Does Land Ever Lose Value and Depreciate?

For many people, buying land is the investment of a lifetime, which is why you want to be sure that the long-term value of your property will pay off.

In most cases, land does not depreciate or lose value so long as the property has attractive qualities that ensure steady growth in its market price.  However, certain environmental complications and unforeseen economic declines could affect the value of the land, which results in depreciation.

When analyzing land for purchase, there are so many variables attached to real estate value that you must always keep in mind.  There are certain risk aspects of buying a property that can, unfortunately, rarely be foreseen.  However, if you have a keen eye and are resourceful in your buying process, you will find that many of the complications and risks that come with real estate purchases are significantly mitigated.  To understand this better, you are going to want to be fully aware of all aspects that could affect the long-term value of land.

The most common way to acquire land within the United States is through a private seller or real estate agent.  However, you will find that there are many other dynamic land options that can be purchased through the Bureau of Land Management, as well as various land trusts - depending on your property intentions.

‍Factors That Increase Land Value

When it comes to investing, traditionally, land purchases have been some of the most safest and reliable opportunities out there.  Property values have followed a steady market trend in just about every location they have been acquired, which is to increase in value.

This is a particularly reassuring notion, as it makes investing in land an attractive investment for various parties; whether you are a real estate tycoon, an aspiring business owner, or simply purchasing land for your private residence.

With that being said, no investment comes without a certain level of risk involved.  While land properties tend to go up in market value, there are certain variables involved that could result in an incredibly slow rise in value, a stagnation in value, or in some cases even a decrease.

That’s why you want to be well aware of the key features and telltale signs to assess when analyzing properties you’re considering.  To prepare you for everything you need to know when hunting down that perfect piece of real estate that will increase in market value, we are going to highlight the qualities you should look for.

Good Location

When asking for advice on land that will be financially viable and a worthy investment, any real estate enthusiast will repeat the mantra, ‘ location, location, location’.  This is the most classic and consistent trend that has increased the value of properties and it is the first factor you should be considering when assessing lands.

If the location of the land is attractive, then the potential for it depreciating in value is unlikely, to say the least.  The main reason for this is that practically no one wants to live somewhere that doesn’t have the convenient or appealing qualities that suit their lifestyle.

With that being said, location is going to be your safest bet, but it’s also the most dynamic quality to assess.  The location factors that will result in the price of your property increasing can vary greatly.  You can expect some factors to result in a massive value increase in your property and some that may just have a moderate effect.

Let’s take a look at some aspects of why location is so important for the value of your land.

Rising Economy

The most defining characteristic you should look for when hoping for land to increase in value is the local economy of the area you are considering.

The job market of any area results in a consistent increase in the cost of living - no matter whether you are living in a large urbanized city or a smaller town.  At the end of the day, if people in the area are making good money and can afford to live a more lavish lifestyle, you can always expect land prices to go in the same direction.

To determine the reliability of land value in such areas, it’s always a good start to analyze regions that have a current rising economy such as Silicon Valley or Seattle.  The overall job market of these areas has stayed very consistent and tends to fluctuate from steady increases to booming in value.

With that being said, you are far more likely to find a rising economy in an urbanized city, which is why prices for a small parcel of land can be astronomically higher than in rural areas.  However, that’s not to say that rural environments don’t have the very same potential.  You may need to dig deeper in your research and look for trends in rising economies for these areas.  A good reassurance of a rising economy would be to find smaller urban environments that have a prominent and successful local industry such as oil drilling or manufacturing plants.

Attractive Neighborhoods

At times, one of the most key features that affect the value of land increasing is the neighborhood it’s located in. This can be a dynamic quality for the location of properties, as you can find good neighborhoods in various places.

For example, if you’ve found an urban area that you confidently feel will have a steadily rising economy, the next step to assure the increase of land values is to look for an attractive neighborhood.

If a city has a rising economy, it is likely that it will attract many families that want to set up shop in a neighborhood that is safe, convenient, and is capable of providing a quality means of life.  

A safer bet for nice family neighborhoods would be to look at areas that are generally outside of downtown areas and are likely more towards a suburban area of town.

Convenience

When looking for lands that will increase in market value, something you should always consider is how convenient of a location it is. This is something that will greatly depend on what a specific buyer is looking for, but it’s easy to find patterns that equate to a reliable investment.

Very few people want to live in a place that is far away from their daily needs and activities.  That’s why lands located in urban areas tend to have more convenient qualities for buyers.

