Q: We are about 5 years away from retirement and would like some advise. We are considering buying some property in which to build a house on the North Carolina coast. Fortunately, we just paid off our mortgage on our existing home and are relatively debt free. The only debt we have at this time is a $20,000 home equity line that we used to purchase our new car and used the equity line of credit mainly for the tax deduction. Our annual income is about $150k and we are getting killed on taxes. Clark always encourages becoming debt free,
but there is a price come tax time. Is it a good move to purchase a lot or land now for building a home in 5 years. Real estate on the east coast is booming and I don’t know if it is advantageous to buy now or wait. Would we be better off investing the money that we used to pay our mortgage. If we find a lot or property, should we refinance our existing home to finance the purchase of the lot. Both of my boys are in college and we are paying for their expenses out of our monthly salary. We are trying to not dip into the funds we have saved for college if we don’t have to. Any advise would be much appreciated.

A: Congratulations on building such a secure financial life. To be able to pay for college for two boys (I have two boys, too!) and not dip into their college savings is truly remarkable.

I know that you’re taking a hit on taxes. But remember, it’s cash out. If you were getting the deduction, it would mean that you were paying a monthly mortgage payment. While you could refinance your home and pay the boys college tuition with that cash, I think you’re better off not financing college if you can help it. In a few years, you’ll be done!

As for buying land to build on five years down the road, this is kind of tough. Typically, experts say you shouldn’t purchase vacant land unless you intend to build on it within 6 months to a year. The reason is that so many things can change and vacant land can be tough to unload in a hurry.

I’m not saying don’t do it. I’m saying, think about where it might be, and what kinds of buying/selling conditions are in those market areas. Talk to local agents and land owners about their experiences and look back at sales over a 2 to 4 year period. Remember, if we go into a slower economic cycle, that land could be cheaper to buy two years from now, or, if you buy it, that much more difficult to sell.

Just a few thoughts. Thanks for your kind words about the show. I’ll be on a lot next week — with Clark on Thursday, and by myself Friday and Monday. Hope you’ll tune in.

Next Thursday (June 14th, 7pm), I’ll be at the Chapter 11 at Peachtree Battle. I’ll be speaking about my new book, 50 Simple Things You Can Do To Improve Your Personal Finances and taking questions from the audience. Hope to see you there.

Jan. 1, 2004.