Author Topic: How to gauge long term property return? - Vacant Lot  (Read 988 times)

cantgrowone

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How to gauge long term property return? - Vacant Lot
« on: April 26, 2018, 10:16:32 PM »
Hi. DW and I have been pondering a rental property for awhile, but using just the stock market is easy for us. So I have been wondering, how does one determine if buying a vacant lot is a good investment?. Buying a lot and letting it sit while mowing the grass every month is right up my ally.

There has been announcement for funding of a new football stadium in downtown Birmingham, AL. The construction is to begin next year and finish the end of 2021. The area just west of downtown has been gentrifying for the past 3 years successfully with property values going up. I'm trying to think future, 10-20 years what will the area be like then. Currently the area is lower class.

There are a couple of lots within walking distance to the stadium. This and a couple of realtors say this is the next upcoming area make me wonder if this is a good opportunity. The properties are ~0.25 acres and will be ~$15k after all is said and done. Hypothetical market returns at 7% give me $36k after 15 years; 10% is $50k.

Here's a link to the lots on Zillow. The stadium is to be at 11th ave and 24th st.
Zillow link. Properties of interest are $13k.


Project Details, to be completed end of 2021.

Michael in ABQ

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Re: How to gauge long term property return? - Vacant Lot
« Reply #1 on: April 26, 2018, 11:01:31 PM »
The money in vacant land is in assemblage or subdivision. If you can put together a few lots to make a parcel large enough (and properly zoned) for a small apartment complex that could be profitable. Or if you could buy a lot large enough to subdivide. Simply buying a typical single-family lot is risky. Vacant land is the most volatile type of real estate. The price of land is determined by what can be built on it. If people are building $300,000 houses in the neighborhood then it could easily be worth $50,000. If the surrounding houses are all 50+ years old and selling for $100k you're probably not going to be able to sell a lot for $50k.

I see a few scattered lots in the suburban neighborhoods around me. Neighborhoods that were built 20+ years ago were someone bought a lot but never built a house on it. Now there's no reason anyone would build a new house in a middle class subdivision. A Downtown area is different but even if it's gentrifying will people want to build new houses (and buy your lot to build on) or do they want that older remodeled home?

powskier

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Re: How to gauge long term property return? - Vacant Lot
« Reply #2 on: April 29, 2018, 07:29:31 PM »
Vacant land is an expense namely taxes and maintenance, and a possible liability depending on what other people may do on it. Reducing expenses is generally a smart thing to do, adding them is not so smart.

This land is cheap, there is probably a good reason...if this was such a sure fire deal better connected folks would have already picked it up.

Investing in vacant land HOPING for a change in the local situation seems fine if you are rolling in cash and like that kind of gamble, but to me it looks like your money could be better put to use somewhere else.

ChpBstrd

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Re: How to gauge long term property return? - Vacant Lot
« Reply #3 on: April 29, 2018, 08:23:58 PM »
Lots in existing neighborhoods are valuable to the extent a house built there would be worth more than its construction costs. E.g. if houses in the area in perfect condition are selling for $100/sf and new house construction costs $150/sf, the lot is not worth much because it is an option to build a house that will be instantly worth much less than the cost of construction. Also, anyone moving into the area would just buy one of the many $100/sf existing houses for sale, even if they have to do a remodel costing another $30/sf. Other than that, the value lies in the option to sell it to a neighbor who wants to built a garage or garden, or a crazy person who wants "everything custom!" Also, there is constant competition in the market for lots. They can stay on the market for years.

Now if the price of new condition homes in the area rises from $100/sf to $175/sf, a lot now offers someone the ability to build an ugly 4,000sf McMansion amongst the stately old homes for $150/sf and sell it to a douchebag for $175/sf. The person ordering the construction of said monstrosity might be willing to pay tens of thousands of dollars for the option to build it. E.g. They might pay you $70k for the lot so they can make $30-50k just for tying up their capital a few months.

Depending on how far prices must rise to exceed the cost of construction, lots might be a high-risk high-reward investment. However, if you win this gamble, you will regret not moving into the neighborhood yourself. If prices went from $100/sf to $175/sf, you might have made much more money owning a completed home there, all while skipping the extra lawn mowing and trash pickup.

Also, it sucks to pay $1k in closing costs to buy a $12k lot that will require another $1k to sell.


YttriumNitrate

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Re: How to gauge long term property return? - Vacant Lot
« Reply #4 on: May 01, 2018, 08:56:49 AM »
I own 5 acres of vacant land, and in general it can be worthwhile if you have some alternative use for the land rather than just waiting for it to appreciate. For example, on my land I've got a hobby orchard which I thoroughly enjoy. If I was just mowing and paying taxes on the land, that would get really old really fast.

I also have a friend with ~30 acres of vacant land, and he enjoys hunting on that land, so it's worthwhile to him.

Car Jack

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Re: How to gauge long term property return? - Vacant Lot
« Reply #5 on: May 02, 2018, 01:43:47 PM »
I'd be concerned that all you're getting is liability insurance bills, property tax bills and heaven forbid, an added assessment for a new water line/sewer line where you're hit with a $10k bill (I had that happen with a house I owned), then you decide you've had enough and sell it for what you paid for it........and because it's land, you pay 10% to the real estate agents because that's the standard....not 6% like houses.