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Land Trap Archive

JANUARY 2009

Will 4.5% mortgage rates stabilize the housing market?
Many economists believe that the new low rates will lead to more demand and refinancings, thus sopping up excess housing, building a floor on house values, and halting the unrelenting flood of foreclosures. Average reduced mortgage payments by home owners could exceed $400 a month, leading to more spending throughout the economy as a whole.

What is a wraparound mortgage?
This is a technique, also used in trust deeds, where extra financing is obtained that overlaps existing loans. The new mortgage is junior to the prior loans and is secured by a debt that includes all loans combined. Example: The owner of a land development has loans totaling 1 million secured by all of the remaining lots in his development. A lender advances him an extra $250,000 and takes a "wraparound" mortgage on the entire project. In the process, the lender takes responsibility for paying off the prior loans, generally backed by the personal endorsement of the developer. The new mortgage is for $1,250,000.

What is considered "soft money" in a real estate deal? This term refers to items such as prepaid interest, forfeitable option money, and the interest portion of an installment debt; generally any money that does not improve the equity position of the payer.


DECEMBER 2008

What's ahead for real estate in the coming years?
The economy will slowly recover. Baby Boomers, born in 1945, will be 65 years old in 2010. Many will retire or semi-retire and downsize to smaller homes; while large numbers of them will retreat from the cities to rural areas. Immigrants will continue to swell the population, hiking up the need for new, lower cost homes. Large numbers of both retirees and immigrants will anxiously seek affordable rental units. Equity positions for most real estate owners will gain value as the surplus of homes declines through foreclosure sales and federal rescue efforts. Slow growth is ahead as the "have nots" seek economic gains from the "haves." And 20th Century history shows that this financial crisis is a precursor of a more calamitous event to occur early in the next decade.

What does the term "Cap Rate" mean?
 This is a term used in real estate used to calculate the value of a continuous stream of income. Essentially, the capitalization rate is composed of a reasonable return on investment (often determined by an appraiser), plus the amount that is allowed, or estimated, for depreciation. The value of the income stream is then determined by dividing annual investment income by the capitalization rate.

What is a bridge loan?
This is financing given by a lender (mortgagee) to sustain a borrower between the termination of one loan and the origination of another loan. For instance, such financing may be obtained by a developer to pay off a construction loan, while he or she arranges new financing for a permanent loan on a project.



NOVEMBER 2008

Are we heading for a depression like the 30's?
I don't think so. Current economic problems in the real estate business have their roots in the lending excesses early in this decade as we fought off the recession of 2001. A tight noose on credit at that time could have prolonged the recession and induced deflationary pressures. Fewer homes would have been built and economic gains thwarted. Many economists believe that the loosening of credit was called for, but that regulatory guidelines and oversight were trampled, opening the floodgates to foreclosures, wiping out home equity, and reaping havoc within our monetary system.

Will we be faced with inflation or deflation?
It appears as if the dollar will lose value as more money is printed to float the current bailout. This factor, along with Fed rate cuts and lower interest on home mortgages, would likely spur a trend toward inflation, rather than deflation. Home and land prices have fallen about 20% from their peaks in 2005-06, but they remain, on average, about 40-50% above their 2000 levels. Without the repair of faulty mortgages and the restoration of credit lines through the infusion of money into the banking system by the Feds, we could be faced with the evil of deflation and the gloom of an ominous depression.

What is "stagflation" and are we going there?
Nobody in real estate wants to go there. It is a barren economic region with steep mountainous interest rates. Without the current economic rescue plan, it is likely that we would all be sentenced to a period of years in this purgatory.



OCTOBER 2008

Is this a good time to buy land?
Recent increased sales volume and the latest statistics show that the market for raw land in the D.C. Metro Area has bottomed, though the excess of building lots will stifle new home construction into 2009. The best time to steal land is when the market sentiment is to hold nothing but cash.

What does link financing mean?
This is when lenders require increased balances in checking accounts before making a loan. For example, a bank may insist on a compensation balance of $20,000 before granting a $100,000 loan. The borrower would then need link financing of $20,000.

What is a LLC?
The designation refers to a Limited Liability Corporation. Professionals and small business people often use this format to obtain corporate benefits without the complications and double taxation of setting up a major corporate entity and to avoid personal exposure to liability.

What is "Freddie Mac?"
This is a short name for a private company called the Federal Home Home Loan Mortgage Corporation (FHLMC). The organization is sponsored and overseen by the U.S. government, that has recently seized them and their sister company, "Fannie Mae," due to a collapse of the mortgage market. Both buy mortgages from lending institutions then resell the loans to investors in order to sustain a high level of mortgage money available to the nation's home buyers.

 

SEPTEMBER 2008

What does the term encroachment mean when buying and selling land?
This is the act of advancing beyond the proper, original, or customary limits of a real estate parcel, such as when a building or fence intrudes on a neighboring property.

I sold some land on a Contract for Deed, but the buyer is now in default. Can I just foreclose without going to court?
Some states have a provision in their laws called Equity of Redemption, which allows a buyer in default (mortgagor) to recover his property prior to a foreclosure sale by paying the debt. Under this provision you must give notification to the debtor that he has a certain period of time to pay off your note before you take the property back, even if you did not grant him a deed. Consult with an attorney in your state.

What is an Exculpatory Clause in a real estate purchase contract?
This is a clause or provision in a contract, financial instrument, or agreement, that frees a debtor from personal liability if he defaults. For example, a mortgage clause might release a mortgagor in in default from further obligation and provide that the property is sole security for the debt. A developer may attempt to insert this clause in a contract during a depressed real estate market when sellers are desperate and buyers are scarce.

What is the difference between a trailer and a manufactured home?
The latter is typically, a home constructed in two or more sections and transported to a home site for installation. A double-wide trailer, modified with a partial pitched roof, is often considered a manufactured home.

 

AUGUST 2008

How is real estate used as a tax shelter?
Mainly through depreciation. Depreciation on commercial properties is considered -along with mortgage payments, taxes, repairs, and maintenance-an operational expense. However, because depreciation requires no cash outlay, as do other expenses, many investors view the purchase of income-producing real estate as the creation of a "tax shelter."

Can raw land be depreciated?
No; however, commercial buildings on the land such as rental cabins, homes, and shopping centers can qualify for depreciation. You can depreciate rental units over a 27.5 year period and commercial properties over 39 years on a straight-line basis.

As a real estate investor, can I deduct the expenses of my car and home office?
For such deductions you would need to be a full-time investor. In real estate, this means you must devote more than half of your time to activities in this field; or if you spend a minimum of 750 working hours per year in the real estate business, you may qualify as a professional and get tax write-offs. Mortgage brokers and attorneys are generally not eligible for such tax breaks.

What does the term "circa" mean?
The term is Latin, used to describe an approximate time period of certain construction of particular buildings (e.g., circa, or ca., 1890.)

What is an easement by prescription?
This is the use of land, by someone or an entity, of another's property, by right or privilege, that can become a permanent right under certain conditions, which are generally set by law or regulation. For example: a road used unchallenged by other persons over a specific time frame can become a prescriptive right-of-way over another's property.

 

JULY 2008

Can I invest in raw land through my IRA?
Yes, but you must use a qualified trustee to take title to the land and manage this type of asset. You can also buy land through your IRA and sell it to a developer. You can then develop the land yourself, though all funding must come from your IRA, with any profits being returned to your IRA, where they can enjoy tax-free growth. (Check with your tax advisor).

With home values going down, can I still get a home equity loan to buy land?
Loan money from home equity lines-of-credit is still available and this source of funding does offer the tax advantage of interest write-offs. However, these credit lines have been severely cut back and, in some cases, eliminated by various lenders.

What is a "loan to facilitate" when buying real estate?
In a general sense, this is a loan given to a purchaser to facilitate the purchase of repossessed property held by the lender. A lending institution-not in the business of buying and selling real estate-will often grant favorable terms to prospective buyers.

I was told to get a "perk test" on land I'm buying. What is this?
This is a percolation test of soils to determine if the ground will readily accept and dissipate liquid wastes from a home sewage disposal system. Holes are dug at various spots and filled with water. If the rate of absorption is satisfactory, the test is generally considered positive.

 

JUNE 2008

Can I get a "Homestead Exemption" to protect my home from foreclosure?
This law exempts a homestead (real estate occupied by an owner as a house) from seizure or forced sale to meet general debts, excluding mortgages and tax liens. In certain states the law has been expanded to include exemption from some or all property taxes. As in most of the U.S., the exemption is not available in VA. W. VA, or MD.

What is the meaning of the term, REO?
This terminology refers to real estate acquired by a lending institution through foreclosure and that is held in the lender's portfolio-thus, the term owned (by the lender). I'm interested in buying an old home to make into a B&B.

Can I get a tax break for fixing it up?
A federal tax credit is available for those who restore qualified historical buildings. A lesser tax credit is available for the restoration of buildings constructed after 1936. You will need to obtain an historical designation through regulatory channels. Check with your state and local agencies dealing with home construction permits for guidelines and assistance.


What is a tax loss carryover?
In the business world, this is an accounting term for the amount of tax loss allowed to be carried forward or backward for a specific number of years. The loss can be taken as a deduction against other taxable income and is computed by deducting interest costs and depreciation taken from net operating income. To gain this tax advantage, the deduction must, of course, exceed net operating income.

 

MAY 2008

What is a contract for deed in a land deal?
This is a transaction where the deed to the property is not delivered by the seller until a large degree of equity has been established. Buyers with low credit scores and small down payments often buy land this way.

I'm thinking about getting a home equity loan to buy land while it's cheap. Good or bad idea?
Good idea if you can use the interest deductions to offset your income. Bad idea if you buy the wrong land. Try to buy nearby land on water, or with views. Make sure you're stealing it at a rock bottom price.

