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9 Considerations When Investing In Land

Posted: July 21, 2009 at 10:43 am One Comment

Land with a Lake

Investing in raw land can be a great way to develop cash flow or obtain a long-term investment, but there are a number of legal and financial considerations that need to be addressed before you start buying land. Here are the top 9 things to look out for when searching for properties and doing your due diligence:

  1. Location, Location, Location: Notice that your potential property is cheaper than the acreage for sale 10 miles closer to town? There’s a reason for that, and it probably has something to do with where your land is located. Take special consideration into your purpose for the land: long-term investment, developing the location for a home or to sell, or even convenience to get to the property yourself. If urban sprawl brings the suburbs to the edge of your property, it could make a great investment, but if the point was to build a cabin and ‘get away from it all,’ you may not love your getaway when it’s down the street from the new big box retailer in ten years.
  2. Physical Considerations: Is the land even usable in the first place? There’s no point in owning 100 acres of Florida’s finest swampland, or owning the northern slope of a hill with a 70 degree incline. When having land surveyed or doing a walk-through with potential architects or builders, take note of potential spots for your home or buildings you may want to put on the property, and potential places for wells, septic tanks, and other necessities. Other things to take note of: soil quality, depending on the land’s purpose, vegetation including tree coverage as well as any other plants that may be desirable or an issue later on. Is there a nice creek running through the property? Make sure that nice creek doesn’t become a raging river come spring time…
  3. Utilities: So you’ve got a spot to put the house, that’s great. But without water, power, sewage, and the other requirements of daily living, you may find yourself stuck paying your own money to get these utilities connected. Find out if the property has a well – or even the potential for a well, whether or not power is connected to the property and how much it will cost if it hasn’t been connected, and whether or not there is a septic tank or if one will be necessary. If the basics are covered, don’t forget your “premium services:” is there internet, cable, or satellite service available in the area? Does your cell phone get reception? If not, how much would the phone company charge to connect lines? Thinking about these issues up front will save you major headaches if you decide to develop the property.
  4. Taxes: If you’re planning on holding the property for a long time without cash flow in the meantime, taxes will be a major portion of your holding costs. Find out what taxes to expect from the county assessor’s office, what the property is appraised at for tax purposes, and what the taxes have been on the property for the last few years. Certain areas of the country qualify for agricultural or other tax “discounts,” so be sure to look into the other options specific to your property’s use that may be available for reducing your tax bill.
  5. Zoning: Planning on operating a business from your home? Hoping to build a multifamily apartment building? Trying to obtain a variation on local zoning ordinances can be a difficult process (but not impossible), so be sure to understand all of the zoning laws that may affect you. Not sure where to start? Check with your city first, and county second, and they should be able to point you in the right direction.
  6. Restrictions: There’s no sense in buying 20 acres to subdivide if your property is required to have a minimum of 15 acres per home, so be sure to look into every possible zoning rule that may impede your future use of the property, or that may become an issue when selling the land. Other common restrictions include size of the home, what sort of out-buildings can be built on the property, what sort of building materials may be used (i.e. brick exteriors only), and other requirements, such as mandatory fences (or no fences allowed).
  7. Easements: Typical easements you can expect when looking at property include easements in gross, which are granted to other parties such as utility companies, and easements by necessity, which are granted to neighboring properties. An example of this would include the right to use a driveway to access a property, or the right to use a path on the property to access waterfront areas. There are other types of easements as well, however these are the most common.
  8. Home Owner’s Associations: While you may not run across this issue with large tracts of land in the country, if you are purchasing land in a neighborhood or similarly developed area, you may run into HOA fees. These can cover landscaping, the neighborhood pool, parks, sidewalks, roads, whatever. Just make sure you know what the cost is and what is included, because these fees can get pretty hefty in nicer neighborhoods.
  9. Environmental: While most people don’t have to worry about accidentally purchasing a future Superfund cleanup site, there are still environmental considerations to the purchase of your property.  If you’re concerned about potential environmental issues with the land you’re considering purchasing, you can have examinations done by environmental consulting firms, or you can start simply by having some soil tests done.  This is your call, but if it’s a big concern with the property you’re purchasing, be sure to consult an expert, or consider walking away.

Armed with the above, there’s a good chance you’ve done much of your due diligence. Keep these things in mind as you tour a property and conduct your preliminary search online, and you should be able to narrow down the field to the best investments. If you find that one or two of the above items aren’t exactly what you wanted, don’t worry too much, most of these can be overcome in one way or another. However, if you find that more than 3 of these are possible issues? In that case, it’s time to look elsewhere…

One Comment »

  • Sounds like a good idea… « Clay's Blog said:

    […] friend of mine explained how he was thinking about dumping a large portion of his portfolio into land investments that are strategically very valuable. Right now, the lots sit empty with a few trees on them and […]

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