(CHEROKEE LAKE REALTY WRITES A WEEKLY COLUMN FOR THE GRAINGER COUNTY JOURNAL NEWSPAPER. THIS WAS A RECENT QUESTION ASKED BY A READER.)
Without knowing how much money you have to invest, what type of property you would
like to invest in, and other particulars, it is difficult to make a solid recommendation. But, as always, I will do my best to answer your question.
All things being equal I would recommend land. Generally, the monetary investment is much less for a parcel of land. Unless you are considering one hundred acres, for example. Once you own the land, maintenance and upkeep costs will also be much less. Property taxes will also be lower. Unlike raw land, maintenance on a house, until you resell it, can also cost thousands of dollars more. What if the heating and cooling system goes bad? You’ve got to fix it. No one will want to purchase a home without heating and cooling. What if the roof springs a leak? Same thing. The buyer will not want to be placing buckets all over the house to catch those leaks. Either one of these repairs will be costly. And, if you must replace any of these two you are looking at spending thousands, and I do mean thousands of dollars. These costs will dramatically impact the return on your investment. Hopefully you had the house inspected to eliminate surprises. Or you bought the property at a great price to compensate for potential issues. But stuff happens. How often do we think a repair will cost so much, and be surprised when that cost doubles? Owning a house also means you will have monthly recurring expenses. Electricity, mowing, water, and perhaps a monthly gas bill. If you keep the internet running that’s one more cost. Land, on the other hand, has none of these expenses. If the land is cleared, you might have a mowing bill. If the land is
wooded, that expenditure goes away.
A couple of more things on investing in a house. If you plan on living in it for a while, and then selling it down the road, that is a plus and needs to be taken into consideration. If you will be renting it, that must also be considered. If you bought it as a fixer upper and you can fix it up and sell it at a good profit, that’s another plus. Hopefully, you will take that budget into consideration. If you are handy and can do it yourself, savings will be great. If you must hire a contractor, that will cost you more. All this must be calculated to come up with a return on your investment (ROI). Sale of House – (Cost of purchase + Maintenance + Repairs or Remodeling) = ROI. The formula gets a bit trickier if you have rental income coming in or will be living in the house for a while. So as written earlier, your individual situation and goals will dictate which is the best option for you and what you plan on doing with the house. I represent several clients that invest in real estate. 99% of the time I recommend adding land to their portfolio and
not houses. Unless they are, or want to be, landlords or have crews to remodel and flip houses.
One final opinion and some words of advice. We all want to make a million dollars. We all want to double our investment. Let me run this example by you. If you purchased a parcel of land for $20,000 and you sold it for $24,000 would that make you happy? A lot of folks would say no; they want to make a larger profit. So, let me ask you this question. If you take that same $20,000 and visit your local bank to open an interest- bearing CD, do you know what the bank is currently paying on that type of account? It’s hovering around 4%. Call your bank, ask them. The above scenario on land which I described, buying at $20K and selling at $24K, will get you a 20% return on your investment. Which is better 4% or 20%? Silly question I know. Imagine if your bank was paying 20% on CDs, the number of people trying to get into the bank would create lines going out the door and running around the block. So, why would a 20% return not make you happy on your land sale? Imagine if you were getting 20% on all your investments.
That would be nice. Keep all this in mind as you invest and plan on selling later.