I'm a first-time land buyer. What is a General Warranty Deed?
This type of deed carries the seller's warranty that the title is good, that it is free of all lens and encumbrances, and giving the seller's assurance that he will defend the title against all claims.

What does the term "economic obsolescence" mean?
The loss of a property's value resulting from external factors, such as the construction of a landfill near your home. I'm a part-time investor.

When does a person become a "dealer" when buying and selling land?
For tax purposes, anyone who regularly buys and sells land as a principal activity, and for his own account, can be labeled a "dealer" by the IRS. Thus, any gain on real estate by the dealer is considered ordinary income, and not eligible for favorable (capital gains) tax treatment.

 

APRIL 2008

What is a life estate?
This is a reservation in a deed by the seller to retain lifetime use of a portion of real estate--such as a home and a few acres from a farm. Upon the death of the seller, possession of the life estate will default to the buyer or his assigns. The life estate can have grades of established and verifiable, value, depending on guidelines set within a particular state. Fundamentally, such strictures are based on life expectancy standards, though evaluation of the property for tax purposes may also be a consideration. A buyer holding a mortgage on property with a life estate can view the deed to such real estate as an asset that can be sold at face value, discounted for sale, or used as collateral for a loan. I want to buy some land and sell off the timber.

How does this work?
If the land has valuable and has marketable trees (based on a "cruise" by a timber consultant) a company dealing in wood products may agree to pay you good money to harvest big trees of, say, 16" or more in diameter. The money can be paid to you up front or in stages as the logs are cut and removed. A reputable timber company will be obligated to build serviceable roads and do basic clean-up work. Some savvy investors arrange to have the money paid at closing to possibly cover their down payment and provide cash flow. Bear in mind that a third-party lender in such a transaction would probably want part of the proceeds applied to their loan.

Should I buy land if mineral rights are reserved?
Many early reservations of mineral rights in the chain of title to land can turn out to be of little consequence in a fast-moving society. Check with your attorney.

 

MARCH 2008

My neighbors want me to place a scenic easement on my land to prevent it from being developed. Good idea or bad?
A good idea for some people and a bad idea for others. For those whose major concern is to stop growth, the concept may be appealing-though possibly harmful to their bottom line when they go to sell. The idea would likely turn off sellers who are seeking maximum profits, since investors, as a rule, would likely pass on land with this type of easement.

What does "carry over" basis mean in a real estate exchange? In a tax-deferred exchange, this is the adjusted monetary value that is transferred from the relinquished property to the property acquired. Example: You are trading a $100,000 home for similar property. Assuming there are no additional assets, or "boot." involved in the transaction, your carryover basis in the property you acquire will be $100,000.

What does "boot" mean in a real estate exchange?
This is the value of property and/or assets that are used to equalize the value of real estate traded in Section 1031 (tax-deferred) exchanges. My neighbor says he has a right to go across my property.

He says he has a prescriptive easement. What does this mean? This type of easement is provided to a property owner who has used the right-of-way unchallenged for a specified number of years. The use by one person or entity of another person's property by right or privilege can become a prescriptive right under certain conditions which are generally set by law or regulation.

What is a manufactured home?
Typically, this is a home constructed in 2 or more sections and transported to a home site for installation.

 

FEBRUARY 2008

I've heard you can hike profits on land by using gold as a deposit. How does this work?
Assume you are buying land for development, and the closing will not occur for 6 months. If your feel that gold will rise dramatically within that period, then offer to escrow the deposit in the form of gold coins. Should the value of gold increase by the time you close, the seller can agree to credit the increase in value to your down payment. If gold drops in price, you agree to offset the loss by paying more for the land, though the amount of your down payment can remain the same.

I have a reliable buyer for my cottage, but he is cash poor. How can I sell and move on?
Try an interest-only land sales contract for the first year so that your buyer can gain the liquidity to refinance. If your buyer defaults, you simply take the property back. See an attorney to draw up the agreement.

How does a letter of credit work in a land transaction?
If you've found the land you want, and you want to leave your cash in high flying CDs, try making the down payment using a letter of credit from your bank that guarantees that the deposit and/or down payment will be paid at closing. The letter of credit can also stand for cash when government agencies demand bond money to ensure performance on development plays such as road construction.

We want to buy more land for investment, but we're afraid our bank will not grant us a loan at this time. Any suggestions?
Try borrowing on your insurance policies. If you're tight on cash and onto a sure-fire deal, it may pay off big for you to skirt around conventional lenders who are more concerned with your failure than your potential profits.

 

JANUARY 2008

Will 2008 be a good year to invest in country properties?
The real estate market has obviously bottomed as evidenced by government and private sector measures to eliminate the credit crunch. Smart investors will be seizing phenomenal opportunities during this election year.

What areas will offer the greatest opportunities in country property?
Look for bargain-priced offers in waterfront resorts and in rural areas near major cities with good transportation corridors. Throughout the rest of this decade, baby boomers will be downsizing their existing homes for smaller dwellings.

How long will the next boom in country properties last?
Historical data and demographic charts show an upward in trend in prices for country properties and second homes continuing through the decade, with a downturn expected by the end of 2010.

What is the outlook for mortgage rates?
Expect a continuing decline in interest rates as the Fed fights off the hysteria of a crisis in sub- prime mortgages. Remember that the media will play up disasters to sell their stories.Good times and turns get little play. The back story is that the real estate market is emerging from a slump. Smart investors don't take their cues from the headlines.

What effect will the new administration have on the real estate market?
The real estate market is a small segment of the economy as a whole. The aging of our population (demographics) and the purchasing power and spending inclinations of this sector will have the largest impact on the economy as a whole. Real estate prices will follow that curve. Smart investors determine what people are prepared to buy--when and where --and they try to get there first.

 

DECEMBER 2007

Can I invest in raw land using funds from my retirement plan or IRAs?
Yes, but you must handle the transaction through an intermediary who would also disburse any funds for development. Check with your CPA or tax advisor for details.

I want to buy this farm, but the seller wants a life estate in the house and 5 acres? Should I proceed??
If your interest is primarily in the land- and not the house-you may negotiate a favorable deal. Though the seller may continue to reside in the house for a specified period, you can view the life estate as a marketable asset that can be sold at face value, discounted, or used as collateral for a loan, depending on standards set within the state. A real estate attorney can structure the deal.

Can proceeds from the sale of timber be used as a down payment on land?
Yes; however you must gain approval from any lender who may be holding a lien on the property. You may also need to use the timber contract as collateral for an interim loan from the lender, this since you will not receive any funds for the down payment until you have closed on the land and wrapped up the timber contract.

Can growing crops be used for the down payment and taxes on land?
Yes. You will want to close the deal after the harvest, with the proceeds of any sale being assigned to you. You may also be able to deduct from your current year's income that amount of money you spend for the crops. Check with an attorney when drawing up a contract where you control the harvest on farmland.

 

NOVEMBER 2007

Are we headed for a recession in 2008?
I don't think so. I feel the current credit crunch is simply the expected precursor to the recession of 2010. History in the 20th century shows precursors to major socio-economic turmoil occurring in the later part of each decade, this prior to the emergence of an even more disastrous period at the decade's end. Past precursors have taken the form of depressions, wars, and stock market collapses. History also shows tsunami-sized economic shock waves rolling across the nation in the 2nd year following the election of a U.S. president in a year ending with the number "8". Start counting from 2008.

Should I buy real estate now that the Fed has started cutting interest rates?
Buyers clearly have the upper hand at this time. Current economic conditions have created a "can't lose" scenario for savvy purchasers of real estate, since decisive action by the Fed has signaled a market bottom. Further interest rate drops will act to absorb excess real estate inventory and cause prices to rise to new highs, this before the almost inevitable crash in 2010.

What key indicators should I look for in analyzing market trends?
Keep your eye on job gains or losses and retail sales figures. More people at work and notable increases in the consumption of goods is good news. Watch the price of oil. Lower gas prices will mean a quicker recovery from the current credit crunch. High gas prices will delay the turnaround. A sustained rise in the stock market lasting beyond a quarter would also signal to investors that happy days are here again.

 

OCTOBER 2007

How can I decide what my land is worth?
Values established by counties for tax purposes are not always current; nor do they reflect ups and downs in the market. And real estate agents often place unrealistic values on land to obtain listings or to buy them for their own account. Other agents refuse to offer opinions, since sellers are sometimes not serious about selling and are often seeking free advice. Serious sellers who do not know what price they want for their land should pay to have it appraised.

I want to invest in foreclosures and distressed land. What should I look for?
Critical elements for investors in today's market who are looking to resell at the next market top, include: (1) bargain purchase price; (2) easy terms, location, location, location; (3) water, views, good access; and (4) utilities. Of course, the land must be approved for the construction of at least one dwelling unit.

What does Capitalization Rate mean?
In real estate investment, it means the rate of return that is used to calculate the value of a continuous stream of income. Essentially, the "cap rate" is composed of a reasonable return on investment (often determined by an appraiser), plus the amount that is allowed, or estimated, for depreciation. The value of the income stream is then determined by dividing annual investment income by the "cap rate."

What is the difference between a cesspool and a cistern?
Basically, a cesspool is a deep hole in the ground for the disposal of human waste; while a cistern is a large tank in the ground connected to drainpipes and guttering for the accumulation of rainwater. Cesspools are now widely outlawed throughout the U.S.

 

SEPTEMBER 2007

TAX QUESTIONS AND ANSWERS

What deductions do I get for renting out my vacation home? Properties rented out for an average of 7 days or less in a taxable year are not considered by the IRS to be rental real estate and are therefore not eligible for a deduction of up to$25,000 for losses against income derived from your primary job, profession, or trade, this if your magnified gross adjusted income (MAGI) is less than $100,000. Losses not deductible in any given year are carried forward to subsequent years, or until the activity ceases to exist in a taxable transaction to an unrelated party.

