Many people buy land with one intention and then their life circumstances change. If you are re-evaluating keeping or selling your land, weโre here to help.
There are many reasons why you might find yourself owning a plot of vacant land that you are not using. Maybe you bought it a while ago and are holding onto it in the expectation that it will rise in value? Or maybe you planned to use or develop it in some way, but your plans have changed and youโre no longer sure what to do with it? Or perhaps you inherited it.
If you are in this situation, then it makes sense to take a moment to consider how much it is actually costing you to hang onto that plot and whether itโs a sound financial decision.
Firstly, you need to consider the tax liability of owning vacant land. Like any property, vacant land is subject to property tax. This is calculated by multiplying the Annual Value of the land (5% of its freehold market value) and the prevailing property tax rate. The total bill could run to hundreds, or even thousands, of dollars, depending on the location and zoning of your land.
There are also fewer tax benefits of land ownership compared to owning a residential or commercial property. There are no built structures to depreciate, and vacant land rarely qualifies for homestead exemptions when you complete your tax return. Remember also, that if you have a mortgage for the land, you canโt take the home mortgage interest deduction.
Secondly, vacant land still requires a certain amount of money in order to maintain it. If itโs in an urban area, then there may be a requirement to keep it in a tidy state. You may be unlucky enough to have rubbish dumped on your land and, should this happen, you are financially responsible for removing it. A worst-case scenario is that toxic contaminants are found on the land and these can be extremely costly to clean up.
There are other ongoing financial costs. Itโs always wise to take out vacant land insurance to protect yourself against potential lawsuits for any injuries sustained on your land. If you have a mortgage on your land, then you will have already discovered that itโs more expensive compared to a mortgage on a house. Lenders require larger down payments and charge higher rates of interest for land purchases because they regard land investment as a riskier option.
A further, less obvious financial implication of holding onto vacant land, is the so-called opportunity cost. Whilst your money is tied up in the land, you are unable to invest that cash elsewhere to generate income or a higher return on your investment.
Without any income from rent, all the costs of maintaining the land have to be covered from another source, further depriving you of alternative investment opportunities.
Finally, by holding on to land for too long, you may be missing out on the chance to cash in on an increase in its market value. If you bought it when the market was low, then you need to consider how long you can hold onto it while waiting for the market to rise. If, on the other hand, you bought when land prices were strong, then you run the risk of the value decreasing.
If having weighed up all the pros and cons, you decide to sell your vacant land, we'd be happy to give you an offer.
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