Is 180 a year really the whole bill on five acres held as land banking?

Question

Take a listing for 5 acres at 12,000 where the seller says the property tax is about 180 a year, and a buyer whose plan is simply to own it and let it sit, which is land banking. Here is where new buyers get confused. The assumption is that the point of owning land is putting something on it that pays, like letting somebody park equipment on it or renting it for storage, so the money covers the taxes while it appreciates. Then they read that land banking means no income at all until the sale. If that is right, the buyer is holding a savings account that charges 180 a year rather than an income asset, and that is worth understanding before anyone gets excited. Also, is 12,000 plus the tax really the whole cost of getting in? That feels too clean for real estate.

Rena Guide · Accepted Answer

Land banking, used strictly, means buying raw undeveloped land, making no improvements to it, collecting nothing from it, and holding it for years until appreciation shows up. All of the return is in the sale price. There's no rent, no cash flow, nothing arriving monthly. So your reading is correct, and the savings account comparison is a fair way to hold it in your head, as long as you also remember a savings account can't lose the growth it was waiting for.

The loose usage is what tripped you up. People call almost any vacant lot purchase "land banking", including lots they plan to build on next year, and including lots where they park an RV storage tenant to cover the taxes. Once money is coming in from a use, that's a different strategy with different work attached. This room uses the strict meaning.

On the cost of entry, the price and the tax bill are the two biggest lines and not the only ones. Expect a title search, recording fees that vary by state, a survey if the boundaries aren't already staked, and in many platted rural subdivisions an annual road maintenance assessment that can run $100 to $400 a year. Some owners carry a small liability policy on vacant land, which is usually inexpensive.

The thing that catches new land buyers more than fees is access and buildability. Ask whether there's legal recorded access to the parcel, not just a dirt track people use, and ask the county what it would take to get a septic permit. A $12,000 parcel with no legal way in is priced that way for a reason. Your income goal, though, points away from this strategy entirely.

ryanmck27 · Answer

It's not the whole cost. You'll want a survey if the corners aren't marked, and around here that's somewhere in the $700 to $1,200 range for a small rural parcel. Recording the deed is a fee too, small but real. On a $12k cash purchase I wouldn't personally bother with title insurance, since the premium on a number that low feels like a lot of process for a little land.

derekj19 · Answer

One cost nobody lists: the county can send you a weed or nuisance abatement notice on vacant land, and if you don't handle it they hire someone and bill you. Mowing five acres once or twice a year isn't free if you don't live nearby. I've seen $250 to $400 a cut quoted for rough brush hogging.

diane_kowalski · Answer

Halyard, skipping title work on cheap land is exactly backwards. Low priced rural parcels are the ones with tax deed histories, heirs who never signed anything, and old unreleased liens, because they've been passed around cheaply for decades. The $12k parcel needs the search more than a $400k one does. Marlow, ask the closing agent to show you the last two transfers and whether either came out of a tax sale.

aaron_fitz10 · Answer

This thread settles the question neatly. Land draws people in because it sounds easy, and "you pay $180 a year and get nothing back for ten years" is a clean description of why it does not fit a plan that needs money to work right now. Marlow, if you want something that pays, this is not it, whatever the listing photo makes you feel!

Is 180 a year really the whole bill on five acres held as land banking?

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