A brief outline
Raw land can be a huge drawcard for those who are looking to build their own home or other type of development from scratch. We’ll take a look at how to buy raw land and the steps to build a house on raw land, for those who are looking to do a real estate project from the ground up.
Table of Contents
Raw land refers to land that has not been developed, in other words a vacant piece of land without any buildings, driveways or public utilities. This makes raw land the perfect solution for real estate developers who know exactly what they want to build on it, or people who’d like to build a house from scratch with endless possibilities. Before you embark on your voyage into developing land, we’ll go over a few key topics around land development including the steps to build a house on raw land, to help you answer the question is buying land a good investment?
How to get into land development
Raw land development is the process of buying undeveloped land, with the intent to either develop and build on it immediately or keep it for a longer period of time so that it appreciates in value.
Raw land is a limited resource, which means that it’s very valuable and can be tougher to come by. However, it can be a very rewarding experience seeing projects come to life quite literally from the ground up. There are a variety of ways to get into property development, if this is something you’d like to do.
The first step is to educate yourself. There are useful classes on a range of topics to do with real estate development, from construction fundamentals to real estate financing and investing, project management and more. Your next step is to find a mentor who has a lot of experience as a developer already and learn from them. Next, formulate your goals and map out your finances, including the level of risk you’re willing to take. From there you can start looking for your first piece of land to develop.
How to buy raw land
Buying land and building on it gives you a much greater sense of freedom and flexibility than being stuck with an existing property. However, the process is more complicated and requires a slightly different approach and you may need an experienced real estate agent to assist. Here’s how it works:
Select the right piece of land
The first step to buying raw land is to figure out what you’d like to do with the land. From there, you can search to find the best piece of land to suit your objectives. You’ll also need to consider factors like zoning laws on the property, ease of access to main roads or transport routes, the permits that may be required for the land, any easements on the property and so on.
Survey the property
Once you’ve considered all the necessary factors, your next step is to hire a professional to survey the land and from this you’ll find out exactly where the property borders and boundaries are, if there are easements or any encroachments on the property and so on. It’s also useful to get environmental tests done to determine the soil content, as there can be contaminations.
Get financing
Finding finance for raw land can be more difficult, so you’ll need a solid plan to show your lender. The type of loan you’ll need is a raw land loan, and it’s important to note that this type of loan is generally riskier and therefore comes with higher interest rates and requires a larger down payment. There are also constructions loans and government-backed loans which you can use to purchase the land. Take a look around to figure out the best financing option for you and your goals.
Steps to build a house on raw land
Now that you’ve found the land you’d like to build on, there are a few steps you’ll need to take to ensure that the house is built correctly on the land, and all goes according to plan. The key to successful construction is proper planning and sticking to your timelines. This requires hiring reputable contractors that you can trust. Let’s walk through the steps that you’ll need to take.
Step 1: Evaluate the return on investment
Looking at the costs of the project upfront will help you to estimate the return on investment. It’s vital to know the financial feasibility of your project before you begin. So, work out the return on investment that you’d like to make from the property by including costs versus profit, so that you can work towards a successful outcome.
Step 2: Understand zoning
You’ll need to have a good understanding of the zoning of your land, before you can begin building a house. Zoning will impact the type of property that can be built on the land, and therefore shape your next move. Zoning will dictate whether you can build a single-family, multi-family, condominium, or commercial property on your land.
Step 3: Select a contractor
Now that you know what your land is zoned for, you can choose a property style and then find a good contractor to begin working with. A contractor will also be able to explain which house style would work best on your land. Shop around for a contractor, and make sure to ask what kind of warranties they offer, and which service plan they use. Make sure that your chosen contractor is reputable and has previous projects that you can look at to verify their work.
Step 4: Find financing
A ballpark average cost for building a house, according to HomeAdvisor, is $294,007. However, this number doesn’t factor in different home sizes, locations, the types of materials used and the intricacy of the project. Building a house on raw land can result in many extra costs that you’ll need to consider, including:
- Environmental tests
- Building an access road
- Clearing the land
- Creating access to utilities
- Permits
You’ll need to find financing for your project, and this will be based on how you intend to use the property. The Loan-To-Cost ratio is the amount of money that a lender will be prepared to provide for a project, and this number is determined by the use of the property and the type of construction that you’ll be doing.
