Yesterday I noticed that the price of gold has risen to $1600 per ounce, and the thought struck me that land in my part of west Alabama is selling for approximately the same price per acre. I posed the question to two local business owners whether they would rather own an ounce of gold or an acre of land. Both men responded that they would rather own land. This is an intriguing question about investing and value.
Full disclosure, I am not a research economist, an analyst, or an investment advisor; I am a real estate agent that specializes in selling rural land, so here is how I approach the answer to the question.
The Caprice of Gold
Gold has been a highly prized commodity for several thousand years. Gold matches well with the criteria Aristotle laid out for a good money in that it must be durable, portable, divisible, and have intrinsic value. Gold is a good store of value, and its scarcity has contributed greatly to the desire of people to own it.
From a layman’s perspective the price of gold seems to rise when there is a decrease in the confidence in the strength of our nation’s currency. Gold began its current run up in price in 2001 at $265 per ounce and has climbed to a high this week of $1602 per ounce. That meteoric rise is being touted by experts as a reason for investors to jump into the gold market. I question that logic for 3 reasons:
- Gold is at an all-time high. The real estate market bust that we are in has made me skeptical of buying anything at premium prices. If the market goes south, who is left holding the bag?
- Gold is Capricious. In 1981, the price of gold had been experiencing strong gains, right before the bottom fell out and gold lost 2/3 of its value in one year. It wasn’t until 2006, that gold actually reached the price it had seen 25 years before. For gold to have any value, you must have other people who are willing to agree to the value of your commodity. When an item is assigned great value but has little utility, I am always cautious.
- Gold has a historic bull’s-eye on its back. Feel free to disagree with me on this point, and yes I do know our currency is not tied to the gold standard any longer, but hear me out on this. 1n 1933, President FDR signed an executive order making it illegal for any citizen of the US to own more than $100 worth of gold. It wasn’t until about 1974, that citizens were allowed to own gold again. With the recent spikes in gold prices and the falling value of the dollar, it seems plausible to me that trading of gold could be more heavily regulated with price controls or even stopped if the government decided it was in their best interest. I would simply cite the increased government attention at regulating the speculation buying of oil as support for that argument.
The Utility of Land
I like land as an investment for several reasons.
- Land has utility. I am a function over form guy; you can tell that from my wardrobe, from my vehicle, and what I spend my money on. I believe in investing in land because you can grow food, timber, find water, mine useful substances, shape it, hunt and enjoy it. Land can sustain your life or your livelihood in many ways. Just last week I was talking with a farmer from Iowa who is having his best corn harvest ever at 220 bushels to the acre. That is a staggering amount of corn from an acre of land. Corn is just one of dozens of useful and essential commodities that can be grown on your land.
- Land is historically a sound investment. Most people have heard the old saying, “Buy land, they’re not making any more of it.” Land has a certain degree of scarcity that contributes to its value, like gold and other precious metals. The USDA reported the average cropland price per acre in Alabama in 1997, was $1270. In 2010, the USDA survey shows a $2700 per acre price for cropland in the state. That is a 112% increase in price over the past 14 years, for a nominal rate of return of 8% annually through that period.
- Private land-ownership is essential for our government to function. Local governments across the nation depend on private landownership to stay in business. Each local government appraises real property and assesses ad valorem taxes on landowners. These property taxes are used to fund schools and other essential government functions. It is highly improbable that the right to private landownership would be denied or that vast amounts of land would be taken by imminent domain. Where the government might see a potential threat to its currency in a commodity like gold, private landownership would still be an essential revenue stream for local governments.
- Land equals Opportunity. America has been called “The Land of Opportunity”, and I would say that land equals opportunity. It is exactly because of the historical value and multitude of uses of land that it presents so many opportunities as an investment. You have flexibility (in some types of soil) to grow row crops, or graze cattle, or plant trees based on whatever has the highest rate of return. Land has potential for development and there is always a highest-and-best-use consideration for a property whereas a fixed asset is fixed. Owning land is an avenue to having revenue generating avenues as well as owning an asset that has real value.
John D. Rockefeller is quoted as saying, “The major fortunes in America have been made in land.” I tend to agree with his assertion, after all he managed his wealth successfully. Given the choice between an ounce of gold or an acre of land, I take the land every time.
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Great Post and I agree to a certain extent. With the threat of inflation looming, gold and silver is one of the best ways to hedge your cash compared to land. In my opinion, timing is the key! Buying gold and silver now and, worse case scenario, the dollar crashes, gold & silver will rise in price and this cash can be used to buy land & real estate.
Great commentary Johnathon. You set out in a thoughtful manner what most of us know from years of experience. I hope some of the people sitting on piles of cash or gold that can be turned into cash will see some of the opportunities in today’s land market and jump in to a safe long term investment.
Outstanding article, Jonathan.
Torrey- Thanks for reading. As you said, timing is key. Which means everyone who can see around corners and predict the future will get rich. Everyone else stands to lose a lot if the gold price falls again like it did in 1981.