Regardless of whether you are living with a family or a single bachelor, these are some of the convenience factors that most people want to have access to:

• Schools
• Grocery stores
• Shopping malls
• Gyms
• Bars & restaurants
• Cinemas

Having things like these located near your land can be reassuring qualities that the land will attract many buyers, which will result in a steady increase in the market value of your property.

Surrounding Aesthetic

A factor that can prove to be a bit of a wild card in the value increase of your land is the surrounding aesthetic of your property.

The real benefit of a surrounding aesthetic is that it can attract buyers to live in either rural or urban environments - regardless of other location factors.

A lot of people on the real estate market are simply looking for a place that has a nice look and feel, which can be determined by a number of factors depending on what a buyer is specifically looking for.

Let’s take a look at how surrounding aesthetics affect the value of a property.

Urban Environment

A person that wants to have a natural aesthetic could be looking for a few different features.

The most likely thing they are looking for if living in a big city is a place with a nice view.  This could be anything from a view of nearby sky scapers or a city monument.  Alternatively, a person living in an urban area could be fed up with their city life after a long day’s work and prefer to escape their concrete jungle by having a view of the ocean or distant mountains.

In addition, urban aesthetics are becoming much more dynamic with hybrid green buildings catching on as a trend.  If the surrounding aesthetic is complemented by more natural features such as plants, trees, and greenery, this could significantly increase the value of the land.

Rural Environment

One of the key aspects that make rural living an attractive land purchase for many buyers is the natural surroundings of the property.

This can be a bit of a toss-up depending on what the surroundings are, but if the rural area has plenty of trees, greenery, and wildlife, this is often a selling point for many people on the market, which can result in a steady increase in the value of the land.

On the other hand, if the rural surroundings are boring and lack any sort of natural diversity, you can expect the value of the property to not be as reliable of an investment.

Abundant Resources

A perfect example of lands that do not lose value and depreciation are properties that have an abundance of valuable resources on them.

These are lands that are generally located outside of city limits in rural areas.  Valuable resources are always something that can be harvested and depending on the resource at hand, the value of the land could have a steep price incline over a long period of time.

However, resources vary, and depending on their location and their current societal value, the land price could fluctuate.  Let’s take a look at some land resources that increase the value of properties.

Fertile Soil

One of the most precious resources that we have in our country is our soil.  If there is one thing we will always need to produce in society it’s food, which is why lands that have fertile soil are highly valued and will likely to increase in value over time.

It goes without saying that your most likely bet for lands with fertile soil will be in rural areas.  You will either find a farm that already has crops growing or you will be assessing a parcel of raw or vacant land.

Regardless, lands with fertile soil can prove to be worthy investments.  To confirm the prospect of your fertile lands increasing in value, you are going to want to hire an appraiser that specializes in farming to come to analyze the health of your soil.

Oil

Traditionally, oil has been one of the safest bets when evaluating the long-term value of lands.

This resource is so vital for society that it is still to this day the most in-demand and widely use energy source that we have.

This can be extremely profitable for oil found on United States soil as it can mitigate our dependency on overseas oil, which can be a high selling point for future buyers.

The most important thing you should be aware of when counting on the increased value of lands with oil is how much oil you can rely on for future harvesting.  To confirm the longevity of the resource, you should always hire a geologist to come survey the land to get an estimate.

Renewable Energy

A relatively newer area of land investment is properties that are suitable for efficiently harvesting renewable energy.

While this is a newer trend, it is one that is really taking off, as we can see a national and global transition to clean energy.  This means that you can expect to see a steady increase in the value of lands that are suitable or are already equipped for harvesting renewable energy.

The most common renewable energy sources you will likely find on valued lands will be:

• Solar
• Wind

A key aspect of analyzing lands that don’t depreciate is to look for properties that have the potential for growth in the future.  At the end of the day, getting in early can be everything for investment opportunities.

Factors That Decrease Land Value

While the majority of the time that you buy land you can feel pretty confident that it will go up in value.  There are some critical factors that result in the value of the property actually decreasing.

Unfortunately, there are some factors that are simply out of your hands and even the most experienced real estate investor would have had a hard time predicting their outcome.  What you can do as a person assessing land is have all the right tools on your belt and be as resourceful and thorough as possible when making considerations.

A lot of the reasons people are caught off guard when they discover their land price is declining is due to the fact that they made a naive purchase or simply didn’t assess the property to the extent that they should have.  This is a position you do not want to find yourself in.

Luckily, there is a lot you can do to avoid this and mitigate the risk involved in land investments.  To do so, you’re going to want to be well aware of all the factors that lead to the price of lands being depreciated.

