As a professional real estate investor, I am constantly being asked about investing in raw land for a retirement program. I was a CFP (Certified Financial Planner) for about 10 years before I retired and I loved financial planning. So, here is my personal take on the question, and it is my personal opinion. In the final analysis it is your money and you can spend it as you want.

I don’t believe raw land has a place in an investment portfolio – period. I understand that some people have made large profits in raw land enviroment problems when selling land but generally they had to hold it for many years or they were selling land to investors (or more aptly speculators) for huge mark-ups. I know that land can be approved for purchase in a self-directed retirement plan, but that does not mean it is a viable or safe investment. This simply means that the filing documents to the IRS from a specific trustee requested raw land as an investment option and the IRS did not decline their application.

So what is the problem with raw land? If you make money there is nothing wrong, but the issue I have is the illiquid nature of not being unable to sell it if you need the money. I understand that it may be a very small portion of your portfolio. If that’s true, you are better off putting the same money in an income vehicle and letting it sit.

No one wants to take money out of their retirement plan unnecessarily or before age 59 ½ to avoid IRS penalties. Unfortunately, the reality is that Americans are cashing in their retirement plans at record numbers because of severe economic conditions. If these unemployed people have to spend their retirement funds they don’t want to hear that their special lot inside a magnificent community can’t be sold except for pennies on the dollar or if at all!

However, in the past 6 – 8 years investors started buying up these parcels that were actually high and dry because of the Everglades drainage programs. Raw land values went from a few dollars per acre to $40,000 for ¼ acre single-family home lot because of over speculation by investors who couldn’t afford to invest in much more expensive single family homes. Then the correction hit in the past few years and now you can get these same lots for $2,000 or less. What if you had to sell now and had missed the wild speculation because you were waiting for just a few more dollars?

Some die-hards will say that there are no buyers for anything right now but that’s not true. At the right price and condition, you can sell properties and even raw land all day long. But if your timing isn’t exactly perfect, you could have an investment that may have value but if no one is willing to purchase it, it is truly worthless.

In conclusion, all retirement accounts will eventually have to be liquidated for legal reasons, immediate economic needs, or death of the owner. Because of the illiquid market for raw land and from a purely financial planning aspect, raw land is not a prudent investment in one’s retirement account.