Would you rather have dirt or Dollars? Like Neo being offered the blue or red pill, my father asked me the same question. Taking the red pill was the obvious choice. This one is tougher. Wanna see just how deep the rabbit hole goes?
Which would you rather hang on to for the next 50 years? Holding cash during a period of inflation is a bad thing but uncertainty abounds. Yes, our beloved central bank has been trying to cause serious inflation for the last 4+ years but they haven’t succeeded yet…though they have been wildly successful over the last 100 years.
Let’s be specific about land and dollars. There is an 80 acre plot of land North of my house owned by my grandmother’s estate. Let’s just play with the biggest numbers I can reasonably imagine and using money I don’t have. I can’t buy this ground so I can do this without emotion. What if it sold for $10,000/acre? Would it be better to buy $800,000 in CDs at the bank for 1.7%? That would earn $13,600 annually. I could make the same money renting the ground out for $170/acre BUT I would have to manage a tenant. CD rates are at their bottom and COULD go up. We have never gotten that kind of money as rent for an acre of that ground.
Looking at history, the value of the dollar has gone in one direction for the last 100 years. Down. The dollar has lost 95% of its purchasing power since 1913 and 35% since 2001 (check the dollar index). As that trend continues, putting $800,000 in a 2% CD would cost me 2-3% annually. If that trend accelerates…! Land has had its ups and downs and is currently way, way up. Land may crash in value but will always be worth something. Given the trend in dollar value, land should continue increasing as expressed in dollar terms. Since investors are chasing yesterday’s returns and farmland was worth a mere $5,000/acre yesterday could it be worth $20,000 tomorrow? As a speculative bet, knowing I have the central bank and a large trend on my side I would rather put my money in land. I spoke to one of the old timers in the neighborhood and he agreed. In fact, he said if you have any cash at all you should put it in land as there is no use putting it in the bank. I’m a little bothered that he’s an old timer. I can remember when he wasn’t. What does that say about me?
While dollars are more portable and are infinately liquid (at least for now), land stays put and is illiquid. If you choose to own land you are making a decision to put down roots. By buying the land I have married myself not only to the farm but also to Illinois. Illinois, kids, is broke. Brokety broke. There is absolutely zero possibility of Illinois meeting their future obligations. The promises they have made are just too big and, unlike the federal government, Illinois can’t just print their way out of their problems. But they will try. I fear for the “rich” farmers sitting on millions of dollars worth of equity. If you equate property tax with wealth tax and view the land owners with envious eyes, it is easy to see what should be done: increase property taxes to punish the rich. This supports a case for owning something Aristotle described as being more liquid, more portable, easily divisible, intrinisically valuable and durable. But that’s a subject for another day.
Dollars allow you to buy productive assets or consumer goods. Land is a productive asset and is difficult to consume. The increasing land prices don’t stick me with capital gains year after year but does allow me to create value. I could raise 40,000 broilers, 80 cows and 300 pigs on the same 80 acres not to mention 10,000 dozen eggs. I could also harvest chestnuts, walnuts, pecans, fence posts, firewood, maple syrup, dewberries, deer, squirrels, rabbits and fish from that same 80 acres year after year. While I don’t want to imagine what an employee would cost, that’s easily $200,000 worth of production after expenses and may even pay the taxes! And who knows what beef or milk will sell for in 5 years.
Given my vision, my talent, my desire to serve my community and heal my land, I would happily part with $800k in exchange for 80 acres. Grandpa paid $10,000 for it 50 years ago but those dollars are all gone. The land is still here.
I choose land even if I’m only a little bit Irish.
Mom’s family has been here almost as long as the state has existed. I think there is even a shalali in the basement. Many of my mother’s fathers didn’t buy the land, they inhereted it. I bought it. Either way, we have to work the land to make it pay. I can see and feel and understand how to make land work. I know you can make money work for you but it’s a very abstract concept I just don’t understand especially in the current environment.
Thanks for posting your thoughts as I have been rolling this around in head for the last year. I have watched investments in the stock market head up and down, 401k’s the same. And although I am getting up there (60) I don’t want my stock funds going to Nigerian oil drilling. It’s been sitting there for 3 years and makes me crazy. Just watched PBS series on the last “Crash”, excellent by the way. At 60 I have worked this half acre to provide most of our food but
Land…… They don’t make it anymore.
We don’t watch TV so I missed that series. I’ll see if I can find it online.
Thanks for reading and replying. I have seen farmers go broke with that kind of thinking but we have to find something to do with the little money we have scraped together.
Well gotta say watched it on my iPad while I was throwing pots …… 🙂
No luck. Found a series on the crash of ’29, a nature show about species crash and an episode on the crash of flight 447. There is also a show on Starz called “Crash”.
Spent the day on the river fishing! 45F in December just cannot be passed by!
Found the link and hope this works.
Did gold really go down 1.10? Yes, but had the U.S. Dollar not lost purchasing power it would have dropped 8.90 (kitco 12/14/2012). Blue pill, I really John 18:38
To buy or not to buy or to look at other options? I love the expression, “Think outside the box.” Every direction is action. Either we act or we react. My outside the box right now is to pray. God hasn’t shown me what to do, yet. He will. Decisions will be made. Study, think, pray.
Great post. We have 10 acres and rent 40 more for pasture. Not sure how much longer our rent will be affordable. The field across the road just brought $325/acre cash rent. now that land is too expensive for farmers to purchase, Investors are buying. History repeats, back to the lord and the surf.
Thanks for commenting Keith. We have to sharpen our pencils and figure out how to make it pay or just get out of the way and let some other guy try. If only it were as easy as sharpening a pencil.