Cheap Acreage Speculation

Large tracts of unimproved land priced at just a few hundred dollars per acre — located in states like Texas, New Mexico, Utah, Nevada, Wyoming and the Dakotas — can provide tremendous long term potential. The dictionary defines the word “speculation” as “a business venture offering the possibility of a large profit but entailing risk.” However, history proves it is virtually impossible to lose money by owning land, if it is purchased cheaply enough and held long enough.

Cheap acreage speculation in the United States today is a real estate niche that is largely overlooked. That is unfortunate, because this activity can produce substantial profits without all the operating complexities and troublesome business cycles associated with residential, resort and commercial developments. Cheap acreage appreciates in value due mainly to inflation, instead of having to depend on rezoning, approval of development plans, financing and so on.

Inflation means that through the years, paper money is worth less and less and finite assets like land are worth more and more. Inflation is caused when a government prints trillions of new dollars, which results in the depreciation of existing dollars. At the same time the dollar is being depreciated, land is appreciating– because not one new acre can be created.

An example of the effect of inflation would be 5,000 acres of grazing land located in the “middle of nowhere” purchased 20 years ago (in the year 1990) for $30 per acre. Today the 5,000 acres would look exactly the same as it did 20 years ago; the use of the land would still be cattle grazing; zoning would be the same; there would be very little population growth in the area; no oil would have been discovered; no roads would have been built, and no development of any kind would have taken place. Yet the same 5,000 acres would now (in the year 2010) be valued at close to $250 per acre. Thus the initial price of $150,000 would have grown to $1,250,000 in 20 years, representing an eight-fold increase. And the amazing thing is that the landowner did absolutely nothing to cause this increase.

How did the stock market perform over this same period? In 1990, the Dow Jones was 2900, and today it is around 10,000, a little over a three-fold increase. What about the value of cash over the same 20 years? According to the U.S. Bureau of Labor Statistics it takes $165 today to buy the same goods and services that $100 purchased back in 1990. This means that inflation robbed the dollar of 40% of its purchasing power in just the last 20 years.

There are countless business people in the United States today who, with brilliance and fortuitous timing, have made huge sums of money in various enterprises. However, speculating in a large tract of cheap acreage just might represent one of the surest and safest long-term assets a person can own!

This entry was posted on Tuesday, March 2nd, 2010 at 11:03 am and is filed under Cheap Acreage Speculation. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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