The first rule of real estate investing, always know what you’re getting into. Whether that’s buying a fix and flip home or vacant land to build on, it’s important to do your homework. Buying vacant land makes the possibilities endless; you could build a custom home to live in or sell, you could sell it to a builder or you could choose to develop it on your own. However, vacant land doesn’t always mean it’s suitable for development. Here are a few things you should know (and consider) before you decide to put your money into it:
First and foremost, understand how the land can be used. Local governments typically have established zoning regulations and ordinances on the land, so doing a little research will go a long way. Finding out this information is simple. Call your local planning and zoning department and most will be able to easily provide you the information.
The Past and The Present
Vacant land could have a lengthy history or no history at all, but you will never know if you don’t ask questions or do some fact-finding. Was the land was previously used and if yes, what it was used for? You don’t want a piece of land that has a bad reputation. Check to see if any previous surveying has been done and when it was done; if it is outdated you may need to reevaluate the land. And most importantly, see if the land is buildable.
Water, gas, electric, sewer, phone, OH MY! Believe it or not, sometimes even the basics can be forgotten. If you’re a real estate investor, your goal of buying vacant land probably comes with the intent to build on it. Be sure to check whether or not the land has accessibility to public utilities or if a septic system and water well need to be installed. Knowing this information beforehand will save you a lot of headaches and also help you better estimate costs.
The Environmental Assessment
The last thing you want to happen after you’ve purchased your vacant land is to find out there is no road access or it sits in a flood zone. You could quite literally be under water! Environmental testing, like a home inspection, should be done prior to purchase. Knowing if there has been soil contamination, earthquake damage, sinkhole possibilities or if any other acts of nature have affected the land will help assess whether or not it will be viable property. Checking if the land is in a flood zone is actually quite simple. You can have a surveyor provide the assessment or use the Federal Emergency Management Agency (FEMA) Flood Map Service, where you can simply put in the location to check flood maps.
You’ve done your homework, asked all your questions and everything looks great - you’re ready to purchase! But how much is it going to cost and how are you going to pay for it? Financing vacant land and new construction may have a few things in common with financing an existing home purchase, but it is also significantly different. An existing home, well, already exists, so in some ways the process is more streamlined. Purchasing vacant land with plans for new construction requires a lot more time, effort and money. A regular bank may increase costs and make it more difficult, but it doesn’t have to be.
There are different financing options for the varying real estate investment projects, ranging from development and land loans, new construction loans and acquisition loans. Find out which is best for your next project!