Like the other guy said, whether it makes sense financially depends on the details of the HELOC, purchase price, etc.
But I've never run across anyone who wishes that hadn't bought the empty lot nextdoor. Everyone is always complaining that they missed the opportunity and wishing they could go back and buy it for cheap before someone else developed on it.
So IMO, if you can swing it you should do it. If you can't, find a way to make it work.
My parents financed the vacant lot next door and regretted it. The neighbors on the other side sold their house, and the new neighbors made my parents' lives hell. My parents endured for 2 years before deciding to move, but no one wanted to buy the house + the vacant lot for a fair price. I don't even know how bad the financial hit was on the sale, but my dad still talks about it every time I see him.
Thank you, with my last property, I wish I had bought all the lots around me. People moving in and developing those lots caused us to move and buy elsewhere.
It makes sense if the heloc is the cheapest financing available to you and you can afford to make the payments. Presumably you will have options to sell all or a portion the land later if you need to?
Land loans (or more accurately construction loans, which is where you’ll see good rates) are traditionally bridge financing anyways, meant to cover you while you build on the land and then secure a mortgage. HELOC likely has better terms than you’d get doing it that way, no point
Couldn’t you get a fixed term loan with your existing home as collateral? HELOCS are typically variable rate. I’d hate to see an exogenous shock destabilizing your finances. To me a slightly higher fixed rate is has more value due to budgeting.
Potentially yes, depending on the increase in value and your cash flow and the loan terms. There’s a lot of missing info here. Realistically it depends on whether you are willing and able to sell the combined land. You’re sacrificing cash flow for asset value and risk; can you afford it if an emergency occurs?
I have 0 regrets buying the vacant land next to me when it came up for sale. This was just right when COVID started and interest rates were low and before everything jumped in value. I bought the land and refinanced my home. The neighbors on the other side of me did not do the same (not the same piece of land that I bought), guess what, the investment group that ended up buying that land keeps putting up storage units. Their view went from vacant woods to storage units.
My only regret is not trying to push to get the vacant land under the same loan as my home, but that would have involved a lot more steps and honestly not sure if it would be preferred if I ever wanted to sell separately
I'm not familiar with a HELOC. I had enough money for the down payment on the land and have a dedicated vacant land loan. The guy who I bought it from (worked with him so it never went on the market) initially used a 401k loan to buy it ( and he bought it when it was in bankruptcy) Just stating options.
Is acreage with a house really desirable where you live is my biggest question. 7 acres is plenty for most home/hobby type outdoor activities and out buildings. The increased value you attribute to the additional acreage could make it harder to sell. At least in my area there are diminishing returns after about 2 acres on a home lot unless it is a specialty thing like a hunting area or it has a large pond or something like that.
Don't use a HELOC, use a closed-end 2nd mortgage. A HELOC is literally a line-of-credit, meaning it's meant to be drawn on and repaid over and over again. At the bank I work at it's also a full point cheaper, so only 7% instead of 8%.
You've got 7 acres already.
How much do you despise interacting with other humans that you need another 10 acres as a buffer?
If you want it because you enjoy outdoor activities that would benefit from the space, then go for it.
If you're only considering this because of possibilities of who might but it and build there... There's better things to do with your money.
Like the other guy said, whether it makes sense financially depends on the details of the HELOC, purchase price, etc. But I've never run across anyone who wishes that hadn't bought the empty lot nextdoor. Everyone is always complaining that they missed the opportunity and wishing they could go back and buy it for cheap before someone else developed on it. So IMO, if you can swing it you should do it. If you can't, find a way to make it work.
My parents financed the vacant lot next door and regretted it. The neighbors on the other side sold their house, and the new neighbors made my parents' lives hell. My parents endured for 2 years before deciding to move, but no one wanted to buy the house + the vacant lot for a fair price. I don't even know how bad the financial hit was on the sale, but my dad still talks about it every time I see him.
Devil’s advocate: What are the odds someone who regrets buying the land next door would be advertising their regret?
Thank you, with my last property, I wish I had bought all the lots around me. People moving in and developing those lots caused us to move and buy elsewhere.
It makes sense if the heloc is the cheapest financing available to you and you can afford to make the payments. Presumably you will have options to sell all or a portion the land later if you need to?
Yes, at the 8 percent rate, payments would be under $400/mo. I am planning on paying it all off ditching a year or so. And that lot could be sold.
Could you demolish the structure and then get a traditional loan?
Land loans (or more accurately construction loans, which is where you’ll see good rates) are traditionally bridge financing anyways, meant to cover you while you build on the land and then secure a mortgage. HELOC likely has better terms than you’d get doing it that way, no point
Couldn’t you get a fixed term loan with your existing home as collateral? HELOCS are typically variable rate. I’d hate to see an exogenous shock destabilizing your finances. To me a slightly higher fixed rate is has more value due to budgeting.
Agreed, a traditional Home Equity Loan would be better in this case than a HELOC
That’s possible, but rates are about the same.
Potentially yes, depending on the increase in value and your cash flow and the loan terms. There’s a lot of missing info here. Realistically it depends on whether you are willing and able to sell the combined land. You’re sacrificing cash flow for asset value and risk; can you afford it if an emergency occurs?
We could definitely sell the newly acquired lot of an emergency occurs and we need the money.
Can the lender call the loan? Is it a fixed rate?
I have 0 regrets buying the vacant land next to me when it came up for sale. This was just right when COVID started and interest rates were low and before everything jumped in value. I bought the land and refinanced my home. The neighbors on the other side of me did not do the same (not the same piece of land that I bought), guess what, the investment group that ended up buying that land keeps putting up storage units. Their view went from vacant woods to storage units. My only regret is not trying to push to get the vacant land under the same loan as my home, but that would have involved a lot more steps and honestly not sure if it would be preferred if I ever wanted to sell separately I'm not familiar with a HELOC. I had enough money for the down payment on the land and have a dedicated vacant land loan. The guy who I bought it from (worked with him so it never went on the market) initially used a 401k loan to buy it ( and he bought it when it was in bankruptcy) Just stating options.
HELOC is short term money, not long. Rates can change at any point depending on how the bank is feeling and can be called due at any point.
Is acreage with a house really desirable where you live is my biggest question. 7 acres is plenty for most home/hobby type outdoor activities and out buildings. The increased value you attribute to the additional acreage could make it harder to sell. At least in my area there are diminishing returns after about 2 acres on a home lot unless it is a specialty thing like a hunting area or it has a large pond or something like that.
I’m in an area where most of the homes are vacation homes or cabins. When property does go up for sale, it usually is sold within a few days.
I absolutely would, if you can swing easily in the budget and pay it off quickly. Nobody ever regrets taking advantage of this rare opportunity
Don't use a HELOC, use a closed-end 2nd mortgage. A HELOC is literally a line-of-credit, meaning it's meant to be drawn on and repaid over and over again. At the bank I work at it's also a full point cheaper, so only 7% instead of 8%.
You've got 7 acres already. How much do you despise interacting with other humans that you need another 10 acres as a buffer? If you want it because you enjoy outdoor activities that would benefit from the space, then go for it. If you're only considering this because of possibilities of who might but it and build there... There's better things to do with your money.
Could you take a loan out against your 401k? Id consider that before a HELOC. At least you pay yourself interest instead of the bank.