Buying an extra property????

frenchyd said:

In reply to stuart in mn :

a second home no matter where is twice as much work as the first home.  But Lakeshore, riverfront Oceanside living is in great demand. So much so it appreciates more than twice as fast as other property.  

Realize that wealth gained through real estate investment is massively more profitable than other investments.  

The downpayment you use  controls an asset many times the investment with special tax advantages.   With as little as $20,000 down you can control an asset worth 1/2 million. At 3% inflation that’s a $15,000 profit with special tax benefits.  Yes you need to make payments, maintained and pay property taxes.   But the payments, maintenance and taxes are for the most part fixed while rent will increase  without any return.  

Unless you cheat or are extremely lucky $20,000 invested in the stock market will not give you a $15,000 return in one year.  Historically less than 5% of investors beat the Dow over a 5 year period.  Even if you were able to do better than 95% of everybody else income taxes will drag you back down while the investment in real estate will keep appreciating st least at the rate of inflation. Waterfront because of demand will at least double that.  

 

Real estate can be lucrative. You can also lose your ass. Buying a rental property with positive cash flow is a lot different than buying an empty lot in a different state. Comparing a 20k downpayment on a 500k property to just dumping 20k into the market isn't exactly a fair comparison.

Take that $20k and invest it. The monthly payment on a 500k property with 20k down is 3300/month. Add that each month to the 20k initial investment for the next 30 years. Average stock market returns of about 8%. You would have invested a total of 1.208 million, but you'd end up with a final value in the neighborhood of $5.1Million.

Doing the same for your property, you'd have paid back the 500k principle, plus 364k in interest, so you've invested 864k before taxes, maintenance, etc and at 3% inflation your property is hopefully worth 1.228 million in 30 years. And then a realtor will take a chunk out of that when you want to cash out on your investment too.

Income properties are one thing, but please don't think that spending money on real estate automatically equals a good investment. As you've already said multiple times, real estate averages gains similar to inflation. The stock market typically returns far better over time. If you're buying property simply due to speculation about appreciation, you're probably just losing money by comparison to other options. Real estate investments need to cash flow in addition to any appreciation that might occur.

Either way, it doesn't sound like the OP is approaching this as an investment, so comments about ROI may not be topical.

OP, you need to confirm the utilities and costs associated with hooking them up. I do some part time work for family in the building trades. Custom, high end homes. I was in a new home recently that was under construction. It probably sat 400-500 yards off the nearest road. There was a natural gas line along the road, but nothing back to the homesite yet. The homeowners wanted natural gas hooked up. The lowest estimate that they got was $20k to run a line from their road back to the house. If the plan is to build a home at some point, do your due diligence and make sure that unexpected costs don't come up down the road.

So a little more backstory on the location, I have been going to this area of NC since I was a kid.  My wife and I both went to college close by (about 40mins away) but she and I have vacationed up there for all 15+ years of our marriage.  My kids are 7 and 3 and while we are trying to take them on as many adventures as we can, they have also gone to this same area with us since birth, and they love it up there. This area has been my happy spot for many years, and my wife even pictured the area when she needed to find her "happy place" during childbirth.  lol.    We'll be going up there until I can't go anymore. 

However, as some have pointed out I do not want this property to be all my kids know and the only place we ever go.  Looking at it financially the costs of just the land would not prevent us from doing any of the other trips we would like to do.  For example, we are still planning on taking them on cross country trips to national parks out west and up north.  We would still be able to take them to the beach or wherever when we so choose.  And someday to Disney (ugh) to see Star Wars stuff (yeah).  

Funny you guys have mentioned TN twice with Maryville and Seiverville.  Our main residence is in Knoxville TN and the property is about 3-3.5 hours away.  It is interesting that you guys have pointed out taxes since the taxes between TN and NC are totally different.  The property is in what I would call a vacationy/resort town.  Tons and tons of vacation homes, and very few full time residents.  However, there is a small police department which patrols the area and there is extremely low if any crime rate.  I think bears in the trash cans, and drunks on the ski slopes are probably the biggest concerns for the local pd.  This property is past all of that normal vacation areas and in a more private spot on the mountains.  Some restaurants on the mtn, a small grocery store for the essentials, but no gas until you get to the bottom.  It is close to a small stocked pond and trout stream.  I need to do more research on the stream behind the property to see if it belongs in NC Wildlife trout management program.  So to us the area is not only very familiar but also has lots of amenities to make it marketable, should we need to sell/rent/whatever in the future.

Based on some of ya'lls suggestions and speaking to a builder buddy of mine here are some of the things I am going to do before we move further (I'll gladly take any others that you guys may have)

1. zoning records

2. Tax records

3. survey map

4. topographical map

5. county records

6. flood plain 

7. HOA if applicable 

8. building restrictions 

9. Call my home owners insurance company and ask about insurance options for the land

10.  Utilities hook up cost and availability

11. Anything else

See if you can legally park a travel trailer there. It's sometimes a good stop gap for the time between when you purchase a property and when you can build, and it's also nice to have some place to stay while building if you do any/a lot of it yourself. And make friends with your neighbors if you get it. The best crime prevention is a set of eyes. 

In reply to STM317 :

Please  take this not as the insult it sounds like but a caution.  If you want a happy ending it depends on where you stop the story. Or the more hostile Liars figure and figures lie.  

By that I’m referring to your comment about the 8% rate of return in the stock market.  Stocks because of their liquidity are almost like cash So rate of return depends more of timing than anything else.  I was heavily invested in a highly leveraged deal when the market tanked.  I only actually lost $3000 but I had been up over a quarter of a million.  A year later that same investment would have been back but my quarter of a million had gone in the first hour. 

Later through careful conservative investment of my retirement funds  ( the Dow through Diamonds) I was nearing 1/2 million when  2008 happened. I knew I should have gotten out but the penalty would have been 50% plus an income tax rate of 30% on whatever I did get out.  

In the end facing foreclosure I accepted the penalty but was only able to bring the house current and have enough to supplement a few more payments.  

Real estate went from $27,800 to $99,000 in 9 years. The next place went from $107,000 to 2.3 million.   

Your figures don’t tell you the whole story.   The interest on your home you pay is tax deductible while only stock market losses are tax deductible and then only if you actually buy and sell, not on paper  plus only 5% of investors actually exceed the Dow over a 5 year period.  Thus there are a lot more losers than winners, it’s very close to gambling covered in analysis.  

As far as payments go since shelter is essential they are more like food in that it’s part of the cost of living.  Payments are fixed  for up to 30 years while rent will always go up with inflation and demand.   In the end renting will be much more expensive. Look at rent increases over the past 30 years!!!  

Maybe I missed it, but what kinda prices are we talking here?

For example, in my area, vacant land of any worthwhile size would cost nearly half our annual household income or more. Unless I was willing to live someplace with no services, in which case it might cost between 10-20% of our household income.  

Spending 15-30k on a nice lot with tons of space within reasonable drive to civilization and the ability to someday have all services on the lot is a bit different than $100k on a vacant lot. 100k for 30 acres, though, that might be worth it.

In either case, I personally would want working land unless super cheap. IE: a place to store stuff, work on projects, be able to live at in an RV if I had to sell my main residence. Working land could be a spot that could be partially farmed to a nearby farmer, or have a residence that could be rented. Even spending $15k on a 1 acre lot that is completely vacant and without any nearby services and 45 minutes to the nearest grocery would seem excessive to me, unless that land is reducing costs back at the main residence. 

That's what it boils down to, for me: is the property paying me back in something besides good feels? My family had a cabin on a stream in northern Pennsylvania. We went there often. My father would go up by himself when he was younger. Over time, the damaging floods and erosion of the stream made doing anything with the land an impossibility. We had a small concrete block cabin, and that's all it would ever be. When it came time to sell it, I talked with my family about what they wish was different, and they all said the same thing "we wish would have bought further up the hill". My grandfather hated the floods. My dad and uncles wished it had some place to store stuff (pole barn, for example).  One of my uncles, a golfer, really never had interest in the place. It was a money sink that didn't pay anything back except good memories, and once the family started falling apart through divorce and death, even those memories were worth letting go of. 

Lots of good ideas in this thread. As someone looking for a third property right now, I'd suggest that you start your search with a turnkey place that your family can use right now.

A vacant lot is perfect if you have a very specific idea for a home and the capital to get it built right away.  If you don't have the capital to build right now, who knows how long it will be until you have the home you want and can enjoy spending time at.

Think of it in GRM terms - is your goal to get your car on track ASAP and enjoy driving it or is do you prefer to enjoy the process of tinkering with a project car over time and get it exactly how you want it to be.  Both are valid options but with two very different expectations going in.

In reply to frenchyd :

Yes,  markets go up and down. Doesn't matter if it's the stock market, the real estate market, or the air cooled Porsche market. Anybody can be caught at the wrong time and lose out, or the right time and cash in. Nothing is guaranteed. All we can base our choices on is trust in the math, and historical precedent. The gains and losses aren't real until you cash out though. If you panic, and sell while a market is in decline, then you might be able to say that you saved some money from being lost. Others would say that all you did was lock in your losses, and you'd have been much better off riding it out. The long term odds over a period of something like 30 years favor the stock market vs sheer real estate appreciation, or trying to pick the next hot car investment.

I'm not saying that real estate is a bad idea at all. The leverage that you get from low percentage debt is tremendously valuable if used properly. And, when counting cash flow and tax benefits, the right rentals can outpace average gains from the stock market. But none of that is what we're talking about here. I'm sorry for dragging this off-topic discussion along. If you want to continue, you can PM me.

I've owned working properties and also my family has owned vacation land in the past. I totally agree with Pheller on his statements. I would need to see returns for it for me to buy another piece of land again in addition to the one I'm living on. 

I had a condo in Chicago on the Northside. Lake views with good size that I rented for years. Bought right and had it rented the entire time. I only made money on it over the market based off the fact that it was rented the entire time. If I was just paying it monthly out of my dime, I would have barely been making any money with the interest, Tax, and Maintenance I was paying. My current house I'm living in even in a hot for many years Austin Market is flat in terms of pure financial returns. I got the returns of being able to live here for basically free but that is a different discussion all together. Non-working land is a place to live and not an investment category. 

Having looked at working land lately. (Wife wants alpacas and to make goat milk items) My thoughts are as follows:  

1. Make sure it has utilities to the door. If it doesn't punt. That gets really expensive quickly. 

2. Look at the cost to improve the land. It can be a fools savings  to buy a land and then think, I'm going to build a place later only to find that the cost to build it out is a heck of a lot more then a place down the road that is already built out. 

3. Mark sure you can trust the neighbors. A place that is empty for a long period of time is a target. Without neighbors you can trust, that place may come back either empty or trashed. 

4. Make sure you are going to use it. A place off in the distance sounds great and relaxing but if you aren't there 2 months out of the year it can quickly become a sore point and headache. I've seen a lot of fights start this way between what I thought were solid couples. 

Just my 2 cents. I'd never do it again and in fact just sold off my claim to about 100 acres in PA from a family inheritance. 

My dad has owned two "investment" properties in his life, although both were more long-term retirement locations/vacation properties, and he didn't really expect to make money on them. I was involved in the financial calculations with both though, and he explained to me why they were and were not investments, and what he looks for when he purchases any property--and I used this when I purchased our home (our only property).

With any property, you want it to have something that can't be changed. Walls can be moved, buildings can be torn down and rebuilt. Look at the location itself--what does it have that is going to keep the property value up? This could be a school district, it could be a beautiful view, it could be waterfront... Maybe it has some very special zoning, or its high ground in a generally swampy area. Something that people want to buy. 

If it doesn't have any of these going for it, don't expect it to appreciate in value, and don't be surprised if it loses value. That's all I have.