What deductions do I get if I rent out my vacation home longer than an average of 7 days a year?
If you use your vacation home for more than 14 days a year, or for at least 10% of the days rented at a fair price, then no deductions are allowed, and no income is reported on your tax return; however, mortgage interest and taxes are treated as if the home were a rental property. If rental activity exceeds 14 days, deductions must be prorated between personal and rental use.

What are my deductions if I use my vacation home for less than 14 days a year or less than 10% of the days rented?
In this case, your home would be considered a rental property with personal use, and not a residence. Rental expenses are allocated between rental and personal use. No expenses, other than taxes, are deductible. Since the property is not considered a personal residence, no mortgage interest can be written off.

Can I rent out my real estate to my personal business and claim more deductions?
Yes, if a fair market value is paid. This tactic is often helpful when there is a need to withdraw taxable money from the business for a number of reasons. The shelter of depreciation can also provide a tax benefit to you in this case. Such income, however, is non-passive and cannot be used to offset losses from other property. Any losses from a self-rented property are considered passive and are therefore of significant benefit to the owner through allowable tax deductions.

See your tax attorney or CPA for accuracy of this information.

 

AUGUST 2007

"BOOMSDAY" AHEAD FOR COUNTRY PROPERTIES

B.K. Haynes, ALC Accredited Land Consultant

Buy at the bottom and sell at the top. This is a familiar and recommended mantra for investors considering the purchase and sale of homes, land, stocks, commodities, or financial instruments. This article discusses the real estate scene as I see it for the rest of this decade.

Technical indicators and documented trends of the 20th century-the latter of which are fueled by factual demographic data-show that the price of homes and land is poised for an upward swing, with only a slight delay in the recovery. In analogical terms, the anticipated real estate recovery could be likened to a plane stuck on the runway for months on end waiting for permission to take off to another top.

In the spring of 2007, excess inventories of home and land products have yet to be worked off to comfort levels that consumers feel are proportionate to demand. Real estate prices appear to have topped out in the summer of 2005, first on the West Coast, followed by accelerated price declines in 2006 along the eastern seaboard and in scattered overheated markets throughout the U.S.

Who, or what, is responsible for the holdup in the real estate recovery? Here are four principal factors behind the delay: (1) geopolitical problems-mainly trouble with Iran and the Iraq War; (2) the unstable price of gasoline; (3) distress over the sudden loss of home equity; and (4) media hysteria over a perceived wholesale collapse of the sub-prime mortgage lending business.

For those observers sitting on the sidelines of the real estate game, it is important to grasp what professional investors already know-what goes up must eventually come down. In recent years, the overvaluation of real estate in the U.S.-largely induced by a spurt of low interest rates in the early 2,000s-acted to make real estate more affordable for consumers, while at the same time spawning excessive speculation.

By 2003, consumer buying power had reached peak levels due to the burgeoning wealth of aging Baby Roomers. The end result was a shortage of home and land product and the creation of a classic sellers' market.



Considering the current surplus of unsold homes and building lots- and in the absence of dramatically lower mortgage interest rates and falling gasoline prices-clear-cut definition of an upswing in the real estate market will likely not be evident until the fall of 2007 or, possibly, early 2008.

Based on decennial cycles in the 20th century, another significant sellers' market should emerge before the upcoming presidential election and is expected to last until another full-scale market bottom at the decade's end, at which time investors will want to have a high degree of liquidity.

It would appear that now is clearly the time to buy select rural real estate, while it is- in most cases- being sold at hugely discounted prices and can therefore be considered significantly undervalued. For short-term investors, the time to take profits would be in the projected peak boom period of mid-2008 to mid-2009, before credible evidence suggests to the general public that the next crash is at hand.

Technical data show that recent weakening in the real estate market has reduced new home sales and housing starts to normal levels, last seen in the year 2,000. Those familiar with past bubble booms and busts recognize that the recent real estate downturn is not a bust, but only a correction, as it has been characterized by leading economists and investment analysts.

In effect, the current real estate slump is not indicative of a "bubble burst," but is simply a correction within the context of an existing "bubble boom" in the U.S. economy that will be finishing its run over the next several years. The media, of course, would naturally play up the "bust" angle because negative news is more sensational than positive events for readers, listeners, and viewers.

In its worse connotation, the recent dip in real estate prices can be viewed by alarmists as a possible suspect in the killing of the economy, when, in reality, the downturn can intelligently be interpreted by alert investors and many economic analysts as a precursor of a wide-spread bust poised to emerge in 2009-10. A caveat to this conclusion is that the carnage to consumer home equity positions left by the price correction was so severe that it may have dealt a death blow to the indiscriminate construction of McMansions. Most home and land owners, who have held on and weathered the price correction, will find their equity positions restored and embellished after the real estate market takes on its upswing definition later this year and rises to another top.



One of the fundamentals in the real estate market is that homes and land exist in a state of constant turnover, with these assets generally purchased with the proceeds from the sale of existing real estate. As homes and land become more affordable-due to lower mortgage rates, scarcity of supply, and through price corrections-the assets have had, in the past, a tendency to be traded upward, exposing the inventory of new homes and land parcels to excessive speculation. It is obvious that the 2005-07 price correction has produced an abundance of affordable real estate, while curbing speculative activity.

As the market recovers from the slowdown, it is important to realize that demographic changes in the U.S point to a growing trend toward down-sizing in the home market, with sellers cashing out larger homes for the purchase of smaller, less expensive dwelling units. It would be reasonable to assume that the large-scale, unrestrained construction of gaudy mansions and overly expensive homes is a somewhat dated concept not likely to be embraced by national home builders. It takes many years for large scale housing developments to get off the ground. The process begins at the land acquisition stage and starts working its way through the nightmare of political concerns and environmental objections, then proceeds to the desks of planning and regulatory officials and, finally, to the construction phase.

Developers at the starting gates of upscale housing developments in 2008 could find themselves losing the race for profits. This is largely because the spending power of Baby Boomers to buy such luxurious digs will be trending downward, this in the twilight of an overall crash in the economy that could, again, leave the building industry with an inventory of expensive unsold homes.

For months now, doomsday commentators have been shouting that the sky was falling on the real estate market and that the calamity would bring about a recession. In fact, the state of real estate is only a single component within the overall economic picture. A crash in this one segment would essentially be a blow to the real estate market caused by a faltering economy, not the other way around. The global boom in economic growth and the strength of baby boomer spending should boost the value of real estate assets in the U.S. for the next few years. Of course, real estate, like politics, is largely local. So location, location, location, is super important. Investors in country properties should scout for desirable real estate that is easily accessible by main roadways and located less than two hours from major cities.



Early-bird selection of prime resort properties - particularly waterfront-by investors prior to project completion by reputable developers could be a sound and profitable move. Well located rental properties and moderately priced homes with acreage should also deliver significant profits if purchased soon and sold at the peak of the coming buyers' market. But remember, the surge in Baby Boomer spending will have receded fundamentally by 2010, this as the expected slump in the economy takes hold. Investors will need to be liquid at that time to capitalize on those real estate foreclosure and distressed property opportunities that accompany economic downturns.

Investors should keep in mind the fact that real estate bubbles and their related busts are more likely to occur in densely populated metropolitan areas, this due primarily to the scarcity of land. Consider the fact that six of the most unaffordable housing markets in the English-speaking world are in the U.S.-five cities in California, combined with Honolulu, Hawaii. It is not a forgone conclusion that a real estate bubble burst will affect all markets simultaneously, as would be the case in a stock market crash.

New growth restraints in some outlying counties can also restrict the amount of land available for housing, forcing the clustering of homes and perpetuating regional bubbles as people bid up the price of homes, this while developers scurry around, paying higher and higher prices for buildable land.

The 20 most affordable home markets in the English-speaking world are all located inland, away from the coastlines. 16 of the 20 are in the U.S., with four in Canada. A few simplistic lesson points for investors in country properties are (1) concentrate your activities in good rural locations with growth potential; (2) buy at recognizable market bottoms; (3) sell at the top; (4) avoid irrational market frenzy that could expose you to the next bubble burst.

Demographic-based data reveal that, in coming years, there will be diminishing future demand for high priced homes in and around major cities and population centers. An aging population, led by the Baby Boomer segment, will call the shots on economic growth in the near future, this through the power of their massive build up of wealth stashed away for retirement. Primary homes for this population sector will-of necessity and preference-be smaller in size. This group will seek out moderately priced homes and dwelling units in small towns and rural areas near major cities, while intensifying their search for affordable homes and condos in resort communities.

The purchase of homes with acreage, small farms, and fixer-upper homes in the countryside will be primary objectives for retirees, as well as principal targets for short-term investors in country properties. The changing demographic nature of our population will bring about price rises for affordable homes and land in the near term, the trend eventually leading to another overvaluation of properties in attractive regions, many of which are destination points preferred by new retirees.

Real estate in California, Florida, New York City and its environs, and the southwest U.S. are particularly vulnerable to the coming bubble burst.

City dwellers seeking lower priced homes and refuge from congestion will be propelled toward the countryside in coming years by the explosion of broad-based internet that will allow them to work from their homes. The demand for country properties will grow exponentially as these workers move further out, drawn to less crowded regions offering abundant outdoor recreation and affordable housing. That idyllic little cottage in the country will be on the minds of many escapees seeking a haven from the nightmarish events that could occur at the end of this decade. And, of course, the threat of terrorism will act to drive many city people out of the ominous "blast zone."

