are very low.
This causes people to go and purchase land and property at a faster rate.
Of course, when this happens, the demand increases, and the price that you pay for the land is going to be higher.
In the end, you will have to decide what makes the most sense for you.
Is it worth purchasing land at a higher price and paying less in interest or purchasing at a lower price and paying more in interest?
This all depends on how much money you have to put down and what you expect to pay moving forward.
In the end, the price you pay for the land will probably be about the same, but interest rates will have an effect on it.
5. Ease of Access
There is plenty of land still available in the United States, but not all of this land is useable.
Much of the land has no access.
Although most of us are used to having paved roads to drive on and easy access to any of our local destinations, it is not like this everywhere.
You may find a piece of land somewhere that is located three hours from an airport, where you must drive ten miles on a dirt road before you get to the lot.
The problem with choosing a piece of land like this is that the long-time resale value on a piece of land like this is going to be quite a bit lower.
Unless there are some major plans for the area and there will be roads and other amenities coming to the area soon, this is a concept that you will need to keep in mind.
The ease of access to a property will increase the price that you pay for it.
6. Soil Quality
Another factor that increases the price of land is one that often gets overlooked.
The soil quality on a piece of undeveloped land will determine what it is you can do with the land.
If you are not able to build on it because of soil issues, then clearly, this isn’t an excellent investment.
You should also be considering whether or not you plan to have animals or gardens on the land.
Many people purchase land with the idea of growing their own food and keeping livestock.
If the soil quality of the land you purchase is not of a high enough quality, you will be very limited in what you can do with the land.
Instead, you will be stuck with a piece of land that is virtually unusable.
Make sure that you have the soil quality tested thoroughly before purchasing a piece of land.
Even if the test is expensive, it could save you a lot of money in the end.
The better the quality of the soil, the more potential the land has and, therefore, the higher the price of the land.
7. Increases in Value Over Time
Land tends to become more valuable over time.
If you live in a neighborhood and you purchased a home for a certain amount of money, even if the neighborhood goes down in value, the land will have probably remained high.
Land will make money in the long term.
People sometimes choose to purchase large lots of land so that they can then sell them later on.
This is a strategy that many people use to try and increase their wealth and grow their portfolio.
Having a bit of an investment in the real estate market tends to be a good decision.
Those who are looking to make larger profits on their land are going to have to carefully choose where they purchase it from.
The more expensive lots tend to have more potential to make money in the long run.
Sometimes you have to wait a long time to make money on a piece of land, but most who have been successful with it will tell you that it has been worth the wait.
8. Overall Shortage of Lots for Sale
There is an overall shortage of lots for sale.
Some people own lots and are sitting on them and waiting to sell while other tracts of land haven’t even been divided into lots yet to be sold.
The lots that have been available and are priced fairly are picked up rather quickly and then held onto until the right time comes.
If you are looking for a lot for sale, you will notice that the available options are rather slim.
These slim choices will make it difficult for people to find the exact fit for their needs when it comes to a new home lot.
The best strategy here is to keep an eye on the market and hope you can get your hands on one before someone else does.
If you can develop a relationship with a real estate agent, they may be able to let you know when a listing for a new lot comes up even before it hits the market.
Purchasing a lot of land, whether for flipping or building a home, is an entirely different process than purchasing a prebuilt home.
Be sure to prepare yourself for this process by fully understanding all that is involved in purchasing a piece of land.
9. Concept of Building a Dream Home
People tend to enjoy the concept of building a dream home for themselves.
This is a process that some people enjoy and others dread, but in the end, it is a unique experience that is dependent on first securing a lot.
If you are not able to secure a lot, you will not be able to build a home.
The pressure of deciding where you are going to live and ensuring that you have access to a lot then becomes much more extreme.
There are new communities being developed quite often, yet they are not necessarily going to have exactly what you are looking for in a home or in a general environment.
To get the exact fit, you will need to spend quite a bit of time looking and searching.
The most important thing is to make sure that you pick a lot that will be a good fit for your long term.
Since the process of building a dream house is a unique one, and it is only for a small percentage of the population, the prices of lots go up.
Lot owners and corporations take advantage of the position they have in the market and try to get the most for their money on these sales.
10. Access to Amenities and a View
Last but not least on the list is the access to the view that a lot has.
The better the view, the more the lot is going to cost.
If you are going to be looking at the ocean or a view of the Rocky Mountains, expect to pay quite a bit.
If you plan on seeing the back end of your neighbor’s house, then the price you pay for a lot will be considerably less.
Overall, there will be many options available when choosing a piece of land to purchase, but the more amenities you seek, the more money you will pay.
Hopefully, this list of the ten reasons land is so expensive has helped to shape your opinion about why we pay what we pay for our land.
The concept of owning land is still something that some people struggle with, but it is a modern part of society that we must accept.
The bottom line is that, if you want to be able to build your dream home or to own a piece of property that could eventually appreciate in value, you need to invest in land.
This will end up being an expensive decision, but it does leave the door open for some additional income long term.
Most landowners are not sorry that they had that land to sell as they got older.