Buying Land: Should you pay cash or finance?
Land—it’s one of only a few assets that holds value and appreciates over time. And while your investment grows, you can enjoy its benefits. Have you ever tried hunting, fishing or hiking on a stock certificate? The question isn’t, “SHOULD I buy land?” The real question is, “HOW do I buy land?”
Paying cash for raw land is a great way to be competitive with your offer and save money in the long-term. An all-cash purchase certainly has its benefits—a quick closing, a seller more likely to accept your offer, and you don’t have to wait on appraisers, attorneys, lenders, etc. Plus, you will own the land free and clear.
However, even if you have cash on hand to make the purchase, is that always the best idea?
Here are three reasons why you should consider financing:
CASH IS KING
Maintain your liquidity
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. Liquidity is how quickly your assets can be converted to cash. Stocks and bonds can be sold quickly to generate cash: land is not as easy to liquidate in a hurry.
STRIKE WHEN THE IRON IS HOT
Conserve your buying power
What is your goal? If this is it—the only tract you will ever buy and you know it–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 ready to buy. The best way to invest wisely is to have the cash you need to pull the trigger quickly. Without liquidity, you could miss out on a good investment.
FEATHER YOUR NEST
Save cash for improvements
If your plan is to build a cabin, barn, pond, or make other significant improvements on the land after your purchase, be careful not to spend all your cash up front. Financing could make it easier for you to do more with your land because you have the cash on hand to do so.
The most important thing to remember when considering whether to pay cash or finance is that each person and situation is different. Do what you are comfortable with and what will allow you to best achieve your investment goals.