Financial planning dilemma

Business Money
1

Actually, I guess it’s more of a polylemma, but whatever.

I have a chance to buy some truly spectacular land in the U.S. Land in its area has been appreciating at 8-10% per year lately, which is a slowdown from the 1990’s. This is probably my last chance ever to afford some, since it should rise faster than I can make cash to buy in. The only problem is, it will tie up almost all of my cash and will still require (affordable) payments.

Alternately, I could skip it, tell myself that not everyone can live in Malibu or The Hamptons or Clyde Hill, and put the money into more liquid assets such as stocks, gold, and so on.

If I were to plan to sell the land at some later point, I could consider it an investment, but I would be buying it to retire on, not to flip. Transaction cost is about 14% (yes, that is correct), so, considering taxes, I would barely break even, if I were forced to sell it, after five years.

Unemployment in the area is high. It is not a place where people work and live; they are mostly independently wealthy, retired, or hubbie commutes while wife and kids live at the country estate. If I were to live out there pre-retirement, I would have to have a home-based business. (There are laws and rules regulating that, too, so it might be a real bitch to do.)

What else should I consider? How dumb of an idea is it to buy this property?

Thanks for any advice (at least if it’s serious or at least really funny).

2

There’s some well respected authorities that claim there is a real estate bubble in the US. This claim is based on the easy financing and low interest rates which have sustained growth in this market even while the rest of the economy has been sputtering. The theory is that once interest rates begin rising, the number of buyers will decline drastically. If the economy grows slowly, this could also spell trouble for owners who may have trouble paying their mortgages if interest rates rise (many have financed with adjustable rate mortgages). I would advise a lot of caution, especially since you say that you would have to tie up most of your assets in this deal. It is very risky to put all of your net worth in one type of investment. Now true, if real estate tanks at least you still have the land, but you may end up regretting it all the same.

I would recommend reading the book “The Coming Crash in the Housing Market” by John Talbott so you are aware of the risks in the US real estate market.

3

IF the land is truly spectacular it’s probably a good investment long term. Most important is the crime rate and planning law right?
People always want something special and they WILL pay for it. There will always be rich people who want something nice.

If you wanted to invest in property for investment purposes prime areas are eastern european countries close to rich countries like Poland, Czech republic, Hungary, Slovakia, with well educated populations and stable govt and spectacular scenery. If the country has a high birth rate the land does not have to be special to be pretty assured of making a gain.

They dont keep making ‘spectacular’ land, rather it keeps on disappearing, anything like that in a stably governed country with a diversified economy is bound to be fairly solid in the long term.

4

jlick, I sold my house in Seattle because I likewise think there is a bubble. (In fact, Seattle prices fell 3% in the last year. I think they have room to fall much further. I don’t expect rates to rise much, though.) I think this area will be sheltered from the drop because it’s on an island which is becoming a rich folks’ playground, and almost all of the good-quality land has been bought. It is geographically limited; a buyer can’t just go up the road a few miles and live with a ten-minute-longer commute.

HH2, it’s in the U.S., the crime rate is miniscule, and local zoning requires a minimum of five acres (this parcel is eight). Water is an issue on the island, but this parcel has a 20gpm well, enough for at least five families.

Five years ago, when all my money was locked up in the house, acreage of this quality was readily available out there. This year, this is the only parcel I’ve seen which was buildable flat pastureland. Another piece I saw, for almost the same price, was five acres of rock on a mountainside with no water, power, or phone; the only thing going for it was a really sweet view, but to make it livable would have required serious engineering and huge costs – the only water available would be rainwater catchment unless a welldigger got severely lucky (after drilling through 400ft of rock).

5

I would think this one out a bit more.

  1. Are there going to be rich people willing to follow you to buy this property if you need/want to sell it?

  2. How long does the average lot stay on the market?

  3. Is it that important to have? Housing is a difficult investment and requires a lot of thought. Housing bubbles can also make pricing difficult.

  4. Could you earn a higher return investing the money elsewhere?

  5. What is the likelyhood of a distressed asset sale from someone else and you

  6. Have you gone through the local county records(liens, clouds on the title, etc) on this plot and/or talked to the owner? Why are they selling?

I’m sure we could give you ideas, but without knowing the full situation it’s like pissing in the dark.

CYA
Okami

6

According to Rich Dad Poor Dad, by Robert T Kiyosaki

Look at pp. 96 - 97

“…money has a way of making every decision emotional.”
I will summarize:
Most people are paying for a property all their life. When they pay off enough, they buy another house. The property taxes can go up quickly and put a big burden on you. Property doesn’t always go up in value.
Finally, you miss opportunities.
So, he advises a young couple to invest in an investment portfolio.
If you invest in property instead of a portfolio you will lose:

  1. time
  2. investment capital
  3. you must maintain your property
  4. you won’t learn how to buy a good investment.