There is nothing more American than acquiring parcel or vacant land, but it is one of the most overlooked and misunderstood real estate investments in the world. Most real estate investors fail to realize that the practice of owning land in its raw form comes with excellent advantages such as custom building. Custom building gives you total control of every aspect of building a house from the ground up. Real estate investors forget such benefits that offer simplicity and stability because they often compare it to owning any other real estate that comes with an array of problems. Do not despair, as the following will present how to avoid these issues when purchasing vacant land through careful consideration.
Survey your Kingdom
The best time to buy vacant land is in the Fall because you will get a feel for the space and how close the neighbors are. Be sure to survey the area thoroughly from the seller and to walk the entire property. You will get a sense of what needs to be done, like clearing any trees, or grading hills, installing a septic tank, or creating new power, phone, and cable hookups. Your inspection does not end there. Go for a drive with a local who can give you insider info like potential problems lurking beneath the surface of the land of interest. Land today is subject to more regulations that need to be investigated as part of your due diligence process. You could face an array of issues from wetlands restrictions to energy-efficient building standards, all of which could potentially be a deal killer if not addressed properly. Nevertheless, owning vacant land is still a rock solid investment as long as you know what to look for, when to re-adjust your offer price, or when just to walk away from the deal.
- Zoning on the Property
Zoning laws regulate the use of your property. However, zoning regulations may differ depending on the community your prospective property is located. It is critical to get an understanding of your property’s uses and which is the highest and the best. You may even get some ideas that you had not thought of before. Consult your local zoning office, city hall, or some other local planning board, and ask for a copy of your local ordinance and zoning maps showing not only what the zoning ordinance is, but the overall zoning plan. You can also access the information online on your city’s homepage. Learn the zoning classifications in your area and ask for some examples of what type of property would be allowed under each of these particular zoning classifications. Once you learn the most profitable use of your property, you can quickly determine if it will be the perfect fit for you. Consult an attorney who is familiar with the local zoning law, if the details of your zoning ordinance are not comprehensible, or your intended use is not permitted. He or she can simplify a complicated zoning plan, and find ways to get permission from the local zoning board to expand the lawful use of your property.
- Topography of the Property
One of the first things you should be researching when buying vacant land is the elevation and topography of the property as that can have a tremendous impact on the build-ability of a property. The world is littered with variable heights, cliffs, mountains, valleys, ravines and more so you must do some preliminary research to find out where your property is located and what the lay of the land is. Software like Google Earth has made that search easy, free, and accessible to everyone. Just download the program, enter the address or coordinates of your property, and use your mouse buttons along with control and shift keys to zoom in on your property. You will be able to tilt the earth on its side so you can locate all of the hills and valleys in the area. This software will give you a crucial perspective on any vacant property. You should especially take advantage of the software if you are purchasing vacant land out-of-state.
- Annual Tax Obligation
Taxes are inevitable and without planning the annual tax liability can be very uncertain. For several reasons, some properties have an unproportionate ratio of ridiculously high taxes to the property’s actual value. The tax bill can fluctuate depending on the length of time you intend to hold onto a property. Know that if a $10,000 property has an annual tax bill of $2,000, you are being milked. A reasonable annual tax bill usually falls in the range of one percent to four percent of the property’s full market value.
- Public Utilities
Imagine building a house on a land that lacks water, sewer, gas, or any other staple of reasonable living. The very thought of owning a home without a flushable toilet might make you ditch the idea of purchasing a vacant land completely. Property that does not have one or more of the essentials as mentioned earlier is considered unbuildable which probably beats the purpose of scoping for land in the first place since you’re probably buying the parcel with the intent of building on it. It is highly recommended that you have the land inspected for any deficiencies that could deflect you from the purpose of the land which is to expand on it and turn it into profit. However, many people wanting to get off the grid are more than happy to not have utilities, sewer or gas.
