| Published: August 24, 2020

Land Investments: Finance or Cash?

Bruce Miller, loan officer with Horizon Farm Credit, specializes in home and land loans and helps individuals who want to live in the country achieve their dreams.

As the second podcast in the series The Country Life: Buying Land, Bruce shared considerations on whether to pay cash or finance a land purchase.

In recent months, we’ve seen a renewed interest from individuals wanting to buy land in the country. From your perspective, why are we seeing this increased interest and why is land a good investment?
The global pandemic has had a tremendous impact on our lives in recent months. While we were stuck at home, I believe it got many people to think about what changes they want to make in their lives and for their families. Some people who currently live in an urban or suburban setting are interested in owning land and living in areas that provide open space for a more private lifestyle.

Land is a solid investment. Land generally holds its value and shows some appreciation over time. There are many reasons to purchase and own land in Pennsylvania. It provides opportunities for investment, recreation (hunting, fishing and camping), farming (for part-time farmers or hobby operations) and to have open space to eventually build a house with a big backyard. 

When considering a land purchase, some might be faced with the decision on whether to pay cash or to finance. Could you share with our listeners the reasons why someone may choose one or the other?
Sure, let’s first start with paying cash. A cash purchase for land is a great way to make a competitive offer and it diversifies your investment portfolio. The benefits of a cash purchase include a quicker sale to closing time and a seller will be more likely to accept your offer if there are no contingencies for financing. Also, it offers opportunity to close the loan faster because you don’t need to have appraisers, attorneys, lenders, etc. involved. When the transaction is complete, you will own your land free and clear with no debt. 

But even if you have cash on hand to make the purchase, you need to consider if that is always the best idea.Here are three reasons why you should consider financing your land purchase.

1. Financing helps you maintain your liquidity.

Liquidity is how quickly your assets can be converted to cash. You can sell stocks and bonds quickly to generate cash, but land is not as easy to liquidate in a hurry. Purchasing land requires a huge capital investment. Once the cash is spent, you lose your ability to act quickly on future needs and investment opportunities. When financing land purchases, other professionals can help you gain the best value for the investment money.

2. Financing helps you conserve your buying power.

What is your financial goal? If you know you will only ever buy this one tract of land, then using more cash could be the best option. However, if you are interested in purchasing additional tracts, consider financing to maintain liquidity. Land doesn’t sell often, so when it does, you want to be in a financial position to buy. The best way to maintain your financial options is to have a strong cash or near-cash position so you have financial flexibility. Without strong liquidity, you could miss out on good investment opportunities.

3. Financing helps you save cash for improvements.

If you buy land and you plan to build a house, cabin, barn or make other significant improvements to the land after your purchase, be careful not to spend all your cash up front. Developing a long-term capital investment plan could make financing easier and you can plan your cash flow. A land investment will have a greater value and satisfaction for you and your family if it is improved to meet your family’s needs and wants. Financing part of the land, purchases and the improvements will help maintain your financial options. 

Whether you pay cash or you finance, becomes a matter of your financial goals and how to best manage and maintain your options. 

Is there anything else you’d like to share with our listeners today?
It’s important to know that when considering whether to pay cash or finance your land purchase, remember that each person and situation is different. Determine your comfort level and decide what option will allow you to achieve your investment and lifestyle goals.

I am one of several Horizon loan officers who specializes in farm, land and country living financing. I encourage you, if you live or are looking for property in central, western or northern Pennsylvania, to contact Horizon about how we can help.

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