Author Topic: investment return options on land  (Read 630 times)

kato

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investment return options on land
« on: September 06, 2017, 07:28:59 AM »
Bought a few large parcels of forest for 2k an acre that I can subdivide and sell as building lots. Holding costs are 4k this year, tapering down to 2k a year in 5 years.  Looking for how to make money off the land and achieve FIRE sooner than later.

100+ acres of woods. Between NYC and Boston, 2 miles from interstate.  Thinking of subdivide (year of survey/permits/work) and trying to sell, but soft market, so would offer at low price or else clear trees and make fields, look for land lease to farmers or solar farm or ??  Or just keep the land and use it as an extended back yard.  Maybe build a treehouse or tiny house and rent them out for income.  Maybe start a MMM campground / off grid retreat where you have your own secluded 10 acre lot to pull up your RV/Tiny house for a month or two, or build a cabin for seasonal residence ;)  Need to balance dreams with income/reality.. Maybe just sell last for highest and best and pay off mortgages and call it good!

CareCPA

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Re: investment return options on land
« Reply #1 on: September 06, 2017, 07:32:01 AM »
Is there any timber value? Or is it all pine?
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Fishindude

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Re: investment return options on land
« Reply #2 on: September 06, 2017, 07:42:53 AM »
Can't speak too intelligently about your local market, but the first thing I would look at to generate some income is harvesting timber.   I suspect that clearing then turning it in to farm ground would be an unprofitable venture as clearing costs would negate anything you will earn for a long time, plus it's probably not great AG ground anyway, explaining why it is still wooded.

Subdividing for building lots may be a good idea if there is a market, the ground is zoned accordingly, is accessible, utilities within reasonable distance, etc.  You will have some legal and surveying expenses in this.   Could add value by adding roadways, utilities, etc. if the math works.

I would seriously doubt if the tiny house thing, campground, etc. would be a profitable venture.
Simply enjoying the big new back yard may be your best bet.

SeattleCPA

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Re: investment return options on land
« Reply #3 on: September 06, 2017, 07:48:42 AM »
This is not a totally on-topic response, but hopefully relevant...

You might want to get more quantitative about how you look at your options and calculate (or estimate) the actual return on investment percentages you expect/hope for/guess.

This recent blog post explains how to do this using Excel's IRR function: https://evergreensmallbusiness.com/small-business-investment-returns/

Also this "FWIW"... it's been decades since I've invested in raw land, but the thing with raw land is if you get no monthly cash inflows, you're totally betting on the sales price... and over time, that means you need to *really* get a big profit at exit to make up for the months and months of no rental income or no "dividends"... It's hard factor in this reality without using something like an IRR measure.
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Michael in ABQ

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Re: investment return options on land
« Reply #4 on: September 06, 2017, 08:32:07 AM »
Raw land to finished subdivision lots ready for sale is generally a pretty expensive and time-consuming process. Is this within the path of growth in the conceivable future? Is the local government likely to approve a residential subdivision, and if so how much will it cost for surveys, planning, etc. to get there?

I appraise commercial real estate, including some subdivisions. For turning bare desert land into a finished typical residential subdivision you're looking at $20,000 per finished lot or more. I just appraised a 15-acre property turned into an 80-unit apartment complex, basically 20 4-plexes. set on either side of two quarter-mile long streets. The cost to build just a half-mile of streets (grading, asphalt, concrete, utilities, etc.) was about a million dollars. Go look at a typical subdivision on 100 acres and measure how many linear feet of streets there are.

kato

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Re: investment return options on land
« Reply #5 on: September 06, 2017, 08:49:55 AM »
in rural town...No plans to build a road for subdivision. Agree planning costs of 50k for survey, test pits, etc.  Can use road frontage and lot line adjustments to get ~5 lots.  I can excavate and make driveways to help process, even line up carpenter to help build, but trend nowadays is away from buying land and developing and people want move in ready, not the hassles of building.

Could sell some timber, or clear cut and have hauled away for free/no gain/loss, but agree not great land for agriculture.. maybe pasture..  Solar farm i wish!

Next door lot sold just sold for 10k/ac so I'm confident I'm at 200% ROI even if I sell lots for 5k/acre.

