- The Washington Times - Thursday, June 16, 2005

Q:I purchased my town house two years ago. I’m getting married in September, and

we have the following plan: We’d like to live in the town house for two or three more years and purchase some land, say 8 acres, using our equity so we can build our dream home later on.

The problem is that the only affordable 8-acre lots are far away, nearly two hours from where we work.

Our other option would be to buy into a subdivision close to work, but the prices are more than $700,000, which may not be affordable. We also wouldn’t be able to buy the amount of land we want.

If you were in our shoes would you take advantage of the 8 acres for $99,000 and build later or wait and buy a new house in hopes of getting in early in one of these large developments?

Also, will a custom home be more expensive than

one of the nicer new homes in a subdivision?

A: Your questions are difficult to answer. The first thing you need to do is prioritize your objectives. Buying a house involves a lot of give and take, meaning you may have to sacrifice one thing to get another.

Your two options differ greatly, so you should be sure that both appeal to you. Paying $99,000 for 8 acres may sound like a great deal, but unless you plan on retiring before you build your house, a two-hour commute can’t be pleasant.

Building a home on a large tract of land can be outrageously expensive, or quite cheap, depending upon what you build and how you build it. Purchasing the land today could be a good investment, but it also could be a poor investment.

The value of real estate, especially land, can be volatile. It’s true that historically, real estate is a good investment over time, but the runaway market that we have seen in recent years is not likely to last forever.

As far as buying into a new subdivision, recognize that whatever you pay for the home will be equal to the market value at the time. As I said, real estate, over time, has proven to be a good investment, but markets move in cycles, and there’s no guarantee that property values in a new subdivision won’t fall.

It’s happened before. Beginning in 1989, the area economy experienced a recession. Many home builders, eager to close out construction projects, dropped the price on unsold homes. Folks who had already bought saw that comparable homes were selling for less. In many areas, it took years for values to come back.

My point is this: It’s difficult to time the market. Getting in “early” in a new-home subdivision in no way guarantees that your timing was right.

My advice is to sit down with your fiance and prioritize what’s most important to you. Then speak with an experienced loan officer. He can help you structure an optimal financing plan.

Henry Savage is president of PMC Mortgage in Alexandria. Contact him by e-mail (henrysavage@pmcmortgage.com).

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