Before he became a third-grade teacher, Greg Mason worked in construction. His trade came in handy in 1995, when Greg and his wife, Janet, also a teacher, bought 6 acres and built themselves a house -- literally. They put up a Craftsman-style home on their spread, near Colfax, Cal., 50 miles northeast of Sacramento. Greg paid some friends to help him raise the frame and walls; contractors installed the plumbing and other essentials.

Greg is now eyeing as a potential investment a piece of an adjacent tract that he expects to become available in several years. Given the Masons' equity in their homestead -- they owe $160,000 and think the property is worth $500,000 to $600,000 -- plus their $125,000 in CDs and $140,000 in traditional investments, the couple could pay cash for the land. "I don't want to finance this," Greg says.

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The area's growth potential and natural beauty motivate Greg. He believes that as Colfax evolves into an exurb of Sacramento, public water and sewer service will replace the existing wells and septic systems. If so, vacant residential land would become much more valuable. But he also sees investing in land as a solution to his worries that the couple's salaries and their state-funded pensions, 403(b) savings plans and IRAs won't keep pace with California's high taxes and cost of living.

Financial advisers are cool toward vacant land. It is not as diversified as a real estate investment trust, and legal and environmental controversies abound. Marc Vorchheimer, of Integrated Financial Consulting, in Nanuet, N.Y., notes that you pay taxes on land and earn no income even as you forgo earnings on the cash you invested in the property. Greg's CDs yield 5%. If he put the $125,000 into funds that returned 8%, he'd have $415,000 in 15 years, before taxes. "At the end of the day, you have an illiquid investment that you must keep for a long time," says Debra Morrison, of Capital Financial Advisors, in San Diego.

But Morrison allows that Greg is a good candidate to buy land for retirement. Because he knows the area, he wouldn't buy unsuitable property. He and Janet, who have a son, Miles, 6, have secure pensions. And here's the kicker: When you subdivide a tract, the sum of the parts is often worth more than the whole. Greg figures that if he were to buy 4 acres for $125,000 and sell it in two parcels, he would eventually get about $200,000 apiece. The payoff would be even greater if he could sell four 1-acre lots -- a distinct possibility if municipal water service were to come in (tracts with wells and septic tanks require more land per house).

Even if Greg had to wait 15 years for his payday, he could make as much on the property as he stands to earn in decent mutual funds, and maybe more if local land prices rally sooner. And there's a bonus: The property sits directly above the Masons' place. By holding it, they'd protect their marvelous view of the hills.

Stumped by your investments? Write to us at portfoliodoc@kiplinger.com.

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