Buying land--most important considerations
Homeowner · Birmingham, AL · Member since 2009 · 9 posts · 0 votes
My wife and I are considering real estate investment of several types, including vacant land. We have noticed some land REO in a beach community with a very low price. When we go down to see this property, what should we be looking for? What questions should we ask? We are thinking in terms of buying and holding it for a few years, expecting eventual increase in value.
I've invested in land for a lot of years.
In order for land to be a good investment, there must be something attractive and uniqe about. It must also have some factor that limits the supply.
Another good land investment is a parcel just beyond utilities, where it has been announced that utilities are going in, but only in a town with rapid expansion.
An uncle of mine made multiple millions in Las Vegs in the 1950's simply by going down to the county to see where water lines were scheduled. He'd then buy tracts of land and wait.
Look for land with views, or access to water or ski slopes. Look for land that is in limited supply. Beach front/water view is always good because the supply is limited.
In my area, development is limited by lack of water and by the huge amount of federal land (unbuildable) surrounding the city. Still, I want views when I buy.
Tract lots are rarely good. There are too many of them and they are all alike. You will never get more than the neighbor is asking for his.
If you are looking at a beach town, the best land will be on the beach, or very close-- certainly within walking distance.
Utilities are extremely expensive to bring in. Keep that in mind. Power within 1/2 mile is NOT power. It will cost you a packet to bring it 1/2 mile.
Be aware of lot preperation costs. Slopes are expensive to develop and rock can be deadly expensive. Those lots are much harder to re-sell.
Never buy anything that doesn't have water, either well, city water, or successful wells surrounding Be sure you can get a permit for a well and find out how much it costs. A $30,000 well would be cheap where I am. Other places, water is easier to get or simply not available at all. Find out which.
What surrounds the land is critical. Be sure to drive for several blocks in any direction. You'll have trouble selling that parcel next door to the pig farm.
Go down to the county and see what is planned for the area. I looked at one where the citty had a sewer treatment plant planned for across the street. Needless to say, the listing agent pretended that he'd had no idea.
I won't buy under or near high power lines. It doesn't matter if they give you cancer or not. The buyers think they do, so you'll have trouble selling.
Pay attention to slopes. You don't want the lowest parcel. If yours is the low point, you'll flood when it rains.
One last thing: verify that it's possible to get a building permit. Around here, there are "recreation lots". That's land where the county will not give a septic permit, or where the lot is too small to meet land use laws.
I've invested in land for a lot of years.
In order for land to be a good investment, there must be something attractive and uniqe about. It must also have some factor that limits the supply.
Another good land investment is a parcel just beyond utilities, where it has been announced that utilities are going in, but only in a town with rapid expansion.
An uncle of mine made multiple millions in Las Vegs in the 1950's simply by going down to the county to see where water lines were scheduled. He'd then buy tracts of land and wait.
Look for land with views, or access to water or ski slopes. Look for land that is in limited supply. Beach front/water view is always good because the supply is limited.
In my area, development is limited by lack of water and by the huge amount of federal land (unbuildable) surrounding the city. Still, I want views when I buy.
Tract lots are rarely good. There are too many of them and they are all alike. You will never get more than the neighbor is asking for his.
If you are looking at a beach town, the best land will be on the beach, or very close-- certainly within walking distance.
Utilities are extremely expensive to bring in. Keep that in mind. Power within 1/2 mile is NOT power. It will cost you a packet to bring it 1/2 mile.
Be aware of lot preperation costs. Slopes are expensive to develop and rock can be deadly expensive. Those lots are much harder to re-sell.
Never buy anything that doesn't have water, either well, city water, or successful wells surrounding Be sure you can get a permit for a well and find out how much it costs. A $30,000 well would be cheap where I am. Other places, water is easier to get or simply not available at all. Find out which.
What surrounds the land is critical. Be sure to drive for several blocks in any direction. You'll have trouble selling that parcel next door to the pig farm.
Go down to the county and see what is planned for the area. I looked at one where the citty had a sewer treatment plant planned for across the street. Needless to say, the listing agent pretended that he'd had no idea.
I won't buy under or near high power lines. It doesn't matter if they give you cancer or not. The buyers think they do, so you'll have trouble selling.
Pay attention to slopes. You don't want the lowest parcel. If yours is the low point, you'll flood when it rains.
One last thing: verify that it's possible to get a building permit. Around here, there are "recreation lots". That's land where the county will not give a septic permit, or where the lot is too small to meet land use laws.
I thought of one more important thing. In some states, it's possible for a parcel to be landlocked, so verify the property has legal access.
Thank you so much!!!
All good PN W
A couple of other thoughts :
Look at current value and or prices of similiar developed lots and inventory, relative to activity (sales). This is good for time and value.
Look at current values of finished homes in the area.
Rule of thumb "Use 20 % of retail finished homes as value of finished lots", higher % for water lots, views, etc.
Do not fall in love with the property.
Do not assume appreciation in your purchase price and investment. Your time frame is important here.
Time maybe an issue, since municipalties and zoning are subject to change.
So much to consider when looking at land, but PNW hit some great topics on what to look for. In terms of value, most professional developers use the land residual method. The idea is to take the value of the land's highest and best use and work back from there.
For example, a piece of land that is zoned multifamily might allow 10 units of apartment. A new 10 unit building, fully rented might have a value of $2 million (i'm making these numbers up for sake of example). Let's say it would cost $1.2 to build that apartment building and another $300k for permits and horizontal development. That's a total construction and development cost of $1.5 million. One could say they wouldn't pay any more than $500k for the land ($2 mil - 1.5 mil cost) = $500k. In reality, they'd want to build in some margin of profit for themselves, so you'd pay as much under $500k as you could get the seller to agree to.
One of the better books i've read on the subject of land development has been used by grad students for years in real estate courses around the country. THe land Development Handbook by the Dewberry companies. Amazon link is here:http://www.amazon.com/Land-Development-Handbook-Dewberry-Companies/dp/0071375252
Urban Land Institute also put together a great handbook for land development toward residential homes here http://www.amazon.com/Residential-Development-Handbook-Uli/dp/0874209188.
Good luck.
Thank you all for the very valuable info!