Q: I own 5 acres (about half of which is usable) and am thinking about buying a one-acre lot adjacent to my property. Is this a good investment?
The developer has had two houses he built taken back by his lender because he couldn’t sell them. Now, he owns five lots in our community and he wants $65,000 for the one-acre lot next to ours. The county tax assessor has the vacant land assessed at $45,000. We paid less than that when we bought our lot.
We may use the land eventually, but what do you think the chances are of making a profit if we decide instead to sell it in the future? I would love your input.
A: If you paid less for your land than what the developer is now trying to get for a lot that is far smaller than yours, you might find that the purchase isn’t such a great investment.
Is the lot worth twice what you paid for yours for half the usable space? You know that in the current real estate market homes in your community are not selling and that the developer’s lender has taken back homes. From what has generally occurred in the market, I would doubt that the land has had that much appreciation over the past couple of years, and may even be worth a lot less than what you originally paid for it.
If you love your home and feel that the addition of the land to your home enhances its value, you might buy it for that purpose. But you already have five acres of land and the addition of one more acre may not add too much to the value of your home.
Regardless, you won’t make any money on this lot until the real estate market improves and homes in your community are selling.
You might want to have a discussion with the real estate agent who helped you buy the property to learn what other properties are selling for in the area and to get a better idea as to the value of the land.
It all boils down to the numbers. You have to work out on paper exactly what it will cost you to buy this land (and the opportunity cost of not being able to invest the cash). You also need to figure out what you think the land will be worth some years into the future. If you live in an area where land is plentiful, your investment in the land may not be worthwhile.