Investing in lot or undeveloped land?

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Derelict
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Investing in lot or undeveloped land?

Post by Derelict »

I understand this is risky and it could be hard to get rid of since lots can be a lot less liquid than stocks and bonds or developed property.

Still I am curious who would one hire to get expert advice on investing in land? I would rather pay a few hundred bucks now and be better informed than buy something and be stuck without knowing the ins and outs and not what I don't know.

I have two areas I might be interested in purchasing land.

1. One is undeveloped land in an expensive area. Land is cheap that is away from the prime area. It is cheap because some areas may never be able to get building permits. I know the city has a transfer of development credit program where if land is developed other land must be set aside for conversation and habitat restoration. There is only so much land in this city.

I am thinking of purchasing cheap land and holding it for say 10 years and then probably selling it to a developer who wants to build on more valuable land and could use my cheaper land as a swap under the transfer development credit program. Since there is only a limited amount of land in the city, the land that can be developed and the land that can be set aside will diminish over time. There is no doubt in my mind that in the next 10-20 years there will be more and more demand to keep developing any land that can be developed in the city.

2. The other case is purchasing one of a few vacant lots in a nice area that is sure to grow in demand in the next 10 years. There is a college not far away and development will very like grow out to the area in the next 10 years. The city borders a really nice state park on one side and a golf course is walking distance. It seems like an ideal retirement area and very expensive homes are popping up around the area. There would probably be HOA fees with this property. The downside is it isn't easy to get to aside from a car ride. It is about 15 minutes off the freeway and no airports are around the area. There is a tourist area about 15 minutes away.

So aside from the purchase of the land I see annual expenses about 1% property taxes, I am not sure if homeowners insurance will cover insurance on lots?, HOA fees on the second plan.

Who could I hire to give me advice on the pros and cons of these particular areas? Would a real estate agent be someone to go to? They seem like they would be biased and advocate to buy.

I am thinking either investment would be about 7% of my investment portfolio. I think I would like it to be about 4% or so but that what the lots are going for now. I figure this would be fun way to add some diversity and I am not interested in precious metals or crypto so this would be in place of those types of investments. Also it would give me an incentive to check out the properties at least once a year and I love visiting both areas.
Basis
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Re: Investing in lot or undeveloped land?

Post by Basis »

Derelict wrote: Tue Jan 11, 2022 11:09 pm I understand this is risky and it could be hard to get rid of since lots can be a lot less liquid than stocks and bonds or developed property.

Still I am curious who would one hire to get expert advice on investing in land? I would rather pay a few hundred bucks now and be better informed than buy something and be stuck without knowing the ins and outs and not what I don't know.

I have two areas I might be interested in purchasing land.

1. One is undeveloped land in an expensive area. Land is cheap that is away from the prime area. It is cheap because some areas may never be able to get building permits. I know the city has a transfer of development credit program where if land is developed other land must be set aside for conversation and habitat restoration. There is only so much land in this city.

I am thinking of purchasing cheap land and holding it for say 10 years and then probably selling it to a developer who wants to build on more valuable land and could use my cheaper land as a swap under the transfer development credit program. Since there is only a limited amount of land in the city, the land that can be developed and the land that can be set aside will diminish over time. There is no doubt in my mind that in the next 10-20 years there will be more and more demand to keep developing any land that can be developed in the city.

2. The other case is purchasing one of a few vacant lots in a nice area that is sure to grow in demand in the next 10 years. There is a college not far away and development will very like grow out to the area in the next 10 years. The city borders a really nice state park on one side and a golf course is walking distance. It seems like an ideal retirement area and very expensive homes are popping up around the area. There would probably be HOA fees with this property. The downside is it isn't easy to get to aside from a car ride. It is about 15 minutes off the freeway and no airports are around the area. There is a tourist area about 15 minutes away.

So aside from the purchase of the land I see annual expenses about 1% property taxes, I am not sure if homeowners insurance will cover insurance on lots?, HOA fees on the second plan.

Who could I hire to give me advice on the pros and cons of these particular areas? Would a real estate agent be someone to go to? They seem like they would be biased and advocate to buy.

I am thinking either investment would be about 7% of my investment portfolio. I think I would like it to be about 4% or so but that what the lots are going for now. I figure this would be fun way to add some diversity and I am not interested in precious metals or crypto so this would be in place of those types of investments. Also it would give me an incentive to check out the properties at least once a year and I love visiting both areas.
I’m sorry to prick the balloon, but I consider this land speculation and would be a hard no.
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Topic Author
Derelict
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Re: Investing in lot or undeveloped land?

