Due Diligence for Your first Land Investment

3 Replies

Hello BiggerPockets Nation, 

@Joshua Dorkin should address everyone on this site as part of "the BP nation". Like an elite national citizenship of it's own. Anyways, speaking of elites, I'd like to speak more to people investing in land. I have done some research on the process one should do before purchasing their first land investment, and wanted to post it here, publicly for additional input. The list is not extensive and hence why I'm posting it, in hope that someone with more knowledge can have more to add. 

Please add to the comments. 

With no introduction left, here's a quick seven point checklist that a  land investor should investigate before purchasing.  

1. Run a price comparison with similar properties – Just as all real estate, comps are important in making sure you're paying the right price for your investment. You can use Zilliow.com, Landandfarm.com, Trulia.com or ask a broker. To find properties that have sold and are similar to the propter you're interested in. 

2. Explore the Physical land usage – Get a survey done to find out what the exact boundaries of the properties are. In today's world we have the beauty of using tools like (http://earthexplorer.usgs.gov/) or (www.maps.google.com) to get aerial views and topographical maps. You can learn a lot from these maps like historical land patterns, farm practices, and natural land management. 

3. Investigate the Legal Regulations – Visit the city/county office and inquire the zoning verification. Ask for future changes or building projects or developments that are planning to take place in the area. Pro Tip: Search for tax information.

4. Get access to the utilities of the property – Find out who the local utility companies are for septic, sewer, water, electric, and contact them. Any wells on the property or inherited equipment that can be improved or sold? Seek the raw potential that can be improved.

5. Assess the roads to the property – How accessible is the land? how much traffic gets through the roads? Road maintenance or improvements you should know about? 

6. Find out if the land is currently under any HOA's or POA's. Homeowner's association (HOA) and Property owners association (POA) are corporations made by developers for the purpose of enforcing rules for the properties in their community or condominiums. Here's where you can find out what exactly you can do with your land.

7. Confidently resolve title issues – Ensuring the ownership of the property is very important. So closing with a title company should not be negotiable. find out if there's any liens or financial dedications tied to the property. Make sure the seller is the true owner and is selling the property as agreed on.  

And that's it, SEVEN! This list is not exhausted and I invite people to add to the checklist to improve it. Add on to creating wealthy real estate investors. 

Books to read: Buying and Investing in Land by Dianne Ronnow

   

I would add that land is highly regional.. some of the things you mention should be self evident in a physical inspection.. 

and depending on where the land is it may or may not have any true underlying value.

IE.. take a bare lot in an area were homes sell for far less than it cost to rebuild them.. in those areas lots are basically worth zero.. 

I was raised in the land business.. so i do love it.

and land used to be the turnkey SFR of today... its what investors many times started with

then the other motivation was to buy the land to one day build a cabin and retire on it.

or for other recreational purposes.

Due diligence is always a good conversation to have in the land business. Looks like your list is off to a good start. Some other things I would add (which may be less of an issue, depending on what part of the world you're in), would be...

  • Are there any wetlands on the property? If so, and if you intend to build on it, try to figure this out before you buy. Unless you're able to get the local authorities to issue you the proper permits, it will be very difficult (if not impossible) to build anything in those areas.
  • Will the soil on the property pass a "perc test"? If you intend to build, and if the property doesn't have access to a municipal sewer, you'll want to be reasonably confident that the soil can drain water at a fast enough rate to support a septic system. In most areas, perc tests are handled by the local county and/or health department - but the process can vary depending on where you're at.
  • What is the topography of the property? Whether your property is located on a perfectly flat plane, on a steep hillside, or on a cliff, you'll want to figure out what the slope of the land is, especially if you plan to build anything on it. Even if you never plan to visit the property in-person, this is fairly easy to figure out with free resources like Google Earth and Earthpoint.us.
  • Is the property in a flood zone? If so, this may cause issues, depending on your intended use of the property. If you plan to build anything there, this could result in some fairly high annual flood insurance costs and/or if flooding is a regular occurrence, it could get in the way of whatever other activity you plan to do on the property.
  • What are the required building setbacks for the property? If you're looking at a lot that is small (i.e. - less than a quarter of an acre) and if you plan to build anything on it, you may want to verify how far back the structure needs to be built from the road. In some cases, if the property is unusually small and if the setbacks are far, the setbacks can potentially eliminate any buildable space from the property.

One of the tricky things about vacant land is that some of the biggest issues aren't easy to spot at first glance, you have to do some digging. For example - if you find a vacant lot in an area that is densely populated (with houses all around it), it may not be any coincidence that this one single lot hasn't been developed yet... because when a property has one or more of these pre-existing issues, you literally can't do anything on it (other than maybe grow grass).

@Seth Williams thanks for the additions to the list, the info is awesome. And I know this will be very helpful. I just re-listened to your podcast. Now, off to check your blog for more tips. 

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