The Land Lottery

On today’s show we are talking about the land lottery. Now I’m an investor at heart and I’m not a fan of gambling.

When we think of a lottery, there is a low cost to play the game and the potential payoff is huge. Naturally the odds of winning are low. But emotionally the payoff is so large that many people still choose to play the game. The expectation value is high enough that people see value in spending a few dollars even if statistics says they should not.

Ok so we know what a lottery is.

What does this to do with land? The value of land is directly a function of what you can do with it, combined with the demand for the finished product in that location.

Land can be worth only a few thousand dollars an acre if all you can do is grow grass on it. But it can be worth a few thousand dollars per square foot if it is in the highest demand areas of New York, London or Paris.

Land is land, but you can transform land into that winning lottery ticket through the zoning and entitlement process. But unlike a real lottery, you don’t put any investment in a piece of land that has a low chance of being improved.

Imagine if you could take a look at all the lottery tickets and discard the ones you know are not winning tickets. Now you are left with the ones that will at least win something.

I don’t know if I’m over stretching this analogy. Maybe I am.