Business Management

Free Land? I Don’t Buy It

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So what do you get when you receive free land? That’s what I was asking myself when the radio and a handful of writers picked up the story this week. First off, the concept of municipalities giving away land isn’t new. Basically more and more towns are offering free lots if you build a house on it – obviously to spur growth, jobs, tax dollars, etc.

Here are a handful of the “deals”:

Free lots in Grafton, Illinois: You buy a lot (yes, I said buy) for $15,000, then build a home worth at least $150,000 within a year, and then the city will repay the cost of the lot. About 30 of these lots are available. The town wants to increase it’s tax base and it’s population that has dwindled from 1000 in 1993 to 725 due to flooding.

Free lots in Marne, Iowa: To take advantage of the free land in Marne all you need to do is to submit a proposed floor plan for the house they want to build. It’s not restrictive but no trailer homes, no storing junk, no horses or livestock.

Free lots in Halstad, Minnesota: The occupied house must have an assessed value of $75,000 and your tax liability starts on day one. You must occupy the house for three years and you must follow city guidelines.

Land in Curtis, Nebraska: Build a home with certain specifications and in a certain time period and the land is free.

So, hmm, opportunity for investors? An opportunity to build a home for yourself and build a bit of equity? Perhaps you could take the lot, hold, pay the taxes, and resell later. Or perhaps you could take the lot, build a new house on it, and rent it out.

Reselling a lot that is given away for free would obviously be a tough sell even for the Shamwow guy. So would taking the land and building new work? For one, you are creating value because you can actually live in a house built on a free lot. Plus, you save big, as the lot price is appoximatly 33% of the cost of a new house. If it’s in a good rental area, perhaps it could be a decent rental.

Here are the quesions I would ask myself and the municipalities if considering such an investment:

  1. The desirabilty of these areas have to be questioned. Why can’t the municipalities sell a lot with utilities for as little as $10K, $5K? Banks don’t give away foreclosed finished lots in even the most distressed parts of the country.
  2. Can builders or investors even get involved? If they can, is there a resell clause? Can non-owner occupants live in the house?
  3. What kind of house do you build? In areas far from other developments, and with no market value for the land, do you build to suit a move up buyer, first time buyer, empty nester? Should the house have 2 or 3 or 4 beds? Basement or no? Tough to answer a lot of these questions if the land has no value and is on the outskirts of town. You could of course look for comps in the nearest neighborhood – but wait, arent’ their values dimished because of their proximity to the free land?
  4. Is this another form of subsidized housing? Will it work in the long run? Aren’t we in the housing mess partly because down payments were subsidzed in one form or another? Can the same be said for free land? Generally speaking, and everyone would not fall into this bucket, but should folks be able to buy a house on free land that they otherwise may not be able to afford?
  5. In larger neighborhoods with a lot of empty lots, who has incentive to mainain the developments if it doesn’t work? Is the city going to maintain the developement when 10 years go buy and only 10 houses are built? Do they pay higher taxes? Do the neighboring communities cover it?

Control and Tax Dollars:

Is anything really free? In the end, when considering these “Free Lots”, it helps to have a deep understanding of the town’s motivation, restrictions, and maybe, just maybe desirablity.

Photo: Alex Proimos

    Replied over 8 years ago
    TANSTAFL There Ain’t No Such Thing As Free Land
    Replied over 8 years ago
    TANSTAFL There Ain’t No Such Thing As Free Land
    Replied over 8 years ago
    Isn’t that how America started? Farmers would get free-land if they work it? I think it’s a good idea, but geared more towards owner occupants or people from that immediate area. I couldn’t imagine trying to find a renter in a town of 725 people.
    Jonathan Kaye
    Replied over 8 years ago
    It’s a great idea. Although the market is limited. And free isn’t necessarily free. It depends on the goals of the communities as to the implementation of the program. To demand a $150,000 house to get tax revenues at that level may not fit. If it does fit then it is a good deal to the right person. I’ve looked closely at the Marne, IA offer. They have an incredible location between the vibrant economies of Des Moines and Omaha. Usually people will have to be from there or near there. Major moves are usually only for love or money. If the gals are pretty and flush with cash the place will fill up in no time. Possibly retirees might move there. If you want young families we must have jobs. Then the issue becomes job creation. Marne, IA looks good because of the economies nearby. It would also be a good location for businesses which serve the Des Moines and Omaha markets. Distribution, construction, organic food production would be some likely prospects. The community is already entrepreneurial.