Hunting land as an investment?

[DRH1175]

Is this a good investment or should one stick with the 401K for retirement entirely? What are ones takes on this? I am thinking of buying about 20 to 40 acres using about half of our monthly 401k money to do so. We are currently putting $1500 month into our 401k. I was thinking of taking about half of that and putting it into some recreation land that we can put a cabin on in the future. What does everyone think about this?

[north red river]

I'd go with the land.....prices are on the rise and you'll have fun with it at the same time. just my 2 cents

[big musk411]

I don't think that a good idea. Think about the tax consequenses. Now you have to pay taxes on your $750 per month and taxes on the land as well. Also take a look at what you are getting as a match from your employer, make sure you are getting at least the most that they will match. It is quite possible that the land could increase in value faster than the assets in your 401k, but hisorically the stock market has out performed real estate. Also you will loose out on the compounded tax deffered growth in your 401k.

[Gofishleech]

From an investment standpoint I would not do it. Land prices seemed to have toped out a bit or atleast I can't see them getting much higher but who knows.(im not a realator)

From a cabin on a chunk of land standpoint I would do it.

[harvey lee]

I would also stay with your 401k and beef that up. Granted if this was 5 years ago I may have thought about it but with the ecomony the way it is unless you can all but steal it, I would probably hold off for a year and see what shakes out with everything.

[tunrevir]

I'd have to say buy the land but do your homework beforehand. We have about 600 acres in Wi right now and the taxes are payed by the timber that is harvested off of it. We make enough off the timber that we can actually go out and buy some equipment for hunting. Can't go wrong with hunting land but if it is going to tax you out of house and home then I wouldn't. Myself, I'd buy if the price is right. Land doesn't go down in value unless there is nuclear waste or something. Again, do your homework. Also look at the hunting shacks post up above, I believe there is a guy that has the game figured out as far as taxes ect. You may want to talk with him as well.

Tunrevir~

[PerchJerker]

Taking money you're putting in a 401k and switching it to land is NOT a wise move. Talk to any financial advisor or look on any of the mutual fund websites - you should be able to see scenarios for what your retirement nest egg will look like down the road based on how much you're putting in now. The bottom line is the longer you wait to contribute the more you'll need to, and it goes up exponentially. Time and compounding returns is key to having your retirment savings grow, that's why you need to contribute so much more later if you wait now. For example, if you stop contributing that $750/month right now and wait for 15 years to start up again, you'll probably be in the range of needing to contribute $2,500 month to get you to the same place when you retire --- such is the power of time and compound returns.

Also, land is risky over the short term. If you are counting on it for retirement funds, or need to sell to get the cash out of it, you are likely to take a hit or give up a lot of potential returns.

Over the long run land is great, and being diversified is great too, I just wouldn't shift a very significant amount of 401k contributions to land payments.

Good luck in your quest. I wanted land for years before we bought our 40 acres. We bought with home equity and disposable income, not with retirement savings.

[xedge2002]

I just started my retirement account this year. The investor I went with gave me Investing 101 when I met with him since I had absolutely no clue what to do. I think he said that traditionally land usually grows at around 3-5% versus a mutual fund that average around 10% on the low end. The only time that land takes big jumps is if it has a high demand, like an addition to a town or you find something of value on it.

[Powerstroke]

Land is only worth what someone will pay for it. It doens't always grow with inflation. Anyone who's lived long enough knows that homes will go up in price, but land rarely follows. Even land was super cheap just 10-20yrs ago. It has gone up quite a bit, but it shouldn't replace your 401K. It should supplement it.

The market may take downturns, but even those who lost tons of money after 2001 would have it all back if they just stayed put. The market continues to rise steadily and does get adjusted for inflation. The same cannot be said for land. Even if the market continues to rise, land could become stale or drop off.

I have looked at land as rec land for myself and properties I looked at last year are still for sale and have come down 25-30%. I believe it will get cheaper. What many people perceived as a rise in land value is really just a bubble or over-pricing that is just now regulating.

There are right and wrong ways to use land or real estate for investment, but I would NEVER take money from a 401K to buy it. If its really that great of a deal getting a loan will not be that bad, or borrow against your house. If you don't think your house will appreciate fast enough you should be wondering if your land will.

[DRH1175]

Okay with all of this said. How should one buy land? Second when should I buy. Is right now a good time or do you think waiting another year or two is better? Land has leveled off but is it going to go down a bit? I guess thinking about it I would want to buy before it goes up again if that happens. I have a hunch that with all the forclosures and the stricker lending rules we may just have a better oppourtunity in a few more years. But then again with how it went up about 10 years ago is it going to take off again? What is everyones take on that? After hearing what you have all said. Keeping the 401k as is is probably the way to go.

[ortonville]

my thoughts on buying land if you can bank roll it go for it.7 years ago i bought 119 acres for $800 an acre it is the best investment i ever made i spend a lot of time there.look at it this way there is never going to be any more made. supply and demand

[big musk411]

Good choice on keeping the funds in the 401K! In my opinion the real estate market probably has 9-18 months until the bottom. Good time to save more money for a larger down payment.

I have seen the real estate market do very well for some people, the wifes family bought a lake front cabin years ago for 25K that is now worth over 700K. At the right place in the right time. I believe the stock market to be more appropriate for the average investor.

I have heard of people buying real estate in their IRAs also. I'll bet you pay your broker/real estate agent a pretty penny in transaction fees, but if you have a large amount of IRA/401K assets It may be worth a look. It would defeat the purpose of tax defferal as real estate is tax defferd on the gains untill you sell it anyways.

