Why Land Investing May Not Be Ideal for Young Trinidadians: Exploring Stocks, Bonds, and Mutual Funds Instead

I have come across many young Trinidadians who ask me the same question- " Should I buy land as an investment?" Of course the answer is 'it depends', but for most the answer is 'get educated first before considering it'. Here are few areas young persons should seek out on information before looking to invest in land.

1. What kind of land are you looking to buy? All land is not equal. In Trinidad and Tobago, land can be designated for agricultural, residential, commercial or industrial use. Each type carries its own pro's and cons and while applications for change of use can take place, you should seek an expert opinion before taking the leap. Matters like soil type, zoning, neighboring properties, drainage, access roads, etc. affect the land's usefulness and future value.

2. How much work do you want to put into the land? Land may come with utilities (water, electricity, sewage, internet connectivity) already run, readily available or you may have to apply to install utilities and the cost (and time involved) may vary widely. Contracting a good lawyer, surveyor, engineer, real estate agent, etc. can be daunting but rewarding.

3. Can you sustain the cost of maintaining the land? Property tax is a new annual liability for owning any type of land. Also owners are responsible for upkeep of the land and may be liable for damage to nearby property if the land is neglected (think drainage, trees, etc.). Building retaining walls can be an expensive venture.

4. Do you need to access bank financing? Bank financing can be a good idea for inexperienced buyers as the bank is likely to confirm details like appropriate town and country approval, proper titles and credentials of professionals involved. Cash buyers tend to try to skirt around having necessary approvals to build and can later find themselves in legal battles with the state/others.

5. Is title indemnity insurance available? Ensuring a clear and secure title is essential when buying property and can help you avoid costly legal battles in the future. Title insurance gives the buyer a payout in case the transfer of title to them is later found to be fraudulent. How confident are you in Trinidad and Tobago's record keeping system?

6. Do you know the cost of selling or implications for transferring the property? Selling property may incur transfer and other legal fees- before you buy and asset, you should have an idea of the costs, effort and time it takes to complete the purchase and a subsequent sale. Transferring property to a loved one via a deed of gift (maybe with life interest) can be expensive. Many persons put the property in their will since this avoids some transfer costs (of course the property changes hands only after you die and, remember, a grant of probate is not a title deed).

If you are very familiar with the above then, maybe land investing is right for you. Even if you are familiar, I would not recommend having land as the lion's share of your investment portfolio (unless this is your primary business). Consider the following comparison of land investing vs stock/mutual fund/bond investing;

1. Volatility and Risk:

• Stocks: Stock prices can fluctuate significantly, causing anxiety for investors. Panic selling during market downturns can result in losses.

• Bonds: Bonds can be a less volatile means of investing or added to a portfolio of stocks to stabilize your portfolio.

• Mutual funds: Mutual funds tend to already have a mix of stocks and bonds and so are less volatile.

• Land: While land is generally less volatile, it lacks the liquidity of stocks. Selling land quickly can be challenging, especially without significantly reducing the price. Remember, you do not see the changes in prices of land on a day to day basis like stocks but it is present. 2. Illiquidity:

• Stocks/Mutual Funds: Stocks can be bought and sold quickly through active public markets. They offer high liquidity in developed markets. On the local exchange, low liquidity may mean selling down your position over a few days or weeks (depending on the value).

• Bonds: Over the counter bonds can be sold but it may take significant time to find a willing buyer. Exchange traded bonds may also be sold but it may also take some time to find a buyer.

• Land: Land is illiquid; converting it to cash is not as straightforward. Finding a buyer willing to pay the desired price can take time. 3. Divisibility:

• Stocks/Mutual Funds/Bonds: You can easily buy or sell a portion of your stock/bond/mutual fund holdings. Creating a diversified portfolio is straightforward.

• Land: Most properties are indivisible. Selling only a portion of land is challenging, unlike selling a fraction of stock shares. 4.Transaction Costs:

• Stocks/Mutual funds/Bonds: Transaction costs for buying and selling stocks are relatively low.

• Land: Land transactions involve higher costs, including legal fees, surveys, and transfer taxes. 5. Appreciation Uncertainty:

• Stocks/Mutual funds: Very diversified portfolios tend to increase in value over the years but the exact return cannot be predicted upfront.

• Land: Land appreciation isn’t guaranteed. Factors like location, development potential, and market trends influence land value.

The bottom line is land is a concentrated, illiquid investment that comes with a high capital outlay with some running costs whereas a portfolio of stocks/bonds/mutual funds/Real Estate Investment Trusts*/commodities can offer diversification, flexibility and divisibility. You can sell your portfolio at short notice and you can use a hands-off approach by using mutual funds, or a wealth manager. Ultimately, the decision of investing in any asset boils down to the appropriateness of the asset in question to the client, their goals and unique situation. *A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool capital from investors who earn dividends from real estate investments. Investors do not individually buy, manage, or finance any properties.