Monday, September 28, 2009

Land as an Alternative Investment for IRA Account

Are you tired of dealing with tenants? Are you stuck with the stocks that have sunk in value in your IRA account? Land is an alternative to diversify your asset, especially for your retirement account. If you are not familiar with this subject, please read my previous posting on self-directed IRA.

There are two distinct components of real estate, the land and the building/improvement. As the time pass by, the land component usually (no guarantee) will appreciate in value and the building component will depreciate because of wear and tear.

Be aware that you should not expect quick profit from investment in land. Land is not a way for you to get rich quickly, instead it is a way to get rich slowly, if it is done correctly. What do I mean by done correctly? If you buy a land in the middle of nowhere, populated by skunks and raccoons, your land may not appreciate at all after you hold it for 20-30 years. Instead, if you buy pre-developed land in the path of growth, there is a higher chance that the land will increase in value because of the demand. What else do you have to consider in buying a land?

The land should:
• Not have a slope in excess of 15%
• Not be located in flood zone or earthquake zone area
• Not be in wetland area
• Be in a close proximity to a major metropolitan area
• Be easily accessible by highway, train or air travel
• Be located in an area with enough jobs
• Have adequate infrastructures and utilities (roads, electricity, gas, water, sewer)
• Have existing residential and commercial development
• Have existing or planned school system

Imagine a house in San Francisco Bay Area cost $70K in 1970. That same house today costs around $500K. If you bought a land worth of $70K in 1970, the land costs well over a million today.

Are you prepared for retirement? Do you think you have a plan in place?

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