- Required Building Setbacks
Zoning laws supervise the dimensional requirements for lots and setback requirements. There is nothing uncommon about building setbacks as they give order and consistency to the buildings in any particular area. Before contacting the local zoning office, city hall, or some other local planning board to find out what are the required setbacks on your property, you want to understand the exact dimensions of the land in question fully first. After factoring in the delays and regulations, if there are any, think about how much room you will have to build something worthwhile. The delays may halt your income, and it may not be worth purchasing.
- Usage Restrictions
As above mentioned, when buying a vacant land parcel you must be prepared to confront a variety of restrictions including usage restrictions. You will not have to worry about the limitations imposed by most cities and townships as they are usually reasonable. However, most homeowners associations place stringent restrictions that you will have to abide by to maintain stability and formality in the neighborhood. These limitations were placed to avoid rowdy behavior that may bring down the value of the other residentials or restrict any building plans. This, of course, will not work to your advantage if your sole purpose for buying the property was probably to build on it. Learn what the rules in your subdivision are so you can decide if you are willing to put up a fight or drop the deal. If you cannot abide by the rules of the property owners association, you will end up paying fines. It probably is not worth it.
- Flood Zone
For some, the risk of losing everything that you have worked so hard for in a flood is not something that they are losing much sleep over, but it is something you need to consider when buying parcels of land. Even if water never ends up hitting your area, you should go through the process of making sure that your property is not situated in a flood zone. Some vacant land is overlooked because they are submerged in water. Just being nearby a flood plain will keep buyers away because when a property is located in a flood zone, it can weigh heavy on your pockets, even if it does not flood. A vast majority of lenders will require their borrowers to pay for flood insurance if that property is located in a flood zone. Depending on the type of flood zone the property sits in, this insurance could cost thousands of dollars per year. Fortunately, there is a sufficient way to find out if your intended purchase is located in a flood zone. Just check the FEMA flood maps by entering the address. Within seconds, you will get instant access to the most updated flood map in the area.
- Sewer Access or Soil Percolation
When most plan on building a dwelling of any kind on their parcel land, there is one issue that is often overlooked, but it has the capability to make or break a land deal. That issue is a Perc Test, and it is an issue you will want to take seriously if your are spending a large sum of money because it could be a waste.
First and foremost, a Perc Test, which is short for Percolation Test, is a test that evaluates the absorptions rate of soil for a septic drainfield or leach field. It is required if a property does not have easy access to a local sewer system and will determine if the a septic system can be installed on the property.
If the property fails the test and septic system cannot be installed, building any dwelling on the property will be a challenge. Consult your county health department and ask them how to go about installing a septic system or connecting to the local sewer department. If possible, try to tap into your municipal sewer system and eliminate the problem at once.
- Landlocked Property
Landlocked refers to a property that has no access to the street and, believe it or not; such property still exists today. In fact, thousands of properties do not have direct access to the roads and the only way on and off of the land is to go through other private property. There is no use for such property. It would be unable to gain profit as nobody can get to it. Such property might as well be on the moon unless you go through a legal permission called easement. However, such property is generally inexpensive and some people choose to buy the land for recreational purposes.
An easement is the right of use of the property of another, and it can only be done if your neighbors are willing to give you access to cross their land to get to yours. Be forewarned that this is not an informal arrangement. It does not have to be monetary payback, but most neighbors do expect some form of payment. An easement is a resolution, but you will probably be better off letting it go. Even though it seems like the answer to a landlocked property, it is just another restriction and an additional expense
- Size and Shape
This goes hand in hand with surveying the property and making sure it meets your standards visibly. You don’t want a property that is too small, and you may not want something that is too large. A large property could be a burden because you will have to find ways to occupy all of that useless space. If the property is awkwardly shaped that could also be a problem. Think of those slim New York buildings that get more narrow as it nears the corner. You cannot help but think why would any want to live in that tight angle, much less place a building there. Use your common sense when you come across an odd shaped parcel. It is not worth it. This would also be a time to consider the typography of the property. If there are certain levels that you cannot build on that can also affect the shape of the property.