Fletcher- I appreciate your comments. It would be great if people who have large amounts of cash would seek to invest in a more stable and predictable asset like land. I love that you can drive by and it will be there tomorrow. Hope to see you soon.
You have written one of the best articles comparing gold to land that I have read. Great job Jonathan. Another angle to look at it: from the buy low/sell high philosphy, gold is at an all time high. Timber is at historical lows. You may have to sit on it a while, but just about any stock analyst would be rating timberland at a “buy”. The shear beauty of it is while you wait, the timber increases in volume and you get to enjoy the use of the land. Like Fletcher says, ther are many great opportunities waiting in the land market. Just wish my crystal ball would tell me when the housing market is going to rebound. Ahh – but then the best oportunities will have passed.
Excellent comparison Jonathan! I’m bias, but I like land too.
The aspect you left out is liquidity. It is the arguement I run into everytime I have this discussion. If there were more investors in land it would increase it’s liquidity. Also a person on a limited budget can buy a quarter of an ounce of gold at a time and eventually have an an. This can’t be done with land. Therefore it is only the large investors that can take advantage of the land investment. This being said I agree with land being a better investment, if you can afford it.
Rick- I agree with the philosophy that all of the money is made when you buy something, and that buying at the right price is crucial. Wish I had a crystal ball too, I think it would be helpful.
Robert- Thanks buddy.
Ryan- I know you are always in the corner of investing in land.
Jack- Being from Colorado you can help people find land that has gold or silver. Your buyers can have their cake and eat it too. It’s hard for people to “find their freedom” in a precious metals market I suspect. I like your tag line by the way.
@Peter. It works both ways doesn’t it? Land can be as liquid as gold just as fast. Sell your farm for a “give it away” price and it can be liquid too. And fast! You’re right. YOUR land isn’t liquid because your over what the market is willing to pay.
Some would argue that having land to sell was like gold a few years ago. Not so much today at its present value, but in 10+ years it can be like gold is today. Long term future value is the game you play with land.
This is where the real problem is. Gold is gold and it has 1 highly publicized market price – right now $1618/ounce. You either sell it at or near the market price (high or low) or look at it. The principles are the same.
Land is unique and no 2 tracts of land are the same. Throw in a little seller emotion and its market get’s all fowled up.
So you asked what to do… Don’t sell your land. Go buy more!
Good article but land isn’t liquid! I have 310 acres with 12,000 Sqft house 40 acre lake Ect that has been on the market for 3 years and we might have had 2 lookers. I bought the land cheep but i’m not going to give it away so what do you do? If I had bought Gold Cheep! Now at least I could get out from under it while it’s $1600 an ounce and go on down the road.
Peter, Ryan is correct about the market telling you that your land is not priced appropriately if you have marketed your property broadly. If you give your land lots of exposure, and get no contacts then it is a signal that you are priced out of the market.
The other consideration is that you have a large piece of land and a huge house. The number of prospective buyers is smaller for something like you have than for 40 acre tracts along that big lake you described. If you need to sell now, get a good agent, price it accordingly, market the heck out of it, and divide it into smaller parcels if need be to move it.
I bet if you walked into a jewelry store today and tried to sell them a gold bar you couldn’t get the full asking price of the market. They would offer some discounted price. The same is true with buyers of land.
I got more almost a 1000 acres but the thing is you couldn’t replace what is on this 310 acres for 4m. The lake alone would cost 3 to $400,000 to build so it’s not over priced. I’ve bought an sold lots of land in the past!
Ladies and Gentleman, Peter is the perfect example of why the land market in most areas is in gridlock. He’s got 320 acres he wants more than $4 mil for, that only about 2 people in America can buy, who were probably the 2 lookers he said looked at it already.
It doesn’t matter what you paid to build whatever. The $400k lake and 20k sqft house is personal satisfaction that brings you value and satisfaction. You built too much.
All that matters is what maybe 2 people in America will pay you for it today. You’re right, what you have is the opposite – a solid. Go buy gold.
If everyone who has money in gold wanted their physical gold right now, what % of it can be covered in actual gold bars?
Ryan, your just jealous because you can’t afford to buy it. And by the way it’s 12,000 sft. As for the gold you could get full price selling on the market! Who the hell wants the bars to carry around!
You’re right, I am jealous and absolutely can’t afford it! Where can I see it so I can believe it and feed my dreams?
There’s only 10% covered in actual gold. That’s a problem assuming it’s a hedge against the dollar. Without the bars to back up the gold if/when the world comes to an end, it’s worthless. It’s a virtual game of nonsense and who is going to be left holding it in the end?
Peter you certainly have a beautiful place. You might try having some nice property brochures made and taking them down to the Hawks, Falcons, and Braves offices. They may have someone interested in a rural homeplace. Good luck on selling it. Glad to see you’re on landflip.
Peter,
Where is your property located and I will send you information on an agent and agency that has been marketing your kind of property nationally since 1928. They are currently the only national company specializing in rural property.
