Vacant land can be a truly rewarding investment. Vacant land can also have hidden costs; 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 The Reservoir Group at 401-741-1800 to discuss the hidden costs of owning vacant land.
Purchasing vacant land 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 land, the taxes might be a few hundred dollars or a few thousand dollars. If you hold onto your vacant land and don’t do anything with it, you might end up paying double or triple what you did for the land in annual taxes and have nothing to show for it but the same piece of vacant land.
Another potential annual fee is the property owner’s association fees. If you purchased land 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 land directly.
Owning vacant land 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 land does not usually qualify for any type of homestead exemption on your tax assessment.
Another hidden cost of owning 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 an 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 for you.
Owning 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.
Owning vacant land in Providence for too long can be a big mistake. If you buy your property while the market value is high and hold onto it for a long time, 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.