Need Advice RE Purchasing Land

[Keim]

Wife and I are considering purchasing 5 acres for $50k. This property is currently considered agricultural. We have no current plans to develop it. It is in the boonies near national forest and park land. It is a place we would go with our camper.

We are in our early forties. Debt free including the house. Mid five figure income.

I am looking for advice in two arenas:

1. Financing
The options I see are:
a. Pay cash out of our taxable investments. This would seriously deplete them. Probably too much. But we could easily pay, perhaps, half. What kind of tax hit would I take?

b. Use our HELOC to pay, than pay back the HELOC. Being debt averse we would do this as quickly as possible. Perhaps pay half from our taxable investments and 1/2 from the HELOC...

c. Get a conventional mortgage. Pay it down quickly.

Am I missing anything? Any pitfalls or advantages to any of these routes? If I pay some from taxable, and the rest with HELOC would it be wise to structure around taxes? (I.E. make sure I don't put myself into the next tax bracket?)

2. Inspections and other things to consider
This is bare forest land adjacent to a mountain lake. Lots of trees, no power, well, or septic. Any inspections I should consider?

Thanks for any insight you can provide.

 

[pb4uski]

Not really any inspections that I can think of applicable to raw land other than perhaps a perk test if you ever think you will build or even put in a septic for your camper to plug into.

Access to the property from a public road or an easement to access the property? Water rights to access the lake or do you have shoreline? Does the land perk so you could build and have a conventional septic system or would you need a mound system or engineered leach field? Is power reasonably available? Is cell phone service available?

There should be no tax hit from using your taxable investments unless you will be selling appreciated shares at a gain, but if they are long term gains (held over a year) and you are in the 15% bracket or lower then federal capital gains tax would be 0% (but there might be state capital gains tax).

If you can finance for substantially less than what your taxable investments are earning, that is the way to go IMO.

 

[yakers]

Don't believe you can get regular bank financing on raw land, maybe for farm land. I like the HELOC as it leaves flexibility and probably tax deductability. Can you rent out the land for farming, harvest trees or anything for it to produce some income?

 

[Keim]

PB4USKI: Thanks for some good suggestions REWater rights, ETC. Will look into those things.

Yakers: Might be able to harvest trees, but not interested in making income off the land. The idea is strictly a back to nature retreat.

 

[brewer12345]

The other possible source of financing is that the seller might be willing to finance you as part of the deal. Raw, recreational land is usually a tough sell so sometimes the seller will hold the note.

 

[cardude]

This land may be close to impossible to sell if you get tired of it or if your plans change. Why would you want to "seriously deplete" your taxable savings on this?

Maybe lease the land for a year ? Make sure you really need it?

Sincerely
Mr. Party Pooper

 

[pb4uski]

I like the seller financing idea - it could be a good deal for both of you.

 

[Keim]

Mr. Party Pooper (Love that heh heh):

That is a consideration. I rank it low. My interests don't tend to be fleeting (being a fellow cardude, I'll mention as an example that I've had the same car for 30 years). The property is walking distance to a nice lake, a short drive from the major local commerce center (I'm in Idaho, so major ain't large! City of about 50k), and a short drive to a national recreation area.

Thanks to others for mentioning a perk test (it passed according to the Real Estate listing) and road access. It is on a good gravel road.

 

[brewer12345]

Dammit man, now you have me daydreaming about land.

 

[Keim]

Dammit man, now you have me daydreaming about land.

I've had that daydream for years, Brewer. May still be dreaming-we'll see... At least this is an affordable and somewhat sensible dream. Unlike that Ferrari.

 

[Culture]

Check the current and proposed flood maps. Here in Houston, the real estate profession has decided that they do not have to disclose the fact that new flood maps (already released for many areas in the US but not yest official adopted) show land is in the flood plain.

I was ready to make an offer on a piece of raw land. The disclosures showed no problems. Checked the flood maps coming out in 9 month and found it will be 5.5 feet below flood elevation as of that date. Will be required to elevate structure if I build after that date, would be crazy no to before that date.

I am spending 50k more to get one of the few remaining acreage lots near the river and out of the flood plain.

 

[marinauser]

Also, are there any restrictions that would prevent you from camping on the site. Often lakes where they want to develop homes will have restrictive covernants forbidding trailers, camping and other temporary occupancy.

 

[Throwdownmyaceinthehole]

Really, come on, really? I expected others to point this out. Without going all Suzie Orman on you - you have a mid 5 figure income with no debt, but only have I'm guessing under $100k in your taxable accts, and looks like you don't have any non taxable savings, so you are spending most of it. So if you don't have the cash for this, in your mid forties, why would you even consider buying? You need to be saving it! Go to the thousands of cheap campgrounds with a tent! Not trying to be mean, but most of us didn't get on the ER train by not saving when we needed to.

 

[Keim]

Really, come on, really? I expected others to point this out. Without going all Suzie Orman on you - you have a mid 5 figure income with no debt, but only have I'm guessing under $100k in your taxable accts, and looks like you don't have any non taxable savings, so you are spending most of it. So if you don't have the cash for this, in your mid forties, why would you even consider buying? You need to be saving it! Go to the thousands of cheap campgrounds with a tent! Not trying to be mean, but most of us didn't get on the ER train by not saving when we needed to.

I appreciate your concern. Your assumptions are inaccurate.

I didn't pay off the house mortgage by living lavishly.

Suffice to say that I didn't mention my non-taxable savings-as I can't tap it for this expenditure. Last year I saved around 25%, all in nontaxable. Something I've been doing since I was in college. Without figuring in home equity, my networth is in the mid six figures. Firecalc tells me I'm doing fine, and can likely retire when I am 55.