To finance your project, you can get a construction loan with a reputable lender such as New Silver. A construction loan is used to build the house, whereas a land loan or lot loan is used to purchase the land.
Construction loans are often paid out in phases as the house is being built, instead of a lump sum. They are typically short-term loans that will need to be paid off within two years. Make sure that you look into what’s necessary to qualify for the loan with the lender that you’ve chosen, because each lender has slightly different criteria.
Step 5: Begin construction
As soon as the first permit is approved, you can begin construction on your land. Each county is different, but permits are generally approved for plans one step at a time. Your construction process will go something like this:
- You will submit the survey that you had done on the property to the county, and they will provide an address and issue a permit for a driveway.
- Before you can begin building, you’ll need to have a waste-water treatment system set up, so as not to contaminate the ground water.
- The next step is to get a water system in place and then the foundation can be built.
- Then the framework of your home is built and once the walls are up, the roof is added on.
- Weatherproofing the walls soon after they’re built is important, so this happens next. After that, windows and doors can be fitted.
- Now it’s time for the electrical work and plumbing to be hooked up before all the finishes are put in.
After the house is constructed, make sure that you do a detailed walk-through with your contractor to make sure that everything has been built according to what you had planned and asked for.
Key factors when buying land for development
There are some critical factors to consider when you’re purchasing land to build on. Here’s what to look for when buying land to develop:
- Location: The location of the land is perhaps the most important factor to consider because this impacts everything from accessibility to the type of property can be built on it.
- Permits: Getting permits approved for different aspects of your construction is another vital element to the project. Different cities require different permits so it’s a good idea to do your research on what kinds of permits you’ll need and what it will take to get them.
- Restrictions: Land can have restrictions on it which will affect how you can use it, what you can build on it, and so on. These are legally binding and can prevent buyers from running businesses from home, building a home of a certain size or even from erecting a fence of a certain size. These should be checked before you begin your project to make sure that they don’t cause issues for your development.
- Utilities: It’s crucial to know which utilities are available on the land, or what it will cost to bring them onto the land. These are a vital element of building a house, so this is a step that cannot be overlooked from the outset.
- Accessibility: The land’s ease of access is another consideration to take seriously before you begin the project. If ease of access is an important factor to you, you will need to make sure that the land is near a highway or main transport route, and that you can easily create a driveway or access point for the house.
- Easement or lien: You’ll need to know upfront if there are any easements or liens on the land that you’re buying. These can cause you a financial headache later on down the road because they’re usually part of the deed and therefore the owner of the land is held responsible for any monetary claims, and others may have rights to use your property.
- Soil and land type: The type of land and soil that make up the plot are not something to be overlooked. The land and soil will impact your construction and may require more excavation that would cost a lot of extra money.
- Zoning: The zoning of the land is imperative to know before you buy it, so that you’re aware of what type of property you can and can’t build on it, and what parameters would need to be adhered to.
- Market value: Just like houses have a market value, so does land. It’s a good idea to find out how to calculate the market value of land before you purchase it, so that you can make an offer that is competitive.
FAQ
Yes, you can get a land loan, also called a lot loan, which will enable you to buy land that you can build on. There are specific raw land loans that can be used for undeveloped land that has no utilities, sewers or roads. Usually, the down payments on this type of loan are 20% or more, and they have higher interest rates compared to other loans.
Development costs can vary depending on the site itself, the soil conditions, the local fees and permit costs and your development plans. Permits and fees can cost $10,000 in high-cost areas and in some states can even top $20,000. In addition to this, if utilities are further away, it can cost even more to extend them to your property. According to Building Advisor, a typical site development can cost anywhere between $18,870 to $133,590.
- The minute you run utilities to your land and build on it, the value will increase.
- Decluttering the land and planting trees adds further appeal.
- Improving the access to the land makes it more desirable and therefore increases the value.
- Good drainage is important particularly if your land is flat, so improving the drainage will help to increase the value.
- Soil has a big impact on land and nutrient-rich soils can bump up the value of land by as much as $300 per acre.
Final thoughts
Buying raw land and building a house can be a rewarding process with lots of flexibility and opportunity, but it comes with a lot of extra considerations. Be aware of these considerations before you start and you should be able to make a success out of your project. Good land appreciates in value, so it’s important to ensure that the land you choose is right for the purposes you intend to use it for.