You should check with a real estate attorney on local laws that govern this situation. In some areas, if you allow your neighbor to encroach on your property for 5 years straight, then that part of the property becomes his.
One option is to create an easement for your neighbor. This way, you're granting him the right to use the strip of land but not transferring the right of ownership to him.
A more formal option is to perform a lot line adjustment. You'll need to get a surveyor to generate a new plat map and record the new lot line with the county. The cost for both will probably run you about $5-10K. This keeps the property lines clear and doesn't present any complications on any future sales.... more