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Is this land cheap for a reason?
March 25, 2012 10:25 AM   Subscribe

How do I determine whether to purchase vacant land next to my house? 1/3 of an acre in western Oregon, $15,000, but no utilities.

So my wife and I are in the market for a piece of property, simply because we are adjoining property owners and got a nice letter from the seller that piqued our interest.

The price on this residential zoned property is very low (for Oregon standards and their crazy zoning), mostly because of the lack of utilities. I just learned it will cost $20k to bring in sewer, another $20k for water, and I don't have bids back yet for electric or gas. Because I own the adjoining property already, I may be able to get this work done for significantly cheaper, but that's a bit unclear.

If we purchase the land, the intent would be to put a nice garden on it and use it undeveloped until we paid it off, and then maybe use the land as a downpayment for a construction loan and put a single family house on it. I liked this idea better when I was thinking of utilities as a $10 to $20k improvement, not a $40k + one.

What else should we be considering in whether this land is a good price? If we just added it on to our current property, it would double the size, although it would be a weird "L" shape because we are on a main road and this property is accessible only through an alley easement. And while the idea of having more land just to have it is nice, we got a lot of space already, and I'm not sure whether the additional size would really translate to better real estate values if we decided to sell the whole package sometime in the future.
posted by Happydaz to Home & Garden (18 answers total) 1 user marked this as a favorite
 
Well, one good reason to do it is because if someone else buys it, they might run utilities and build something you don't want built there.

I can't think of any bad reason to do this, assuming you can afford the $20K.
posted by dpx.mfx at 10:27 AM on March 25, 2012 [10 favorites]


I would buy it because it is only accessible via an alley easement and having new neighbors there would probably be very annoying. I have seen people not buy land next to theirs and forever regret it, especially if someone puts up a cheap multi-unit rental home next door.
posted by meepmeow at 10:29 AM on March 25, 2012


This may be something you've already ruled out, but could you purchase it and water the garden with a long hose from your existing utilities?
posted by bookdragoness at 10:34 AM on March 25, 2012


I would second the suggestion to buy it just so that someone else doesn't.

Also, a word of caution - I've heard of people doing this and then officially having the plots combined (into one deed? I'm not sure exactly), which has led to higher property taxes (more than the sum of the taxes for each plot individually) because a bigger plot of land is better in some way/appraises for more/etc.
posted by needs more cowbell at 10:35 AM on March 25, 2012


It sounds like a great deal, and potentially good investment in the long run, especially if you don't want someone else building on it. I would suggest keeping it a separate lot legally, as it will allow it you to sell it more easily if you choose (or have to) sell it in the future. In my experience, two separate lots can be worth more than a single lot of the equivalent size.
posted by ShooBoo at 10:38 AM on March 25, 2012 [1 favorite]


I don't see a downside to buying it if it feels affordable. $15K for a giant marvelous garden space sounds like a great deal, and then when you have the cash to develop it you can decide what to do.
posted by Sidhedevil at 10:40 AM on March 25, 2012


Hmm, seems like more information might be helpful: We plan to continue living in this city for the next 2 to 10 years. We have water and electric hookups (on our property) right at the edge of this one, so we've got what we need to use the property for now, it's just the prohibitive cost of new residential development that I'm balking at. Financially, we have enough to afford a monthly payment on the vacant property and pay it off in 5 to 10 years.

If someone else buys it, I'm not too worried about how it would be used or alley access. I don't really know how to describe the layout, but I'll see if I can do it with ASCII:

STREET.........................................................
--US -----Neighbor******
-----------*************
-----------*************
-----------*************
-----------XXVacantLandXX
-----------XXXXXXXXXXXXX
-----------XXXXXXXXXXXXX ----------- Alley Access
-----------XXXXXXXXXXXXX
posted by Happydaz at 10:51 AM on March 25, 2012 [1 favorite]


What happens if your neighbor buys it?
posted by JohnnyGunn at 11:42 AM on March 25, 2012


Alternate, split the purchase of it with your neighbor to make it more affordable and have the parcel subdivided (Haven't done it in Oregon, but in California the hassle/price was pretty nominal). You could probably make a decent argument for them paying a little more for their 50% since it adds to their existing size in a standard (non-L) configuration. Obviously they'd get the half that is closest to their house, you'd get the half that is behind the alley access.
posted by arnicae at 11:47 AM on March 25, 2012 [1 favorite]


When I bought my house, it included two parcels: the one that the house is on, and another unimproved parcel that was half of a larger parcel that the house's former owner bought, along with another neighbor, and had divided in two so that no one could build a house in between them.

Since there are no utilities on the smaller parcel, and it is classified as unimproved by our town, taxes are minuscule (we pay about $3500 a year on the half-acre parcel that our house sits on, and about $40 a year on the quarter-acre unimproved parcel...). I don't think the parcel is big enough to build a house on now (we're in a rural town with large minimum lot sizes outside of village centers), but it's nice to avoid encroachment. That alone might add $20K in value to your property, depending on how close other neighbors are and how much prospective buyers value their privacy.
posted by brianogilvie at 12:46 PM on March 25, 2012 [1 favorite]


If you don't care what another purchaser will do with it and you're only staying in this property for a likely 2 to 10 years, then it seems as if there are a lot better ways to invest your money than in an undeveloped piece of property that you might not be able to easily sell.

I think the best reason to buy it is because you plan to be in the property long term and you then have control over what happens on that property. In that sense it's less of a financial investment and more of a hedge against the decline of value in your own property and the enjoyment you get from it.

My general thought on real estate is that buying it depends on how well diversified you are otherwise and how much liquidity you might need and how long you expect to own it. For someone with $500k already invested in mutual funds, putting 10% of your portfolio into an illiquid real estate investment isn't that big of a deal. You won't screw yourself if you really need cash in a hurry since you've got plenty. You won't screw yourself if you can't sell it, since it's only 10% of your portfolio. And if you can hold it for a long time, you vastly increase the chances that it will work out positively for you.

I think the downside is much greater if you're going to leverage yourself to buy the property instead of paying cash for it, too (upside is obviously much greater, too).

My two cents is that it's not a great decision to leverage yourself to speculate on real estate investment. YMMV.
posted by MoonOrb at 1:08 PM on March 25, 2012 [2 favorites]


Cowbell: "Officially having the plots combined" usually means having the local taxing authority issue a single tax ID number to cover both parcels. Nothing is done with deeds.
posted by yclipse at 2:09 PM on March 25, 2012


Well, I started this draft then got distracted by something for a few hours, so on preview, you've already marked similar advice best answer. But just to reinforce your decision --

You might consider whether it'd be better to diversify your investments. You would be taking $55+k and investing it in real estate in a specific city/county in western Oregon. You already have a substantial investment in real estate in that city/county. If something were to cause that investment's value to decline, you might wish you had invested your $15-55k in anything else -- emerging markets, foreign currencies, Intel, or even real estate elsewhere. Some risks to consider are listed below.

Also, keep in mind that just because you could develop it now, you may not be able to develop it in the future. Jurisdictions can change the regulations, and this could make it impossible to build. If you're doing this based on your future ability to build, you might ask a local land use attorney what it would take to legally lock in your building entitlements. The cost of running services to the land could also change.

On the other hand, you may get $15k of enjoyment out of having that garden, or purchasing it may prevent a $15k loss in value to your existing investment.

Real estate in your neighborhood might decline in value due to: a new nuisance nearby (e.g., a night club, a stinky value-added agricultural activity), pollution (e.g., fracking or an old storage tank leaking something into the groundwater table), crime (e.g., a new meth dealer nearby), poor governance (e.g., financial mismanagement bankrupts the city/county and leads to drastic cutbacks in public services), a new development spoiling a view or something else that gave value to your land, changing real estate trends and desires, a bad new state law, new restrictions on what the property could be used for, rising cost of energy or utilities (e.g., gas price increases send the cost of commuting above what many can pay, or a water facility upgrade makes your water rates much higher than adjacent districts), a school district scandal, or many other things.
posted by salvia at 3:53 PM on March 25, 2012


I forgot to add, though, that you know this neighborhood best, so that's one thing: you probably have a better idea of the risks here than many other places. But I think many of those risks are likely to be out of your control. Real estate values in general could also fall (further) if interest rates rise.
posted by salvia at 3:55 PM on March 25, 2012


I am a civil engineer that works in the land development section of my city. Stuff like this is at least 25% of my job. You need to do your due diligence on this, which means go down to the city and talk to your local zoning/planning department about what would have to be done with the property to build on it, what the zoning is and so on. Far more than just extending the utilities may be required-a new sidewalk, street light, drainage improvements (read some of my other answers for an overview on drainage hassles) street paving, and don't neglect to factor in the cost of systems development charges in Oregon. Since this state has no sales tax, cities fund capital projects by charging development the incremental cost of building those projects. In my town a new house is about 20k in these charges (that is above and beyond any building permits, contractors or anything-it is literally a tax on development), and we are NOT the most expensive in Oregon. What might be the easiest way to build a new house/development on it is to try to build an accessory dwelling unit (usually called Mother in law or granny flats) that can be rented out and provide a return on the cost of the development, if the zoning allows it. The tax lots would have to be combined, probably through what is called a lot line adjustment here. If it was me I would do it, in a heartbeat.
posted by bartonlong at 4:04 PM on March 25, 2012 [4 favorites]


Personally I'd buy it, as bartonglong says, in a heartbeat. You get a bit more control over the space next to your house, you get garden space, you could put a workshop there if you wanted shop or studio space, and you have the potential to develop it down the line. Worst case is that you sell it along with your current house when you move; I see a fair number of "house plus next door lot" offerings come up here, and I wish I had been in a position to buy one. Two of my nearby neighbors did that, and have amazing gardens as a result.
posted by Forktine at 5:23 PM on March 25, 2012


Now here's a different thought. Are you in a rapidly-developing area where multifamily properties would make sense? Because if you managed to acquire the full block, that larger chunk of land might be really attractive to a bigger developer when you were ready to sell. All this would be relevant if you were in some city's downtown, but I doubt it's relevant here, plus your third neighbor's unlikely to sell, huh?
posted by salvia at 6:04 PM on March 25, 2012


The land isn't adjacent to railroad tracks is it?
posted by pwb503 at 1:18 PM on May 28, 2012


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