Empty Lots - Are they worth it?

Question

I have a client who is considering investing in an empty lot in Detroit. People are under the impression they will make a fortune holding on to these empty lots, but I am not so sure. There is of course taking into account the area and if it is getting some life pumped back into it, sure you might have a builder or buyer wanting to put a house on it.

I would love to hear from anyone with experience on holding on to an empty lot and just taking the hit on the taxes until you can sell for a large price.

TIA!

I would love to hear from anyone with experience on holding on to an empty lot and just taking the hit on the taxes until you can sell for a large price.

TIA!

Travis Biziorek · Answer

No. I advise clients NOT to buy empty lots, even ones right next to their properties and even if you're only paying a couple hundred bucks.

The logic is pretty simple. The cost to build new construction, especially SFH, just doesn't make sense yet in most Detroit neighborhoods. Trust me, I've toyed with the idea.

Vacant land where it makes sense to build large MFH stock might make sense, but chances are this isn't the land we're talking about here.

The reality is most vacant land in Detroit is being repurposed for parks, the Joe Luis Greenway, solar farms, neighborhood gardens, etc.

Beyond that, let's say you plan to hold long enough for SFH prices to get high enough where it does make sense to build.

Don't forget you still need to pay taxes on that land (likely minimal), but also maintain it. You might pay $200/mo to keep the grass cut in the spring and summer months. Call that $1,500/year or so.

If you don't, you'll get hit with blight tickets that will cost you even more.

Nathaniel Walker · Answer

I buy empty lots but only if the price is right and it meets additional criteria. It has to have some outstanding feature that makes it desirable. For example it is waterfront, is a flat cleared lot next to a tourist attraction with insufficient parking, it is positioned next to a church or other type of building that may need overflow parking, in between to meticulously maintained houses, or in an amazing school district.

Joshua Janus · Answer

Due to the upkeep and expenses of the land I would probably only go after it if you think it's a sure bet to sky rocket or it will present a development opportunity down the road. Cleveland has a lot of vacant lots for example and most will not turn into anything as they haven't for the last 50+ years.

Bruce Woodruff · Answer

Depends on where it is....and how it's zoned plays a factor as well. Short-term usually not - unless it's in Scottsdale of Malibu :-)

This sounds like a big no. Although I was just involved in a deal where people were left 11 acres of land in the middle of nowhere. Well, nowhere turned into somewhere over many years.....housing developments, high school across the street, etc. If they can get it re-zoned mixed use or better yet, commercial, then it is worth $6 million. For land that was worth nothing a few decades ago.

James Wise · Answer

Probably not. You can pick these up all over the Midwest. Detroit, Toledo, Cleveland, Akron etc...Cost to build new housing is usually too high for the ARV in most of these locations. Could one get lucky and get some gentrification down the line? Sure, but it's a pretty long shot bet.

Nader Shariff · Answer

Where is the lot specifically located? That would obviously play a big role in answering your question. If this was a piece of land in midtown or downtown that would be totally different than a piece of land on a rough block in the east or west side of Detroit.

Francisco Hernandez · Answer

You can make money on empty lots but this is the method (summarized, of course): 1. Find developer buyer who is looking for more projects. (how? networking) This in itself will take time because no one likes to build a large network without getting paid.

2. Find at least 5 good ones or 20 that are buying from time to time in a particular area.

3. Find something in their buy box. Get it under contract for a good price with a spread and assign it to the buyer so you can make money on the spread.

Extended holding of an asset without a potential buyer is very much holding on to hope. You don't have a buyer. You don't have an exit. Why are you investing money in something if you don't have any exits? Let me know if that makes sense.

Henry Clark · Answer

Have them run the numbers.

Buy for $15,000.   Sell for $30,000.

Annual property taxes $????

Annual insurance. ?????

Annual weed control ??????

How many years to hold?.   Interest rate, even if this is a cash deal?  Annual interest cost or lost opportunity cost?  Odds price doesn’t escalate?

We bought farm land for $485 in 1991.  Farm value is around $7,500 today.    Could have done better in the stock market with no work.  We developed and added value and sold lots at $50,000 per acre.

Run the numbers.

Chris Seveney · Answer

Empty lots in detroit and think they will make a fortune. How much are the lots today and how much were they in 1980....

Empty Lots - Are they worth it?

Most Popular Reply