Author Topic: Cash-in investments to buy land?  (Read 341 times)

AD700

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Cash-in investments to buy land?
« on: February 10, 2019, 11:00:44 PM »
I live and work internationally, so my accommodation is paid for when I am on contract (most of the time), but I have no base to call my own.

I am contemplating buying a piece of land that I can gradually build a permanent base on. This could be a base when I am between contracts or when I eventually stop work.
To buy the piece of land I want, I would need to cash-in much of what I currently have invested in index funds. Is this a bad idea?

The alternative would be to wait a couple more years while I build up more cash – but by then the type of land I want may be harder and more expensive to find. Plus, the money I would need for the land could not be invested as I would be looking to use it within a 2-3 years.

If I cashed in my index funds now, I could get the land and then start investing in index funds again after that.

Any thoughts on what I should do? Anything I should consider?

Thanks!

Car Jack

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Re: Cash-in investments to buy land?
« Reply #1 on: February 11, 2019, 12:17:07 PM »
Always look at the downside.

You have to pay property tax.
If improvements are made to the street (water line, sewer line, etc) you get hit with a bill based on frontage.  I had this happen.  150 feet of frontage for a sewer line cost me ten grand.
People may realize that nobody is ever on this property and may dump trash, toxic waste, barrels of unknown stuff, bodies, couches, stolen cars.
When you finally do decide to build, zoning laws may have been changed and no longer allow building for some reason.
The lot might not pass a perc test when you're ready to build, so you can't.
Somebody sets up a motorcycle track and a kid goes off a jump and breaks his back.  At minimum, you have to defend yourself in a law suit.

These are just off the top of my head.  Land goes up and down just like houses do.  I would recommend that you wait until you're here and ready to build.  Then buy.

Mr. Boh

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Re: Cash-in investments to buy land?
« Reply #2 on: February 11, 2019, 03:24:39 PM »
I agree with Car Jack. Keep investing and saving and buy the land only when you need it.

theoverlook

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Re: Cash-in investments to buy land?
« Reply #3 on: February 11, 2019, 03:27:01 PM »
I see very little upside for you in buying land right now. Bare land doesn't gain value very quickly unless it's in a suddenly hot area which is very unlikely. Carrying costs are high, liquidity is low. Return on investment is negative since it costs you money and returns nothing. If you were going to live on it now it would be a conversation to have, but just buying it to have it later seems like a terrible idea to me. What if you stay overseas for longer than you currently intend? What if you change your mind on where you want to go to once you move back to the states? What if you never come back? Owning a lot of liquid assets means you can always decide to do something like this. But owning land means you're locked into that decision for years.

Freedomin5

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Re: Cash-in investments to buy land?
« Reply #4 on: February 11, 2019, 03:46:17 PM »
I’m also an expat with no home base as work pays for housing.

My advice is the same as the others. Don’t buy land. And especially not if you have to cash out your index funds to do so. If they’re in taxable accounts, you’ll get hit with a capital gains tax. In in nontaxable accounts, you’ll lose the contribution room and may get penalties depending on the account.

Depending on the numbers, if you really want to get a foothold in the real estate market, the only thing it might make sense to buy is a house/condo that you can rent out, using the rent to cover mortgage and related expenses. Then when you’re back permanently in home country, you have a place to live, or you can sell it and move where you like.

Fishindude

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Re: Cash-in investments to buy land?
« Reply #5 on: February 12, 2019, 07:46:07 AM »
Buying the right piece of land can be as good as money in the bank, you can get an annual return from it and it can be sold rather quickly and turned back into liquid cash.  In some cases, you may only get one shot in your lifetime to buy a particular piece of ground.  However, like others have mentioned above, you could also run into ongoing annual expenses and be stuck with something hard to unload.

In order to intelligent advice we would need to know more about what & where.
« Last Edit: February 12, 2019, 07:48:03 AM by Fishindude »

Rubyvroom

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Re: Cash-in investments to buy land?
« Reply #6 on: February 12, 2019, 08:46:50 AM »
We cashed out some of our non-retirement investments last year to buy land. It is part of our long-term FIRE goal to build our own sustainable, off-grid home. We found awesome land that we loved that met all of our criteria and thought what the hell, let's pull the trigger a tad earlier than planned, because we can go up there and start planting trees and do some of the long-term landscaping as we edge closer to FIRE. While I won't say I regret buying the land, I'm not totally convinced it was the smartest decision, and here's why.

1. Taxes. I had researched the property taxes and for some reason didn't realize the previous owner had the land homesteaded. His home wasn't even ON this land but he apparently was still able to homestead it. Fast forward one year later and our taxes doubled because we don't live there yet. Lesson learned. Better due diligence next time.

2. Gas. You will want to visit the land. You will underestimate how much you want to escape your normal routine and hang out up there. You will also potentially want to drive larger gas guzzing vehicles there to bring things with you to start setting up your home base. All of my gas savings from bicycle commuting in the spring/summer/fall have been entirely eroded by weekend visits to the land.

3. Government. We called the county many times prior to purchasing the land. We got to know the people and asked questions to make sure our future plans didn't break any rules or codes. We had certainly read the codes plenty of times and didn't see any issues, but thought actual conversations might be warranted to gauge how strict they might be in practice. Well when it came down to actually invest in some infrastructure (driveway), we applied to put the driveway off the paved frontage rather than the dirt-road frontage and we were immediately turned down by the county engineer, apparently for reasons that were not codified in any way. We poured over the codes, not able to find any actual reason for the denial, and asked him to instead accept a few other scenarios (moving the driveway approach further from other properties or intersections), but he was adamant. His reason was "safety" and we couldn't find anything written down anywhere that supported his position. Everyone we had previously spoken to at the county had been lovely and amazing to work with. We somehow got the one asshole on staff when we actually applied for something, and given what else we want to do on the land, we decided not to pick this battle. So I suppose the lesson learned is, things will still go wrong and potentially cost you more money than you had planned even after careful research on codes, because difficult personalities exist and are totally outside of your control.

4. Crazy brain. You will have all the ideas of all the things you want to do, but if you aren't there yet and don't want to make major investments so you don't stifle your FIRE trajectory, you will underestimate what it takes to get things started. For example, I planned out this amazing, expansive veggie garden that wouldn't cost me very much at all until I realized we don't have a close enough water source to make a garden viable yet. We get plenty of rain, yes, it might survive on its own, but if I'm going to invest in a new garden setup I want to have the tools to make it successful. Enter conversations about installing a well, which leads to conversations about maybe we shouldn't install the well until we have our building plans, which leads to larger conversations about where to locate septic and how to position your homestead for maximum solar gain and WTF I just wanted a veggie garden and this is getting complicated... Essentially, you'll want to do ALL THE THINGS and won't get to do them yet. It can be quite frustrating.

I did not and still don't worry too much about cashing out the investments. Land is just a way to diversify your portfolio. Just be smart about the tax implications if you realize gains when you cash out. Investing in land certainly isn't a GROWTH strategy, but as people say, they aren't making any more land so... I don't mind being invested in it. I just kind of hate that we're still 1-2 years away from being able to do anything fun with it.