Whether you’re planning to build your dream home or you want to buy land as an investment, it’s different from buying property with a structure already on it. For example, even though someone might be willing to sell you a piece of land, there’s no guarantee you can use it how you want. There are issues related to zoning, water rights and septic systems to think about.
You have to do a lot of research to figure out what you can and can’t do with land once you buy it.
The following are things to know before buying land.
Consider it a Long-Term Investment
If you’re thinking of land as an investment, you need to look at it as something long-term. It’s not a quick flip investment. You should plan only to buy land if you’re going to hold on it for at least 10 or 20 years. It can protect you against inflation, but its value isn’t going to go up quickly.
Realize that if you find cheap land, there may be a good reason that’s the case.
Pay Cash If Possible
If you aren’t going to build a home right away on a piece of land, you’re going to have to pay all cash, or somewhere from 30 to 50% cash upfront. If you’re going to build right away, it’s known as a construction to permanent deal, which is different.
For raw land, if you don’t have immediate building plans, lenders will see you as risky, making financing a challenge.
Even if you plan to build with a construction to permanent loan, you don’t have collateral in the form of a pre-existing home, so you need to have nearly perfect credit.
With a construction loan, it’s short-term financing, and there aren’t fixed rates. Your bank releases funds as construction stages are completed. Then, the loan becomes a mortgage.
To deal with the financial hurdles, paying all cash is the best option.
If your land isn’t on a municipal sewer system, then any structure you build on it will probably need a septic tank. That means you’ll need a percolation or perc test. A perc test looks at how absorbable the soil is to the liquid that comes out of the septic tank.
If you can’t support a septic tank with your land, you can’t build, nor can you get a mortgage.
Before getting your heart set on land, you have to look at deed restrictions to determine what you can and can’t do with the property. You’ll also have to figure out how binding these restrictions are. A realtor should be able to help you here.
You may find restrictions like limits on the building styles or the minimum or maximum dwelling square footage.
The more rural the property, the fewer the deed restrictions are likely to be, but that’s not always the case.
Land may be zoned for commercial use, residential or both. You have to figure out if the land is zoned for additional structures like detached garages and plan to have one. Zoning restrictions can determine the minimum structure size you can build.
If there’s an easement on a property’s title, you need to know what that stipulates before buying. An easement lets another person or entity have the legal right to someone else’s property for specific reasons, no matter who owns it.
That might, for example, mean there’s an easement that lets other people go over your property to get somewhere else, reducing your privacy.
If you’re looking at land not on a city sewer system, you may have to dig a well for water. That can be $10,000 or more to drill the well, plus the costs of water filtration. Some people even have to add lakes and hydrants, so firefighters have access to a rural water supply.
Buying land can seem like a great opportunity, but a lot of research goes into it to make sure it’s something feasible. It’s not an easy process. You should do your due diligence and consult with experts and specialists when necessary to make sure you’re following all applicable real estate laws and local zoning guidelines.