Post by Derelict »

Thanks for the response.

Is investing in land more speculative than investing in precious metals or crypto? Or do you not subscribe with investing in those assets classes too?
AnnetteLouisan
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Re: Investing in lot or undeveloped land?

Post by AnnetteLouisan »

Hi, when you own land, “checking it out once a year” as you note is not an option. It’s a major responsibility and a potential liability. And “fun,” which you also mention, is typically not part of RE investing. Not saying it can’t be lucrative in the medium term, but it comes with a lot of potential hassles. I’ll stop there. Good luck whatever you decide. :beer

Ps, check for liens on the property, find out as much as you can. Any environmental contamination? Fuel tanks? Historic / Native American significance? Disputes with neighboring parcel owners? Is it tied up in probate or part of a bankruptcy proceeding? What is the chain of title? Back taxes owed on it? What are the zoning restrictions? You get the picture. Try not to go into a joint venture with a developer, for goodness’ sake. You need to know the area, it’s potential and the players very well. All that said, yes one certainly can become rich buying lots, so there’s that. But a lot of luck, work and time are involved.
Last edited by AnnetteLouisan on Wed Jan 12, 2022 9:26 am, edited 7 times in total.
JWooden10
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Re: Investing in lot or undeveloped land?

Post by JWooden10 »

I’ve owned property and am in the construction industry, but am not a developer. My thoughts are that scenario 1 likely doesn’t make sense. Developers typically know the rules of the game quite well compared to a layperson and if there was a solid case to own the land for the reason stated, they would already own it. Second scenario is tough to say with knowledge available in post. You’ll need to learn more and work through the business case. Prior comment about liability is valid.

I’m not as anti-real estate as many on this forum but the posts about added complexity and effort are valid. I suggest further educating yourself on a RE board like bigger pockets with a pro-real estate crowd and making a decision in alignment with your risk tolerance and commitment level.
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Wiggums
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Re: Investing in lot or undeveloped land?

Post by Wiggums »

How many acres of land are you considering buying?
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LeftCoastIV
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Re: Investing in lot or undeveloped land?

Post by LeftCoastIV »

Since undeveloped land generally has no productive income potential (unless we're talking timber or something), you are basically buying an asset that will provide you no distributions for 10 years, will require additional cash (property taxes, insurance), and then may or may not trade at an increased valuation in ten years.

If you wanted free advice on this, you could try calling a few commercial real estate brokers and asking for their view on what developers look for in a property, and how likely it is that vacant land will meet the criteria for a future developer to acquire.

If you're willing to put in more work and have relevant expertise, another option would be to acquire a large parcel, subdivide it, and secure the appropriate permits to build on the lots. Then, you have a "build ready" parcel to sell to a developer. Still risky of course, but you have improved the market value of the property.
vtsnowdin
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Re: Investing in lot or undeveloped land?

Post by vtsnowdin »

I'd want to know all the zoning rules in place and the local governments policies on development. Again something the local developers already know and have priced into the current offering price. Also the actual tax rate which is most likely 2.5% not one percent of what they think it is worth,not what you paid for it. All in all a bad idea for a new investor.
Jack FFR1846
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Re: Investing in lot or undeveloped land?

Post by Jack FFR1846 »

I would think that first, you'd want to somehow find land that is being sold very cheap for a reason you can verify. I bought a medium sized 81 acre lot some time ago because my dad was handling the real estate sale of the woman's home and land across the street from this lot. She was in her 80's and really just wanted the cash to be able to spend. He let me know about it as I was young and it would give me a chance to put my money somewhere that could grow. The woman financed the property. I ended up a few years later, deciding to go back to college to get a degree beyond my associates, so sold the land. Again, my dad stepped in and negotiated a lower payoff with the woman who was now in her mid 80's. He found a buyer and I made about 50%. My original intent had been to build a single house for myself and do some lumbering. As it turned out, the trees were far too young to lumber for firewood anytime soon. And of course paying my own way through college meant that there was no way I'd be building a house. This was a good purchase. Having the great help and having an initial plan to do something with the land, I think was important. Just buying and letting it sit and expecting it to grow in value is not a good plan.