A noticeable price pattern was evident to economic observers throughout the 20th century that showed real estate prices falling significantly following a 5-year lag from their peak figures, these high numbers generally emerging at mid-decade. This same pattern appears to be developing in this decade, with a slide in prices that started in 2005 and is now beginning to level off in 2007.

As in the past, this recurring trend calls for real estate prices to climb in the near future, before failing again to a market bottom on the heels of a recession. Many leading economists and financial analysts point to charts showing that the next real estate bubble burst will be incited by a collapse in the overall economy in, or around, 2010. Sellers of high-priced homes, disappointed in the scarcity of buyers, along with devaluations of their property often reaching 40%, should find a way out of their lost equity troubles through the rising tide now evident in the stock market-a financial surge that should lift all boats.

Timely action by the Fed to drop long-term interest rates, along with a concerted effort by private sector lenders to develop a comprehensive program of restructured financing for sub-prime loans, could help consumers sop up the existing inventory of moderately priced homes and lead to a quick recovery for the real estate market in 2007.

For investors in country properties, here are some chilling predictions about the economy: The spending wave by Baby Boomers will decline significantly at the end of this decade, while their entitlements will pose a huge drain on the economy. Moderate inflation will edge up over the next few years, followed by a growing deflationary period which will be deadly to many holders of real estate and become the hallmark of a deep recession beginning in 2009-10.



Plummeting mortgage interest rates will help lessen the blow to the economy, this as a surge of refinancing provides a measure of stability to the real estate market. Geopolitical troubles will haunt the U.S. for the rest of this decade. Throughout the 20th century, almost every president elected in a year ending with the number eight has faced a war or economic calamity during his second year in office.

Tremendous opportunities exist for investors who are in the right place at the right time with the right means, whether the market be favorable to either buyer or seller. The problem that for most investors is that they either fail to act, act too late, or fail to correctly judge the market.

B.K. Haynes has been a land broker in Front Royal, VA for 41 years. He is the author of seven books, the latest of which is DIRT PEDDLER - How I Turned $50 Into $10 Million in Country Property - Part Time. For more information and commentary log on to www.bkhaynes.com.

 

JULY 2007

What follows is the next part in a multiple part series about the real estate market in the near future.

21 Reasons the sky ain’t falling on real estate

 At the present time, a tsunami of price reductions by sellers and builders has engulfed and watered down profits and consumer equity in the real estate market. Notwithstanding this unfortunate turn of events, it is highly unlikely--as some pundits would suggest–that sellers are now retreating en masse along a path to self-destruction of their equity positions.

Barring a cataclysmic event, such as a nuclear war, or world-shaking terrorist assault on Western socio-economic structure and stability, the real estate market and the health of the economy in general should–with a correction or two --trend upward over the next few years, this as supply and demand for real estate reach proportionate levels.

Sample reasons for optimism

(19) The years 2007 to 2009 should be of particular interest to investors in vacation homes, since the huge looming army of baby boomers, advancing through their peak purchasing years, are now closing in on the second home market. Buyers will have their best tactical advantage by seizing real estate objectives in 2007 while sellers are off-guard on valuations. Sellers will gain most of the high ground bargaining power in 2008-09, when they will be best positioned to draw the line on prices.

(20) Real estate investors should strive to be relatively liquid by 2010. This strategy calls for a plan to set aside a substantial stockpile of cash-accessible assets, while giving appropriate attention and care to your core real estate holdings, such as your primary home place, vacation abode and any profitable rental properties.

(21) In a worse case scenario, all real estate sectors could theoretically fall from grace at the decade's end, this calamity potentially occurring in concert with a crumbling stock market and accelerated terrorist activity. Smart real estate investors will build up their stores of cash, CDs, T-bills no later than 2009 to weather the potential storm clouds ahead. Future millionaires and billionaires will then set their sights on once-in-a lifetime buying opportunities in prime exurban and resort area real estate.
--------------------------------------------
Go to www.bkhyanes.com for
21 reasons the sky ain’t
falling on real estate
---------------------------------------------
For a complete course in land investing
for profit, including “50 Ways to Buy
Country Property with Little or No
Money Down,” order Mr. Haynes’s
latest book:

DIRT PEDDLER –
How I Turned $50 Into 10 Million
In Country Property – Part Time
Order at pre-publication discount
from www.bkhaynes.com

Return to Land Trap

 

JUNE 2007

What follows is the next part in a multiple part series about the real estate market in the near future.

21 Reasons the sky ain’t falling on real estate

 At the present time, a tsunami of price reductions by sellers and builders has engulfed and watered down profits and consumer equity in the real estate market. Notwithstanding this unfortunate turn of events, it is highly unlikely--as some pundits would suggest–that sellers are now retreating en masse along a path to self-destruction of their equity positions.

Barring a cataclysmic event, such as a nuclear war, or world-shaking terrorist assault on Western socio-economic structure and stability, the real estate market and the health of the economy in general should–with a correction or two --trend upward over the next few years, this as supply and demand for real estate reach proportionate levels.

Sample reasons for optimism

(16) If you plan to sell your home in the near term, follow closely the anticipated upswing in real estate prices that should be evident in the first half of 2007, this as the current and unprecedented surplus of homes in many regions is largely wiped out through the whirlwind of price cutbacks and purchase incentives now gaining strength in the real estate market. This emerging growth trend will be forcefully driven over the next few years by a thriving economy and fueled by unquestionably strong consumer buying power.

(17) As I explain in my latest book, DIRT PEDDLER - How I Turned $50 Into $10 Million in Country Property - Part Time, the most opportune time to sell your home or land in the near term would be to do so by 2009, and no later than 2010.

(18) The best time to snatch a bountiful deal on a first or second home, or to buy prime land, would be now, at this discernible upturn of the current dip, while potential purchasing rivals, such as green speculators and weak-kneed investors, are few and far between and often nowhere to be seen. I am currently buying homes and land significantly below their present worth and far below their future market value.
--------------------------------------------
Go to www.bkhyanes.com for
21 reasons the sky ain’t
falling on real estate
---------------------------------------------
For a complete course in land investing
for profit, including “50 Ways to Buy
Country Property with Little or No
Money Down,” order Mr. Haynes’s
latest book:

DIRT PEDDLER –
How I Turned $50 Into 10 Million
In Country Property – Part Time
Order at pre-publication discount
from www.bkhaynes.com

Return to Land Trap

 

MAY 2007

What follows is the next part in a multiple part series about the real estate market in the near future.

21 Reasons the sky ain’t falling on real estate

 At the present time, a tsunami of price reductions by sellers and builders has engulfed and watered down profits and consumer equity in the real estate market. Notwithstanding this unfortunate turn of events, it is highly unlikely--as some pundits would suggest–that sellers are now retreating en masse along a path to self-destruction of their equity positions.

Barring a cataclysmic event, such as a nuclear war, or world-shaking terrorist assault on Western socio-economic structure and stability, the real estate market and the health of the economy in general should–with a correction or two --trend upward over the next few years, this as supply and demand for real estate reach proportionate levels.

Sample reasons for optimism
(13) Current demographic data from the U.S. Bureau of Census charts show the degree of home ownership in this country rising to a level exceeding 70% of the population base. Most of this increase in ownership will come from the purchase of lower priced homes.

(14) High-end homes will gain some price stability in the near future from the emerging stock market bubble-this until the next bust dilutes the liquid assets of investors and upscale homeowners.

(15) Like politics, real estate is basically local. Charisma, market timing, and location, location, location are all super important. Significant profits and asset safety await those who migrate to, or invest in, upcoming "hot" markets that offer affordable homes and a better lifestyle. This wise, albeit self-serving tactic is essentially induced by demographic data that identify a formidable army of rich folks, led by affluent retirees, all on the move and in retreat from their "McMansions" and high-end abodes to less lavish huts and a more folksy lifestyle. Left behind to grieve over their diminishing returns in overheated markets will be a rag-tag rear guard of amateur investors and untrained speculators.
--------------------------------------------
Go to www.bkhyanes.com for
21 reasons the sky ain’t
falling on real estate
---------------------------------------------
For a complete course in land investing
for profit, including “50 Ways to Buy
Country Property with Little or No
Money Down,” order Mr. Haynes’s
latest book:

DIRT PEDDLER –
How I Turned $50 Into 10 Million
In Country Property – Part Time
Order at pre-publication discount
from www.bkhaynes.com

Return to Land Trap


APRIL 2007

What follows is the next part in a multiple part series about the real estate market in the near future.

21 Reasons the sky ain’t falling on real estate

 At the present time, a tsunami of price reductions by sellers and builders has engulfed and watered down profits and consumer equity in the real estate market. Notwithstanding this unfortunate turn of events, it is highly unlikely--as some pundits would suggest–that sellers are now retreating en masse along a path to self-destruction of their equity positions.

Barring a cataclysmic event, such as a nuclear war, or world-shaking terrorist assault on Western socio-economic structure and stability, the real estate market and the health of the economy in general should–with a correction or two --trend upward over the next few years, this as supply and demand for real estate reach proportionate levels.

Sample reasons for optimism
(10) Real estate in the following sectors should benefit from an aging population: (1) vacation and resort properties, (2) good usable land close to small towns and near major cities, and, (3) well-developed apartment projects.

(11) Real estate is cyclical in nature and not prone to sudden crashes like the stock market. Predictable cycles of consumer spending and reflections of their personal needs can now be charted for a particular population base through the accumulation and analysis of statistical data.