Also considering staggering these lot sales one a year or after FIRE to reduce tax burden on gains. 

Roland of Gilead

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Re: investment return options on land
« Reply #6 on: September 06, 2017, 08:52:45 AM »
If you are going to hold it, get it classified as timberland.  Our taxes on ~30 acres are $29 year.

We also have about $15,000 of timber on the parcel if we were to harvest it and we also paid around $2,000 an acre.

kato

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Re: investment return options on land
« Reply #7 on: September 06, 2017, 09:49:26 AM »
If you are going to hold it, get it classified as timberland.  Our taxes on ~30 acres are $29 year.

We also have about $15,000 of timber on the parcel if we were to harvest it and we also paid around $2,000 an acre.

exactly.  I did timber classification for current residence.  Doing this to land drops taxes from 7k a year to 1k a year
« Last Edit: September 06, 2017, 10:04:57 AM by kato »

Car Jack

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Re: investment return options on land
« Reply #8 on: September 08, 2017, 07:44:15 AM »
Timber is local.  I own land north of you (Massachusetts) that's under state chapter 61 for forest management to harvest timber/firewood.  The benefit is that it's taxed at 1/10 normal rate.  I have contacted local lumberyards to see what kind of money I'd be looking at to harvest lumber rather than firewood, which I can do for my own use.  Their responses over the years are $0 and if I wanted to rent their truck to donate the lumber to them (all my labor), it would cost me $100 a day.

You'll want to research if the property will perc.  Our house is in the middle of a bit over 13 acres and is in the only spot on the entire property that perc'd.  Don't assume you have building lots.

Also, what's under the property?  For me, it's solid granite which meant when my house was originally built, they had to blast in order to create a cellar hole. 

I'd actively pursue solar.  It's the easiest way to make money back IF (that's a big if) you can find someone willing to lease the property for a farm at a rate that pays your costs and some profit.  If you pay $100k for the property and only can get $10k a year from a solar farm and all taxes (property and income) are $15k, you lose.

If lots near the road perc and the property is subdividable (don't assume.....my town makes it a HUGE pain in the ass to do this), and there's a market for building lots, and you can make all of your money back by selling these lots, and you still have one lot for you to gain access to the property, and taxes are reasonable, and you have found a solid way to make money on it, and the town allows thing like a solar farm (again, don't assume this.....the town could say no) then go for it.  That's a LOT of Ands, right? 

Roland of Gilead

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Re: investment return options on land
« Reply #9 on: September 08, 2017, 03:44:19 PM »
The firewood thing could work if you like a lot of labor.  I think you can sell a cord of wood for $150 to $200 or so?

You might make minimum wage doing it, but at least you would be working for yourself.   You would owe some tax on this.

Car Jack

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Re: investment return options on land
« Reply #10 on: September 12, 2017, 12:24:08 PM »
The firewood thing could work if you like a lot of labor.  I think you can sell a cord of wood for $150 to $200 or so?

You might make minimum wage doing it, but at least you would be working for yourself.   You would owe some tax on this.

Firewood is local too and pricing can be all over the map.  I like the idea of doing no work and collecting money, so I do a craigslist ad with a picture of the pile.  I don't have a splitter (besides splitting mauls and my back) so pile a couple cords of green, big wood that needs to be split.  I specifically say in the ad that it's green, it needs to be split, You need a truck, You need to load it yourself.  The only work I'll do is pointing at the pile and taking the cash. 

More money could be had with seasoned wood.

More still with seasoned, split wood.

More still delivered.

More still delivered and stacked at customer's house.

I burn a ton of wood, so for me, it's the extra wood that I know is going to be overflow for me.  I always say green and will have some seasoned mixed in just because I've cut dead stuff or had lots of seasoned leftover.  It IS work to do anything firewood related.  You'll need a couple good chain saws and a way to move the wood (I have a 4 wheel drive Kubota tractor and trailer).  The cost for equipment like I have needs to cover other things.  I use the tractor for snow removal as well and have recently used it moving stones for a stone wall (no, I'm not picking up a 350 pound rock by hand). 

Of course if your land is all soft wood, forget the firewood angle.  Nobody wants soft wood.