Second example was my grandparents. My grandfather also did real estate. We are all in Massachusetts and for some reason, he bought 2 lots in a new Florida development. After they both passed, my dad was the executor and looked to get rid of the lots. Although there was a built up development with an HOA, the lots were worthless. The HOA started hounding him for past HOA dues from the estate. In the end, he sold the lots for $1 each plus forgiveness of past HOA dues. Stupid purchase.

If you think a particular lot is cheap, why hasn't a developer or builder already purchased it? There is a reason. You just don't know it.
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investuntilimrich
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Re: Investing in lot or undeveloped land?

Post by investuntilimrich »

What is it they say about real estate, it's an imperfect market so the potential upside is high because there's a chance someone will come along who doesn't understand the market as well as the other? If you're not someone who's followed a particular market for a long time, chances are you'll be the loser. Consulting local experts would certainly help but with limited experience you won't know which advice is worth taking.
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tvubpwcisla
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Re: Investing in lot or undeveloped land?

Post by tvubpwcisla »

You can make a lot of money holding a Real Estate land parcel; however, it is usually a very long hold. Not sure if 10 years will be enough. You may need to hold for 30+. Taxes will be a burden and perhaps an HOA if there is one. If you can stomach the taxes and a 30 year holding period, you will do great.
flyfishers83
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Re: Investing in lot or undeveloped land?

Post by flyfishers83 »

For residential lot speculation, run the numbers. If there is any appreciation, there very likely is an upside cap, as in most areas there is some limit as to what people can/will pay for a neighborhood lot. Then figure out your costs, which probably includes monthly mowing. That alone could kill your plans.

For larger pieces of land, I would at least look for land with at least a portion that can be farmed. Farm rent would help offset the cost and mitigate some of the risk. Still could be a horrible idea. Gotta run some numbers.
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Re: Investing in lot or undeveloped land?

Post by Peripatetic Investor »

Invest in a REIT index. Your returns will almost certainly be better with a fraction of the effort and hassle. Or go all-in and buy a rental property. Either way, you won’t get many takers on this idea on this forum - this is speculation, pure and simple. While I appreciate the value of a hedge against inflation, I prefer hedges that actually generate income. But if you were really hell-bent on speculating, yes, this is better than metals and crypto. But that’s just like saying I’d rather kiss my cousin than my sister - neither is particularly appealing.
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alpenglow
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Re: Investing in lot or undeveloped land?

Post by alpenglow »

This question seems to come up frequently and I've replied to a few of these threads. As others have mentioned, making money on raw land isn't easy. There can be many factors in play - location, is it buildable, zoning can change, wetlands, squatters, trespassers, timber thieves, liability due to injuries on the property, etc. Land isn't a "set it and forget it" thing like index fund investing mostly is. I also consider taxes and upkeep as an ER of sorts that will likely be higher than any fund you own.

I own some rural land in New England that I manage for timber. I cut out a small area for a cabin that never got built because I got married and had kids. I've done my homework and know it is buildable with good soils for septic along with a quality timber resource. At this point, I could probably sell for a profit, but my kids are getting older and are starting to enjoy recreational activities on the property. The taxes are low, but I still have to pay someone to brush hog the field each year. Timber management also has costs. I've been lucky with trespassers, though for a while I had an issue with someone ripping up some areas 4-wheeling. A few strategically cut trees solved that problem.

I'll mention that some of the land I looked at 15 years ago is still on the market today! One lot looks beautiful but it didn't take me long to realize that a driveway would be steep and dangerous, the lot was north-facing so it would be extremely cold in winter, and there was a ton of ledge at the building site (basement would require blasting $$$). I suppose they keep thinking a foolish flatlander will come along and buy it. All along they've been paying $4k/yr in taxes. Brutal.

In another story, a guy I worked with inherited a parcel of land in rural Maine. He eventually went up to see it and found a squatter had set up a mobile home on the property. It was a headache for sure.

Bottom-line, if you don't have a reason/ability to use the land or some special insights as an expert, pure speculation is a very risky endeavor.
Dave55
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Re: Investing in lot or undeveloped land?

Post by Dave55 »

Another questions to ask yourself is: "Why hasn't the professional RE Investor or developer grabbed this piece of land?" "Why is it still on the market?" "What do they know that I have not considered"? "What could go wrong?" Answer: "Everything". I worked professionally in commercial RE as an acquisitions manager. I did own a vacant lot with a partner for 5 years and my partner was a professional RE developer with 35 years of experience. We sold the lot to O'Reilly Auto and they built a store on it. You can PM if you wish for free input.