(12) Demand for real estate is ongoing and diverse. There will always be a need for the product in one form or another. A growing consumer trend is to pack up and move away from city and suburban life to other less stressful environments. This fundamental change in lifestyles is mainly fueled by a basic desire for lower priced homes. Other factors at play in these changing times are: (1) a longing to work from home, (2) a craving to relocate to a less congested region, and, (3) a desire for more leisure time activities.
--------------------------------------------
Go to www.bkhyanes.com for
21 reasons the sky ain’t
falling on real estate
---------------------------------------------
For a complete course in land investing
for profit, including “50 Ways to Buy
Country Property with Little or No
Money Down,” order Mr. Haynes’s
latest book:

DIRT PEDDLER –
How I Turned $50 Into 10 Million
In Country Property – Part Time
Order at pre-publication discount
from www.bkhaynes.com

Return to Land Trap

.

MARCH 2007

What follows is the next part in a multiple part series about the real estate market in the near future.

21 Reasons the sky ain’t falling on real estate

 At the present time, a tsunami of price reductions by sellers and builders has engulfed and watered down profits and consumer equity in the real estate market. Notwithstanding this unfortunate turn of events, it is highly unlikely--as some pundits would suggest–that sellers are now retreating en masse along a path to self-destruction of their equity positions.

Barring a cataclysmic event, such as a nuclear war, or world-shaking terrorist assault on Western socio-economic structure and stability, the real estate market and the health of the economy in general should–with a correction or two --trend upward over the next few years, this as supply and demand for real estate reach proportionate levels.

Sample reasons for optimism
(7) The strength and thrust of baby boom spending will continue to energize the economy until 2010. Historical data shows that a prolonged recession is likely to take hold at the decade’s end.

(8) Certain sectors of the real estate market will outdistance others in growth potential in coming years. Baby boomers will downsize to smaller homes in preparation for their retirement years, this trend boosting the second home market. And echo boomers will provide a steady and lucrative market for builders of lower-priced starter homes.

(9) Prices on lower and mid-priced homes will continue to rise throughout this decade as U.S. government-charted demographic spending trends show accelerated demand in this sector. Higher-end homes in overheated areas pose some downside risk in valuation.
--------------------------------------------
Go to www.bkhyanes.com for
21 reasons the sky ain’t
falling on real estate
---------------------------------------------
For a complete course in land investing
for profit, including “50 Ways to Buy
Country Property with Little or No
Money Down,” order Mr. Haynes’s
latest book:

DIRT PEDDLER –
How I Turned $50 Into 10 Million
In Country Property – Part Time
Order at pre-publication discount
from www.bkhaynes.com

Return to Land Trap

FEBRUARY 2007

21 Reasons the sky ain’t falling on real estate

What follows is the next part in a multiple part series about the real estate market in the near future.

At the present time, a tsunami of price reductions by sellers
and builders has engulfed and watered down profits and
consumer equity in the real estate market. Notwithstanding
this unfortunate turn of events, it is highly unlikely--as some
pundits would suggest–that sellers are now retreating
en masse along a path to self-destruction of their equity
positions.

Barring a cataclysmic event, such as a nuclear war, or
world-shaking terrorist assault on Western socio-economic
structure and stability, the real estate market and the health
of the economy in general should–with a correction or two
--trend upward over the next few years, this as supply and
demand for real estate reach proportionate levels.

Sample reasons for optimism
(4) Demographic data show that consumers still have immense
capacity to buy homes and land. It is a myth that excessive
consumer debt loads and unusually low interest rates have
preordained an imminent real estate crash.

(5) Consumer debt and mortgage lending will begin to level
off as an aging population--still flush with substantial home
equity assets--casts off much of their mortgage interest load.

(6) The sun also rises on real estate. What goes down also goes
up. In sync with this market cycle, a diminishing degree of
real estate price erosion is expected to continue into 2007 as
excess inventory is worked off.
--------------------------------------------
Go to www.bkhyanes.com for
21 reasons the sky ain’t
falling on real estate
---------------------------------------------
For a complete course in land investing
for profit, including “50 Ways to Buy
Country Property with Little or No
Money Down,” order Mr. Haynes’s
latest book:

DIRT PEDDLER –
How I Turned $50 Into 10 Million
In Country Property – Part Time
Order at pre-publication discount
from www.bkhaynes.com

Return to Land Trap

 

DECEMBER & JANUARY 2006

21 reasons the sky ain’t  falling on real estate
At the present time, a tsunami of price
reductions by sellers and builders has
engulfed and watered down profits and
consumer equity in the real estate market.
Notwithstanding this unfortunate turn of
events, it is highly unlikely--as some
pundits would suggest–that sellers are
now retreating en masse along a path to
self-destruction of their equity positions.

Barring a cataclysmic event, such as a
nuclear war, or world-shaking terrorist
assault on Western socio-economic
structure and stability, the real estate
market and the health of the economy
in general should–with a correction or
two--trend upward over the next few
years, this as supply and demand for
real estate reach proportionate levels.
  Sample reasons for optimism
   (1)  Moderate inflation is expected
2006 to 2010, adding strength to the
economy and power to your earning
capacity.
  (2)  Interest rates will decline slowly
as economic growth is spurred on by
the sustained spending years of aging
baby boomers.
  (3) For investors, the process of
recognizing a market bottom and seizing
the moment often pays greater returns
than the tactic of selling for a profit at
the top. In this recent downturn,
overbuilding and aggressive speculation
by investors clipped the wings of many
high-flyers in the real estate market.
Both excesses have been primary factors
in the flattening and erosion of home
prices, a trend that actually surfaced
in our thriving post-recessionary economy
prior to a peak demand for homes in
mid-2005.

Prior to that time, abnormally low mortgage
interest rates had stimulated home sales,
pushing up home ownership to historic
levels. The nation's home supply then
began to outdistance demand, thereby
creating unsustainable asking prices in
many regions of the country. By the end
of 2006, this correction in home prices will
have been playing out over an approximate
18-month period--the length of a normal
recession. My analysis and evidence
shows clearly that we are at the bottom
of a dip and that we are now emerging
from a somewhat bearish market.

--------------------------------------------
     Go to www.bkhyanes.com for
        21 reasons the sky ain’t
         falling on real estate
---------------------------------------------
For a complete course in land investing
for profit, including “50 Ways to Buy
Country Property with Little or No
Money Down,” order Mr. Haynes’s
latest book:
           DIRT PEDDLER –
How I Turned $50 Into 10 Million
In Country Property – Part Time
Order at pre-publication discount
   from wwwbkhaynes.com

Return to Land Trap

NOVEMBER 2006

If the economy keeps growing, when will we see the
next bust or crash?
Our economic future is largely shaped by demographic trends.
Astute investment advisors see real estate values rising
modestly until the decade’s end, after which a major
depression is expected to take root. Trend line charts of
reliable economists show the economy engulfed by turmoil
after 2010,this while a flood of retiring baby boomers
begins to downsize their homes. Investors should attempt to
buy in a buyers’ market and sell in a sellers’ market.
The sellers’ market in homes peaked in mid-2005, settling
into a buyers’ market that should end by the spring of 2007.
Significant gains could flow through to investors who buy the
right real estate in late 2006 and sell before the coming crash.

With home prices cooling off, what real estate
sectors offer good gains?
Given an uncertain long-term economy and an aging population,
wise investors should consider prime offers in the following
sectors: (1) undervalued, desirable land in nearby rural
areas close to growing towns (2) ground-floor residential
opportunities in popular vacation/resort communities and,
(3) well-located apartment complexes.

Is a home still a good investment?
Periodic downside corrections in home prices come with
the economic territory. Investors can still reap favorable
returns on the purchase and resale of low-end and mid-sized
homes over the next few years. Players in the high-end
market should proceed with caution.

Return to Land Trap

 

OCTOBER 2006

Why do I need a “perc” test?
Such tests determine whether soils will accept sewage disposal
systems connected with building construction. In rural areas
without sewers, a conventional in-ground system is usually
preferred by land buyers because of low cost and minimal
maintenance. Alternative systems requiring pre-treatment of
effluent are used in marginal soils. Though many are
approved by health authorities, these systems cost more
and need maintenance.

What do I need to know about easements?
Usually these are rights or privileges others may have in your
land, such as rights-of-way for access and for the construction
and maintenance of utilities. Some land owners impose “scenic”
easements that restrict land use. Other easements may dictate
that land must be used only for agriculture or conservation, this in
return for tax breaks. Such easements act to discourage the
development of land and can therefore hold down price appreciation
for land owners and investors.

Should I buy land if mineral rights are reserved?
Many early reservations of mineral rights in the chain of title to
land can turn out to be of little consequence in a fast-moving
society. Check with your attorney.

Return to Land Trap



SEPTEMBER 2006

I’m negotiating to buy a farm. Should I buy with or without the crop?
If the crop looks good, it may pay you to bargain for the crop if you can close after the harvest. The income you receive can offset all or part of your down payment and possibly cover the real estate taxes; plus you can deduct from your current year' s income that amount of money you spend for the crop.


With the home market cooling off, is this a good time to buy land?
Multiple uncertainties—such as climbing gas prices, rising interest rates, terrorist threats, and a middle east war--have all dampened consumer response, while creating a classic buyer’s market in real estate. Smart investors realize that real estate is cyclical in nature, and that the current downturn is only a dip in a trend line and not the proverbial crash. Many desperate sellers have been cutting their asking price in response to a surplus in real estate product. This overreaction has spawned enormous investment opportunities. Similar scenarios were evident in 1946, ‘56, ‘66, ‘76, ‘86, and ‘96, when real estate prices dipped to favorable levels for investors. Economists, who follow real estate industry trend lines, see a strong economy boosting prices from the current dip to new highs over the next few years, until the usual recession at the decade’s end, this as inflation and overheated government spending continue to scorch the dollar’s value.

