A brief overview
Buying land is quite different to buying a house, as such, those who are buying land should go through the process first to get to grips with the ins and outs. It can be a successful investment if you know what you’re doing, so we’ve put together some tips for you.
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Whether you’re buying land to build your own home, or you’re buying land for a real estate investment project, it’s a whole different ballgame to buying a property. Buying land is no walk in the park, and it comes with a variety of considerations that don’t feature when you buy a property. Let’s take a look at these considerations for real estate investors, and those who are going to build a home on the land.
Key tips for buying land
1. Decide on the usage
First things first, you’ll need to decide on what you’d like to use the land for, whether it’s for your own home or an investment project like an apartment building. Then you’ll need to research the number of acres that you’ll need for your purposes. This will determine the size of the land that you’ll need to find and guide the rest of your considerations.
2. Get your finances in order
Getting your finances ready for buying land involves finding the right lender. Banks often won’t be on board, because they may not be inclined to lend money for land buying. So, lenders that know land can be a better option, such as farm credit institutions. These lenders will know more about the process and can make the land buying process easier for you.
You should build up a good cash reserve ahead of time, this is a good sign for lenders that you can repay the loan even if your income dries up and you’ll need some of it for a down payment on the land. The down payment can be anywhere between 20-25%. You should also get your credit score up, to give yourself a better chance of getting approved for a loan.
3. Hire an attorney
A real estate attorney can be an invaluable part of the process, because they’ll have the best advice for you on the land sales in the area where you’re looking. They’ll also be able to guide you on how to make an offer with the right contingencies and make sure that you secure a good deal.
4. Pick your builder
Choose the builder who will be doing your construction ahead of time, that way they can come with you to see the land and give their expert opinion on which piece of land would work best for your needs. This can be a useful way to ensure that you’re making the right decision.
5. Get it surveyed
Hiring a land planner is a good idea if you aren’t familiar with the land buying process, because having them inspect the land for any potential issues could save you a lot of money in the long run. They will be able to guide you when it comes to zoning laws, and help you figure out if you can go ahead with your plans on that piece of land.
A land surveyor is also a good idea to hire, so that they can do a survey and put your name on the certificate. Relying on the previous land surveyor certificates isn’t recommended, so make sure to get a new one done, in case anything has changed.
6. Do environmental testing
Environmental testing is similar to a home inspection when you’re buying a house, but instead this test involves checking the soil for contamination, working out the land’s potential for flooding and so on. These tests will help you decide if it’s safe to use the land for the purposes that you’d like to, and whether you can build on it.
7. Don’t forget insurance
Unlike buying a property, insurance on land is a slightly different story. The main type of insurance that you should look at getting is title insurance. This will show you who has owned the land before you and indicates whether there are any liens against the land. This is important information that can save you from being liable for any liens in the future.
The other type of insurance that you can get on your land is liability insurance, particularly for large pieces of land. Liability insurance will protect you against any mishaps that happen on your property property, for example people riding motorbikes on your land and someone getting injured.
Land inspection checklist before you purchase the plot
For those who are new to land buying, here’s a quick checklist to help you get all the information you need before you purchase your first plot. Consider these crucial elements, before you sign on the dotted line.
- Ease of access
- Survey, geology and soils report
- Property lines clearly defined
- Land surveying done
- Permit obligations for your project
- Zoning laws and restrictions
- Potential flaws identified
- Any liens on the land
- Utilities and sewage
- Current value and potential future value of the land
What to look for when buying land for investment
1. Laws and codes
For investment purposes, this is a vital step that cannot be missed. The zoning laws of the lot you’re interested in and the surrounding areas, can make or break your project. For example, there may be certain setbacks required from the edge of the lot, which means that you may not be able to build on certain parts of the land. The building codes for the area are also an important factor to consider before you begin building, so that you know exactly what your project needs to have, in order to be compliant.
2. Sewer capacity
You’ll need to find out what the sewage system is like in the area, and whether it can handle the demand of the project that you’ve got planned for the lot. It can be costly to install a septic tank if the sewage system isn’t up to scratch. If you’re planning on a larger development, the builder may bring utilities, so be sure to check this before you set up anything of your own. You’ll need to plan for this ahead of time and get costings if need be.
