Raw Land Investing, Bill Gates, and the Stock Market Scaries

Good morning, wealth builders! How y’all doing today? Ready for a kickass long weekend?

I got the following question from a reader and thought it would be good to share with the group…

“Is buying raw land a good investment? I heard that Bill Gates is buying up a bunch of rural land and is the biggest farmland owner in the world. Maybe we should be investing in raw land too for long term. It’s pretty cheap like 5-10k for a parcel and prices will keep increasing over time. I’m extremely nervous about the stock market as we’re in a bubble so looking for other places to invest and real estate sounds nice. Thanks.”

My answer: No. Raw land is not a good investment. End of post. 🤣

Just kidding, there’s a few things to unpack in this question, and not all of them are about raw land investing: 

  1. Raw land as an investment
  2. Copying what Bill Gates does
  3. Stock market “scariness”

Here’s my 2 cents on it all… (And I’d love to hear how you other readers would respond to this!)

Investing in Raw Land (and Real Estate 101)

There are a thousand ways to lose money in real estate but only 4 ways real property can make you money: appreciation, rental income/positive cashflow, loan paydown, and tax benefits.

A raw land investment only ticks 1 of these money-making boxes…

Appreciation: This is the difference between the price you pay for the raw land and the price you sell it for later. Land naturally appreciates. So buying raw land will probably make you money if you hold it long enough…

But, how fast does land appreciate? If you buy a piece of raw land today, how much can you sell it for in 10, 20 or 30 years? 🤷🏻‍♀️ Beats me! Natural appreciation on land value is hard to forecast, especially in rural areas.

Rental income/positive cashflow: I’m assuming “raw land” means there are no structures or utilities. So unless you plan on somehow turning it into developed land or can find a farming/agriculture use to rent it out, you will generate zero income each year from your real estate investment. That’s why I prefer to think about this category as “positive cashflow” instead of rental income … because even if you are able to generate some rent, it needs to exceed your ongoing expenses if you want to turn any sort of profit.

Loan paydown: Small land purchases typically have no mortgages attached — many are bought in cash. (It can be difficult to get a loan for vacant land.) Even if you did take a loan out to buy a block of undeveloped land, without a renter for it, you’re responsible for making the loan payments yourself, so no money is made.

Tax benefits/depreciation: There are various tax advantages to owning an investment property, but most of them are tied directly to maintaining, improving, or depreciating “structures.” Land can’t be depreciated(I guess you could pay someone to go out and do some landscaping and claim it as a maintenance deduction. But why would you pay for landscaping on raw land?)

Is Raw Land Investing a Good Idea?

All in all, in my opinion, raw land is not a very productive investment for all the reasons I listed above. While being a land investor sounds cool and probably feels “safe,” I’d prefer to own a rental property that is firing on all 4 cylinders!

Why Is Bill Gates Buying So Much Farmland?

Gates did an AMA on Reddit recently, and someone asked him this exact question. Here’s the response (basically that agriculture is important):

Bill Gates investing in *farmland* is quite different than you and I buying *raw land* in $5,000 or $10,000 parcels. Needless to say, Bill Gates has very different investment motives than you and I. He’s not trying to buy land so he can reach financial independence — he’s trying to solve long-term world problems.

(Related fun time-waster: Can you spend Bill Gates’ money?)

I read a great post recently from Morgan Housel over at Collaborative Fund called Playing Your Own Game. It explains why we shouldn’t just take financial advice from other successful investors out there. Bill Gates (and his investment group) are probably playing a completely different game than you and I. 😀

Stick to your own investment game!

Regarding the Stock Market “Scariness”

I agree that the stock market is kind of scary right now. But when is it *not* scary? Since we can’t predict the inevitable ups and downs, we’ll always have some unsettled feelings when we invest new money.

My advice is, rather than changing your investment strategy based on feelings, why not change your feelings based on your investment strategy? It will hurt less in the long run. 😉

Tips to Tune Out the Stock Market

Stop checking market prices and news so frequently. (Easier said than done, I know!) The price of index funds on any particular day matters far less than how many consecutive days you remain invested for. Think long-term, not day to day.

Read and re-read some great personal finance books. They’ll help remind you to keep investing for the long haul, no matter what.

Play this stock market timing game. It’s an awesome reminder that you can’t time the market as well as you think you can! The longer you sit out, the more you lose generally.

Read this article about investing at all time highs vs. storing cash and buying during dips. Research shows that investing on all-time high days actually produced better returns!

Chat with a financial advisor. Get an expert’s perspective.

If you really, really, really, want to diversify your portfolio by buying land, set a goal to study the ins and outs of real estate investing before just buying something that sounds nice.

What say you, readers? Am I off base about purchasing raw land? Anything to add?

*****

It’s gonna be a great long weekend! Be sure to get outside and soak in some vitamin D!

See you next week,

– Joel 🏄‍♂️

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4 Comments

  1. Angie May 28, 2021 at 12:42 PM

    Hi Joel:
    You will looooove this story. Watch this YouTube video on how a dad (thru buying “raw” land, holding it, and then selling to the highest bidder) was able to change the entire trajectory of his family. https://www.youtube.com/watch?v=gGm_1HCEYJg

    Reply
    1. Joel May 28, 2021 at 4:15 PM

      Nice one! Love stories like this, thanks for sharing.

      Reply
  2. Impersonal Finances May 30, 2021 at 5:45 PM

    Just heard an Animal Spirits podcast on this. Pretty interesting. The alternative investments–farmland, physical art (not NFTs!?), collectibles–are intriguing for someone playing around, but ultimately not entirely necessary as far as I’m concerned.

    Reply
    1. Joel May 31, 2021 at 9:43 AM

      I’ve read some really interesting posts on rare physical art (not ntfs) and how lots are being passed down through the great wealth transfer. Typically uber-wealthy families. Their “investment” portfolio is very different!

      Reply

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