Land Lust

[davitk]

I have, perhaps, a once in a lifetime opportunity to purchace land accross the highway from our farm. 52 acres @ 10K/acre, owner is willing to divide "farm land" and sell at a reduced price if he can maintain his bulding rights.

My question is, since I just bought a 20K tractor, have three young kids, am self employed, wife doesn't work (outside the home ), and money can be tight: should we or shouldn't we?? Our credit is excellent so going deeper in debt is easy .

Not a good picture, but this is the portion of field directly accross the road, looking at our farm.

 

[Tororider]

Well, money-wise it is up to you, but as my dad likes to say they aren't making any more land. I have family in the Oconomowoc area and if land is anything pricewise like around their place, that seems like a heck of a deal.

 

[riptides]

Debt is OK, IF you can manage it.

I'd say land is OK do go into debt over.

It is a buyers market right now, perhaps an even sweeter deal awaits?

-Mike Z.

 

[MACDABS]

davitk,

That is a tough one. By maintaining building rights if he sells confuses me ? If your talking right aways this could effect the value a good bit.
Probably the intention you have for the ground or to protect the value of your property would be my concern. In the housing market and around here if the ground will not perc, have sewage, or public water the value is much less. The way the economy is in our area"cash is king" ! Not to say land is not a good investment, you must figure in the intrest rate for payback or the possibility that it can be developed when the housing market comes back .

There is 10 acres accross my driveway with a 30 acre parcel and a overpriced home for sale , empty . I would pay 10k a acre in a minute just to keep the future buyers from riding dirtbikes or hunting in front of my house .
I know it will not perc ,has no timber value and would appraise at 6-7k acre, but the privacy is worth protecting for my view and increase the value of my home so I would over pay now for the future. I however would not put my self in a strap position unless the ground could be developed and sold off if needed. The present owners are a good example , paid top dollar for the home with 33 acres,dumped 100k fixing up the property with every intention of living their for the next 25 years ,something came up had to move back to their home state to take care of parents and a health issue . Now the home is awsome , one of the best veiws around, but the ground around it that boarders me is not worth the amount they need in todays market to break even. Now if the 10 acres accross from me could be developed they could split the ground and keep the home on 23acres and make money or breakeven at least. I have a good banker friend, now he is not a risk taker and is very conservative, always have a exit plan and cash never is not in style. Also I spend more than I should sometimes to push myself to keep working , and I like a big sandbox like the next kid to play in.


Macdabs

 

[davitk]

By maintaining building rights if he sells confuses me ? If your talking right aways this could effect the value a good bit.

Macdabs

I guess I should clarify. Here is WI land can be "split" (i.e building rights) based upon a historical density study, a very complex study going back to the original plats recorded when the area was settled in the mid 1800's. I do not want or need the split, the land being contigious to mine, and am not interested in building, just controlling where the building ultimately happens. I would prefer to own the entire parcel, but realistically 10 to 15 acres....

 

[MACDABS]

In our area if the land does not join your property it is called a major subdidvision and makes splitting the land very difficult. If the parcels join each other it is a minor sub and much easier. How is the home market your area holding? Is it tough to get building permits for a minor subdivision? I know 10-15 acre tracts are slowly disappearing for .5 acre subdidvisions due to building codes, sewer and water needs. I have a freind that went from home building to retirement 8 story condos. His claim is baby boomers our selling the large homes with maintenance to get out of the cost and upkeep . The only way he would do a development again is .5 acre lots with 150/200acre parcels. Many twps and citys req the builders to provide so much engineering for wastwater management and studies that you do not see a return unless you build 30-50 houses after the land purchase.

When he started he purchased several city lots for $300.00 a pop.. The city wanted more tax base on empty lots ,he made a ton of money with cheap housing, but basically paid nothing for the land .

Your response sounds like you want to protect your privacy , and if that is the case , if you can swing it go for it. The best advice I can give you is watch how you set the deed up and do any enginneering or surveying with the intention to build on it later if possible. That gives you a marketable parcel if you do need to sell it off plus keeps the value increasing on the parcel. Plus if zoning or local building setbacks change you can be grandfathered in . In our area once you get a perc you must renew the permit every 5 years or start all over . Many tracs that perced 5 years ago would not with todays standards. 12 acres next to me , mostly powerline sloped ground , sold for 89k . It needs power run to it ,well drilled , and lots of excavation and a drainage solution before he builds. I asked him what made him by it , he claims it perced 10 years ago but the permit had been renewed every 5. The guy that sold it paid 15k in 1993 and picked a easy time for it to perc. The same guy that owned this trac owned several pieces and knew how to seperate land and sit on it long enough to make money.

Macdabs

 

[Champy]

If this were my decision, I'd be looking at the cashflow opportunity of the property. What is the crop lease if you rent it? If the opportunity comes up, can you sell it for more (are property values increasing, flat, or declining). What are the taxes, and risks of loss? How fast could you get out from under the loan?

All things considered, ask yourself what could you invest in for $520,000 that will provide an equal return at similar or lower risks? That same payment for the land could easily fund college accounts for you kids..... On the flip side, when my father passed away, my brother and I really benefited from his approach to buying land back in the 60's and 70's.

Tough choices and good luck with it.

 

[EddieWalker]

I like to live my life on the basis of not having any regrets. If you decide not to buy the land, and you are capable of doing so, will you regret that decision?

Eddie

 

[mboulais]

Around here I would not expect to pay that much for farmed muck land even. I haven't priced tillable fields, but I can get a woodlot for about $1k/acre. Building lots are one thing, large tracts of land another. Unless that really is a bargain there, I'd pass.

 

[MossRoad]

I have, perhaps, a once in a lifetime opportunity to purchace land accross the highway from our farm. 52 acres @ 10K/acre, owner is willing to divide "farm land" and sell at a reduced price if he can maintain his bulding rights.

My question is, since I just bought a 20K tractor, have three young kids, am self employed, wife doesn't work (outside the home ), and money can be tight: should we or shouldn't we?? Our credit is excellent so going deeper in debt is easy .

Not a good picture, but this is the portion of field directly accross the road, looking at our farm.

I'll play devil's advocate here, so don't take this personally, O.K.

You say that money can be tight, so where are you going to get a half a million dollars? Most lending institutions will not give you a loan for the full amount on vacant land. Most require 20% down. So let's say you give them that $100,000 that you happen to have on hand. You still have a $400,000 dollar loan. At 6.5% interest, your mortgage payments will be over $2500 per month for just the principal and interest. No taxes yet.

$2500 per month times 12 months = $30,000 per year.
$30,000 per year times 30 years = $900,000 for a farm field just so no one will build across the road from you?

You have three small children and are self employed. What happens if you are unable to work? Are their college funds funded? Is your retirement and your wife's retirement funded?

Now, assuming you are 30 years old, and if you invested $2500 a month until you were 65, at 8% interest you would end up with approximately $5.7million dollars.

So, you can either have the peace of mind of not having anyone across the road from you and own 50 acres when you retire, OR you can plant a windscreen across your front property line, invest what you would have spent on the 50 acres and retire with almost $6 million dollars.

Just something to think about.

 

[davitk]

Good post.

Farm land is more like 3K/acre, realistically looking at 10 acres.

 

[MossRoad]

Good post.

Farm land is more like 3K/acre, realistically looking at 10 acres.

That's more like it.

 

[Rara Avis]

That's more like it.

Actually land values can vary greatly...my 1/4 section in ND was last valued at $2500/acre...The WHOLE section was bought by my Gma for $23.10 at a tax sale back in the 20's...a couple years prior to that land was very expensive in ND...

 

[wjoerob]

It always worries me when somebody thinks "it's always easy to go deeper into debt." Most people think it, but usually only the banks and credit companies say it out loud. Several bits of info missing here:

What did you intend to use the land for? Farming? Pasture? Looking pretty?
Did you go into debt for the 20K tractor?
What provisions have you made for your family for emergencies?
What happens to your wife & kids if you're disabled or killed?
Is your present place paid off?
Do you have a plan to get out of debt -- EVER?

It's true, they're not making any more land. And it's true, it's a buyer's market. But every breadwinner has the responsibility before God to make sure all of his "ducks are in a row" before indulging in toys and whims. You ought to provide for them first. And the thing is, debt just makes you someone else's slave. This society has poisoned our minds to make us think debt is normal and helpful. In reality, it's poison.

 

[MossRoad]

Good post.

Farm land is more like 3K/acre, realistically looking at 10 acres.

Just so we're on the same page...

Are you looking at 10 acres for 100K or 10 acres for 30K? It makes a whopping difference.

 

[davitk]

"Money site" is on top of hill about 1/3 mile away from us, this has the highest quality building potential. Land accross the street is low, some of it floods and in my estimation is worth 3K/acre at the most. Per conversation with realtor on Friday this may be available at a reduced price which is as of yet, undetermined.

 

[riptides]

It's true, they're not making any more land..... This society has poisoned our minds to make us think debt is normal and helpful. In reality, it's poison.

If you view it as a tool, this person has an opportunity before him. Without this tool, what does he have available?

What do any of us have available when we are starting out? Without the banking system I would not exist. Without taking risk, I would not have the life I have today.

-Mike Z.

 

[Champy]

And the thing is, debt just makes you someone else's slave.

Regarding the comment quoted above. I am not making judgements on debt or not, but would like to relate my actual situation over the past 3-4 yrs. After my father passed away in 2004, my brother and I inherited all the property, house, cottage, Florida home, etc...and life insurance funds. Some we sold, others we kept in a common trust ownership. My wife and I agonized over what to do with the "new" money from the sales....pay off our house; invest in land; buy a vacation home; college funds; etc....not to mention the guilt over the real price paid to inherit this money. We eventually used it to pay off our home and start 529 College funds for the boys.

But the real end result of paying off the house was not simply a financial change/improvement. As my wife pointed out during the "what do we do discussions": Now I do not HAVE to work at the Plant to keep our home. If I am laid off; the plant closes; etc.. I can work at McDonald's to pay the taxes (my wife is a teacher so we get medical through her). This action was a huge burden off my back. I no longer had to stress about losing my job causing us to lose our home, property, etc.. it was very liberating emotionally. And losing the old house payment has increased our overall cash flow, which has allowed us to continue funding the 529 Accounts for the boys college; pay off other debts; buy a tractor; we worry a lot less about our jobs and the family life is more relaxed / happier. I am even expanding my side business (Christmas Tree farm) which has been a great opportunity for me to focus on something I really am interested in versus forced to do.

The bottom line I want to stress is for you to also consider the "other" aspects of your financial decisions. Personal; emotional; ethical; etc....are all affected as outcomes of your money choices.

 

[MossRoad]

If you view it as a tool, this person has an opportunity before him. Without this tool, what does he have available?

Yes, loans are a tool. So is dynamite. You have to be careful with both.

 

[MossRoad]

But the real end result of paying off the house was not simply a financial change/improvement. As my wife pointed out during the "what do we do discussions": Now I do not HAVE to work at the Plant to keep our home. If I am laid off; the plant closes; etc.. I can work at McDonald's to pay the taxes (my wife is a teacher so we get medical through her). This action was a huge burden off my back. I no longer had to stress about losing my job causing us to lose our home, property, etc.. it was very liberating emotionally. And losing the old house payment has increased our overall cash flow, which has allowed us to continue funding the 529 Accounts for the boys college; pay off other debts; buy a tractor; we worry a lot less about our jobs and the family life is more relaxed / happier. I am even expanding my side business (Christmas Tree farm) which has been a great opportunity for me to focus on something I really am interested in versus forced to do.

The bottom line I want to stress is for you to also consider the "other" aspects of your financial decisions. Personal; emotional; ethical; etc....are all affected as outcomes of your money choices.

I agree completely. My wife and I did a good job of paying as we went and never had to borrow too much money. We've had three small mortgages and now we carry a home equity loan for property tax reduction purposes and use that for large purchases like cars and tractors. For all intents and purposes, we have been debt free for over 10 years. It is a great feeling.