Return to Land Trap



AUGUST 2006

What is a life estate?
This is a reservation in a deed by the seller to retain lifetime use of a portion of real estate--such as a home and a few acres from a farm. Upon the death of the seller, possession of the life estate will default to the buyer or his assigns. The life estate can have grades of established and verifiable, depending on guidelines set within a particular state. Fundamentally, such strictures are based on life expectancy standards, though evaluation of the property for tax purposes may also be a consideration. A buyer holding a mortgage on property with a life estate can view the deed to such real estate as an asset that can be sold at face value, discounted for sale, or used as collateral for a loan.


I want to buy some land and sell off the timber. How does this work?
If the land has valuable and marketable trees (based on a “cruise” by a timber consultant) a company dealing in wood products may agree to pay you good money to harvest big trees of, say, 16” or more in diameter. The money can be paid to you up front or in stages as the logs are cut and removed. A reputable timber company will be obligated to build serviceable roads and do basic clean-up work. Some savvy investors arrange to have the money paid at closing to possibly cover their down payment and provide cash flow. Bear in mind that a third-party lender in such a transaction would probably want part of the proceeds applied to their loan.

Return to Land Trap


JULY 2006


With the price of gasoline reaching $3.00 a gallon, will land prices begin to slide?
Drive longer and pay less is a general rule for buyers of land in the country; however, location may trump high gas prices in a vibrant economy. During good times, the listed price for a certain amount of land in a far out region could actually exceed the price of similar land closer in, this if the outlying land has more desirable features. In the face of rising gas prices, look for the price of some land offers to go down, while the cost of other land, such as water- front, will most likely keep on climbing.

I’m a new land buyer. What should I look for to make a good investment?
Beyond my concern about the features of the land, its market history, the mode of financing, and distance from the city, I would try to get answers to the following questions: (1) What is the current tax rate? (2) Is there a shortage of homes and home sites in the area? (3) Do people want to go there? (4) How close is shopping, schools, a hospital, fire department? (5)
What are the employment opportunities? (6) Are there any natural attractions for outdoor recreation? (7) What does the neighborhood look like? (8) How good are the schools? (9) How strict are local government regulations on development? (10) Are there any adverse environmental
problems? (11) Is there a high degree of crime and violence? (12) How far away is the nearest municipal airport? (13) What are the climate characteristics? (14) Where is the nearest public library, college, and
university? (15) How fast is real estate moving in the area? (16) In what ways, if any, is the area changing?

Return to Land Trap



JUNE 2006

What impact will the high price of gas have on land prices?

The price of land is mainly determined by supply and demand factors spurred on by the degree of household wealth. When measured against a 3-year record rise in household wealth, recent gas hikes in gas prices are of relatively minor consequence to the financial health of most consumers, who are enjoying increased net worth in a vibrant economy. In the near future, land buyers are expected to ration their trips to the countryside until the reality of $3.00 per gallon gasoline sets in.

How close are we to a crash in the housing market?

A precursor to the coming crash could occur in 2007-08, this in the form of a mini-collapse in housing and a major plunge in the stock market, both aided and abetted by rising interest rates and soaring energy costs. Talk of a culture war and Armageddon will continue to warm the tongues of alarmists. Many false prophets will claim that “end times” are at hand. But any such economic setback and climate of fear generated at that time would more likely be a precursor to the expected crash in 2009-10. The home building industry is, in essence, a child of the economy and dependent for its healthy existence upon low long-term interest rates and the financial well-being of the consumer. In a lively economy, interest rates and land values—both key determinants of home prices—normally react in tandem to commodity driven forces, with values usually rising in proportion to scarcity and demand. Investors should observe the growing movement from dollar-denominated funds into commodities, such as gold and energy-related products. A continuation of this trend would, (1) be a signal of burdensome interest rates to come, (2) raise the specter of renewed inflation and, (3) bring an end to the housing boom.

Return to Land Trap


MAY 2006

CRACKING THE CODE OF THE NEXT BUBBLE BURST IN REAL ESTATE

In a recent conversation about the coming bubble burst in real estate I heard the code words, “DEEP PLACE” What do they mean?

These two words unlock the code that reveals when the bubble burst will actually occur, the reasoning behind the theory, the effect on our economy, and investor reaction to unfolding concurrent events. Demographic shifts and cyclical economic trends are both at play in the following scenario. “D” means deep trouble for the country at the end of the decade – 2009-10 – when access to credit and ready cash will be tight. “E” signals that the economy will be in turmoil. The second “E” refers to the upcoming presidential election year, when history shows an economic decline and calamity, such as war or a natural disaster, occurring with regularity two years after a new president takes office in a year ending in the number 8 – this recurrence spotlighting 2008 as the Devil’s year. “P” means that a precursor to this twin disaster such as a stock market crash and/or a terrorist scare – will be evident prior to the emergence of the twin disasters at the end of this decade. Many people in the western world will misinterpret this precursor – likely to appear in 2006-07 – to be the real “end times” of recent prosperity and misjudge their investment decisions.

The code word PLACE is significant to investors. When broken down, “P” means that prices on some invest­ment assets, such as stocks and real estate will plummet in a classic buyer’s market. “L” stands for location, leading astute real estate investors and “sharks” to feed in the blood bath of previously fat markets. “A” is for auctions, which will be common as panicky investors, developers, and real estate owners scramble for liquidity at the decade’s end.. “C” means that “cash” will be king in these hard times. “E” signals the need for experience in navigating through the troubled waters ahead.

Untested and ill-advised investors could lose their shirts. Smart investors will be prepared to pluck enormous benefits from a down market. Some sharp players will make millions at the decade’s end. Look for real estate prices in general to rise until 2009, with only sporadic dips. Then prices will stabilize across the country before declining as much as 10% to 30% in specific overheated markets. Most analysts and economists are not predicting a 1930’s style depression or a doomsday scenario, only a serious economic setback for the country at large. Any parallel calamity to the anticipated downturn is speculative, though 20th century history reveals an ominous and recurring connection between economic turmoil and preeminent calamities. A serious energy crisis could connect both dots.

Return to Land Trap

 

APRIL 2006

I want to buy 300 acres inside a Nat’l Forest, but the right-of-way is in question. Should I buy anyway?
You may have a “prescriptive” right to come and go, but you may not be able to bring in utilities, build on the land or use it for specific purposes. Old rights-of-way may have been used for grazing and agricultural use only. If not shown in the deed, the width may be legally fixed at “wagon width,” of about 12 ft.–too narrow for development. Without a clear and definitive right-of-way, the land value would be compromised. Check with a real estate attorney before proceeding.

How accurate are appraisals on rural land and country properties?
In contrast to values established in city and suburban areas, appraisals in the countryside can vary by as much as 25-30%, this due in large part to the distance between properties, location factors and lack of recent comparables. For example, a farm or home near a state or county line could show a wide disparity of reported value, depending on which vicinity the appraiser chose for comparables. Many appraisers are also not aware of–nor can they legitimately account for–population trends that are constantly altering values–such as emerging construction projects, recent unrecorded land sales, and new housing developments. I advise serious sellers to obtain at least two appraisals on country properties. Most buyers are usually satisfied with a single report, as required by their lender. Investors in country properties, however, have a tendency to make low-ball offers, or they discard the seller’s appraisal in favor of getting their own.

I’m thinking of selling my five acres in a rural development. Will it sell better if I install a well and septic system?
In a soft market, these costs could force you to raise your asking price beyond market value. You may want to save your money to have a greater margin for price negotiations.

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MARCH 2006

I see more homes with reduced prices. Is this a good or bad sign for investors?
Blame recent price drops on the Feds who have created buyer resistance by raising rates on ARM loans 14 times over an 18-month period, with more hikes possible. Fears of a bubble burst have also scared buyers. But the market is not crashing. Home investors should avoid overheated markets, this while settling for yearly monetary gains in the single digit range.

What are your predictions for the real estate market in 2006?
I believe the economy will continue to grow, possibly by as much as 3%. Both long and short-term interest rates will stabilize at reasonable levels to fight off inflation, this while the nation dodges a recession. Average home prices will fall slightly, but only in areas where investors have been pushing up home sales. The land market will stay vibrant, and prices will continue to rise because (1) Local governments will ration affordable land to consumers, this to contain urban sprawl. (2) More jobs will be created beyond the cities creating a need for more outlying home sites, and (3) Baby boomers, facing imminent retirement and flush with home equity money will stimulate the sale of relocation sites and smaller homes in the countryside near major cities. Smart investors will buy land in the path of the nation’s new and improved roadways, because this activity is a reliable guide to where the flight of city slickers will land.

What is the hottest growth region for land investors in the D.C. Metro area?
The Winchester, Front Royal, Strasburg, VA crescent has been cited as the 2nd fastest growth area in VA. The Metro’s western frontier now reaches out to Capon Bridge and Wardensville, W. VA, both in the path of planned new highway systems.

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FEBRUARY 2006

I want to buy some land, but my bank wants 20% down. Now interest rates are rising. Should I hold off?
Sub prime real estate lending and the fear of a bubble burst has caused many lenders to tighten up their loans. In 2006 interest rates on raw land will exceed 8% – a two point hike since 2004, yet still relatively low by historical standards. Land values should spiral through 2008 in most areas of the U.S., due to shortage of usable land caused by excessive reg-ulations and increased con-sumer demand. Many 90% loans are still available to land buyers with good credit. It pays to shop around. The Feds, in an attempt to slow down the real estate boom, fight inflation, and shore up the bond market, may force short term interest rates to a disastrous 10%. At that time you may want to hold off, since a recession would be imminent.

What impact will the retiring baby boomers have on the real estate market?
Boomers born in 1945 are now 60 yrs. old. By 2010 this first wave will be 65. A budget crisis will ensue as government benefits are doled out in record amounts. No doubt a serious recession and accompanying calamity will be at hand. An inflationary binge will devalue the dollar, favoring investment in commodities and hard assets. Interest rates will skyrocket, and money will be tight. Many boomers will shift to smaller homes. Builders and developers will go under. Foreclosures will be rampant. Investors with liquidity will discover a classic buyers market in real estate.

