Should I Sell My Land?
Land is not necessarily money in the bank. It was at one point in time, but not always today.
Contrary to popular wisdom, owning most land for extended periods of time is often a foolish investment idea. New Jersey property taxes are the highest in the nation and they can destroy the economic feasibility of land as an investment.
The fabled American writer Mark Twain once quipped, “buy land, they’re not making it anymore”. He understood the economic concept of future scarcity, but the guy who invented Tom Sawyer and Huckleberry Finn lived in a different time and place.
For better or worse, we live in New Jersey today – and the Garden State is ranked number one in the nation for property taxes. This dubious designation calls into question whether real estate and land, in particular, is a good long-term investment.
It absolutely can be. However, real estate and land have carrying costs, mostly in the form of property taxes. According to the National Association of Realtors, the median price of a home increased every year between 1968 and 2004 by 6.4 percent (sorry, could find land only statistics). We all know what happened between 2005 and today.
A look at the Dow Jones Industrial Average reveals an annual return rate of 10.8 percent when gains are reinvested during the same period. The Standard and Poors 500 return is almost identical. With the stock market, transactional costs are relatively low.
In New Jersey, the real estate burden is about 1.89 percent per year, according to Tax-rates.org. That means, if you are holding a plot of land with an assessed value of, say, $75,000, you will be paying over $1,400 a year in property taxes.
Just these taxes alone would generate an account worth over $27,000 – if this $1,400 were invested every one of the last ten years. That’s what a Dow Jones Industrial stock index would have produced. Your land sends no kids to school, generates no garbage and rarely requires police protection, yet you must pay these carrying costs.
Keep in mind, we are not investment analysists, nor are we tax accountants. Every circumstance will be different, so be sure to get professional advice on investment decisions. The point is, you can score a home run in real estate, like sitting on a piece of land that just happens to be the best place for a cell phone tower. Or, you could be making more long-term money with other investments.