The Do's and Don'ts of Buying Vacant Land
Real estate investors know that buying vacant land can solidify one’s financial stability or work against it.
The balance comes in knowing exactly what to look for and what to avoid. Real estate developers who have learned how valuable vacant land is making sure to not pass on a good deal when they see it.
But equally important, they know what types of land characteristics to settle for and which ones to steer clear of.
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Benefits of buying vacant land
Vacant land is a limited, valuable resource. While location is a factor, buying land is generally a safe investment. There are several benefits to buying vacant land and developing it when the market demand makes it the most lucrative to sell.
Even if the return on investment isn’t immediate, there are many benefits to owning land:
Costs Less to Purchase Than Residential or Commercial
There’s nothing wrong with buying an already finished residential or commercial property. However, more often than not, buying vacant land and building the property that one desires ends up being cheaper several times over than buying a finished property. Vacant land usually has:
- Minimal carrying costs
- Lower property taxes
- Lower maintenance costs
And vacant land is a blank slate that you can develop however you please (within the zoning laws, of course.)
Capitalize on Market Trends for Higher Gains
The term 'cheaper', however, can be very relative. In most real estate deals, the element of timing is very important.
For that reason, an investor may see it fit to buy an already finished property at an astronomically higher price in order to seize the opportunity that the markets present at that point as opposed to buying raw land and developing it.
On the other hand, a different investor may seize the opportunity of market trends to buy vacant land and develop it to meet specific market needs.
Either way, timing is important to help make the choice that’s best - because wrong timing whether buying a finished property or vacant land can end up being very costly.
Almost Never Depreciates
The truth is a good number of people express hesitation in buying vacant land, even though they know that they can eventually make a fortune from it. Vacant land will appreciate in marginal market conditions because it is a hard asset that is a scarce resource. But waiting can prove difficult for some investors even though they know vacant land is a safe long-term investment.
The best part about a good land buy is that it almost never depreciates from the value of the purchase and almost always appreciates in value.
This is the core benefit of buying land.
For the most part, buyers may hesitate because they do not know what to look for and are afraid of making a bad business decision.
With the right help of a knowledgeable real estate team, excellent landscapers and home or commercial property builders, one has nothing to worry about as they can get help with property assessment of the vacant land before purchase and figuring out whether it’s matched to one's needs.
Can Develop The Land as You Please (Within Zoning Code)
Another benefit of buying vacant land is that one has the opportunity to design their property according to their preference within the zoning code.
Buying pre-built houses means one ends up with a generic looking house without any stamp of their preferences or input.
With the help of professionals, one can customize a property to reflect their own sense of style by giving the building a unique signature.
Secondly, the building phase can be done in phases depending on the availability of funds.
Less Competitive than Residential Real Estate
Given that the competition for vacant land compared to finished properties is less, chances of investors landing an amazing location for a very affordable price are higher. Once a property has been finished, the value of the place is likely to steadily rise into a handsome profit at the point of selling or renting the property.
Lower Market Rates with Seller Financing
Because banks and other traditional lenders view vacant land as a speculative investment, they are less likely to provide financing. Many times the property sellers will act as the lender and offer lower market rates to attract buyers.
Financing for the property will largely be influenced by how you plan to develop it. You will need a substantial amount of cash to develop vacant land.
5 Important Things to Consider When Purchasing Vacant Land
Before you purchase vacant land you should take into consideration our five tips:
1. Have a Good Team
Surrounding oneself with a knowledgeable team of professionals can help to avoid costly mistakes. The costliest mistake would be acquiring a piece of land that is mismatched with the real estate need that one has in mind.
Assess the Best Options
If one is looking to build a property, whether it’s a mix-use building, commercial, industrial or residential, engaging with architects and landscapers before making the buying decision is crucial. Their input will help the buyer weigh their building options and their professional advice on the piece of land will give the project direction.
Although it means extra fees for these experts, it’ll prove worth it because they can spot and sort out issues that may cost the owner down the line.
Engaging with such professionals will also help the owner know whether the vacant land is a match to the property he wants to build or not.