Dave
Last edited by Dave55 on Wed Jan 12, 2022 10:08 am, edited 1 time in total.
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Sandtrap
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Re: Investing in lot or undeveloped land?

Post by Sandtrap »

Derelict wrote: Tue Jan 11, 2022 11:09 pm I understand this is risky and it could be hard to get rid of since lots can be a lot less liquid than stocks and bonds or developed property.

Still I am curious who would one hire to get expert advice on investing in land? I would rather pay a few hundred bucks now and be better informed than buy something and be stuck without knowing the ins and outs and not what I don't know.

I have two areas I might be interested in purchasing land.

1. One is undeveloped land in an expensive area. Land is cheap that is away from the prime area. It is cheap because some areas may never be able to get building permits. I know the city has a transfer of development credit program where if land is developed other land must be set aside for conversation and habitat restoration. There is only so much land in this city.

I am thinking of purchasing cheap land and holding it for say 10 years and then probably selling it to a developer who wants to build on more valuable land and could use my cheaper land as a swap under the transfer development credit program. Since there is only a limited amount of land in the city, the land that can be developed and the land that can be set aside will diminish over time. There is no doubt in my mind that in the next 10-20 years there will be more and more demand to keep developing any land that can be developed in the city.

2. The other case is purchasing one of a few vacant lots in a nice area that is sure to grow in demand in the next 10 years. There is a college not far away and development will very like grow out to the area in the next 10 years. The city borders a really nice state park on one side and a golf course is walking distance. It seems like an ideal retirement area and very expensive homes are popping up around the area. There would probably be HOA fees with this property. The downside is it isn't easy to get to aside from a car ride. It is about 15 minutes off the freeway and no airports are around the area. There is a tourist area about 15 minutes away.

So aside from the purchase of the land I see annual expenses about 1% property taxes, I am not sure if homeowners insurance will cover insurance on lots?, HOA fees on the second plan.

Who could I hire to give me advice on the pros and cons of these particular areas? Would a real estate agent be someone to go to? They seem like they would be biased and advocate to buy.

I am thinking either investment would be about 7% of my investment portfolio. I think I would like it to be about 4% or so but that what the lots are going for now. I figure this would be fun way to add some diversity and I am not interested in precious metals or crypto so this would be in place of those types of investments. Also it would give me an incentive to check out the properties at least once a year and I love visiting both areas.
Questions:
1. Do you have enough financial assets, deep pockets, etc, to purchase raw land and build an apartment building on it as a sole owner/developer, and have it generate net profit/ROI?
2. How much do you have to spend? How much is the 7% of your investment portfolio you speak of? 500k? 4 million?
3. Do you have land development as a business, or R/E as a business, business experience as a business person?
4. Are you able to purchase, for example, a 4 plex, residential real estate, solely owned, and rent it out immediately with at least a 6-10% "net" CAP rate per month for a favorable and survivable ROI?
5. Do you have a concrete and actionable business plan?
6. Do you presently have a full time job and salary and have "your spare time" to devote to this endeavor?
7. Where did you get the idea to do this "raw land" investment? Seminar? Books? Someone who did it? etc?

Waiting for your response. . . .to help.

Per your questions specifically:
1. True. But, know that experienced property developers with large holdings, assets, and deep pockets have already snapped up or have a line on "low hanging fruit" and what is left, especially if on the market for an extended time, likely has very high development costs, or is unsuitable, or other reason that a well experienced business person will stay clear of. These "white elephants" can seem like great deals to the uninformed and inexperienced who often hold them for a long time and try to make a go of it, then struggle to dump it to regain a dollar.

*As "Dave55" wisely posted previously, if something is a great deal or even marginal, you can be sure that an experienced developer with deep pockets will get ahold of it before the ink dries on the listing agreement, or often sooner. It will never hit the open market. You will never know that it was for sale to begin with.

2. Per the previous questions. It depends on that.

3. There's a lot more involved in the business of profitable land development than the questions you pose re: property taxes, etc.

4. Asking advice from a R/E commision based sales person is like asking if you should buy a car and which one from a car salesman, etc.
Do you know someone close to you that is a successful property developer or reputable licensed General Contractor doing flippers and custom homes (old timer) and has a long tract record of success that can be your mentor or give you tips before you enter the "shark tank"?

5. Note: often, the idea of buying undeveloped land to do profitable things at high leverage is because the person with the idea doesn't have much money. For example: if you can only play in the dollar table as a buy in, then that's the game for that. If you can afford to buy into the 1000 table, then you can play in that game. Etc. But, you can't play on the 1000 buy in table with 1 dollar. (not sure if this is a good metaphor).

So, curious how you might answer the above questions so there's more data for others to give you great suggestions.

Hope this is helpful to you.

I have known quite a few raw land developers (including me). There are a lot of ways to start out. Lot's of ways to end up with very substantial wealth. Lot's of ways to lose everything as well.

Finally, as for hiring an expert, anyone who hires out for land development advice is making money on the advice and we’re he:she of substantial experience and success they would be getting wealthy themselves and not earning pennies giving advice much like those who sell wealth seminars.

However there are forum members here who have “walked the talk” for a full time living and done well in the business full time as entrepreneurs.

Pm me as you wish
j :D
Last edited by Sandtrap on Wed Jan 12, 2022 12:56 pm, edited 2 times in total.
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LeftCoastIV
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Re: Investing in lot or undeveloped land?

Post by LeftCoastIV »

Jack FFR1846 wrote: Wed Jan 12, 2022 7:21 am Second example was my grandparents. My grandfather also did real estate. We are all in Massachusetts and for some reason, he bought 2 lots in a new Florida development. After they both passed, my dad was the executor and looked to get rid of the lots. Although there was a built up development with an HOA, the lots were worthless. The HOA started hounding him for past HOA dues from the estate. In the end, he sold the lots for $1 each plus forgiveness of past HOA dues. Stupid purchase.
That's fascinating that a buildable lot within an existing HOA/neighborhood could be worthless.
SouthernInvestor
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Re: Investing in lot or undeveloped land?

Post by SouthernInvestor »

Like any speculative investment, things can go hard either way.

However, if you are not conversant in land use in the area, and don't keep an active ear to the ground on the area's development plan (and how it is evolving), I think you are swimming in very opaque waters.

Good luck either way.
Shallowpockets
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Re: Investing in lot or undeveloped land?

Post by Shallowpockets »

Probably better and easier to take that money and invest in the S and P. In fact, please keep expenses on this land you may buy. Upkeep, any fees, taxes, etc., and then keep the dates and see what the return is on an S and P index over the 10 years you are looking to hold this land.
Then again, an index is boring, whereas for cocktail talk you can have conversations about your “land” and all its possibilities.
LittleMaggieMae
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Re: Investing in lot or undeveloped land?

Post by LittleMaggieMae »

The OP's option 1 and option 2 sounds like they need to spend time and effort to get friendly with the local governments where they plan to buy property. They will need to have their ear to the ground (or an "in" ) with local planning and development.

Land ownership generally isn't "passive".

Participating or having a relationship with the local government will be VERY helpful for the scenario of the vacant lots. Usually a lot owner can't just leave the lot to grow high weeds, collect trash, become a nuisance to the rest of the neighborhood. Knowing what the local ordinances/blight laws that govern empty lots is helpful. If there aren't any - having some connection to the local government will help when the neighbors DO start complaining - you won't have to wait for a lawyer to call because the city has enacted some new rules/ordinances and low and behold your property is in violation and you are being hit with fines (and maybe a lien on your property).

Good luck quickly (and without sinking more money and time into it) selling your vacant lot properties if you've passively done nothing for years and that now has some sort of local government "entanglement" - unpaid fines or taxes or some sort of violation OR that no longer conforms nicely to being a "buildable lot" due to changes in the building/zoning codes (you weren't paying attention to more than paying the property taxes every year and weren't keeping up with the results of what was happening behind closed doors locally). Things change over 5 or 10 years. And if you are not being proactive with your property (paying attention to local government changes OR participating in those changes) you may be in for a world of hurt when you go to sell. queue up "Room Where It Happens" from the musical Hamilton...
Last edited by LittleMaggieMae on Wed Jan 12, 2022 10:25 am, edited 2 times in total.
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alpenglow
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Re: Investing in lot or undeveloped land?

Post by alpenglow »

Shallowpockets wrote: Wed Jan 12, 2022 10:05 am Then again, an index is boring, whereas for cocktail talk you can have conversations about your “land” and all its possibilities.
For sure! I think a lot of land purchases are aspirational/dreams.
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alpenglow
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Re: Investing in lot or undeveloped land?

Post by alpenglow »

LittleMaggieMae wrote: Wed Jan 12, 2022 10:19 am ... that no longer conforms nicely to being a "buildable lot". Things change over 5 or 10 years.
This happens a lot (pun intended).

A change in VT septic law a number of years ago rendered some properties "expensive campsites" as a realtor put it to me.

The zoning near me in NY metro area changed from 1 to 2 acre minimum to reduce development.
Jack FFR1846
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Re: Investing in lot or undeveloped land?

Post by Jack FFR1846 »

I remembered another fun land story. My own house was built by a co-worker back in the early 80's. Back then, the economy in Mass was booming. This was 14 acres and around a good portion of this lot was a proposed development. Following the development proposal, the town mistakenly thought the lots on the inside of the loop that went around this land created building lots out of the 14 acre lot. The previous owner was hit with a property tax bill over $100k because a bunch of lots in the new development were thought to be his. Sure, he corrected this, but it was a problem that needed to be addressed in person in front of the tax assessors in town. So your big, undeveloped lot could possibly be pushed into the high tax area. I expect that if the development around my lot had the road pulled in and houses only on the outside, the town would have stuck to their guns and said that there were plenty of small, half acre lots to build on. Pay up!
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mike66
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Re: Investing in lot or undeveloped land?

Post by mike66 »

Land especially with timber can be a great investment. It has worked out very well for me but I am also an avid hunter , have groomed the properties into world class deer hunting, and thus also get unmeasurable enjoyment from the property. I also am very well versed in timber management and timber values of property

Case in point. 25yo we bought a cabin with 30 acres of hardwoods. We paid 28k. We have timbered it 3x since purchase generating a total of 50k. We could easily sell the property and cabin now for probably 60k and probably take another 20k of timber before selling. I subsequently bought 130 acres of hardwoods across the street with cabin for 130k that I could sell now for 250k

#2: I bought an old farmhouse with 120 acres of hardwood overlooking a lake 20min from my house. When I first walked the property before purchase I immediately knew the property had never been timbered and estimated it held 6 figures in timber. I negotiated a price of 330k. A timber cruise by a forester after purchase estimated 230k of oak and maple timber. I have not logged it yet as the woods are so beautiful. We spend every weekend out there. I recently had an offer for 550k that I turned down. I could easily unload the property at anytime for 500-550k and that would be after selectively logging probably 100-150k of the timber

There are carrying costs. Property and school taxes are expensive here and prob cost be 10k/year for both properties. However, given that hunting and being outdoors are my major recreation and my love I consider this as a cost for enjoying my hobbies. If u are buying simply to speculate, carrying costs need to be considered

As seen above, it can be a great investment IF you know what you are buying and especially if u can combine this with recreational activities
LeftCoastIV
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Re: Investing in lot or undeveloped land?

Post by LeftCoastIV »

mike66 wrote: Wed Jan 12, 2022 10:33 am Case in point. 25yo we bought a cabin with 30 acres of hardwoods. We paid 28k. We have timbered it 3x since purchase generating a total of 50k. We could easily sell the property and cabin now for probably 60k and probably take another 20k of timber before selling

As seen above, it can be a great investment IF you know what you are buying
I was curious how this example stacked up against just buying the SP500 and holding for 25 years. The SP is up around 240%* in the past 25 years, and your example (including previous and potential timber harvest plus current value of property) is about a 360% return. Not really "scalable" in the same way though, as selecting high quality properties requires massively more diligence than clicking a few buttons on Vanguard to buy more VFIAX. (* note: the SP500 return above may not include dividends, as it's just based on point-in-time values).
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Re: Investing in lot or undeveloped land?

Post by mike66 »

LeftCoastIV wrote: Wed Jan 12, 2022 10:55 am
mike66 wrote: Wed Jan 12, 2022 10:33 am Case in point. 25yo we bought a cabin with 30 acres of hardwoods. We paid 28k. We have timbered it 3x since purchase generating a total of 50k. We could easily sell the property and cabin now for probably 60k and probably take another 20k of timber before selling

As seen above, it can be a great investment IF you know what you are buying
I was curious how this example stacked up against just buying the SP500 and holding for 25 years. The SP is up around 240%* in the past 25 years, and your example (including previous and potential timber harvest plus current value of property) is about a 360% return. Not really "scalable" in the same way though, as selecting high quality properties requires massively more diligence than clicking a few buttons on Vanguard to buy more VFIAX. (* note: the SP500 return above may not include dividends, as it's just based on point-in-time values).
Great and fair question. This is why I stated it can be a great investment if combined with your recreational enjoyments. Sure, I could have done as good or better with an SP500 fund. However, I cannot make memories with my family and friends with a SP500 fund. I cannot make maple syrup from an SP500 fund. I cannot grow pumpkins and vegetables with my SP500 fund. For certain people, a land investment provides great returns and allows significant enjoyment that cannot be obtained from mutual funds or other investments
Last edited by mike66 on Wed Jan 12, 2022 11:49 am, edited 1 time in total.
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alpenglow
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Re: Investing in lot or undeveloped land?

Post by alpenglow »

mike66 wrote: Wed Jan 12, 2022 10:33 am #2: I bought an old farmhouse with 120 acres of hardwood overlooking a lake 20min from my house. When I first walked the property before purchase I immediately knew the property had never been timbered and estimated it held 6 figures in timber. I negotiated a price of 330k. A timber cruise by a forester after purchase estimated 230k of oak and maple timber. I have not logged it yet as the woods are so beautiful. We spend every weekend out there. I recently had an offer for 550k that I turned down. I could easily unload the property at anytime for 500-550k and that would be after selectively logging probably 100-150k of the timber
This sounds like a very special place! :D
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Re: Investing in lot or undeveloped land?

Post by LittleMaggieMae »

LeftCoastIV wrote: Wed Jan 12, 2022 9:48 am
Jack FFR1846 wrote: Wed Jan 12, 2022 7:21 am Second example was my grandparents. My grandfather also did real estate. We are all in Massachusetts and for some reason, he bought 2 lots in a new Florida development. After they both passed, my dad was the executor and looked to get rid of the lots. Although there was a built up development with an HOA, the lots were worthless. The HOA started hounding him for past HOA dues from the estate. In the end, he sold the lots for $1 each plus forgiveness of past HOA dues. Stupid purchase.
That's fascinating that a buildable lot within an existing HOA/neighborhood could be worthless.
IDK, it seems to make good sense to me that the properties might be "worthless" more or less in a built up subdivision.

(this is also some additional info for the OP on empty lots in established areas: )

If the current neighborhood has houses built 10 or 20 years ago (and therefore all in the same style and with dated facades and floorplans and overall home size) will the HOA/neighborhood really want a new style house built (that's maybe bigger and a different style than the existing neighborhood houses)? Will a new house built to better blend in - actually sell for more than it cost to build it? What if the sale price of this new "fits in better house" is dramatically MORE than the houses in the existing neighborhood? Isn't there that rule of thumb to NOT buy/own the most expensive house in the neighborhood?

I live in a suburb with housing stock built from the 1890's thru the 1950's. With the housing boom that started in 2010 or so - many of the older houses have been "remodeled" to be bigger (scrap off the roof and add another story of living space (basically adding a "box" with a roof on top - sometimes said to look like a "trailer or modular house added on top". Empty lots were developed with ginormous houses - since most lots are 30 to 40 feet wide - the new houses are 2 or 3 story tall boxes with roofs (few windows, no embellishments and usually sided in Black or Dark Blue siding) that dwarf the rest of the houses on the block. It didn't take long for "concerned" citizens to pressure the local government to put some rules in place to stop the "trailer tops" - the second story remodel has to pass a review and MUST have specific features so the house blends in better with the existing houses. New construction houses also MUST conform to specific features and sizes - to better fit in with the rest of the houses on the block.

I like to show people the local "Wart House"... it's a giant black vinyl sided house with few windows that consumes the double lot it's built on and towers over the other 2 story brick custom houses built from the 30's thru the 50's on the block. The Wart stands out like - well a giant wart on what would other wise be a lovely face. I think the Wart House is was enraged the neighborhood and drove the pressure to get some sort of rules/ordinances/requirements for new construction.

So, I can totally see an established neighborhood (especially with an HOA) - requiring some specific requirements for new construction that might make the empty lots not particularly attractive to developers.
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Re: Investing in lot or undeveloped land?

Post by SteadyOne »

What is kids went to play on your land started fire and injured themselves. Will you be liable?
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Re: Investing in lot or undeveloped land?

Post by alpenglow »

I forgot to mention, I've also found cannabis growing on my land. Thankfully it was only a few plants and it hasn't happened again after I removed it. My consulting forester told me that he frequently comes across small grow sites.
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Re: Investing in lot or undeveloped land?

Post by Basis »

Derelict wrote: Tue Jan 11, 2022 11:40 pm Thanks for the response.

Is investing in land more speculative than investing in precious metals or crypto? Or do you not subscribe with investing in those assets classes too?


One can speculate without the undue liability of land speculation.
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Re: Investing in lot or undeveloped land?

Post by LeftCoastIV »

mike66 wrote: Wed Jan 12, 2022 11:01 am
LeftCoastIV wrote: Wed Jan 12, 2022 10:55 am
mike66 wrote: Wed Jan 12, 2022 10:33 am Case in point. 25yo we bought a cabin with 30 acres of hardwoods. We paid 28k. We have timbered it 3x since purchase generating a total of 50k. We could easily sell the property and cabin now for probably 60k and probably take another 20k of timber before selling

As seen above, it can be a great investment IF you know what you are buying
I was curious how this example stacked up against just buying the SP500 and holding for 25 years. The SP is up around 240%* in the past 25 years, and your example (including previous and potential timber harvest plus current value of property) is about a 360% return. Not really "scalable" in the same way though, as selecting high quality properties requires massively more diligence than clicking a few buttons on Vanguard to buy more VFIAX. (* note: the SP500 return above may not include dividends, as it's just based on point-in-time values).
Great and fair question. This is why I stated it can be a great investment if combined with your recreational enjoyments. Sure, I could have done as good or better with an SP500 fund. However, I cannot make memories with my family and friends with a SP500 fund. I cannot make maple syrup from an SP500 fund. I cannot grow pumpkins and vegetables with my SP500 fund. For certain people, a land investment provides great returns and allows significant enjoyment that cannot be obtained from mutual funds or other investments
Makes sense, and made me chuckle imagining a family reminiscing about their favorite SP500 memories :)
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Re: Investing in lot or undeveloped land?

Post by WhyNotUs »

The people who make money on undeveloped land add value to the property. This is sometime called being an entitlement developer. For instance, one might obtain a rezoning to a more intensive or valuable use or subdivide the property or rezone and subdivide the property to sell.

The next level is to rezone, subdivide, and install infrastructure to sell lots. That would be a land developer.

Finally, one can rezone, subdivide, install infrastructure and build residential and or commercial/industrial buildings to lease or sell. That would what most people think of as development.

Just relying on time to increase value faster than time value of money and expenses can be useful for inherited or land that is producing income from some other use, such as farming or storing equipment. Buying market priced land and waiting on future development and then selling raw land has a poor risk to reward ratio in my experience.
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Re: Investing in lot or undeveloped land?

Post by Apathizer »

As others have said, owning physical stuff, including land, is significantly more complex and potentially problematic than owning liquid investments (stocks and bonds). I have mortgage and I'm looking forward to selling my place eventually renting again. I'm very much a minimalist in terms of physical stuff, so the less I have the happier I am.
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Re: Investing in lot or undeveloped land?

Post by abuss368 »

Dave55 wrote: Wed Jan 12, 2022 8:58 am Another questions to ask yourself is: "Why hasn't the professional RE Investor or developer grabbed this piece of land?" "Why is it still on the market?" "What do they know that I have not considered"? "What could go wrong?" Answer: "Everything". I worked professionally in commercial RE as an acquisitions manager. I did own a vacant lot with a partner for 5 years and my partner was a professional RE developer with 35 years of experience. We sold the lot to O'Reilly Auto and they built a store on it. You can PM if you wish for free input.

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Derelict
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Re: Investing in lot or undeveloped land?

Post by Derelict »

Thanks for the responses.

Good discussion.

I think it would be best to increase the REIT portions of my portfolio instead of buying land.
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Re: Investing in lot or undeveloped land?

Post by MrBeaver »

One thing that doesn't often get separated here is the (vast) difference between rural land and urban land speculation / holding.

Rural: Value appreciation could be very limited. But it may provide non-investment benefits to your family and friends (hunting land, vacation home, etc.). If viewed as an expense, it could be an expense that holds its value. Or not. But if done to provide other benefits, it can be the best of both worlds.

Urban: Value appreciation in a city that grows over the next 30 years is likely quite high - but predicting this can be very hard. Just ask someone from Detroit in 1960 when their population peaked. It is now roughly a third of the peak in 60s (https://www.visualcapitalist.com/10-mos ... ties-1790/). Ultimately though, I view land speculation in an urban area to be unethical. It puts externalities onto the neighborhood (new residents must live further from the city, which raises the cost of living and the tax burden from more infrastructure).

They are quite different.
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