Posted on January 27, 2022 @ 08:05:00 AM by Paul Meagher
Liz Hodgkinson in her book "The Complete Guide to Investing in Property" (5th Edition, 2010) distinguishes between "owning" a property and "investing" in property. She argues that we don't automatically "invest" in a property when we buy a property because many property buyers don't have an overriding intention of making a profit from the property. This distinction was probably clearer back in 2010 shortly after the subprime housing crisis when many home owners found that the
value of the property was worth less than the cost of their mortgage. In today's environment of low interest rates and rising housing prices, the distinction is arguably less clear, but the possibility of a housing bubble that could bust at any moment or rising interest rates means that if you are actually investing in property you are more likely to have a strategy for dealing with some of these potential threats to your investment.
About 3.5 years ago, I purchased 4 adjacent parcels of remote vacant land (no buildings on it) at what I considered a good price. At the time I justified the purchase of one 9 acre parcel on the basis that it was a property investment that I might make more off in the future owing to the fact that a power line ran through it along the main road (most parcels around here don't have access to the grid), that it had great cell coverage for a remote area, and that it had a nice view that overlooked a lake from a distance. The other parcels were purchased because they had wild blueberries on them that I wanted to use for wine making. Purchasing wild blueberry land was the main reason I purchased 3 of the parcels with the idea of property investing being my main justification for the remaining parcel.
The reason I mention this is because even though I thought I was investing in the 9 acre parcel as a property investment, I wasn't really doing much to increase its value. That started to change late last year when the power company cleared away a wide section of trees around the power lines. This opened up the possibility of putting in a road to the middle of the parcel. Just before xmas of 2021 I spent a few days cutting down more brush to define where a road might go into the property. One of my goals this year is to install a culvert, haul in some gravel, and make an actual road into the property. The simple act of making a road
begins to open up other possibilities. With a road in place, I can get a power truck in to extend power service into the property. I can also bring in my trusty old Massey Ferguson 135 with a bush hog to start maintaining some cleared areas before trees start to grow back in. This will help to define where lots might be setup.
It is easy to convince yourself that you are making a property investment just because you purchased some land that has some desirable features. In some cases, you can in fact just hold the land for a period of time and make a decent return. A realization for me this year is that I could increase the speed at which the land might increase in value by strategically adding features that would make it increase in value more quickly and signal to potential customers that work was done to make it more valuable. The reason Liz's distinction between investing and owning property resonated with me was because I realize now that simply owning a property doesn't make you a property investor. I need to be more actively engaged in figuring out how I can more rapidly increase the value of that property if I want to call it an investment.