# Understanding Land: Definition, Valuation, and Uses in Business

> **Definition**
>
> Land refers to real estate or property defined by specific boundaries, used asa factor of production for residential, commercial, and agricultural purposes.

## What Is Land?

Land, in the business sense, refers to [real estate](https://www.investopedia.com/terms/r/realestate.asp) or property, without buildings and equipment, defined by fixed boundaries and often including rights to natural resources and even the airspace above. In economics, land is one of three fundamental factors of production, alongside capital and labor.

Under Internal Revenue Service (IRS) rules, it's treated as a [fixed](https://www.investopedia.com/ask/answers/012815/what-difference-between-fixed-asset-and-current-asset.asp), non-[depreciable asset](https://www.investopedia.com/terms/d/depreciable-property.asp), which makes its valuation important for accounting and taxation. Land can be used for residential, commercial, or agricultural purposes, offering investment opportunities but also carrying risks tied to market conditions and development potential.

### Key Takeaways

*   Land is a fixed asset in business, encompassing real estate and natural resources within its boundaries.
*   It serves as a primary factor of production, along with capital and labor, in economics.
*   Land use varies widely, including residential, commercial, agricultural, and recreational purposes.
*   Land valuation is influenced by location, natural resources, and proximity to amenities.
*   Investing in land can be profitable, but it comes with risks like zoning regulations and natural disasters.

## Comprehensive Overview of Land and Its Importance

The basic concept of land is that it is a specific area of earth, [property](https://www.investopedia.com/terms/p/property.asp) with clearly delineated boundaries, that has an owner. You can view the concept of land in different ways, depending on its context, and the circumstances under which it's being analyzed.

When one owns land, one owns the surface area and everything on it, such as trees, buildings, and animals. One also owns the area below and the airspace above its boundaries.

### In Economics

Legally and economically, a piece of land is a [factor in some form of production](https://www.investopedia.com/terms/f/factors-production.asp). Although the land is not consumed during this production, no other production—food, for example—would be possible without it. Therefore, we may consider land as a resource with no [cost of production](https://www.investopedia.com/terms/p/production-cost.asp).

Despite the fact that people can always change the land use to be less or more profitable, we cannot increase its supply.

> **Fast Fact**
>
> Land ownership can be transferred by the terms of a will, by deed, when given as a gift, and through a business transaction.

## Key Features of Land and Ownership Rights

### Exploring Land as a Valuable Natural Asset

Land includes anything on, under, or above it, such as buildings, trees, and water.

The term "land" encompasses all physical elements bestowed by nature on a specific area or piece of property—the environment, fields, forests, minerals, climate, animals, and bodies or sources of water.

A landowner may be entitled to a wealth of [natural resources](https://www.investopedia.com/articles/basics/12/natural-resource-investing.asp) on their property, including plants, human and animal life, soil, minerals, geographical location, electromagnetic features, and geophysical occurrences. 

### The Historic Role of Land as Collateral in Financing

[Lenders](https://www.investopedia.com/terms/l/lender.asp) favor land as [collateral](https://www.investopedia.com/terms/c/collateral.asp) because, unlike homes or cars, it can’t be easily moved or stolen.

Air and space rights—both above and below a property—attach to ownership. However, the right to use the air and space above land may be subject to height limitations dictated by local ordinances, as well as state and federal laws.

## Understanding Land Valuation and Its Financial Impact

Land value is the amount of money that a piece of land is worth. This value can be arrived at by an independent real estate appraiser. Land valuation can be one of a variety of important indicators of a community's financial well-being.

Precise land valuation plays a role in various types of financial activities, including real estate transactions, local government taxes, and property investments. Land must be valued properly in order for these activities to occur and for buyers and sellers to have confidence in them.

Land valuation helps owners negotiate business deals for land use. Knowing the land value and the expenses associated with ownership (in addition to the type of use sought) can help the landowner pinpoint what to charge.

### Influencing Factors in Land Valuation

Land valuation can be affected by a property's location, climate, size, condition, the physical structures on it, the natural resources contained within its boundaries (such as the presence of water, minerals, or oil), and more.

Land near cities, transportation, healthcare, schools, or shopping often has higher value.

That's because the location can make the land more appealing to those who might want to live in the house that's on it or to those who might wish to develop it for residential or commercial purposes. The greater the appeal, the higher the land's valuation could be.

As for natural resources affecting valuation, take gas and oil. Because natural gas and oil in the U.S. are being [depleted](https://www.investopedia.com/terms/d/depletion.asp), the land that contains these resources can be of great [value](https://www.investopedia.com/terms/l/landvalue.asp). In many cases, drilling and oil companies pay landowners substantial sums of money for the right to use their land to access such natural resources, particularly if the land is rich in a specific one.  

## Diverse Applications and Planning of Land Use

Land use involves business and cultural activities, often for housing, commerce, industry, recreation, farming, and transport.

Ongoing land use can affect the [condition of the land](https://www.investopedia.com/terms/m/marginal-land.asp), its natural resources, and the environment. These condition changes in turn can pose problems for the health of humans and other animals living on the land as well as the viability of the land itself. Agriculture and development uses are areas of concern for the U.S. Environmental Protection Agency.

Land use is governed by municipal regulations and local [zoning](https://www.investopedia.com/terms/z/zoning.asp) laws. Town and city planners and other organizations focus on how land is used to understand the outcomes of such use. They can then provide guidance for its future use and potentially effect change in land use laws.

## Strategic Insights into Land Investment and Development

Land’s scarcity is an economic benefit, attracting investors aiming to develop it. Development can be for commercial or residential use and is subject to the aforementioned zoning ordinances and local regulations.

[Raw land investments](https://www.investopedia.com/articles/investing/050614/there-are-more-ways-invest-land-you-think.asp) can produce significant future cash flows that are easy to predict once secured. But developing land can be very costly and uncertain. The associated [risks](https://www.investopedia.com/terms/r/risk.asp) of developing land can stem from taxation, regulatory usage restrictions, leasing and selling a property, political events, and even natural disasters.

## What Is Land in Economics?

In economics, land is considered a factor of production similar to labor as one of the crucial elements in creating goods and services. Land resources, specifically, are raw materials in the production process, such as trees, oil, and metals.

## Why Is Owning Land Important?

Owning land is important because it is a source of wealth. Land can be harvested and the materials grown on it sold for profit. Factories, warehouses, and buildings that will facilitate business can be built on land. Land can be leased in return for income. Land is also a tangible good that does not depreciate. In addition, land cannot easily be tampered with, in that there is nothing to steal from it (for the most part). It can be polluted and/or destroyed, but that can be prevented to a degree.

## What Are the Main Uses of Land?

The main uses of land are for transportation, residences, commercial activity, production, agriculture, and recreation.

## The Bottom Line

Land is real estate set by defined boundaries and includes not just the surface but also subsurface resources, and, in many cases, the airspace above. It's a key factor of production in economics, and, unlike other assets, is not depreciable, making proper valuation important for taxes and real estate transactions.

Land can serve many purposes, from residential and commercial to industrial, agricultural, and recreational uses, often shaped by zoning laws.

While investors are drawn to its development potential, they should weigh risks such as local regulations, taxes, political situations, and natural disasters before committing.

> **Article Sources**
>
> 1.  Legal Explanations. "[Land Definition and Legal Meaning](https://legal-explanations.com/definition/land/)."
>     
> 2.  Legal Information Institute. "[Land](https://www.law.cornell.edu/wex/land)."
>     
> 3.  United States Environmental Protection Agency. "[Land Use](https://www.epa.gov/report-environment/land-use)."