Buying vacant land can be a good investment. They aren’t making any more of it. And there are often good deals to be had. But prospective land buyers don’t always consider all the costs of owning vacant land. Let’s look at 5 ways holding onto vacant land in Memphis could cost you your hard-earned dollars.
Property Taxes
Buying vacant land may be cheaper than buying a house but don’t forget about the yearly property taxes. Depending on where your land is and how it’s zoned, your property tax bill could be in the hundreds or even thousands of dollars per year.
If you just hold onto your vacant land and don’t do anything with it to earn income, you could ultimately end up paying double or triple the original purchase price in annual property taxes and have nothing to show for it but the same piece of vacant land.
Tax Benefits
Owning vacant land has fewer tax benefits than owning residential or commercial properties. You can’t depreciate land, only improvements, so there is no depreciation to claim on your taxes. It also doesn’t usually qualify for any type of homestead exemption.
Cash Flow
Holding onto vacant land doesn’t usually produce cash flow due to lack of structures to rent out. Depending on the zoning of the land, however, you might be able to lease out the land for various purposes. Just make sure you purchase the proper insurance and consult attorneys to obtain any other necessary legal protections. If someone is hurt or their property is damaged on your land, they might sue you. Many business owner recognize that threat of lawsuit is part of doing business, and so they make sure they have protections in place.
Maintenance
Holding onto vacant land can also become costly or even time-consuming to maintain. There may be local ordinances in place requiring you to keep the grass mowed. If you have a lot of trees, they may require you to clean up the brush to prevent fires. Illegal dumping might occur on the property, turning it into an unsightly mini landfill. This trash and garbage might also get you slapped with code violations. If contaminants are ever discovered on your land, you might have to pay for the cleanup.
Market Conditions
Holding onto vacant land can be risky. If you buy the land while the market value is high and hold onto it for too long, the value could drop over time instead of increase. That risk is always there for buy and hold real estate investors, but it’s still worth mentioning here.