Take it or leave it, many Americans dream of owning a piece of land one day. Some hope to build their dream home on this piece of land, others want to start a successful business, while some just want a piece of the earth they can call theirs. Whatever your reason may be, land investment is a very good choice. However, it can be a bit challenging to determine how much land you or an average American can afford, especially with real estate prices escalating.
The first step to figuring out how much land you can afford is to first understand the factors that influence the price of land. The most obvious factors are the location and size of the property to be bought. Other factors such as your annual income also play a pivotal role in how much land you can afford.
In this article, we’ll highlight various variables that will help you figure out the answer to your questions. So without taking too much of your time, let’s delve right into it, shall we?
What is an acre of land?
Before diving into details, let me shed a little light on the basics. An acre of land is the standard unit of measurement for land. It is equivalent to 43,560 square feet or 4,046 square meters. To further elaborate, one acre of land is equal to 0.00156 square miles, which means a mile is equivalent to 640 acres.
Now let’s talk a little sport; let us compare an acre to a football stadium. Basically, one acre of land is roughly the size of an American football stadium, but that is without the end zones.
Still, on sports, let’s compare an acre of land to a tennis court. An acre of land is equivalent to 16 tennis courts (that is assuming the court has 2,808 square feet of playable area).
Lastly, let’s compare an acre of land to an NBA basketball court. An acre of land is about 9 times the size of an NBA basketball court, that is, just the playable areas of the court.
How much does an acre of land cost?
The cost of an acre of land varies depending on several factors, but notably, the location is the number one factor. Locations with low population density may sell an acre of land for as low as $1000 per acre. Conversely, locations that are densely populated can sell land as high as $50,000 per acre.
How much land can an average American afford?
According to a study carried out by USA Today in 2022, the average household income was $74,755. Another study carried out by Land Search states that the average price of an acre of land in the United States is about $16,000, now it’s time for a little calculation.
Considering that an average American earns around $74,755 per year and the average price of land is $16,000, the average American can afford to purchase about 4 acres of vacant land.
However, land affordability in America can be affected by various factors or challenges. In the next section of this article, I will elaborate on these factors.
Factors that affect land affordability
1. Costs of living
How much land you can afford to purchase generally correlates with your present cost of living. By cost of living, I mean how much you spend on rent, utilities, food, transportation costs, etc. Generally, staying in an urban region automatically implies a higher cost of living, and a rural region implies a lower living cost.
2. Annual income
The annual income of an individual or household will affect how much land he or she can afford. To put it in simple terms, the higher the income, the more land you will be able to afford.
A good starting point is to divide your annual income by the average price of an acre which is $16,000. For example, if your annual income is $100,000, it means you can afford above 6 acres of land (note this calculation does not account for or include your cost of living).
3. Location
As I cited earlier in this article, location is one of the main factors influencing the affordability of land. Prices vary greatly within states with metropolitan areas having higher prices than rural areas. Additionally, land in high-demand places (like regions with coastal towns or pleasant environments) will be more expensive than regions with harsh weather conditions.
4. Zoning regulations and land use restriction
Zoning regulations and land use restrictions also play a fundamental role in land affordability. Local governments and municipalities enact regulations that govern the amount of land that can be developed or raise the cost of construction on land in that region. This will automatically influence the price of land in that region.
Is investing in land a good investment?
The concept of buying and investing in land is surprisingly overlooked by many Americans today. Of course, it may not be suited for everyone, but if you can afford one, you may want to know if it is worth it. The quick answer is yes.
Below are some reasons why investing in land or land ownership is a good investment.
1. Land scarcity
It may not seem like it but land is becoming more and more sort after each day and over time; it is bound to become more expensive. Land is always in demand because it not only gives a higher return on investment but also because the population of the world, in general, is increasing.
People are constructing each day, and a demand for land means an increase in costs as well. But still, there are pieces of land that you can afford and they are worth the investment, whether you are planning to build your dream home or planning to launch a business.
2. Owning a piece of land gives you peace of mind
Land is often called the golden child of investment. Once all papers are signed and the buying process is completed, you can rest assured that no one can steal your piece of the earth or destroy it. Remember a piece of land remains in good condition even with little or no maintenance and still increases in value. Thus, owning one gives you peace of mind knowing you are financially secure for the future.