 

[MooreBonds]

Wife and I are considering purchasing 5 acres for $50k. This property is currently considered agricultural. We have no current plans to develop it. It is in the boonies near national forest and park land. It is a place we would go with our camper.

I obviously don't know where this is located..but just what little knowledge I have about acreage "out in the country", is that $10k/acre for a 5 acre plot sure sounds like some decent land! Is that really the going rate, or is it just the only person that has it for-sale?

What have recent comps sold for? Does Zillow or other websites show any recent sales and how much per acre?

If you are going to offer cash, make sure you negotiate, and don't simply pay what their listing is for on the first pass.

 

[Keim]

$10k per acre is on the high side. But, then, the property abuts a small lake and gov't forest land; and an easy drive away from a national recreation area. That adds desirability.

 

[JakeBrake]

Mr. Party Pooper (Love that heh heh):

That is a consideration. I rank it low. My interests don't tend to be fleeting (being a fellow cardude, I'll mention as an example that I've had the same car for 30 years). The property is walking distance to a nice lake, a short drive from the major local commerce center (I'm in Idaho, so major ain't large! City of about 50k), and a short drive to a national recreation area.

Thanks to others for mentioning a perk test (it passed according to the Real Estate listing) and road access. It is on a good gravel road.

In my county you dont need to pass a perk test if you use an aerobic septic system. You DO have to maintain the water discharge within your property ( which is usually accomplished with a sprinker system if you don't have sufficient property.). They say you can drink the water output from an aerobic septic system. I haven't tried, but my dogs drink regularly and they are thriving.

 

[cardude]

Back in the day when I could compound money at 15% like a BOSS, I would always run whatever I wanted to purchase through my "what if I invested it for 30 years" instead. That little exercise saved me from some silly purchases.

I'm not saying your land purchase is silly, and the 15% rate doesn't apply anymore, but if you compound at 7% that 50k would have three doubles in 30 years, or $400k at the end. Now I know it's not really going to spend like $400k today but still, it makes one step back and ask "do I really this _______?"

Ok. Off my soapbox.

 

[Keim]

Cardude:

We think a lot alike. I also look at purchases like that. It is how I have gotten where I am.

Health issues in my late 30s taught me to add another lense. Now I also try to picture what experiences and memories my money will buy me. My wife and I are making a conscious effort to have more adventures as our kids move into their middle and high school years. And, before we are too old to have fun, too!

Balance is key.

I'm not foolish enough to convince myself this land would be an investment. But, it would be an asset. And, it may appreciate or depreciate. My net worth would not automatically go down by the purchase price.

It is concerning that if I add this to the value of my fairly modest home I would have approximately 39% of my net worth in real estate.

Sometimes-like now-trying to figure out which lense provides the best picture is tough!

 

[luckydude]

A couple of other things to consider:

1. Will mineral rights be conveyed or someone else own the mineral rights? Chances of you sitting on a pile of oil or gas deposit are probably miniscule, but you never know. Worst case scenario is they find oil or gas, and someone else who owns the mineral rights sets up shop on your land to extract the deposit and ruins your land in the process.

2. Check to see if the property is on or close to a superfund site. I know this sounds ridiculous, but it happened to DW a few years ago. She found a nice property at below market price in TX, and it sounded too good to be true. So we started digging around and found that there was a superfund site about half a mile from the property. There was a factory producing batteries on the superfund site and after years of manufacturing, extensive pollution. Naturally we passed on the property.

Link: Superfund Sites Where You Live | Superfund | US EPA

lucky dude

 

[Larro Darro]

The price sounds a little high to me, but without knowing where it is, not sure. Here in Florida, you have to have 10 acres for it to be classified as ag land. And you have to have 10 acres of ag land before you can build. You will want to check on that before you do anything. The ag property tax exemption is worth it's weight in gold. My sister and I own two pieces of land on the Chipola River, each one with a quarter mile of riverfront. They are 10 and 55 acres. The tax on both of them is under $300.

If I was you, I would look for some real farm land, and let it go back to trees. I think you could get twice the land for less money. You will find that trying to reclaim woods is a tough and costly job.

 

[Jack_Pine]

Life is full of choices and trade offs.

We bought property in Wisconsin 15 years ago. We have enjoyed it many times every year. In fact we are going to retire there and snow bird to Florida. Could we have retired a little earlier if we had not bought that? Maybe, but we chose the enjoyment and have note looked back.

Good luck with your decision.

 

[Dalez]

Check the zoning laws. Where I live you can only live in a camper 120 days a year and can't hook up to a septic system. You must show proof of emptying of tanks every 30 days.

 

[JOHNNIE36]

I remember something from real estate school about not buying land unless you intend to do something with it within two years. Like build. I'm not sure how true this holds today. The premise back then was that you would have a sizeable investment on which you would be paying taxes and unless land was to appreciate in value faster, it would not be good to buy. Don't go by this old axiom as things have changed since I was in that school (1988).

 

[hedspase]

A big part of my retirement plan involves a similar strategy. I bought 30 acres 4 yrs ago using 20k in cash, and 50k from a HELOC. We have been slowly paying down as the interest is low, 4%, and it is good to know that we own the property outright. We pay about $100/mo in property taxes, and $25/mo to have electric. We have built a pole shed to house a tractor and workshop, and I am in the process of building a house myself. I am hoping that in 2 yrs, I will have the house complete after investing 30-40k in materials, move into the house, and be mortgage free, hopefully making a profit off my current house in the suburbs. I am having a blast as my kids are in college, so I can spend every weekend working on the house. Good luck!