[luckey]

First of congradulations for what you have accomplished so far saving in your 401K. Most couples havent started thinking about retirement at your age let alone got a good jump on it like you do.

I agree with most posters here. For all the reasons listed try to avoid using money going into your 401K to buy property. That said I must confess I did that 15 years ago. I took $10,000 out of my 401K to buy 120 acres of land. I paid the money back over the next year and everything worked out fine. I still have the land (most likely worth a lot more than the $12,000 I paid for it) and the 401K is still healty.

I am not suggesting you borrow from your 401K because while the loan is outstanding you generally cannot contribute new money until the loan is paid off.

You may want to look at owner financing such as a CD from the current owner. Banks are skeptical about making loans on vacant land and the intrest is usually quite high.

Best of luck in your quest.

[BLACKJACK]

Trying to time when land will go up or down is like trying to time the stock market. You just have to do your research, goto the court house, the assesors office, they have records of all land sales and make sure the piece you're looking at is comparable. Its all public information. I don't think this foreclosure debacle is going to affect land prices in rural MN, it may affect land prices in the Metro area.

You need to look at your situation in life. If your 401k savings are not in the serious 6 figures, I'd be careful if I was you. As other have said, go out to some of the online calculators and figure out what your 401k will be at when you retire, with the $750 vrs $1500 a month investment.

Just remember, they're not making any more land!!! And right now there is a high demand for recreational land, lots of yuppies coming out of the cities and bidding up the price of even marginal crop land.

I did cut way back on my 401k savings and bought a tractor and 40 acres of land. I'm in my 50's and my wife and I have saved for years, if our 401k only doubles in the next 15 years we'll be fine, I figured why not enjoy some of that money now? I could die tomorrrow - just look at the 35W disaster.

My advice to you would be to buy the land if you think you're going to use it a lot and enjoy it. You can't count on it as an alternate investment to your 401k. Good luck.

[yooperhawg]

Is your 401K with your workplace or one you started yourself. It all depends on what kind of payback you have on your 401K. The one I have,with the workplace, you can borrow from it and they take payments from your check. The interest you pay goes into your 401. You are paying yourself back, and then some. Land is a good investment, but you have to pay taxes on that land. Can you make those payments outside of your 401? If you spend time on the stock market with the money from your 401, don't take it out. It also depends how much longer you have to work for retirement with that job. Anyway you look at it, it's a gamble. Keep your money in, take it out and invest in land. It's all a gamble, both ways you have no control.

[Bigeye30"]

Dollar for dollar you will most likely end up with a better return with the 401k, of course that means sacraficing some short term wants, a cabin with acreage, true peace of mind for some people, the nice thing about the 401k is that it is liquid, you have access to it everyday and the funds can be made available if needed, real estate on the other hand may take some time to move and if the market is slow may take some price reductions, however if done correctly you may be suprised that you can do both, if you do your homework and are not set on one specific area, your options of landing a great deal on some land or a cabin will be by far better off. My suggestion is look at all areas and do not be set on one particular part of the state, some real estate markets are still giving off great returns while others are sitting stagnant. Yes im a realtor, but I will say that one needs to do their own homework as well, take as much information that the realtor will give you on their market and then get the second opinion, that way you'll know if there just trying to close you. Good luck with the search and remember, your the buyer, drive a good bargain and dont let the emotions get in the way.

[Walleye Guy]

Keep in mind that you will need to sell the land to get your money out of when you retire. I don't know about you but I am hoping to hunt more when I retire. Having to sell the land because it is a big chunk of your retirement savings would be a bummer especially when that may be the point in your life where you would get the most use out of it.

[BLACKJACK]

Good point, but on the other hand, you get 20-30 years of use out of your land before you sell it.

Another thing to consider when thinking about retirement income is all sources. Social security, any fixed retirement plans, plus your TDA's. I've talked to a couple of my cousins that are retiring and they're talking about having a higher income in retirement than they did when they were working!!

[chucker34]

It's a fine line. If you listen to investment advisors, they tell you to live a meager existance and invest everything in retirement funds so you can whoop it up when you're 65. Um, no thanks. As Blackjack said, you have to live for today while putting some away for the future. It all comes down to what you want when you retire. Do you want to fly around the world on expensive vacations. That might require scrimping and scrounging now. Or would you rather just be able to be comfortable and take a couple of nice trips a year. That would allow you to save enough now but still have fun I'd rather do the latter. I've worked in the financial services industry since college and the rule of thumb I have always heard from smart money managers is to put away 10 percent of your income to retirment accounts. And put it in index funds which replicate the stock market and don't guess and shift your money around constantly. If you do that (assuming you start young), you'll never have to worry about paying the bills in retirement - especially when you combine that with social security payments. So if you can afford the land in addition to that 10 percenet of income in retirement funds, I'd say its a great investment - not necessarily a better one than a 401k financially but an investment in your own personal enjoyment. Land may not skyrocket in value, or it may, but it will never go down in the long run (this isn't California housing prices we're talking about) and the decades of enjoyment you'll get before you retire will never leave you regretting your purchase. Good luck with whatever you decide.

[BLACKJACK]

DRH, I think Chucker hit it on the head here. Follow his advice on the 10% rule and you can almost guarantee that you won't be eating catfood in retirement. Then see if you have some left over to invest into land that you can enjoy now.