Vacant land is different from other kinds of real estate. It produces no income, but has expenses, such as taxes and possible homeowners fees. There are limited tax benefits. Over time, these expenses can reduce any possible appreciation to the point that it no longer makes sense. Especially if your plans to use it have changed.
Annual Cost
Purchasing vacant land might seem like a bargain at first, but over time, the taxes and other expenses can really put a dent in the overall value to you. Homeowners Association fees can be a real problem here. If you don’t use the property, you are funding those who do use theirs. These fees can increase if there are public utility expansion or other municipal projects.
Tax Benefits
Vacant land 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 land does not usually qualify for any type of homestead exemption on your tax assessment.
Cash Flow
Holding on to vacant land is negative cash flow. You do not have a structure to rent out and collect monthly payments. Depending on the zoning of your vacant land, you might be able to recoup some of those annual tax fees by using your vacant lot as extra rental space. 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 land, they might file a lawsuit against you. That would be a huge cost to you.
Property Maintenance
Holding onto vacant land 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 land 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. There may also be unknown contaminants or toxic issues on this land that you are unaware of, but once discovered, this might also be costly to clean up.
Market Conditions
Holding onto vacant land 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.