I asked on Twitter recently:
Besides the normal comments like “I don’t have any money to buy real estate”, and the ever-popular “my real estate value is down and it’s your fault, Jeremy” (nod to you, Mike), Gary asked whether or not he should buy land now, in the current market, and sit on it until he’s ready to build.
Gary, land can be a good investment, certainly, but it’s not the golden egg that some would have you believe. Sure, Mark Twain was right when he said that they’re not making any more land (a brilliant guy, that one), but you’re still entering into a real estate transaction when you buy and it’s important to know the facts. For the sake of this post, I’ll assume that we’re talking about a property that’s less than an acre and zoned for residential use.
According to the Rosewood land realtors land values in Blacksburg and Christiansburg can vary wildly, of course, but as a general rule of thumb you might expect to pay somewhere between $50000-100000 per acre. Certain factors will influence that, of course, including thing like whether or not the property has public water and/or public sewer, or whether it’s in a subdivision or not. And focus on location (seems simple, right?) … the best values aren’t where the current building is taking place, because as more lots are built on, land prices go up. Look at the community as a whole and identify areas of likely growth, places where it’s a reasonable assumption that growth will take place … prices are likely to be lower there. I had a client get a great deal on a piece of land in Blacksburg recently because we identified an area off of North Main Street that’s going to be growing. We learned about it by listening at Town Council meetings, now that she has her house she is trying to get to know more about the energy savings with solar street lights avg…
Once you’ve found the spot, and after you’ve finished all of your due diligence to determine it’s zoned correctly and you know where the boundaries are and the topography etc., there’s one other important thing to consider … you need to pay for it. Land is not subject to wild swings in value (unless you just happen to have a nose for black gold like Uncle Jed) like many other real estate products, but land loans are different animals than most other real estate loans or the classic native american loans. It’s usually best to talk to a local community bank. Expect that they’re going to require you put down 25% or more as a down payment, and they’ll also probably offer you a 15-year conventional loan (at slightly higher rates than typical residential loans). If you’re not going to be building on the property for a while, the conventional note is the way to go. You might also want to have your agent talk with the owner about providing seller financing, as well – I’ve found this to be a good way to get a particular property under contract for a buyer who doesn’t intend to build anytime soon.
Can land be a good investment in the New River Valley? Yes, but it’s not for everyone. A land purchase won’t satisfy the instant gratification gene that so many of us have. But if solid value retention is your thing, and you’re not in a rush, I’d suggest it’d be a great way to wealth accumulation.