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Identify Safety Risks
A team of professionals can recognize unforeseen risks and safety issues. For instance, if the land is at the edge of a right-angled cliff, an architect and landscaper may counsel against the purchase for safety reasons.
At the same time, they’ll also present options that can ensure safety for such a site while adequately communicating the hefty financial implications involving such an undertaking.
This may include the challenges of accessing utilities such as freshwater, roads, gas connections and electricity. With this information, the potential buyer can weigh the pros and cons of the site from an educated point and make the best decision possible based on his business needs.
2. Lay of the Land
When purchasing land, one should consider the topography of the site. It’s easier to build on flat land than it is to build a property on a hill.
By having a good idea of the topography of the land one wants to buy, the investor is able to tell whether it will be suitable for the kind of property they want to put up.
Topography Can Help or Hinder Depending on Property Type
For example, when considering building a hotel a surrounding topography of hills, mountains, lakes, and forest is not so bad as it contributes to panoramic views and offers the guests natural adventures activities such as hiking, kayaking, and skiing.
Homes for sale, on the other hand, may not be best suited for such a topography because the location is far removed from the city, schools, and hospitals. Even the infrastructure elements like gas, water, and electricity are not easily accessible to the planner.
Depending on the type of property one wants to set up, they have to consider if the vacant land's topography is conducive. Usually qualified architects and landscapers will advise appropriately on such technical matters.
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The local planning and zoning department can be very helpful in finding out what type of properties can be built in various zones. This can range from commercial properties, mix-use properties as well as exclusively residential properties.
So, if a developer is interested in purchasing a parcel of land for the purpose of building a commercial building such as a high rise office or warehouses, then they must make sure that the land on offer is in the appropriate zone.
Communicate With the Planning and Zoning Department
This isn’t complicated to find out as a phone call to the planning and zoning department will explain what property can be built on the zone the land is under.
Some investors buy vacant land in areas where the zoning is expected to change after some years. This is in anticipation that once the zone changes it will work to their favor in value appreciation.
While it may be a sound strategy, one can never tell when a zone change will happen. It might happen after one's lifetime meaning the appreciation of the land may be felt by future generations.
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4. Building Setbacks
Building setbacks are requirements set by planning and zoning departments for the purpose of giving buildings in a given area consistency and order. A setback determines the space between the lot line and the building.
Most people looking to purchase land may not be aware of such a requirement when building which is why engaging the help of a professional in-home design and landscaping is vital. It can help the investor reconsider their purchasing decision.
By consulting a professional, it quickly becomes clear that one has to know the dimensions of the property they aim to build.
Setbacks Can Determine Property Viability
This information about the building setbacks will directly determine whether the size of the land they are about to purchase will be enough for the property or not.
Often, vacant land buyers have made the mistake of buying a piece of land without important due diligence on the land vis-à-vis their property plans. The typical result is finding out that after building setbacks, the property they would like to build is too big for the piece of land they bought.
To avoid such disappointments, it's best to team up with a professional in local vacant land purchases as well as building requirements in the area.
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5. Annual taxes
Annual tax obligations on a property are a factor to be considered even before the purchase of vacant land.
The acceptable annual tax obligation on a property is from 1-4% per annum of the total value of the property. If the annual tax is above the mentioned rates, then one has to reflect on the viability of the purchase.
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Vacant land has many benefits but also numerous caveats. Vacant land is always a safe, appreciable investment when you do the research and due diligence to determine the property’s value and potential.
Since one already knows the kind of property they would like to build, it can’t be overstated how important it is to seek the counsel of professionals before making a purchase. That ensures that the property one buys is matched with the property they want to build.
Once the land has been purchased successfully, hiring professional site plan designers to design a home and build is a logical next step with no unnecessary hassle because everything has been taken care of by the professionals.
My Site Plan has experienced CAD designers who can create a non-certified site plan for a new architecture projects. After gathering the required information, My Site Plan can create a site plan within 24 hours for most projects.
Looking to build on your property? Check out architecture site plans by MySitePlan!
- Annie Rosellini