Pros and cons of buying land

7 Replies

Hello! Wanting to get your thoughts on buying land ... 

We have an opportunity to purchase land in Texas. Not knowing much about owning just land, does anyone have any suggestions (pros/cons)? 

Thanks! 

Casey

I don't know too much about buying land, but I am from Texas.  Miss it some days.  Texans really know how to monetize land.  Back where I came from, on the same plot of land they would:

- Drill for oil (below ground)

- Grow Cotton (ground level)

- Install wind turbines (above ground)

Gaining you three types of revenue from the same piece of land. That being said, you might not necessarily be able to reap the benefits of all of these revenue streams.  For example, you could purchase a plot of land, but some other company will already own all the drilling rights to the property.  Separation of land ownership and mineral ownership is very common.

Edit: I found pics!

@Casey Fares :

Land is a great investment, but it comes with it's own unique set of challenges. Here's my two cents:

Pros: 1.) A very low chance of surprises. With houses and other structures you never know what you'll find behind the walls after you close. 2.) It's maintenance free. Land doesn't need painting, a new roof, or a new parking lot. And, there are no tenants to deal with. 3.) You don't have to inspect it. You definitely want to research it, but you don't have to do it in person. Most of your research can be done online and over the phone. 4.) It's the oldest investment. As a lot of people like to say "They aren't making it anymore."

Cons: 1.) It's very hard to determine the value of land. So many factors can affect a parcel's value including topography, soil quality, zoning, history, utility access, road access, shape, etc. I'm working on a parcel right now that has some old graves on it, is bordered on 3 sides by an old landfill, a sewage treatment plant, and a radioactive waste storage facility, and there are 2 homeless squatters who have been camping on it for 5 years. 2.) It doesn't cash flow. Since there are no tenants there is no one to pay rent. However, you can sell it with owner financing and make it cash flow if you want.

One thing you should ask yourself is what are your own reasons for buying land. It can depend on the zoning of course. There is residential land, agricultural land and recreational land for examples. Each determines the use of the land. You definitely want to research the land and know if there are any things such as liens and rights and which you are buying. Like the example above mentioned that the mineral rights have been sold on allot of land in Texas and without knowing it you might already have a co-owner in the land. You would want to make sure as in any property that you would be getting clear title to the land and for sure you would want to know if the land has ever been used as a toxic waste site. As the new owner you may end up being responsible for a toxic waste clean up which can be very very expensive to do. Even though there aren't making any more land your potential for selling the land someday may drop way down compared to other types or real estate such as residential and commercial land. You will want to check with your local building department to be sure of the zoning for your land. In some areas only one house will be allowed to ever be built on the land and you may need to go through a rezoning process if you have in mind to build more than one house or even many houses on the land such as a planned development. 

If you are considering living on the land you would want to know if there are utilities at the property line or estimate the cost of bringing utilities to the land such as electrical, water, gas and sewer or find out if you would need to install a septic system and if the land slopes enough and has enough drainage for a septic system to be installed and work property. 

Depending on what your thoughts , wishes, intentions or desires are for the use of the land you have to make sure you will be able to use the land for what you want. If you simply want to raise cattle or have horses on the land that is one thing but if you plan on living on the land there are many other considerations you have to make sure of and even more if you are considering to do a development on the land. There may be allot of home work you need to do to properly research the land you are considering to buy. 

Also consider that your investment is land will be long term and you will be limited on an exit strategy. I cannot tell you the number of times I have run into people that own land and and were disappointed to find out they could not do with the land what they wanted when they wanted. There are geological, geographical, and topographical considerations with land on top of considerations about utilities and development. Drainage could be one big issue with land. Excavations can also be an issue with land. Make sure you make it known to anyone and everyone you come in contact with about the land you are thinking to purchase to discover possible issues you might have with the land, owning, and using it as well as developing it in the future or even at present. Try to make sure that purchasing, using or developing the land according to your wishes will not become an excruciating experience for you because once you are in as an owner it will be very difficult for you to get out of it. 

Make sure about any existing or potential right of ways concerning the land you are considering to purchase. I do not know about Texas or the particular piece of land you are considering to purchase but out here in California where I live land usually comes along with all kinds of vegetative growth which my law, ordinance, or regulations much be maintained in order to avoid any potential fire hazard. That kind of up keep will add to your cost of owning the land. Owning land can come with all kinds of liabilities you may not think of before buying it. 

I will tell you about one instance I ran into with a land owner. They had purchased a beautiful piece of land with a wonderful and beautiful house on it. During an earthquake the house became damaged and new city ordinances prevented them from rebuilding the house and they still owed on a mortgage for the property so they were on the hook for the mortgage but could not use the land or live on it anymore. This is just one example of what you can run into when you purchase land. 

Is or are the roads leading to the land public or private. Will you have to get approval from your nearby neighbors to use existing or new roads? How accessible is the land? 

Owning land can be enjoyable or is can become a nightmare. I hope I have given you a few pointers about what to consider. I would recommend you consult with local real estate agents, other local owners, your would be neighbors, your local building and planning departments and your local utility company or companies, a soils engineer and just try to gather as much information as you can regarding owning and using that land. 

I am sure I have not covered everything you should consider because owning land especially a large parcel of land can have more issues with it than you can shake a stick at but if you make yourself well informed and are still comfortable with going ahead to buy and use the land then I wish you the best. 

I purchased 90 acres in 2012 because I wanted to "build my dream home" in the middle of it. Turns out unless you have a way to monetize it, holding a larger tract of land is very costly to upkeep. To me it's a liability unless it's producing a income.  Thankfully I was able to sell it,plus some timber off of it and broke even. Lesson learned. 

There an old joke among Texas accountants about types of inventory:

FIFO (first in, first out)

LIFO (last in, last out), and as it pertains to Texas real estate,

FIST (first in, still there)

With the exception of Greater Austin area, it's often hard to get out, hence the creative monetization stories. Every investment needs an exit plan, whether short or long term. 

If you have land exoerience locally, then you'll apply your knowledge to Texas. If limited or non-existent, you'll get an education. Can you afford the lessons?

I read a great book about buying land called "Finding and Buying Your Place in the Country" by Les and Carol Scher.  Great book!  Must read!

I am also very interested in land looking at some now and I read there is a few hundred things to do with land grow hops fruits vegetables community garden raise animals camping fishing pond a ton of things. What are your thoughts I am looking at 20 acres there asking 150k. In Temecula California.

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