That’s what I need! I need an agent who has the contacts for that type of buyer! The question is where do you find that agent? I had it listed with sothebys international and they were awful. So the big question is where is the agent with the contacts and how do you find them?
Here’s another advantage of land and real estate over gold I learned from an accountant. The IRS considers gold a collectible. That’s the same with other precious metals and gems. If you sell a collectable you are subject to the 28% tax rate and not the favorable 15% long-term capital gains rate.
It is also much easier to buy land in an IRA than gold.
I’ve never forgotten what my friend’s dad said when we were seniors in high school. Even though he was vp of a major investment firm in Canada, he told us buying land was the best investment he ever made. Years later I remember visiting his hobby farm north of Toronto. He’d paid a pittance for it way back when. Today, it would be worth a great deal of $.
Hey, I can agree with much of what you say about gold vs. land. I invest in both and have for some time now. I’ve followed gold values since the 60’s and early 70’s when Pres. Nixon took us off the gold standard. One caution, however, is about the “control” of gold markets by the government. You may not know about plans by some groups within the UN to limit your ownership and use of rural land. There IS a conspiracy to take many of our rights away and we all should keep informed of what is going on. Check out “Agenda 21” on the web. It is frightening.
Land or gold…. Better make it beach or gold!!! Nothing better then land directly on the beach or on the ocean, on a cliff. That is even better because its far more cheaper than beach!!!
I do that already for long time in Samana, Dominican Republic.
And the best: land without title or title in process, buying directly from the farmers and at the cliff!!!
Jonathan: One ounce of gold bought me an acre of land in East Kansas two years ago. Now that land takes about 1.5 to 2 ounces of gold. So, that might mean gold is underpriced! Gold like land requires upkeep, and the upkeep for land can be significant, and anyone who has dealt with Kudzu in the South or Serecia
Lespedeza in Kansas knows. Even though the government taxes land for its benefit, there are the likes of Stalin, Mao, and Pol Pot who took the land away from the people anyway.
But, even at $3,000 per acre, I would prefer to have the land than two ounces of gold, but I have both.
When you have to start paying taxes every year on gold you might have a point.
5-10,000 an acre here in Oregon. It could cost a oz of gold just for the taxes every year.
Wow, 17% to 34% annual property tax. That is high. You should consider buying land in Alabama. We have some of the lowest property taxes in the nation. (And the best college football teams. Sorry for the dig.)
Great article and you are so right that acre of land is the best bet depending upon its location. Gold is gold and it really doesn’t matter where it’s located and if someone gives me an oz of gold I take possession of it and put it in the safe. If that acre is in a good location, if it’s in the middle of a productive farm, if it’s on the coast or if it’s an acre in a nice rural development that’s what I want. If it’s an acre in the middle of some barren place in west or high atop an inaccessible mountain in the Appalachians where it’s maybe now worth $50 and will never be worth much more than $50 than I’ll take the gold thank you. With Gold it’s what’s its purity and how much does it weigh period, with real estate its location as we all learned in real estate 101.
While gold is a great investment, it currently is only valued at about $1650 per ounce, I don’t know too many acres of land that can be bought for that price.
Now, in the current environment, gold is going to appreciate. Most say that you will see gold north of $3000 and some say it will go to as much as $8000, but in the same environment land will appreciate too.
Other than the appreciation of the asset, land can be used to provide a cash flow.Whether commercial, where you build on it and then lease the property or agricultural where you grow and sell a commodity. In the current environment, I would rather have ag land. When inflation goes crazy, and it will, leasing something will be difficult, but everyone has to eat.
So, in answer to the question, I think I would take the land, especially if it were agricultural land.
The only problem with land is – with notable exceptions – it is taxed based on market value rather than use. Gold isn’t taxed at all. But value isn’t measured solely in dollars and cents. Also Leopold hit the nail on the head when he suggested that we have a responsibility to the land – that we are stewards of the land, that we don’t “own” land to be able to do anything we want with it. We own land, but in a very real sense, it owns us too.
This is a very thought provoking article. I really enjoyed reading your opinions on the subject of land uses verses fixed assets such as gold. I have to say I agree that land is the better choice, but like Jim Owens mentioned – it depends on the location. Thank you for the intriguing articles. Keep them coming!
Awesome article Jonathan!!!!! I would like to know the selling price of 3 acres of land would be?
Yes, there is no way the govt could just force you off your land. They’ve never done anything like that before.
Land can be a good asset but be cautious. The highest and best use for most rural land is for recreation. Not all tracts of land generate income. Timber is OK but you must have a longterm outlook on returns.
Why even consider gold as the alternative to land? If you have saved your money, buy stocks or bonds. Gold pays nothing and while you may want to own a small portion of physical gold, stocks or bonds are a better way to employ your savings.
Have you ever heard the saying “land poor”? The fact is you have a right to your land exclusive to everyone except the government. You must always pay the government for this exclusive right. ie. taxes. If you don’t pay your taxes, your land will be seized by the government. Have you ever seen a government entity lower your taxes?