Banking on land for financial security
At no time is it more evident how desperately Jamaicans love to own land than after the death of an individual who owns even a small lot, with or without buildings thereon, when family and pretenders engage in serious and sometimes dramatic squabbles over who should be the beneficiaries.
I have noticed that several readers have shown interest in recent times in ways in which they can access funds to buy land or to make good use of the land they own. Generally, land is a very good asset, which, if used well, can make a meaningful difference to you financially.
Land is a scarce resource, which accounts significantly for why it is so valuable, and good land has the capacity to appreciate very meaningfully in value over the long term, more so, if improvements are made to it.
In addition to its ability to appreciate in value, land can be a source of regular income if the buildings on it are rented for commercial and residential purposes. It can also be used for raising animals and for growing crops, both of which can be income-generating. And, of course, it gives its owners space on which to build their residence.
Recognising the ability of land to appreciate, some individuals just hold it for the purpose of it appreciating over time, sometimes doing very little to it. Thus, except for property taxes, it costs very little to them on an ongoing basis.
Land is often used as a security for loans for many purposes: business and even education, for example. The latter, while not generating immediate returns, is useful in equipping the beneficiary to be able to earn significantly more in the future.
Land, even if not put to immediate use, can be a very important part of an estate, thereby providing for other members of a family after the death of its owner. Herein lies some danger if legal issues are not properly addressed, for this is generally the time when the greedy and inconsiderate emerge to get, or to get more, or to get all.
One course of action that may be taken to reduce the risk of post-death issues is to transfer land by way of an inter vivos gift – a gift during the life time of the giver – or adding the name of the beneficiary at the time of purchase if it is fully settled in the buyer’s mind that the person so fortunate is to be the beneficiary, irrevocably.
Recognising the potential value of land, some people borrow to acquire it. While it will likely appreciate, it should be recognised that it takes money to service the loan, which makes it risky if there is no reliable cash flow from the land or other sources to service the debt, thereby increasing the risk of the creditor taking action to satisfy the debt.
It is rare that land loses its value or that its value remains at the same level, but how much it appreciates varies. These are some factors that determine the value of land and its level of appreciation. The first is location: location desirability in the sense of people finding attraction in where it is located based on its proximity to amenities and infrastructure like shops, electricity, water, good roads, schools, transportation, and markets.
Additionally, it matters how useable the land is, particularly if it is to be used for agriculture matters, as do improvements like fencing and other buildings. The resources on the land also factor in. So what the land and its surroundings bring to the table make a significant difference to its value.
What is the down side? The land may not generate income although its value may appreciate. It may be remote from the owner or the nearest community, may lack utilities, may have poor quality soil, may be taken over by squatters if left without attention, and worse, may be lost to adverse possession in more extreme cases.
Without doubt, land is a very valuable asset, which if properly used, can make a significant difference to a person and an entire family. Pension funds and businesses acquire property to add value to their members and owners, but they tend not to hold it passively forever. In time, they develop it.
Individuals, to the extent that they are able, should see how best they can use the land they own, especially if it is of good quality and is in a good location. Even if it is being held for capital appreciation, it makes sense to keep it in good condition and to keep in touch with it.
To enhance the chances of there being peace over your land after your demise, have a good estate plan. One good option is a valid will with at least a competent executor.
Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email: finviser.jm@gmail.com