Vacant lots can be a truly rewarding investment. However, holding on to a vacant lot can also cost you; maybe right away, maybe in the long run. There are annual taxes and potentially property owner’s association fees to consider, not as many tax benefits, cash flow, and property maintenance issues, and market conditions to consider. Call 1800LOTS.com at 832-558-5987 to discuss the ways holding onto a vacant lot is costing you.
Annual Cost
Purchasing vacant lots might not be as expensive as buying a house, but don’t forget about the annual taxes! Depending on the location and zoning of your lot, the taxes might be a few hundred dollars or a few thousand dollars. In Houston, tax values have also been increasing at a very fast rate over the past few years. If you hold onto your vacant lot and don’t do anything with it, you might end up paying double or triple what you did for the lot in annual taxes and have nothing to show for it but the same vacant lot.
Another potential annual fee is the property owner’s association fees. If you purchased a lot in a community with an association, these fees might also be a few hundred or a few thousand dollars a year, depending on the type of community and the services they provide and what amenities are available. Also, keep in mind that there might be public utility expansion or other special municipal projects that could be added to your annual tax bill that may or may not improve your lot. You may also be responsible for maintaining the lot to a certain standard, and this may change over time if the area your lot is located in has changed.
Tax Benefits
Owning a vacant lot is a nice investment asset, but it has fewer tax benefits than owning a single-family home or a commercial property. There is no depreciation to claim on your taxes, and vacant lots do not usually qualify for any type of homestead exemption on your tax assessment. While it may have been a good idea to purchase a vacant lot, if you decide not to do anything with it, you may want to invest your money in another property that can actually benefit you on your yearly tax return.
Cash Flow
Holding on to a vacant lot is negative cash flow. You do not have a structure to rent out and collect monthly payments. Depending on the zoning of your vacant lot, you might be able to recoup some of those annual tax fees by using your vacant lot as extra rental space. However, you might want to consider purchasing property owner’s insurance if you do anything like this. If something happens to someone on your property while moving or occupying your vacant lot, they might file a lawsuit against you. That would be a huge cost to you, as even a simple insurance policy can be expensive depending on the location of the property.
Property Maintenance
Holding onto a vacant lot can also become costly to maintain. If your property is in a municipality, they may require you to keep your property mowed. If you have a lot of trees, they may require you to clean up the brush to guard against fires. If your vacant lot isn’t in the best of areas, some dumping might occur on the property, turning it into a miniature landfill! This trash and garbage might cause you to have code violations and can be costly to have it removed. To avoid this, you may be forced to fence the lot and check on it periodically. This can be especially burdensome if you no longer live in the area or plan to move in the near future. There may also be unknown contaminants or toxic issues on this lot that you are unaware of, but once discovered, this might also be costly to clean up.
Market Conditions
Holding onto a vacant lot can be a big mistake. If you buy your property while the market value is high and hold onto it for too long, the value might decrease more than you expect. Depending on your purchase price, it might cost even more than your annual taxes to hold onto it year after year. You might also be losing hundreds of dollars of market value. Depending on the changes in the area, the lot may not be useful for the purpose you had in mind when you purchased it.