I’m 50 years old. Should I buy a second now before I retire?
You will need cash for down payment, taxes, mortgage payments, maintenance, util-ities, & insurance. Unless you have rental income to offset this cash drain, and if you use the home only infrequently, you may want to hold off. The real estate bubble has yet to burst, and your shrinking nest egg may not hatch as expected.

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JANUARY 2006

Higher priced homes now stay on the market longer. What’s up?
Home prices have been rising faster than incomes causing a leveling off in sales of upscale homes. But new home sales at average prices should surge ahead in the near future, this because, in relative terms, increases in consumer income have outpaced price hikes for the average home.

How can I find home plans on the Internet?
Try www.homeplans.com and DreamHomeSource.com.

I want to fix up an old home on a farm I bought. Any advice?
If you are unfamiliar with the construction process, you should (1) hire a home inspector to point out any deficiencies (2) retain a professional remodeler or home contractor to correct any problems and (3) hire a specialist to check the water supply and septic system and an exterminator to check for any termite damage.

Should I attend land auctions that are not called “Absolute”?
It is generally known that absolute auctions may lead to lower bid prices because there is usually no minimum bid or required seller’s approval of the final sale price. Investors frequently go to land auctions regardless of restrictive stipulations, this because final prices are often governed more by (1) economic conditions (2) the number of qualified bidders and (3) the “need to sell” than by the passing notions of sellers.

What does accretion mean?
The addition of soil to land due to changes to a water course by excessive winds and waves.

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DECEMBER 2005

My agent hasn’t been able to sell my home. Should I cut the price?
It’s no secret that the home market is cooling off as interest rates rise. Motivated sellers awakening to the reality of a buyer’s market may be better off taking less profit now than risking further loss as the glut of unsold homes grows wider. While long-term mortgage interest rates tilt toward 7%, there will still be downside corrections in the home market, but an imminent crash is unlikely.

Are homes and land still a good investment, or should I wait?
If you are buying a primary home, you can gain from recent price cuts. Some lot prices in overbuilt areas could soften in response to reduced demand for homes. Figures from the NAR show that, in 2004, investors and 2nd home owners purchased 1/3 of the homes sold in the U.S. Many of these investors are now diverting their monetary assets from homes and condos to the countryside, this as restraints on urban sprawl continue to guarantee price rises in rural land.

Is timber now a good investment?
Prices on timberland are soaring as investment groups hunt for higher returns than bond market yields, this despite recent weakness in the price of lumber. Inflation worries are also driving the move into timber and other commodities, these being hard assets and a logical hedge against a watered down dollar. For investors, the option of developing forests into smaller tracts for recreation and new homes adds spice to expected returns from timber sales. Some real estate observers say that many investors have “gone crazy” by over bidding on timberland sold at auctions.

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NOVEMBER 2005

What affect will this hurricane season have on the real estate market?
Natural disasters usually occur in cycles and on an unpredictable schedule outside the charting of economic events, While these “Acts of God” can temporarily sway the construction industry, energy prices, and interest rates, their long-term significance in the economy is marginal. Recessions and “bubble bursts” are man-made and will occur in their somewhat predictable time and places. The real estate industry is headed for regional corrections based on the “Acts of Man.”

What shows you that the house of real estate will come tumbling down?
Home prices in at least 20 US, cities have risen at least 2 or 3 times above the jump in household income. This is an unsustainable economic condition. Compared with 2004, home prices in the U.S. have tripled income growth. Over-extended investors and home owners with variable rate mortgages will soon run for cover as rising short-term interest rates burn up their income. Rental income will come plunging down as a glut of homes and condos explodes in overheated markets.

When will the bubble burst?
Though there are signs of a “cooling off in the home market, the Katrina crisis should halt any interest rate hikes in the near term, Still, the media will attempt to bust the bubble before its time, this in a thrust for readership and higher ratings. Meanwhile, low long-term rates will keep pumping up home sales and inflating the bubble. A housing slowdown is likely in 2006 and a precursor to the crash can come in the form of abnormally high interest rates in 2007, building to an inevitable crash in 2009-10.

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OCTOBER 2005

Can I buy land and put it in my IRA?
Yes, but you must have a qualified trustee to manage and take title to this type of asset.The asset may be sold to a developer, but development funds have to come from your IRA. Profits must go back into the IRA, where they would enjoy tax-free growth.

A farmer won’t sell unless he can keep a life estate on the house and five acres. Is this a good deal?
Let’s say you have sold off the bulk of the land. and your profits are tied up in the home and 5 acres. You still have a marketable asset that will most likely rise in value. If you hold a mortgage on this asset, it can be sold at face value, discounted, or used as collateral for a loan. Grades of established value on life estates are set within the state.

I want to invest in rural land. What things should I look for?
Are prices within your range? How far out from the city? Do people want to go there? Is there a shortage of homes and building lots? What is the current tax rate? How close is shopping, hospital, a fire dept.? Check out the job market, and natural attractions for outdoor recreation. What does the neighborhood look like? How good arc the schools and how close are they? Where is the nearest library, college, university? How fast is land moving in the area? Are new roads, sewer and water lines planned? Is the county pro-growth or no-growth? How tight are development regulations? Are there any obvious pollution or environmental problems? How close is a municipal airport? Is there a high rate of crime?

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SEPTEMBER 2005

Real estate prices are getting too high. When will the bubble burst?
The real collapse is yet a few years off. Look for a signal to the crash in 2007-2008 when rising interest rates or some injury to the economy will set the stage for the inevitable bust in prices.

Should I cash out now or wait for prices to go higher?
Timing is critical. Investors should realize that real estate trends follow the ups and downs of the economy. Right now we're on the upswing. Calamities and corrections usually occur at the end of the decade. As the decade marches on, an army of investors will be cashing out, flooding the economy with real estate product and watering down prices. History shows that the economy usually moves up in the 2nd year of a president's term. Exceptions were Nixon in 1968 and Bush in 1998, each of whom presided over a recession in the second year of their term. The next president, elected in 2008, could face a similar scenario.

Who are all these people now flooding into rural areas across the U.S.?
Many are city dwellers priced out of the home market in suburban and exurban areas, Others are among the 77 million baby boomers searching for a place to retire. Still others are fleeing to the countryside as terrorists threaten their safety. At the forefront of this demographic shift are investors flipping homes and land and empty-nesters looking to down-size their homes, this leaving the prospect of a real estate market saturated with million dollar homes watered down in value when the bubble bursts.

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AUGUST 2005

My cousin is a handyman. Can I hire him to repair a fixer-upper in the country?
You should first determine if he has a license and experience for the job. Counties are now requiring home improvement contractors to have licenses. And older homes may have structural damage requiring a professional engineer. Ask the county building inspector for specific requirements.

What are riparian rights?
Property owners enjoying such rights are generally allowed unobstructed use of a watercourse, such as a lake, stream, river, or canal that adjoins their land. Check with an attorney for confirmation of riparian rights in your deed.

Will a nearby landfill hurt the resale price of my land?
Detractions such as landfills, hog farms, clear-cut land, junk yards, etc. can all dampen land values and, if the detraction is within sight, you could see only marginal rises in value. Will a conservation easement affect the value of my land? Land is always in transition, and such easements can reduce land values by scaring away potential buyers. Rich land owners and golf course developers have often double-dipped and abused this tax scam by donating “scenic” easements to land trusts for tax breaks, this for land they never intended to develop around their mansions and within their golf courses. And some owners keep the right to build homes on the “protected” land. For many investors, such easements could hurt their bottom line.

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JULY 2005

I want to rent out my farm. What should I include in the lease?
Considerations include the type of farming allowed, rate per grazing animal, use of pesticides, fence maintenance, limitations on wood cutting, field fertilization, hunting rights, and landlord/tenant rights. Who pays the taxes and insurance? Who receives benefit checks from government programs, and who is responsible for compliance? How is trash removal handled? What about the accumulation of junk, old cars,hazardous waste? Have a lawyer draft the lease to keep you immune from the tenant’s personal activities, any of which could involve you in a law suit.

I bought an “as is” fixer-upper direct from an owner and found that the septic system had failed. Should he have told me that?
Owners are not bound by a code of ethics, as are licensed agents. This sort of problem, if known by a Realtor, and by most auctioneers, would normally be disclosed, even if the property is sold “as is”.

I see seminar ads on TV about getting rich buying and selling old houses and fixing them up. What are the costs of doing this?
First, what are the costs of repairs? Then what are the carrying costs, such as (1) closing costs when you buy and sell, including real estate commissions (2) property taxes, (3) mortgage interest (4) insurance on the property, and (5) utility bills and a reserve for unknown repair bills? Add these up, and then inject a projected profit into your analysis.

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JUNE 2005

With so many investors flipping real estate isn’t it time to quit the market?
The difference between flipping homes and flipping land is that home building keeps going, while “they ain’t making any more land.” Home flippers have more to lose when the market cools in about 2007-2008, assuming rates hit 8-9%. Past history shows a real crash coming at the decade’s end, 2009-10.

Can I buy real estate cheaper at an auction than through a Realtor?
In a normal market you would expect to get a better deal at an auction, this because Realtors push for top dollars for sellers, But in the current “sellers” market, real estate auctions can often bring higher prices than listed figures. In a “buyers” market, supply exceeds demand, and the reverse is true.

Can counties legally restrict the size of new lots to 50 acres?
One such measure, often called “snob” or “elite” zoning, was recently struck down by the Virginia Supreme Court, restoring what growth proponents call “democratization” to home and land ownership in western Loudoun County. No-growth forces have threatened to appeal.

