Land/Improvement Ratio Relevance

[John Chan]

What is the relevance of the land/improvement ratio?

What does it mean if the land is worth more than the property or vice versa?

[Josh Rich]

One way of deprecating the two is by looking at insurance. Typically, property insurance will cover dwelling, not land, and therefore separates out the two values.

LTI ratio is a measure for risk. Usually, the improvement value to the land will hold fairly constant, as it actually costs something to build and/or replace. The land is what determines "location" and will determine the majority of property value appreciation.

Think of it this way... a 2/1 house on a quarter acre lot in the mid-west will be priced EXTREMELY lower than the same property sitting on the same size parcel of land near a popular vacation destination, such as San Diego. To reduce market risk of volatile prices, seek properties where land is virtually free, or near $0, and you should find upside potential in your favor.