Why buy land and wait to put a house on it?
I’m hoping that my wife and I can buy a house or build one soon and people have recommended that we buy the land first. I see this scenario come up every now and then and I don’t know it.
Why would one buy land, pay it down and then place a house on later?
The best buildable lot in my area is 5,000. What would be the advantage of getting a mortgage for that land paying it, as well as my current rent, and then trying to get the other 0,000 to build a house in a couple of years?
I just don’t know how this would work or what I would gain. Any experiences or thoughts?
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Pros of buying the land now:
the value of the land may appreciate. If it goes up by 5% a year, and you build in 5 years, it will be worth around $150,000 then. That’s equity that you bring into the deal when you build.
You may choose to sell the land and build somewhere else. The increase in value gives you extra money for the new project, assuming that the appreciation covers the costs of selling it.
The fact that you can carry both the land and the rent payments will boost your credit rating, making it more likely that you’ll get approved for a mortgage.
cons:
the land will cost you money to keep and maintain. You’ll pay interest on it, but not be able to deduct it on your taxes (assuming you’re in the US). You’ll also have to insure it. If it’s in an area of other houses, you may need to keep it mowed at least once in awhile.
Some banks won’t loan money for vacant land. They want you to build on it now.
If the value doesn’t appreciate, you still have to make the payments, or else sell it and take the loss.
If the local zoning authority changes the rules, you may not be able to build on it, or the cost of building may go up. I know of an area where this happened. Many people bought land to build vacation or retirement homes, and the county changed the rules regarding septic system drain/leach fields. This changed the requirements for many of these properties. Suddenly they needed engineered systems, or else needed to connect to a municipal sewer system that didn’t exist yet.