Is it time to invest in a second home?
Investors are backing off in some areas as interest rates rise. But sales in popular regions of the south and west should be steadied by high-riding baby boomers. relocating or retiring in this decade. Look for price drops in boom areas where sales are made mostly to speculators.

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MAY 2005

I’ve never bought land before. How can I get bank financing?
Local banks familiar with the area of your purchase are usually your best bet. Willing lenders will need (1) a copy of your purchase contract (2) recent appraisal (3) credit application (4) possibly a new survey (5) certification of water and sewer source (well, septic) (6) home inspection for habitable dwelling (7) insurance binder on buildings.

What will lenders ask for on my credit application?
Generally, you will need the following (1) tax forms (W-2’s) showing taxes paid over, say, 2-3 years (2) statement of financial assets (3) recent pay stubs (4) explanation of any recent or past credit problems.

I’m buying a vacation home. What deductions can I get?
Mortgage interest and pro-perty taxes can be deducted from federal tax returns if you use your property (1) at least 15 days each year or (2) more than 10% of the days under rental at fair market prices. To avoid reporting rental income (while not claiming deductions for expenses) you will be limited to using your property for no more than 14 days a year, or 10% of the days the home is rented at fair market prices. Mortgage interest, property taxes, and rental expenses can be used to offset rental income and to create tax losses. More tax advantages can be gained through property depreciation. See your tax advisor.

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APRIL 2005

I’ve just started my search for land. What should I look for?
First, select preferred locations and distances from metropolitan areas. Drive longer, pay less, is a general rule for city dwellers. Decide on the type of land you want (mountains, countryside, farmland, waterfront, views, etc.) Set a price range you can afford.

Ask: (1) What is the tax rate? (2) Is there a shortage of homes and building sites in the area? (3) Do people want to go there? (4) How far to shopping, fire dept. hospital? (5) What about job openings? (6) Are there natural attractions fo routdoor fun? (8) What does the neighborhood look like? (9) How good are the schools? (10) What are the restrictions on development? (11) Are there any environmental problems? (12) What about the crime rate? (13) Where is the nearest airport? (14) What is the general climate? (15) How close to a university, college, public library? (16) How fast is real estate moving in the area? (17) In what ways, if any, is the neighborhood changing?

Should I buy under a land sales contract or contract for deed?
Often this is the only way for a buyer with little or no money down, or with credit problems, to acquire land. A deed may be given by the seller when the land is paid for in full, or after a record of prompt and steady payments has been established. Be sure the seller is reputable and that the contract is recorded in the court house, while letting you prepay without penalty.

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MARCH 2005

How does the Federal Reserve System affect the real estate industry?
The Federal Reserve influence the flow of credit and money in the nation’s banks. It sells government securities to increase loan funds available to borrowers. And it buys securities to reduce loan funds, this because checks used to pay for these securities are usually drawn on member banks. This process depletes the amount of available loan money and causes interest rates to rise–thus the term, “tight money.”

How can I option a 1,000-acre tract of land that’s out of my price range?
In a down market, when buyers with deep pockets are scarce, try the “rollover” technique. Option the land in, say, 100-acre sections and gain the right to roll over into subsequent sections without additional payments, this as you fulfill your previous obligations on the previously optioned tracts.

For tax purposes, what constitutes my “basis” in a developed land parcel?
Taxable income is determined after deducting your costs for land, roads, surveys, advertising, sales commissions, overhead and other expenses, i.e. your “basis”.

What are some ways I can buy land with little or no money down?
(1) Let the seller keep improvements, such as homes and buildings, while you buy the rest on a contract for deed. (2) Subdivide into lots prior to your closing, if permitted, and close on your lot sales simultaneously. (3) Seller takes back from you a first and second mortgage and sells the first for the cash he needs. (4) Assume the first mortgage, with seller taking back a second (5) Trade your income-producing mortgage notes for the down payment (6) Real estate broker loans you the down payment.

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FEBRUARY 2005

When can we expect the next real estate crash?
Keep your eye on rising interest rates. A downward trend in real estate prices is likely in 2006-07, this as rates show signs of approaching double digits. This ominous signal will not be the real crash, but a precursor of a major economic collapse or calamity, striking like clockwork, at the turn of the decade, in 2009 or 2010.

What qualifies for a 1031 tax deferred exchange?
You must exchange real estate for real estate. Examples are house for house, farm for home. apartment complex for cattle ranch, shopping center for marina, oceanfront lot for condo, office building for apple orchard, city lot for country acreage.

How much time is allowed to complete the exchange?
You have 45 days to identify the replacement property or properties, and 180 days (or the due date of your tax return, whichever occurs first) to consumate the exchange.

Who can handle the exchange?
An escrow intermediary–generally an attorney, accountant, or title or escrow officer. Try to locate a professional practitioner to act as an intermediary, such as a certified public accountant, asset protection investment firm, tax attorney, or certified public accountant (CPA). Ask if they are familiar with tax deferred exchanges.

What is a Starker Exchange?
An exchange in which the proceeds from the sale of real estate stay, in theory, on the intermediary’s table until the seller finds suitable property for exchange. No money or deeds change hands between the buyer and seller in the initial stages of this exchange. You may have theoretically sold your home but, under the Starker ruling, you can’t be taxed on your “theoretical” profits if you identify a potential replacement property within 45 days, yet fail to complete the exchange in 180 days.

I want to trade a rental unit for land. What do I do first?
Insert language in the sales contract stating that the transaction is part of a 1031 or Starker exchange. Consult with an intermediary and/or qualified tax attorney to establish the transaction’s conformity with current tax laws and to mark a paper trail for the IRS.

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JANUARY, 2005

How does the Federal Reserve System affect the real estate industry?
The Federal Reserve influences the flow of credit and money in the nation’s banks.It sells government securities to increase loan funds available to borrowers. And it buys securities to reduce loan funds, this because checks used to pay for these securities are usually drawn on member banks. This process depletes the amount of available loan money and causes interest rates to rise – thus the term, “tight money.”

How can I option a 1,000-acre tract of land that’s out of my price range?
In a down market, when buyers with deep pockets are scarce, try the “rollover” technique. Option the land in, say, 100-acre sections and gain the right to roll over into subsequent sections without additional payments, this as you fulfill your previous obligations on the previously optioned tracts.

For tax purposes, what constitutes my “basis” in a developed land parcel?
Taxable income is determined after deducting your costs for land, roads, surveys, advertising, sales commissions, overhead and other expenses, i.e. your “basis”.  

What are some ways I can buy land with little or no money down?
(1) Let the seller keep improvements, such as homes and buildings, while you buy the rest on a contract for deed. (2) Subdivide into lots prior to your closing, if permitted, and close on your lot sales simultaneously. (3) Seller takes back from you a first and second mortgage and sells the first for the cash he needs. (4) Assume the first mortgage, with seller taking back a second (5) Trade your income-producing mortgage notes for the down payment (6) Real estate broker loans you the down payment.

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DECEMBER 2004

How is real estate used as a tax shelter?
Mainly through depreciation. Commercial use of real estate, along with mortgage payments, taxes, repairs, and maintenance is classified as an operational expense. But since depreciation requires no cash outlay, it can be viewed as a “tax shelter.”

How does depreciation work to shelter income?
While your real estate goes up in value, you can deduct for wear, tear, and obsolescence straight-lined over 27.5 years (30 years for commercial property). You can deduct up to $100K when buying business equipment and heavy-duty vehicles. If you buy appliances and furniture for buiness, they may be depreciated over 5-10 year periods to reduce your taxable income.

As a real estate investor, can I deduct car and office costs?
Generally, these deductions only apply when using your car and office for full-time business. In real estate you must devote more than half of your time in this field; or if you can spend at least 750 hours per year in real estate, you may qualify as a professional.

How can I profit from capital gains in real estate?
Net profits from real estate sales can qualify for capital gains treatment by the IRS. In 2003, this tax break was cut from 20% to 15% on assets held for more than a year, this to encourage investment activity and to spike the economy. But the government retained the right to “recapture” 25% of your previous depreciation deductions, thus reducing your profits after calculating the 15% on your capital gains.

Can I buy land for my IRA?
Yes. But you must have a qualified trustee to manage this type of asset. And you cannot technically buy real estate with IRA funds if the property will be used by you or related persons. The trustee of your IRA can take title to the land and manage the property for you. You can also buy land with IRA funds, sell it to a developer, and develop the land yourself, though all funding for improvements must come from your IRA, with any profits being returned to your IRA, where the funds could continue to grow tax free.

Can I be land-locked with a right-of-way?
Lenders require legally recorded access. A lawyer’s title opinion and title insurance will spell out the type of right-of-way you may have to your land. A “precriptive” R/O/W means you have access by means of established past use, though width size and maintenance provisions may not be described, and certain uses may be prohibited. For example, you may find yourself “land-locked” if you want to build a house. A clearly defined R/O/W is best.

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NOVEMBER 2004

Why do I needa “perc” test?
Such tests determine whether soils will accept sewage disposal systems connected with building construction. In rural areas without sewers, a conventional in-ground system is usually preferred by land buyers because of low cost and minimal maintenance. Alternative systems requiring pre-treatment of effluent are used in marginal soils. Though many are approved by health authorities, these systems cost more and need maintenance.

What do I need to know about easements?
Usually these are rights or privileges others may have in your land, such as rights-of-way for access and for the construction and maintenance of utilities. Some land owners impose “scenic” easements that restrict land use. Other easements may dictate that land must be used only for agriculture or conservation, this in return for tax breaks. Such easements act to discourage the development of land and can therefore hold down price appreciation for land owners and investors.

Should I buy if mineral rights are reserved?
Many early reservations of mineral rights in the chain of title to land can turn out to be of little consequence in a fast-moving society. Check with your attorney.

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