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Invest in land or house?


Dear Dr. Don,
My wife and I are looking to buy a house. I earn about $32,000 a year; she is a full-time student. We have also looked at the option of buying land to build on in the future.

I was wondering which would be a better investment, the land or a house. If land is better, what types of loans are out there for land? We are looking at a five- to 10-acre lot in the country, or a three- to four-bedroom house. Any advice would be greatly appreciated. Thank you. -- Nick

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Dear Nick,
If your choice is to do one or the other, then buy the house. You can live in your three- to four-bedroom home and have the mortgage payments go toward building equity, or you can buy a lot while still paying rent to a landlord.

If you move out of the area, it will be easier to sell the house than it will be to sell the land.

Both properties should appreciate in value over time, but the improved property should appreciate more than the land. For the unimproved land to appreciate faster than the house, something has to make the property more desirable than it is in today's real estate market.

You'll get a lower interest rate on a mortgage than you will on a land loan, especially when you have no immediate plans to develop the property. A land loan typically requires a 20-25 percent down payment, and will have a shorter term than a mortgage.

Look toward the eventual resale market when you're shopping for the home. Make sure that the home fits in with its neighbors and is comparably equipped. Don't own the most expensive house on the street.

Work with your real estate agent to find a house that meets your needs but will also have a lot of curb appeal for the next buyer. Sign a buyer's agent to help you find that dream house. Make sure that any signed agreement with the agent spells out that they get paid by splitting the real estate commission with the property's listing agent at closing. The Real Estate Buyer's Agent Council of the National Association of Realtors can help you find accredited buyer's agents in your area.


-- Posted: Nov. 13, 2001




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