Real Estate Sunk Costs. What would you do? (foreclosure, credit, buy)

[vandre]

We own a residential vacant lot in an affluent suburb of Chicago (median income about $100k). The location has some challenges:

1. External obsolescence caused by nearby train tracks behind the property
2. Soil has below standard load-bearing capacity and poor draining, so a deep foundation and french drain is recommended (meaning more expensive construction costs).
3. Average market value of houses in the same neighborhood is around $350k, although a 2500 sq. ft shortsale a few houses down just went under contract for $235k.
4. The suburb itself has a beautiful downtown, very walkable, but it is relatively far from Chicago, about 40 miles west. A roundtrip to Chicago is about 2 and a half hours.
5. The school district is top notch (Top 30 in the State) but this comes with high property taxes (in the property neighborhood currently about $8k-$9k/yr)

We bought the lot in 2007, and our sunk cost so far is about $120k (Our cost basis is $100k). The property has high carrying cost because of property taxes, currently about 2.5k/yr. I have no intention nor the capital to build on this lot until at least 10 years from now. Out the door this would mean an additional $30-35k in property taxes + opportunity cost.

The property has been for sale for almost two years now. Last October we dropped the asking price to 49k, but prospects still look bleak.

I am now considering stop paying property taxes and let the county take it. This process usually takes 2-3 years at which point I would claim the $100k capital loss (or $40k~ if by some miracle is sold by then).

We're on the 28% tax bracket and have no intention of selling our current home, a foreclosure we bought for 50k below FMV in 2009. Our current school district is good, but not outstanding (still top 100). Similarly our property taxes here are not that bad, about $5k/year

Thoughts?

[MrRational]

Originally Posted by vandre

residential vacant lot in an affluent suburb of Chicago
cost basis is $100k
no intention to build
been for sale for almost two year
dropped the asking price to 49k
Thoughts?

Your best bet for buyer(s) are the adjoining property holders.
Sell at cost and hold the paper yourself.
That puts you $2500 ahead each year.

Otherwise... an infill new construction builder (if such exists there)

considering stop paying property taxes and let the county take it.

Donate to a charity before doing this.
Habitat for Humanity etc might even buy it (cheap)
and then you write off the balance.

[Themanwithnoname]

Sell it to me' for $1,000 to avoid the blot on your credit!;-)