Let’s take a look at some examples of lands that tend to lose their value.

Declining Economy

Just as when you assess a property for a rising economy, you want to look for telltale signs that signify that an economy is in any way suffering or is heading in that direction.

You are going to want to look for trends heading in the opposite direction of what we discussed above and look for the indicators that tell you that local industry is on its way out - or is even simply stagnating.

While economic stagnation is not always a deal-breaker that should lead you to drop the property, you should take the time to analyze the local market to see how much of an impact the industry will have if it does decline.

A perfect example of this would be how dependant Detroit’s economy was on GM.  If the citizens of a city are predominantly dependant on a single source for their economy, it’s highly advised that you consider all variables of the equation.

Easements

A popular trend occurring within the real estate market is the conversion of private properties into various types of easements.

An easement is essentially an agreement between the property owner and a third party to relinquish certain developmental rights.  This is usually done in some way to benefit both parties. By permanently giving up certain developmental rights to the land, landowners generally get to enjoy some sort of benefits such as tax incentives.

Where this becomes complicated is when a landowner purchases the property without knowing about an easement in place.  This can become a common occurrence due to the fact that properties with easements tend to be significantly lower in cost than comparative lands, which gives the appearance that the property price is a steal.

While easements are not a sure thing when it comes to a decrease in the long-term value of the property, it certainly can become so when the easement restrictions greatly hinder future development.  If the easement involved giving up developmental rights that are significant enough to steer away future investors, you may find that you not only have a hard time selling the land at the price you bought it but that the land value could actually steadily decline.

With that being, you should always inquire about any potential easements in place on a property that you are evaluating.

Erosion

If you’ve ever seen a home that looks like it’s off its axle, it’s due to land erosion taking place.
This can be an extremely damaging situation for not only the value of the physical land but the home itself.

A thorough home inspection, ideally done by a professional, should be conducted to assess any existing erosion or potential for erosion in the future.

This can also be an issue for many rural areas that have farmland.  So, if you are considering a location for land out in the countryside, you should have an environmental appraiser evaluate the property for erosion, as well as other signs of land degradation.

The bottom line is that erosion can greatly depreciate the value of land anywhere.

Property Condition

Aside from assessing the quality of the physical land of a home, you want to take a close look at all the nuts and bolts of the house itself.

It’s often the case that the land is not worth as much as the home that is built on it.  This can be especially true for rural areas where the land value is not all that high but the home that was built on it is.  What you want to look for regardless of the location are any signs that the home is going to need serious repairs or is going to need to be rebuilt entirely.

Here’s what you should look at when assessing the home:

• Water damage
• Quality of flooring
• Wall thickness (for noise)
• Signs of mold
• Interior and exterior cracks

In addition, you should always request the homeowner or realtor about the ownership history of the property to see what issues the home has had in the past.

Other Factors To Consider

There will always be some additional aspects you want to assess that can either affect the value of the land negatively, positively, or have little overall significance.

Here’s what you should consider.

Zoning Restrictions

When analyzing lands that are located in urban environments, it’s not uncommon to find properties that have certain restrictions on development - called zoning restrictions.

These restrictions can vary greatly from place to place.  You will find that some areas are not overly affected by zoning restrictions and you are able to build and modify with little oversight.

You will find that certain places have extremely strict and regulatory zoning restrictions, which result in development complications.  

Where this becomes complicated is that zoning restrictions can be a factor that immediately drives away buyers. If the restrictions are particularly challenging to overcome, the cost value of the land could go down in price.

However, many zoning restrictions are set in place to retain some sort of original architecture, which could have historic qualities.  A situation like this could result in a property’s value going up very consistently.

Climate Change

Another final factor you should consider is how climate change may affect the future value of land prices in certain areas.

There are a number of complications that tie into this, as climate change is something that will continue to affect land prices and livelihoods all around the world.

Here are some examples of how climate change may depreciate land values:

• Sea levels rising - the rise of sea levels will result in certain land areas being partially or significantly submerged.  This could result in property lines shrinking or affecting the property condition altogether.  In addition, properties located near certain ocean cliffs are at risk of collapsing in the near future due to erosion, which puts an expiration date on the land altogether.
• Natural disasters - whether you are living in an area that has become more prone to the threat of hurricanes or are living on land that has a recent rise in forest fires, these are all factors that could negatively affect the value of your land.

These are not always factors that should make or break your land valuation process but they are still worthy of consideration when assessing lands that are critically affected by climate change.