Vacant land can be a truly rewarding investment. But some have found that holding onto vacant land is costing them more than they thought in Minneapolis St Paul.
Many wealthy investors have made millions of dollars holding onto the land until just the right time to sell. Holding on to vacant land can also cost you real dollars; it can be today, tomorrow, next year or in the long run. There are annual property taxes to be paid and potentially property owner’s association fees to consider, not as many tax benefits, no cash flow, and property maintenance issues, and market conditions to consider. The wealthy investors are able to do it because they have deep pockets and can sit on the land waiting for just the right time to sell. Normally people like us often do not have that luxury. Call Minnesota Cash Home Buyers at (612) 444-5088 to discuss the ways holding onto vacant land is costing you.
True Annual Cost
Purchasing vacant land might not be as expensive as buying a house, but don’t forget about the annual property taxes! Depending on the city, county, and zoning of your land, the property taxes might be a few hundred dollars up to thousands of dollars. If you hold onto your vacant land and don’t do anything with it, you might end up paying double or triple what you did for the land in annual taxes and have nothing to show for it but the same piece of vacant land.
Then there is the city or county that sends out notices that your vacant land needs to be mowed, trees cut down, snow removed, or just about anything they can come up with that will make you send money just to keep it. If you don’t do the things they ask, an official letter comes out to you with demands to do this thing or else the city or county will do them and just bill you. More money going out the door.
Another potential annual fee if you are in a multi-unit land development used for future condos or townhouses is the property owner’s association fees. If you purchased land in that community with an association, these fees might also be a few hundred or a few thousand dollars a year, depending on the type of community, how much land you own and the services they provide and what amenities are available at that time. Also, keep in mind that there might be public utility expansion or other special municipal projects that could be added to your annual tax bill that may or may not improve your land.
Owning vacant land is a nice investment asset, but it has fewer tax benefits than owning a single-family home or a commercial property today. There is no depreciation to claim on your taxes, and vacant land does not usually qualify for any type of homestead exemption on your tax assessment. Many land developers know this and have to consider it as a cost of doing business as they hold on to the property waiting for just the right time to develop.
Holding on to vacant land is a negative cash flow situation. You do not have a structure to rent out and collect monthly payments. Depending on the zoning of your vacant land, you might be able to recoup some of those annual tax fees by using your vacant lot as an extra rental space. Some out state Minnesota landowners rent out their land to hunters and campers who use it seasonally. You might want to consider purchasing property liability owner’s insurance if you do anything like this. If something happens to someone on your property while moving, hunting or occupying your vacant land, they might file a lawsuit against you. That would be a huge cost to you. You may have to hire an attorney to help fight the lawsuit and even if you win, you lose because of who much you paid in fees.
Holding onto vacant land can also become costly to maintain. If your property is in a city, they may require you to keep your property mowed. If you have a lot of trees, they may require you to clean up the brush to guard against fires. If your vacant land isn’t in the best of areas, some dumping might occur on the property, turning it into a miniature landfill! This trash and garbage might cause you to have code violations and can be costly to have it removed. There may also be unknown contaminants or toxic issues on this land that you are unaware of, but once discovered, this might also be costly to clean up.
Holding onto vacant land can be a big mistake for you. If you buy your property while the market value is high called a sellers market and hold onto it for too long, the value might decrease more than you expect. Depending on your purchase price, it might cost even more than your annual taxes to hold onto it year after year. You might also be losing hundreds of dollars of market value. Many investors of land remember the 2008 real estate bust and loss money or even the properties themselves they gave back to banks because of foreclosure or to the county for unpaid back taxes. Those investors are very aware of what it felt like and vowed to never be in the place again. If you are there today, give us a call.