3. Lights and water
Check the land to see how difficult it will be to get utilities to the property that you plan on building. If you’re planning on a larger development, the builder may bring utilities, so be sure to check this before you set up anything of your own. This all hinges on a percolation test which should be done to determine whether the ground will be able to support a septic system. Drilling a well can be expensive, so if you need to do this, get quotes ahead of time.
4. Accessibility
This applies to land being bought both for investment purposes and for homes. However, for investment purposes, the accessibility of the land takes on more importance, particularly if your project involves a building or a property where lots of people will need access. Check whether the land is near main roads, highways or public transport routes, this can be a big factor for the success of your project.
5. Expert advice
A real estate agent in the area and a land planner will be two of the best experts to help you decide on a piece of land. The professionals will be able to size up any potential flaws or issues you may have to deal with. The planner will be able to tell you everything about the land, from the vegetation to the slope, which all forms part of your decision.
What to look for when buying land to build a house
1. Zoning requirements
Before you look for a piece of land to build on, make sure to check the zoning requirements with the local authorities. These rules may impact the type of home that you can build on the land, so this is a vital first step. You should look at the long-range general use plan for the area around the land that you’re interested in, so that you know what’s permissible and what the future plans for the area are. When you’re building a home to live in, be wary if the area has plans involve landfills or power plants, these can impact the value of your home.
2. Getting in and out
The ease of access to the land is a factor, but for people who aren’t concerned about living in the country for instance, this is less of a concern. For those who are commuting or prefer to be near amenities, it’s important to make sure the land is easy to get to, and near main transport routes.
3. Deed restrictions
If the land is owned by a HomeOwners Association (HOA), then they may have restrictions in place which you’ll need to follow, along with the zoning laws. The Covenants, Conditions and Restrictions (CC&Rs) documents will indicate what can and can’t be done on the property, so it’s crucial to be aware of this information.
4. Utilities on site
This is an important consideration for your home as necessities like electricity and water can be forgotten about and taken for granted. Make sure that you can easily get lights and water into the property. Sometimes water rights don’t come along with the land, which is important to know, so that you can plan accordingly.
What causes land to appreciate in value?
Land appreciates in value for the simple fact that it’s in short supply. The population continues to grow, therefore the demand for the land increases and the price of land goes up. For investors and savvy land buyers, understanding the land appreciation in your chosen area can be a big positive. There are a few factors that influence land’s appreciation in value.
- The land’s location within a neighborhood – not all places in a neighborhood are equal, for example homes in quieter areas of the neighborhood often have a higher demand
- The average age of neighbors – places like schools can increase the demand for homes in an area, therefore the general age of the area’s population has an impact on land value
- Prospective developments – plans for new schools, hospitals etc can also lead to an appreciation in land values
What cause land to lose value?
Environmental risks: Natural disasters can make an area and the land in it less attractive to both investors and those buying land for their home, because the risk is high that anything built on the land could be destroyed and safety is a concern. For example, areas where flooding is common, or earthquakes.
Restrictions: Major restrictions on the land can also make it decline in value because these restrictions can lower the demand for the land. For example, a piece of land that has major restrictions about what can be built on it can narrow the demand to a small group of people.
Low employment: If jobs are scarce in the area where the land is located, this can bring down the value because less people can afford to live there and so the demand is lower with less opportunities available.
FAQ
Can buying land be a tax write off?
Yes, you can deduct the interest and property taxes for your land, along with the operating expenses and you can claim depreciation on any improvements that you make to the land. There are also some instances where tax incentives are given to those who are willing to rebuild areas, for example where there was a natural disaster and homes have been destroyed.
Can buying land be profitable?
Buying land can become profitable, however it will take a long time. For example, if an investor has bought land to build an apartment building, construction will need to be done and once the property has been built, then the investor can find tenants and begin generating an income only after that.
The bottom line
Buying land can be a risky business, so before you head down this path, make sure that you’re aware of all the pitfalls and potential problems that can arise along the buying process. It’s also important to be clear on what you want to do with the land, and how you’re going to achieve this before you even start your search. Consult with the experts beforehand, to make sure that you’ve got everything you need to make an informed decision.