- Municipal Water Supply
You should not have to sacrifice fresh, clean water when searching for the perfect piece of land. However, a property that does not have municipal water supply should not be instantly dismissed until you have considered all of your options. Properties that do not have access to a municipal water supply is not uncommon, but you will have to gain access to clean water beneath the surface by drilling a well. A sure indication that you can drill a well is if there are other homes or dwellings in reasonable proximity. However, if you are interested in a lot that is located in a deserted area with nothing around for miles, then you want to consult a professional to find out how you can get clean water supply. If drilling a well is an absolute no then your only other option is to have fresh, drinking water hauled in by truck. While that is certainly another possibility, it could be costly, and it may not be worth it. In any scenario, you should have a professional come in and make sure that you will be able to access clean water if and when you need it.
- Moratorium on Building
Before sealing the deal, check for a history of moratoriums on buildings in the area and ask the local planning and zoning department for what reason were they imposed. A moratorium ordinance is a local law that takes immediate effect in temporarily putting land use to a halt until the locality has studied the potential effects of the proposed use and establish new, permanent regulations for that use. You are prohibited from building anything until the ordinance is lifted. This is not a definite reason to pass up quality real estate, but it is an issue that needs to be addressed before signing any contracts.
In some cases, vacant lands will turn into the neighborhood landfill or storage for junk. If you buy the land, you may be responsible for getting rid of all of that junk and it could set your plans to build on the lot behind. Not to mention, the clean up process is very expensive. When you are purchasing vacant land be sure that you are getting what you are paying for, land. Request that the lot be cleaned before you make a purchase. If you see something you like, you can probably add it to the contract.
In most states, laws are imposed to supervise zoned property. If you are interested in a zoned lot, order a Phase I Environmental Report to identify any contamination on the property that you need to look into. If you fail to do a background check on the property, and it is contaminated, that will become your burden. You will probably experience difficulty trying to sell it in the future.
You can also consider consulting a local environmental professional for a Records Search & Risk Assessment or an Environmental Transaction Screen. It will cost you around $500, and it will give you a thorough report. Action may not be necessary if you the property is located in an undeveloped area, but you should be cautious about commercially zone property that was previously owned.
- Surrounding Properties
It does not matter if you maintain the appearance of your property. If the property nearby has an overgrown yard, a poor paint job, and items littered all over the porch that can quickly depreciate the value of your property. Sometimes, the properties next door are up to par but the resident within are not. It is wise to visit the location at all times during the day multiple times, especially if you are interested in that property. You will get to experience your neighbors during all hours and find out what they are really like. Lack of maintenance and bad behavior can be a property value killer.
Play the Game
When buying vacant land, you must first understand why that land is empty. If you utilize the list above as a checklist, you will find that quite a few vacant properties seem worthy at first but beneath the surface, they are not worth your time or your money. Be cautious of buying from builders or developers that are in a hurry to sell their property. Find out how long they have held the property. If they have held it for a short period it most likely means that they know that the property does not have any value, and they are trying to pass the burden off to you. You should not jump on any property that is priced too low for the market as it can mean that it has lost value.
Be a smart buyer. Don’t get caught up in the idea of property ownership. Think about long term investment. If you buy smart, you will not have to worry about mortgage payments, utility bills, or any other expenses. Buy during a bust cycle and sell during a booming period. Check out the area because there is a lot of money to be made with property in the center of a growing city as their value increases at a faster rate. However, this does not mean that you should buy it and sell it hastily. Buy with plans to hold on to it until it appreciates in value so you can reap the benefits.
Also, keep in mind that while building on property is an excellent idea it is not necessary. You do not have to rehab property yourself. You can leave that project for a potential buyer. Land investment is a hand free project. You don’t have to do anything to it except wait for the perfect time to sell. You can almost park your cash there and forget about it.
Too many people invest in assets and wait for it to go up in value when you can invest in land and build an empire. Land is one of the most substantial investments available, especially land in its raw natural, undeveloped state because it will always have value and the risk of theft is not as high as it is with another real estate. Owning land is where the real money is, and it is far simpler and easier than owning any other property. If you have looked passed owning land, you need to reconsider and discover what it is all about. It is the most powerful strategy in building your real estate career, and you will generate a lot of knowledge if you give it a chance