If you’ve been looking to invest in real estate, you may have limited your search to existing houses but is buying a lot a better investment? What’s the difference between simply buying a lot or a house when it comes to investing? What about zoning, subdivision, or just buying an existing house? Let’s talk about the options between buying a lot or an existing house.
There are several significant differences when purchasing a lot rather than a house from property taxes to resale value. Here are a few things to consider.
When you purchase an existing home the zoning is typically residential but when a lot is vacant, you need to know what that lot is currently zoned for whether it’s residential, commercial, or a unique combination of the tube. The value of the land is determined by how it can be used so vacant land in the middle of town will usually be zoned somewhat commercial based on its usability. Vacant land that cannot be built on due to zoning issues is a lot less attractive from an investment standpoint because there’s really nothing you can do with the land. If you’re purchasing a piece of land with an existing building on it, it’s important to know whether zoning has changed since that structure was built. This might happen due to soil contamination or other issues.
Subdividing is the dividing attractive land into several buildable parcels. This might be a great investment and an excellent cash flow opportunity. The main benefit is that it might be more profitable to sell the property as several different lots rather than one large piece. It also allows the buyer to liquidate part of the real estate without having to sell the whole piece. However, you should just assume that a piece of land can be subdivided. In several outlying, rural areas, there are restrictions in place that once a property has been subdivided into a certain size, it can no longer be subdivided.
Property taxes are inevitable whether you own a house or parcel of land. However, authorities typically assess the value of properties and the value of land depends on the assessment. If you have land with improvements on it such as buildings, it can increase the value and increase your property tax zoning, amenities, and local laws all play a factor in property tax assessments. All land is taxable whether it’s making a profit or not so this might be a concern going into purchasing land.
Purchasing an investment property requires more maintenance than simply owning a piece of land. Buildings, obviously, require upkeep and renovations to improve their resale value or at least maintain it. This might be managed by the investor or property manager but a simple piece of land doesn’t require any maintenance or management so if you’re simply buying land to hold onto it, the investment should be secure. It’s also important to know that the IRS does not allow you to depreciate land. The building can be depreciated for tax purposes but land cannot.
Land will have little cash flow potential compared to a house for investment purposes. Obviously, if you have someone using the building on the land and paying rent, you will have a better cash flow than simply owning a piece of land.
The resale potential of land, as well as the developed real estate site, is dependent on several factors such as the real estate market, demand, whether someone is willing to develop the land or not and current supply. If you’re looking to sell in the future, a parcel of land might be ideal but if you’re looking to make money regularly and improve the home so that you can turn around and sell in the future, and the improved property is the better bet.
Related: First Steps to Buying a House
Whether you’re looking to invest in land, a parcel, a subdivided lot or a house throughout the Puget Sound region feel free to give me a call at any time. I’d love to help you find the perfect property throughout the Seattle area.