3. Land is a tangible asset
Investing in land is significantly less risky than investing in other assets, like stocks, for example. You cannot just wake up to your land disappearing or depreciating drastically. Regardless of the current economic situation in the world, land is bound to constantly appreciate in value.
4. Low maintenance and upkeep requirements
Unlike other types of investment, land investment is fairly affordable and requires minimum effort for maintenance. You need not pay utility bills, mortgages, roof replacement, gutter repair, and other types of maintenance.
5. Land investment is one of the best ways to make money safely (passive income)
Selling the land you own is one of the fastest and easiest ways to make money. As I mentioned earlier, land value is bound to increase regardless of the current economic condition of the world. This means that if you ever need money, you can always make money off it quickly.
Even if you choose not to sell the land, you can use it to grow crops, use the land as boat storage, or lease it out. This goes to show that land is an asset that can fetch you money anytime without any stress or rigor.
6. Land is less expensive to purchase than developed properties
When compared to buying fully developed property, land is considered as a way cheaper approach. The reason for this is pretty straightforward to understand. Owners of fully developed properties will likely sell at cumulative prices (the land and the structure on the land). Hence the final price is way higher than when you purchase undeveloped land.
Are there any downsides to land investment?
Yes, there are. Just like many other investments, there are bound to be challenges or downsides. It is best to consider these challenges as well before putting pen to paper.
1. There are still some responsibilities that come with land ownership
Land ownership comes with its share of responsibilities or at least management duties. Vacant lands are often subject to encroachment, so landowners will have to provide some form of security for their properties.
On top of that, there are occasional upkeep tasks that need to be done on the land, such as getting rid of bushes and drainage management so the land is not waterlogged.
2. High upfront costs
There is also the case of upfront costs associated with land ownership. Land purchase is not free, there are significant costs associated with it, not just the price paid for the property itself. There are taxes, finance charges, and development costs, and these are just a few.
3. Risk of natural disaster
There are also events that are out of your reach. Undeveloped lands are susceptible to natural disasters or damage like floods, hurricanes, tornados or severe storms, wildfires, drought, etc. These disasters may potentially cause severe damage and loss of money on your own end.
4. Land investment takes time
Land investment does not yield profit as fast as other forms or types of investment. I cited an example using stocks earlier on of how land investment is less risky and one cannot just wake up to his/her property disappearing or losing value drastically like stocks.
That said, in some cases, stocks can yield profit overnight, one might wake up to their investment yielding up to x3. Land, however, does not work that fast, it takes time for your land to yield profit, and the reward is all but certain.
Land liquidity also takes longer than other assets or investments. You can quickly sell stocks or sell assets like gold for fast cash when you need, but it takes longer to convert land to cash if the need arises. Sometimes, it may even take up to a month before finding a buyer, making this investment less liquid.
FAQs
How can you make money off a piece of land?
There are many ways to make money off a land. You can; hold and sell later, you can rent the land to others for usage, you can allow billboard advertisement, you can rent land for storage, or you can use it to harvest timber.
How many homes can an acre of land hold?
Considering the average lot size of a single-family home is 0.19 acres (8,176 square feet), an acre of land can hold about 5 average-sized single-family homes.
How much land is a good amount?
Typically, 1 – 3 acres of land should be sufficient for homesteading, recreational use, farming, or raising livestock.
What does one acre of land look like?
One acre of land is about 16 tennis courts, 9 basketball courts, and about 90% of a football stadium (that is if end zones are included).
How much land is there in America?
According to Study.com, America covers just above 2.4 billion acres of land. This includes the bodies of water and waterways within the national boundaries of America.
In conclusion – How much land can an average American afford?
Deciding to purchase land is a good decision regardless of your reasons for purchase. But truth be told, how much land you can afford depends on how much you or your household earn annually.
A land of around 1 – 3 acres should do sufficiently for any kind of structure you wish to build. Since an acre of land is sold for $16,000 on average, an annual income of $70,000 (which is the average income of Americans) should be sufficient.
However, you must understand that several factors can affect the affordability of land. It is very important you consider these factors while making plans to purchase land.
Land ownership can prove to be a real investment, but you must be aware that there are some challenges associated with it. This article also highlights some of the major challenges associated with land ownership to help keep you informed.
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Thanks for reading.