Undeveloped land is a tricky issue. First of all, most banks won't lend money on undeveloped land unless you contract to have a house built on it. Even then many banks require that you own the land first before giving you a construction loan. That's why so many new housing developments are a package deal. You're buying the land and the house from the builder to avoid these complications. In the final analysis, it depends on the area and I have no idea how things work in MN. If you need to finance it but don't intend to build anything right away, then usually the only way is to finance through the current owner. As far as whether or not the property depreciates in step with a concurrent rise in interest rates, that depends entirely on the desirability factor of the property. I live on the CT shoreline which seems to be a hot commodity these days. EVERYBODY wants to live by the ocean, so the housing values generally hold their own no matter what. Plus, the local economy is extremely strong. That is key. If nobody can afford to buy a home in a given area then why would prices go up? Price in the fact that many Bostoners and NYers buy vacation property here and you have a great formula for investing and appreciation. On the other hand, if I lived in the middle of nowhere with no conveniences or other tangible benefits I'd probably get spanked hard in housing value if the interest rates where to go up dramatically.
If the property you're interested is very desirable and the local economy is good, then go for it. However, the very fact that you've been afforded the time to dwell on the issue suggests otherwise. When a highly desirable property around here goes up for sale for a good price you have to move and move quick. No time to think about it or ask questions. When I bought the house I live in now it was part of an estate sale and I was the first person to look at it. The house was selling below market because the people who had inherited the house were desperate for cash. Consequently, within 24 hrs, before there was even a sign out front, I had two potential buyers bidding against me. I offered the owners more than they were asking and got the house. That was less than 2 years ago and the house has already appreciated 35%. Even the owners knew they'd screwed up at closing because they'd been too anxious to cash in.
If it's just an average piece of land that has been on the market for awhile, then there is probably a good reason for it. If so, sit this one out and wait. There will be other chances to buy land and if the property value falls maybe you'll be able to come up with the cash on your own by then. |
