Land is always non-depreciable and will continue to rise in value, but many people wonder - does this apply to raw land as well?
Unlike a lot of property that has either been developed or classified in a certain way, raw land remains completely untouched with zero human influence or impact, which can make determining its value over time rather puzzling. Given that raw land does not have any man-made assets, it can be easy to think that it will depreciate over time.
Raw land is non-depreciable - just like all land is, as it will continue to increase in value regardless of whether it has been developed or not. So long as the raw land stays in decent condition, its price will rise based on its location, physical qualities, local economy, and resources.
The fact that real estate prices continue to climb so consistently over time demonstrates just how non-depreciable land is - with raw land being of no exclusion to this. The reason that many people are often skeptical about whether raw land depreciates in value is due to the fact that it has not been influenced by humans in any way. However, land is valued based on so many different qualities and characteristics, which make virtually every piece of real estate out there non-depreciable. That is why so many real estate investors are buying up large amounts of raw land as is its dollar value will rise inevitably over time. With that being said, how raw land appreciates can vary based on the features that it has to offer. To help you understand this further, we are going to take a closer look at why raw land is non-depreciable in more detail.
After extensively researching raw land, I have been able to gather enough information to determine that it is non-depreciable. My research has taught me that all raw land is non-depreciable so long as it continues to stay in decent condition.
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Why Raw Land is Non-Depreciable
One of the main reasons that raw land is non-depreciable is because there is not an infinite supply of it. Supply and demand dictate the terms for how land rises in value and with all land (including raw land) there is constantly becoming less supply and more demand. All in all, the price of raw land will continue to rise over time, but how quickly it appreciates is dependent on a number of different factors.
An exemption of this would be a raw land parcel that underwent some sort of dramatic change either caused by humans or the environment. This may result in raw land temporarily depreciating in value, but after a certain point, the parcel will continue to climb in price once again. In this regard, raw land should be looked at as any other type of property acquisition - a reliable investment that is guaranteed to earn you money over time.
Another thing to keep in mind when assessing a raw land parcel is whether it has any kind of restrictions attached to it. An example of this would be a conservation easement. This is essentially a restriction that is designed to prevent certain kinds of developments from taking place on the raw land - usually intended to protect the environment of the area. Conservation easements are known for significantly depreciating the value of land once established. However, this is also not a permanent form of depreciation, as the raw land will start to climb in price again.
With that being said, time is an important aspect of how raw land appreciates. The rate at which the raw land becomes more valuable can vary - as calculating real estate costs is rather dynamic. Given that raw land parcels do not have any physical man-made assets, you have to assess the appreciation rate of this kind of property a little bit differently. Keep reading to learn more about why raw land is non-depreciable.
Just as with any piece of real estate, location is going to be the most important factor that contributes to the rate at which its value rises.
The places where we tend to see raw parcels located are a little bit different than where most common real estate transactions occur. Given that raw land is often located in the middle of nowhere, it can lack a lot of the attractive location qualities that buyers look for when purchasing a property.
Rural land parcels have a slower appreciation rate, as fewer people are willing to buy them. With that being said, they will all still appreciate - regardless of their location.
A raw land property that is located somewhere very desolate can appreciate quite slowly. It may take a considerable amount of time to see a reasonable return on a raw land parcel in this case, as its value may not dramatically increase over the years. However, raw land that has a favorable location will significantly appreciate in value quite quickly.
This can particularly be the case if the raw land is within the vicinity of an urban area that is attractive for residents.
A raw land parcel will also appreciate based on its physical qualities. A major selling point for a lot of buyers after considering the location of a property is what kind of physical qualities it has to offer.
Whether you are a real estate investor or an aspiring homeowner, you are likely going to want to consider buying a property that has a nice aesthetic and surroundings. Raw land in particular is known for being untouched by man, which means that it could potentially have nice scenery.
If the raw land has a nice view of a landscape or has physical qualities that are on the property itself, the rate at which it depreciates can be very fast. This would include things like trees, rivers, lakes, mountains, or coastal access.
Another critical aspect that can increase the value of a property is if it has any resources on it. Resource harvesting presents a lot of opportunities to earn money from your property and raw land is notorious for having potential resources.
The key to determining how the raw land will appreciate over time is the kinds of resources that it has (if any at all). When assessing the property, you can figure out some of the resources that it has by looking at its physical state.
In many ways, you can approach this in the same way that you would the physical qualities of a property. Although these qualities may be attractive to buyers who want to build a home or a business, they could also be potentially used for resource harvesting. So, trees and freshwater channels are all contenders for resource harvesting.
With that being said, a lot of the resources that affect how raw land appreciates in value can be tricky to see with the naked eye. The reason for this is that a lot of these resources are beneath the surface and need to be confirmed before the raw land’s value begins to increase.
A common use for raw land is to convert it into agricultural land, but in order to do this, the parcel needs to have healthy soil that is suitable for farming. In this regard, you are going to want to hire a professional to come to conduct an Environmental Impact Report and a soil test. If the soil is healthy and suitable for food production, this is a characteristic that can make raw land appreciate faster.
However, one of the main factors that can make raw land rise in value is whether it has any non-renewable resources. Some of the most common resources for this would be:
- Natural Gas
With that being said, finding precious metals such as gold and silver on raw land can also dramatically increase the value of the property. These can be particularly tricky to identify, which is why you are going to want to have a geologist come to inspect the raw land.
Economy & Real Estate Market
Lastly, the current state of the economy and how it affects the real estate market can greatly influence how land appreciates in value.
Historically, we have seen economic crashes that have influenced the costs of real estate. When these recessions occur, property values dive considerably, which results in the real estate market in chaos. In a situation like this, we would see raw land prices go down and depreciate.
However, this is a temporary form of depreciation, which will reverse itself once the economy gets back on track. With that being said, the economy and real estate market are more likely to influence raw land appreciation.
This is especially the case if the raw land parcel is located somewhere near a thriving or booming economy. Market trends have shown us that if the job market of an area is doing well, land prices will start to increase - often dramatically.
If that is the case, then you will see raw land prices in the area climb. Depending on how closely the raw land is situated to the local economy, it is very common for real estate developers to buy up raw land parcels in the area. At which point, the raw land will likely not stay raw for much longer, as it will probably get developed.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling