$10k Land Purchase - What is the True Total Downside?
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$10k Land Purchase - What is the True Total Downside?
Have been tinkering with the idea of buying a plot of land for a second / vacation home. Plots are cheap, around $10k or even less. I would hold it for a few years to refine my plans, and either execute those plans (e.g., build) or get rid of the land.
What is the complete set of downsides to this approach? I see:
1) Most obvious - I am out $10k or whatever is the price, both initial outlay plus opportunity cost. FYI this is a small fraction of our net worth < 0.5%.
2) Yearly HOA fees ($200 / year) and taxes. Small but you still have to pay them.
3) Liability for my specific parcel and / or the HOA.
4) I would be prepared to take the full loss, e.g. literally give away the land for free to a local realtor / investor if after a few years I want to abandon ship and had to do that to just get the thing off my balance sheet. But is it possible I would even have to pay somebody to take it?
Undoubtedly you will be thirsting for more information about a) my finances and personal situation, and b) the location itself. My objective here is to get general guidance specifically on #3 and #4 - elements that in a sense present an "unbounded" downside - based on what others have experienced, so I can apply in this specific situation.
What is the complete set of downsides to this approach? I see:
1) Most obvious - I am out $10k or whatever is the price, both initial outlay plus opportunity cost. FYI this is a small fraction of our net worth < 0.5%.
2) Yearly HOA fees ($200 / year) and taxes. Small but you still have to pay them.
3) Liability for my specific parcel and / or the HOA.
4) I would be prepared to take the full loss, e.g. literally give away the land for free to a local realtor / investor if after a few years I want to abandon ship and had to do that to just get the thing off my balance sheet. But is it possible I would even have to pay somebody to take it?
Undoubtedly you will be thirsting for more information about a) my finances and personal situation, and b) the location itself. My objective here is to get general guidance specifically on #3 and #4 - elements that in a sense present an "unbounded" downside - based on what others have experienced, so I can apply in this specific situation.
Re: $10k Land Purchase - What is the True Total Downside?
What about upkeep of the lot? Would you need to pay someone to mow it or somehow otherwise keep it up to the HOA standards?
Another consideration is if the HOA restricts how long the land can be vacant. I’ve looked into buying some property only to find out the HOA required you build within 2 years of purchase.
Another consideration is if the HOA restricts how long the land can be vacant. I’ve looked into buying some property only to find out the HOA required you build within 2 years of purchase.
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Re: $10k Land Purchase - What is the True Total Downside?
What was on the land before? What could possibly have been dumped there? There is a very small, land locked plot between my property and a couple neighbors that was taken for failure to pay property taxes decades ago. I'd consider buying it just to get a little more woodlands, but I know there are at least 3 275 gallon heating oil tanks sitting on it. I have no interest in paying back taxes, taking possession and then having the town say "oh, by the way, the EPA is coming to test the soil. You might have a $300k clean up bill".
For me, this is an easy "no" on the lot near me. You might be unlucky and have tanks like this under ground. I just walk through the woods and look and the tanks are right there in plain sight.
For me, this is an easy "no" on the lot near me. You might be unlucky and have tanks like this under ground. I just walk through the woods and look and the tanks are right there in plain sight.
Bogle: Smart Beta is stupid
Re: $10k Land Purchase - What is the True Total Downside?
How easy is it to get rid of the lot? Sometimes there are parcels of land you can’t pay someone to take off your hands. My brother in law bought a parcel of land out of state for peanuts because the previous owner had disputes with the city on how it could be used/developed. It was on the market for nearly ten years. Brother in law was lucky (we hope), previous owner was not.
Is there was questionable use of the lot and concerns about environmentally unfriendly waste and potential clean out, it could also become unsellable.
Is there was questionable use of the lot and concerns about environmentally unfriendly waste and potential clean out, it could also become unsellable.
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Re: $10k Land Purchase - What is the True Total Downside?
HOA fees are not fixed. An HOA can raise fees, substantially, as long as they follow their governing documents.
We live in a community with private roads. Several miles of them. When we moved in, fee was $500 a year. It is now, and has been for 7 years, $1,400 a year. Why? Repair and replacement of roads.
An HOA has liability. They can be sued, and the members bear the responsibility.
An HOA can take on new things, like buying a lot and building a clubhouse, with a pool, then raising the dues to cover it.
We live in a community with private roads. Several miles of them. When we moved in, fee was $500 a year. It is now, and has been for 7 years, $1,400 a year. Why? Repair and replacement of roads.
An HOA has liability. They can be sued, and the members bear the responsibility.
An HOA can take on new things, like buying a lot and building a clubhouse, with a pool, then raising the dues to cover it.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
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Re: $10k Land Purchase - What is the True Total Downside?
Unless this plot was my dream location, I would wait until you move beyond the tinkering phase. Just seems like a lot of unnecessary risk, extra fees, etc, for something that may never happen. But if you are serious and want to proceed forward, I wouldn't let the risks scare you. You just have to do your homework and know the history of the property. People buy property all the time for speculation or other reasons and it is extremely rare that they end up superfund sites.DarkHelmetII wrote: ↑Wed Aug 04, 2021 5:29 am Have been tinkering with the idea of buying a plot of land for a second / vacation home. Plots are cheap, around $10k or even less. I would hold it for a few years to refine my plans, and either execute those plans (e.g., build) or get rid of the land.
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Re: $10k Land Purchase - What is the True Total Downside?
The downside is paying ongoing taxes/fees on a property you don't even care that much about. I would wait until you find the right place at a time you are ready to actually move on it.
Re: $10k Land Purchase - What is the True Total Downside?
I did this once and it ended up being one of the dumbest financial decisions in my life. The purchase cost was $10k. I ended up selling it for about $7.5k 11 years later. I was thrilled to get rid of it. Not only were there HOA fees to pay, but a year or so after the purchase I had to start paying for water and sewer service, on a vacant lot.
The only reason I was able to sell it was that the adjacent lot had a new home on it and the the homeowner wanted to buy my lot to give himself some extra privacy. Almost all of the other lots on the street were still undeveloped 11 years after my purchase.
Don't do this unless you plan on developing the lot within a few months.
The only reason I was able to sell it was that the adjacent lot had a new home on it and the the homeowner wanted to buy my lot to give himself some extra privacy. Almost all of the other lots on the street were still undeveloped 11 years after my purchase.
Don't do this unless you plan on developing the lot within a few months.
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Re: $10k Land Purchase - What is the True Total Downside?
To me, this is the only true "unbounded" downside. Taxes, HOA fees go up, but generally it is not what I would consider to be unbounded.
Any unknown liability that gets attached to the property becomes your problem as the owner, and depending upon the type of liability, you might not be able to give the property away even if wanted to. The oil tank example that one of the other posters brought up is a good one. I have owned two houses (not at the same time ) in the Northeast. Both houses had underground oil tanks that were left on the property when the home was converted to gas heat. In both cases, I had the seller remove the oil tank, get the EPA inspections, etc at their cost before the sale. We were prepared to walk away from the sale if they didn't because of the potential liability to us if we bought the property and there was an environmental issue.
This is probably a "low probability, high impact" situation, but if you are worried about downside, then this is something to consider.
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Re: $10k Land Purchase - What is the True Total Downside?
As far as I know, none of these lots have ever been developed. Just a bunch of trees (as far as the naked eye can tell).Jack FFR1846 wrote: ↑Wed Aug 04, 2021 7:00 am What was on the land before? What could possibly have been dumped there? There is a very small, land locked plot between my property and a couple neighbors that was taken for failure to pay property taxes decades ago. I'd consider buying it just to get a little more woodlands, but I know there are at least 3 275 gallon heating oil tanks sitting on it. I have no interest in paying back taxes, taking possession and then having the town say "oh, by the way, the EPA is coming to test the soil. You might have a $300k clean up bill".
For me, this is an easy "no" on the lot near me. You might be unlucky and have tanks like this under ground. I just walk through the woods and look and the tanks are right there in plain sight.
Added for clarification: a small subset of lots have been developed and currently have houses on them. Of the lots currently for sale, best I can tell they've never had any building on them.
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Re: $10k Land Purchase - What is the True Total Downside?
Thanks. Your experience plus input of others throws an overall dose of boglehead-inspired reality on this "idea."Hockey10 wrote: ↑Wed Aug 04, 2021 8:09 am I did this once and it ended up being one of the dumbest financial decisions in my life. The purchase cost was $10k. I ended up selling it for about $7.5k 11 years later. I was thrilled to get rid of it. Not only were there HOA fees to pay, but a year or so after the purchase I had to start paying for water and sewer service, on a vacant lot.
The only reason I was able to sell it was that the adjacent lot had a new home on it and the the homeowner wanted to buy my lot to give himself some extra privacy. Almost all of the other lots on the street were still undeveloped 11 years after my purchase.
Don't do this unless you plan on developing the lot within a few months.
Re: $10k Land Purchase - What is the True Total Downside?
The HOA fees are 24% of the purchase price annually, and you plan to spend "years" figuring out the plan. Sounds like true cost here is $20k (~4 years).
Would you still buy if the lot was $20k?
Would you still buy if the lot was $20k?
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Re: $10k Land Purchase - What is the True Total Downside?
Just to clarify, the HOA is $200 / year not month. But other points absolutely noted - 1) can you even sell it down the road, 2) HOA fees can increase, 3) still there is the initial outlay and opportunity cost on whatever the cost is required.
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Re: $10k Land Purchase - What is the True Total Downside?
Sometimes these types of inexpensive properties can’t be “dumped” even for free or as a giveaway because nobody wants to be stuck with the monthly/annual fees, and other reasons.
The total cost of 10k plus annual fees can go on forever.
j
The total cost of 10k plus annual fees can go on forever.
j
Re: $10k Land Purchase - What is the True Total Downside?
We have a couple of communities in our area with areas like this - people buy the lots for the purpose of using the amenities that require property ownership (golf courses, recreation facilities, etc.) The lots are cheap because, while platted, there are no utilities and essentially no plans to bring them in.DarkHelmetII wrote: ↑Wed Aug 04, 2021 8:22 am
As far as I know, none of these lots have ever been developed. Just a bunch of trees (as far as the naked eye can tell).
Added for clarification: a small subset of lots have been developed and currently have houses on them. Of the lots currently for sale, best I can tell they've never had any building on them.
Some of these lots originally cost what you are looking at, $6-10K, and often times resell for less than $1K (our neighbor bought one for $100, which is not uncommon, solely for golf privileges which still requires greens fees). Folks get tired of paying the increasing HOA fees.
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Re: $10k Land Purchase - What is the True Total Downside?
In reading through this, it seems like there are no utilities or other infrastructure. If those don't exist now, they might never exist. It can be very expensive to run utilities, and that's the main reason I have passed on a couple of recreational properties.
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Re: $10k Land Purchase - What is the True Total Downside?
Another interesting thing about buying vacant lots - check out the history of Lehigh Acres, FL. Paved streets in a grid with lots laid out - but no plan for water, sewage, electricity or any kind of local infrastructure (no main streets, no plans for schools, or shopping, or anything else) - just miles and miles and miles of a grid with lots laid out. Florida is not the only place that offers these kinds of "plots of land" to build your dream home on"
I realize this probably isn't where the OP is thinking of buying - but it does illustrate some of the most obvious problems with buying a "plot of land" to build on later.....
I realize this probably isn't where the OP is thinking of buying - but it does illustrate some of the most obvious problems with buying a "plot of land" to build on later.....
Last edited by LittleMaggieMae on Wed Aug 04, 2021 9:43 am, edited 1 time in total.
Re: $10k Land Purchase - What is the True Total Downside?
For me, all I can think of is downside, taxes, HOA fees, etc. Whatever you own, owns you. I've got an extra lot or two. People have been calling me over the last year wanting to buy them. I hate junk phone calls. Thank you iPhone for making those calls go to voicemail.DarkHelmetII wrote: ↑Wed Aug 04, 2021 5:29 am Have been tinkering with the idea of buying a plot of land for a second / vacation home. Plots are cheap, around $10k or even less. I would hold it for a few years to refine my plans, and either execute those plans (e.g., build) or get rid of the land.
What is the complete set of downsides to this approach? I see:
1) Most obvious - I am out $10k or whatever is the price, both initial outlay plus opportunity cost. FYI this is a small fraction of our net worth < 0.5%.
2) Yearly HOA fees ($200 / year) and taxes. Small but you still have to pay them.
3) Liability for my specific parcel and / or the HOA.
4) I would be prepared to take the full loss, e.g. literally give away the land for free to a local realtor / investor if after a few years I want to abandon ship and had to do that to just get the thing off my balance sheet. But is it possible I would even have to pay somebody to take it?
Undoubtedly you will be thirsting for more information about a) my finances and personal situation, and b) the location itself. My objective here is to get general guidance specifically on #3 and #4 - elements that in a sense present an "unbounded" downside - based on what others have experienced, so I can apply in this specific situation.
For you, go for it! Take a stab. You will learn something. Sometimes, you have to own something to learn it.
This may be the start of something big?
Re: $10k Land Purchase - What is the True Total Downside?
OP,
You liability might be unlimited. If someone dump chemical waste on your plot, you are responsible to clean it out. You are not there to protect and guard your plot.
KlangFool
You liability might be unlimited. If someone dump chemical waste on your plot, you are responsible to clean it out. You are not there to protect and guard your plot.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: $10k Land Purchase - What is the True Total Downside?
$10,000 for a lot is cheap.
Why is it cheap ?
Why is it cheap ?
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Re: $10k Land Purchase - What is the True Total Downside?
There are some very remote possibilities (HOA gets sued for more than its insurance??)
More realistically-
- you will need to do some level of maintenance (mow, clear brush, etc.)
- the lot may become unbuildable even if buildable now (environmental regulations, etc.)
Since the lot has little value now the possibility that it may become impossible to dispose of is significant. Unimproved land sells slowly at the best of times.
More realistically-
- you will need to do some level of maintenance (mow, clear brush, etc.)
- the lot may become unbuildable even if buildable now (environmental regulations, etc.)
Since the lot has little value now the possibility that it may become impossible to dispose of is significant. Unimproved land sells slowly at the best of times.
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Re: $10k Land Purchase - What is the True Total Downside?
DarkHelmetII:DarkHelmetII wrote: ↑Wed Aug 04, 2021 5:29 am Have been tinkering with the idea of buying a plot of land for a second / vacation home. Plots are cheap, around $10k or even less. I would hold it for a few years to refine my plans, and either execute those plans (e.g., build) or get rid of the land.
What is the complete set of downsides to this approach? I see:
1) Most obvious - I am out $10k or whatever is the price, both initial outlay plus opportunity cost. FYI this is a small fraction of our net worth < 0.5%.
2) Yearly HOA fees ($200 / year) and taxes. Small but you still have to pay them.
3) Liability for my specific parcel and / or the HOA.
4) I would be prepared to take the full loss, e.g. literally give away the land for free to a local realtor / investor if after a few years I want to abandon ship and had to do that to just get the thing off my balance sheet. But is it possible I would even have to pay somebody to take it?
Undoubtedly you will be thirsting for more information about a) my finances and personal situation, and b) the location itself. My objective here is to get general guidance specifically on #3 and #4 - elements that in a sense present an "unbounded" downside - based on what others have experienced, so I can apply in this specific situation.
I'd wait until you are sure.
Strive for Simplicity.
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: $10k Land Purchase - What is the True Total Downside?
Assuming that there are a number of undeveloped plots for sale you don't know who your neighbors will be or how their plots will be developed. Is the area subject to municipal zoning restrictions and building codes? This could be less of an issue if the plots are very large (more than an acre) and perhaps heavily forested. Potential infrastructure assessments and costs would seem to be the biggest downside.
In most areas if you cease to pay the taxes on a property the state will eventually assume ownership of the land due to the tax deficiency. The main potential downside is any toxic waste situation where the government goes after the property owner for cleanup costs. And all it takes to generate extraordinary toxic waste cleanup costs is for someone to dump a load of something on your (forlorn) plot instead of taking it to a regulated disposal site and paying disposal fees.
In most areas if you cease to pay the taxes on a property the state will eventually assume ownership of the land due to the tax deficiency. The main potential downside is any toxic waste situation where the government goes after the property owner for cleanup costs. And all it takes to generate extraordinary toxic waste cleanup costs is for someone to dump a load of something on your (forlorn) plot instead of taking it to a regulated disposal site and paying disposal fees.
The closest helping hand is at the end of your own arm.
Re: $10k Land Purchase - What is the True Total Downside?
Hilltop Lakes, TexasLittleMaggieMae wrote: ↑Wed Aug 04, 2021 9:41 am Another interesting thing about buying vacant lots - check out the history of Lehigh Acres, FL. Paved streets in a grid with lots laid out - but no plan for water, sewage, electricity or any kind of local infrastructure (no main streets, no plans for schools, or shopping, or anything else) - just miles and miles and miles of a grid with lots laid out. Florida is not the only place that offers these kinds of "plots of land" to build your dream home on"
White Bluff, Texas
large chunks of Fairfield Glade, Tennessee
Re: $10k Land Purchase - What is the True Total Downside?
OP, how did you heard of this location? Was it advertised to you, or did YOU seek it out?
Depending on your answer, I may have a bridge for sale.
Depending on your answer, I may have a bridge for sale.
Re: $10k Land Purchase - What is the True Total Downside?
I bought a vacant lot (in another state) and built a home on it. Everything worked out just fine.
The land purchase required a huge time commitment- read, research, think, study.
A lot selling for $10,000 is probably only worth $14 or so. Be careful man.
The land purchase required a huge time commitment- read, research, think, study.
A lot selling for $10,000 is probably only worth $14 or so. Be careful man.
"I look at a hundred deals a day. I pick one." -Gordon Gekko
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Re: $10k Land Purchase - What is the True Total Downside?
I sought "it" out - using quotes because there's a bunch of properties listed on the MLS. So there's no particular one property per se however max is $10k and I've isolated on a few, if I were to ever pull the trigger, to shortlist.
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Re: $10k Land Purchase - What is the True Total Downside?
Great point. Now that you mention it, this HOA Is responsible for private roads. That alone is a serious item to investigate.RickBoglehead wrote: ↑Wed Aug 04, 2021 7:44 am We live in a community with private roads. Several miles of them. When we moved in, fee was $500 a year. It is now, and has been for 7 years, $1,400 a year. Why? Repair and replacement of roads.
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Re: $10k Land Purchase - What is the True Total Downside?
Wow. That's a lot of "emptiness" going on (the Google Maps (satellite) shows the streets). I have to admit Fairfield Glade, TN looks pretty (I wandered the streets via Google Maps).mkc wrote: ↑Wed Aug 04, 2021 11:45 amHilltop Lakes, TexasLittleMaggieMae wrote: ↑Wed Aug 04, 2021 9:41 am Another interesting thing about buying vacant lots - check out the history of Lehigh Acres, FL. Paved streets in a grid with lots laid out - but no plan for water, sewage, electricity or any kind of local infrastructure (no main streets, no plans for schools, or shopping, or anything else) - just miles and miles and miles of a grid with lots laid out. Florida is not the only place that offers these kinds of "plots of land" to build your dream home on"
White Bluff, Texas
large chunks of Fairfield Glade, Tennessee
And for the OP about downsides - there may not be any police, fire, or emergency services (as in you might want to make sure you can drive yourself to the hospital. And expect a long wait if the police/fire are called.)
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Re: $10k Land Purchase - What is the True Total Downside?
Yes. Our roads were substandard. Put in by the developer, apparently there is no standard that the Township holds them to. One by one the roads started to have serious issues, and repaving over the top didn't work (was tried on one section of one road), it just developed a problem in the same spot a year or so later when the base gave way.DarkHelmetII wrote: ↑Wed Aug 04, 2021 2:13 pmGreat point. Now that you mention it, this HOA Is responsible for private roads. That alone is a serious item to investigate.RickBoglehead wrote: ↑Wed Aug 04, 2021 7:44 am We live in a community with private roads. Several miles of them. When we moved in, fee was $500 a year. It is now, and has been for 7 years, $1,400 a year. Why? Repair and replacement of roads.
The road in front of our house was one of the last to be redone, we could go out and pick up softball or larger sized asphalt chunks. Water would gently flow out of cracks in the road.
The fix is grinding the existing roads down to dirt, and using the old asphalt as compacted base for the new roads. Then pave. I don't have a total in front of me, but I believe we're approaching $2 million total spent, over $12,000 per homeowner.
The Association contemplated suing the developer, but prolonged legal battle would likely result in a finding that no standards really exist.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Re: $10k Land Purchase - What is the True Total Downside?
OP, there seems to be something in the American psyche about owning land - the freedom of one's own little place, independence, privacy, etc, etc, etc, etc; that captures the dreams of so many.
Maybe it's our frontier spirit, whatever. I think it largely has to do with the notion there will be less of it available as the population continues to grow. "Buy it now while it's still available." Look at the craziness going on in the real estate markets during this pandemic period.
Buying an empty plot of land that you cannot easily go to each day to monitor; and which you do not plan to build on for several years into the future, is just a big waste of money in my opinion. Take the $10k you plan to spend on this property; and invest it in a nice index fund. And add to it as you go along, and have the means to do so. In a few years time you'll have the means to buy plenty of land, notwithstanding inflation. By that time you will have better idea where you would like this idyllic place to be as well.
Just my $0.02 worth.
Maybe it's our frontier spirit, whatever. I think it largely has to do with the notion there will be less of it available as the population continues to grow. "Buy it now while it's still available." Look at the craziness going on in the real estate markets during this pandemic period.
Buying an empty plot of land that you cannot easily go to each day to monitor; and which you do not plan to build on for several years into the future, is just a big waste of money in my opinion. Take the $10k you plan to spend on this property; and invest it in a nice index fund. And add to it as you go along, and have the means to do so. In a few years time you'll have the means to buy plenty of land, notwithstanding inflation. By that time you will have better idea where you would like this idyllic place to be as well.
Just my $0.02 worth.
Re: $10k Land Purchase - What is the True Total Downside?
I did exactly what you are thinking 42 years ago $10k for 25 acres. My first major purchase. Raw land in the middle of no where (no HOA only taxes) Camped and hunted on it for 10 years. Never considered all the downsides that folks here are presenting (valid concerns). Sold it after 30 years for $40k not a great investment but I really enjoyed it. It’s still not developed and still in the middle of no where. If you just want it, do it not everything has to an investment. However, if you are thinking this an investment there are probably better options.
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Re: $10k Land Purchase - What is the True Total Downside?
I suspect the OP is looking at a "lot" that is more or less "residential" zoning with the intent to build a house on. I'm guessing camping or putting a trailer on the property isn't going to go over well. I have relatives/friends that have done what you did... bought land they camp on (or hunt) no real intention to build an actual house on it.Camped and hunted on it for 10 years.
And if the OP returns to this thread - they mentioned finding "lots" on the MLS... I'd suggest digging a little into what the lots were selling for a year ago (or even two years ago)... and then see if the lots are selling like hotcakes which would be a way to rationalize any large jump in prices.
I was trolling around the listings and what not for Fairfield Glade, Tennessee (I admit, I'm smitten with how pretty it looks - I'm an urban girl -I'd be terrified to live somewhere without street lights... and you can't walk to the grocery ::shudder:: so no I don't want to live there - but it sure is pretty!) and it's looking to me like the existing house prices skyrocketed recently (mid 2020). Lots also seem to have skyrocketed - what use to be 2K/3K is now listed for 7K to 10K (and none of those were on a lake) OR the lots have recently come on the market. I would think lots on lakes would be worth more than a lot on what someday may be a street lined with houses.
I expect that the asking prices for lots have go up no matter where they are located. Why not take advantage of people sudddenly thinking about building their "dream house" - even if they aren't going to build it for 3 or 4 or 5 years...
Re: $10k Land Purchase - What is the True Total Downside?
#3 is liability exposure to accidents, for example, somebody hiking or biking across your lot falls and hits their head. Your loss isn't limited to the $10k land price, it is everything you own, or more. that would worry me. And ok, you'll carry insurance. what does liability insurance for an unoccupied lot cost? could be a lot more than you think, again because an unmonitored place could easily get homeless squatters, teenage partiers, illegal campfires, mountain bike jumpers, i don't know how big or private this lot is so i'm just brainstorming things insurance companies will price in.DarkHelmetII wrote: ↑Wed Aug 04, 2021 5:29 am Have been tinkering with the idea of buying a plot of land for a second / vacation home. Plots are cheap, around $10k or even less. I would hold it for a few years to refine my plans, and either execute those plans (e.g., build) or get rid of the land.
What is the complete set of downsides to this approach? I see:
1) Most obvious - I am out $10k or whatever is the price, both initial outlay plus opportunity cost. FYI this is a small fraction of our net worth < 0.5%.
2) Yearly HOA fees ($200 / year) and taxes. Small but you still have to pay them.
3) Liability for my specific parcel and / or the HOA.
4) I would be prepared to take the full loss, e.g. literally give away the land for free to a local realtor / investor if after a few years I want to abandon ship and had to do that to just get the thing off my balance sheet. But is it possible I would even have to pay somebody to take it?
Undoubtedly you will be thirsting for more information about a) my finances and personal situation, and b) the location itself. My objective here is to get general guidance specifically on #3 and #4 - elements that in a sense present an "unbounded" downside - based on what others have experienced, so I can apply in this specific situation.
#4 i just want to emphasize the other posters who say some land cannot even be given away
my overall advice is don't prematurely commit to a location for a second/vacation home. wait and choose the right place for you, later, when you're sure you're buying what you want.
60-20-20 us-intl-bond
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Re: $10k Land Purchase - What is the True Total Downside?
It's more than an American thing. Some of the oldest books in the world describe people seeking out land of their own (eg - Abraham in the Bible).
Not necessarily a waste, but I take it as a fair point to consider the long term returns of an index fund as an alternative. Looking at Vanguard's real estate fund, the 10 year returns beat their total market fund, but the returns since inception are better for VTSAX. Is a real estate fund a reasonable proxy for considering in this case?rotorhead wrote: ↑Wed Aug 04, 2021 4:56 pmBuying an empty plot of land that you cannot easily go to each day to monitor; and which you do not plan to build on for several years into the future, is just a big waste of money in my opinion. Take the $10k you plan to spend on this property; and invest it in a nice index fund. And add to it as you go along, and have the means to do so. In a few years time you'll have the means to buy plenty of land, notwithstanding inflation. By that time you will have better idea where you would like this idyllic place to be as well.
Just my $0.02 worth.
If so, unless this is the dream parcel that might slip through your fingers (which the uncertainty about developing tells me it is not), it may be the better option to invest the money, and wait to buy until you decide for certain you want to build on a lot like this.
Re: $10k Land Purchase - What is the True Total Downside?
Other than the purchase price and HOA/taxes? Looking ahead:
1) What if you have difficulty getting rid of the land? Are you going to hire a realtor to find a taker for such a cheap property? Is it worth your time to go through this transactional process if you don't decide to develop it?
2) What if your building plans go hugely over budget? Maybe you plan to build a $500 house, and halfway discover some problem that costs another $200k? Then what?
3) What about marital stress? If you encounter problem 1) or 2), are you prepared to have your spouse nag you about it for the next 50 years?
The biggest question for me is why you are doing this at all? What is your upside - do you think this land will cost $100k in a few years? If it's really $10k, sounds like land is abundant there. Why won't it be available later?
1) What if you have difficulty getting rid of the land? Are you going to hire a realtor to find a taker for such a cheap property? Is it worth your time to go through this transactional process if you don't decide to develop it?
2) What if your building plans go hugely over budget? Maybe you plan to build a $500 house, and halfway discover some problem that costs another $200k? Then what?
3) What about marital stress? If you encounter problem 1) or 2), are you prepared to have your spouse nag you about it for the next 50 years?
The biggest question for me is why you are doing this at all? What is your upside - do you think this land will cost $100k in a few years? If it's really $10k, sounds like land is abundant there. Why won't it be available later?
Re: $10k Land Purchase - What is the True Total Downside?
HOAs can and do have special assessments that come out of nowhere and can easily be $50,000+humblecoder wrote: ↑Wed Aug 04, 2021 8:19 amTo me, this is the only true "unbounded" downside. Taxes, HOA fees go up, but generally it is not what I would consider to be unbounded.
Re: $10k Land Purchase - What is the True Total Downside?
+1AlohaJoe wrote: ↑Wed Aug 04, 2021 11:50 pmHOAs can and do have special assessments that come out of nowhere and can easily be $50,000+humblecoder wrote: ↑Wed Aug 04, 2021 8:19 amTo me, this is the only true "unbounded" downside. Taxes, HOA fees go up, but generally it is not what I would consider to be unbounded.
The Miami towers that collapsed, news reports said each condo unit was assessed a special levy of $50k each, just days before the collapse, to pay for the structural repairs.
Re: $10k Land Purchase - What is the True Total Downside?
We live in the same county as "The Glade".LittleMaggieMae wrote: ↑Wed Aug 04, 2021 9:55 pm
I was trolling around the listings and what not for Fairfield Glade, Tennessee (I admit, I'm smitten with how pretty it looks - I'm an urban girl -I'd be terrified to live somewhere without street lights... and you can't walk to the grocery ::shudder:: so no I don't want to live there - but it sure is pretty!) and it's looking to me like the existing house prices skyrocketed recently (mid 2020). Lots also seem to have skyrocketed - what use to be 2K/3K is now listed for 7K to 10K (and none of those were on a lake) OR the lots have recently come on the market. I would think lots on lakes would be worth more than a lot on what someday may be a street lined with houses.
They do a great job marketing it... I will say that.
We see a lot of churn on housing there when folks realize how far it is from many things. This past year brought a lot of "sight-unseen" out of town demand. Typical turnover is maybe every 2-5 years, based on monitoring the listings on MLS.
Buildable lake lots usually go for $200K plus.
Last edited by mkc on Thu Aug 05, 2021 9:08 am, edited 4 times in total.
Re: $10k Land Purchase - What is the True Total Downside?
Inherited a lot that was worth less than my parents bought it in 1982. I ended up selling it to a land broker for 20% of the original 1982 price. At least I got something (a few hundred bucks). I mostly got peace of mind.veindoc wrote: ↑Wed Aug 04, 2021 7:35 am How easy is it to get rid of the lot? Sometimes there are parcels of land you can’t pay someone to take off your hands. My brother in law bought a parcel of land out of state for peanuts because the previous owner had disputes with the city on how it could be used/developed. It was on the market for nearly ten years. Brother in law was lucky (we hope), previous owner was not.
Is there was questionable use of the lot and concerns about environmentally unfriendly waste and potential clean out, it could also become unsellable.
One reason I wanted out was because the HOA was in disarray and significant costs were obviously coming soon. Residents were getting really nasty with each other over the HOA too.
So, I found very little upside. BTW, even in the last few years since I sold, the prices have not budged, despite a hot market everywhere else.
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Re: $10k Land Purchase - What is the True Total Downside?
Thanks for that local info. I am not surprised. That confirms what I gleaned from doing a quick skim of some of the properties (I got a relative who's looking for a "house on a lake" - the house doesn't need to be habitable - he needs a "project" so I tend to poke around the listings and local sites when I hear about a place/area. I'm getting good at "stalking real estate". )mkc wrote: ↑Thu Aug 05, 2021 8:55 amWe live in the same county as "The Glade".LittleMaggieMae wrote: ↑Wed Aug 04, 2021 9:55 pm
I was trolling around the listings and what not for Fairfield Glade, Tennessee (I admit, I'm smitten with how pretty it looks - I'm an urban girl -I'd be terrified to live somewhere without street lights... and you can't walk to the grocery ::shudder:: so no I don't want to live there - but it sure is pretty!) and it's looking to me like the existing house prices skyrocketed recently (mid 2020). Lots also seem to have skyrocketed - what use to be 2K/3K is now listed for 7K to 10K (and none of those were on a lake) OR the lots have recently come on the market. I would think lots on lakes would be worth more than a lot on what someday may be a street lined with houses.
They do a great job marketing it... I will say that.
We see a lot of churn on housing there when folks realize how far it is from many things. This past year brought a lot of "sight-unseen" out of town demand. Typical turnover is maybe every 2-5 years, based on monitoring the listings on MLS.
Buildable lake lots usually go for $200K plus.
That turnover and sudden jump in prices only to fall again is kind of what happens in LeHigh Acres, Florida, too.
I find the "selling a dream" or "buying a dream" thing, which these kinds of "subdivisions" seem to represent, to be fascinating. That and having examples of what makes a community people want to live in and what does not. And the history of subdivisions and why they are designed the way they are and which these sprawling, no infrastructure, messes seem to have taken to an extreme is interesting to me.
Re: $10k Land Purchase - What is the True Total Downside?
Is there something "special" about this particular lot that you want or could you find a similar lot when you are getting ready to build? If you are Single and there is a possibility of getting married, wouldn't your future spouse want to have a "say" in where you two live?
Things that would make a certain land "special" to me are:
* its location next door to my parents/children/life-long friend,
* an amazing ocean/mountain view,
* extremely low price on a property that would be desirable by others (by a park, lake) such that I feel confident that I could sell at a profit down the road should I change my mind
Things that would make a certain land "special" to me are:
* its location next door to my parents/children/life-long friend,
* an amazing ocean/mountain view,
* extremely low price on a property that would be desirable by others (by a park, lake) such that I feel confident that I could sell at a profit down the road should I change my mind
Re: $10k Land Purchase - What is the True Total Downside?
You may have heard the old "I bought swampland from the salesman" thing, made popular in the 1920s. Well, it hasn't gone away. Dreams can sell anything.LittleMaggieMae wrote: ↑Thu Aug 05, 2021 10:44 pm I find the "selling a dream" or "buying a dream" thing, which these kinds of "subdivisions" seem to represent, to be fascinating. That and having examples of what makes a community people want to live in and what does not. And the history of subdivisions and why they are designed the way they are and which these sprawling, no infrastructure, messes seem to have taken to an extreme is interesting to me.
Mom and Dad bought a dream in FL for less than $5000. Middle of nowhere. At least the swamp was drained and electric and phone ran by each lot. But the roads were tough dirt, and the community facilities were poorly built. Flash forward 40 years and the pool is a swamp, and the community lake deck unsafe. OK, that's part an HOA problem, but not really. The developer sells the HOA too with unrealistic yearly charge expectations. Mom saved the marketing brochure and it is fascinating to see what they were selling, and how it turned out.
What gets me is these lots were sold to retirees, yet the nearest store (Dollar General type) is 15 minutes away on a somewhat terrifying country road. That same area has the only doctor, and the office looks like it is about to fall down. The closest real medical center that can deal with trauma is 45 minutes away, again on terrifying roads. Heart attack? You are dead. Period.
Before I dumped it, I visited. What I noticed is the lots turned over to younger people who wanted to hide. It was not a dream. It turned into a nightmare.
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Re: $10k Land Purchase - What is the True Total Downside?
I made a business out money buying and reselling vacant land. Most sellers I deal with either bought it long ago or inherited it. Usually at some point it was someone's dream but now they want to get rid of it at any almost any price. Consider if that may be you in 10, 20, 40 years.
Some attorney or risk averse boglehead will find a way to worry but it I generally wouldn't worry about liability on a residential lot.
Do read the HOA covenants. They come in big/small, cheap/expensive, mandatory/optional, some have architectural committee that can decide what or if you can build, make sure you don't have a time limit to build, watch for transfer fees(buy/sell), etc. You might also want to talk to a few residents to get the vibe of the HOA. Some do not like outsiders some don't care, some hate weekenders/airbnb, won't allow rvs whereas that is common in others.
Or consider buying a property not in an HOA.
If you decide you don't want it anymore at some point and you can't/don't want to sell it for some reason just stop paying HOA fees and property taxes. The hoa will attach liens to the property and eventually the county will recycle the property to get it back on the tax rolls per local laws. They won't come after you personally.
Some attorney or risk averse boglehead will find a way to worry but it I generally wouldn't worry about liability on a residential lot.
Do read the HOA covenants. They come in big/small, cheap/expensive, mandatory/optional, some have architectural committee that can decide what or if you can build, make sure you don't have a time limit to build, watch for transfer fees(buy/sell), etc. You might also want to talk to a few residents to get the vibe of the HOA. Some do not like outsiders some don't care, some hate weekenders/airbnb, won't allow rvs whereas that is common in others.
Or consider buying a property not in an HOA.
If you decide you don't want it anymore at some point and you can't/don't want to sell it for some reason just stop paying HOA fees and property taxes. The hoa will attach liens to the property and eventually the county will recycle the property to get it back on the tax rolls per local laws. They won't come after you personally.
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Re: $10k Land Purchase - What is the True Total Downside?
So the only reason to do this now is that the land is cheap. But as has been pointed out here, costs to own a vacant lot can be significant and can exceed the cost of the land. My advice is to buy land once you have a specific plan to build, with a timeline attached.
Re: $10k Land Purchase - What is the True Total Downside?
Maybe I sold my lot to you.captainron wrote: ↑Fri Aug 06, 2021 1:07 pm I made a business out money buying and reselling vacant land. Most sellers I deal with either bought it long ago or inherited it. Usually at some point it was someone's dream but now they want to get rid of it at any almost any price. Consider if that may be you in 10, 20, 40 years.
I knew I was selling at a discount but was happy to hand over the deed to the fine gentleman with the vacant land business. Hey, he has a thing going. Glad I could help. I got it off my mind, he got inventory. Win-win.
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Re: $10k Land Purchase - What is the True Total Downside?
My dad and his 4 siblings inherited 2 lots in Florida, bought in the 60's. Grandparents both dead by the mid 80's. My dad was the executor and first used a local real estate agent to try to sell the lots. Then got more info and the HOA was clamering for money for something or other. In the end, both lots were sold to the HOA for $1.
Bogle: Smart Beta is stupid
Re: $10k Land Purchase - What is the True Total Downside?
Each for $1 or both lots for $1? There’s a big difference here.