With all the competition for single family homes and the lack of available inventory, some real estate investors are investing in land as an alternative. Also, there are investors buying land as opposed to buying stocks and bonds. Meanwhile, homeowners are looking to get away from the crowded subdivisions and buy some acreage in the country.
Whether for investing purposes or for personal reasons, if you are thinking of purchasing land, you’ll need the wisdom shared in these 10 tips to ensure you don’t make a big mistake.
Buying Land Has It’s Challenges
I have often heard the comment that buying land is simpler than buying a house. They tend to think of the complications flipping houses. For example, having to get an inspection and discovering plumbing or electrical problems, termite damage, or foundation issues.
Although buying land may seem simple, there are details to consider that a single-family home buyer never needs to even think about. Usually by the time you’re flipping a house, the developer of that home already overcame all the land issues and details. So, when purchasing land, you are the one that must deal with those challenges. Here are 10 tips for buying land to help you make good decisions and negotiate better deals.
10 Tips for Buying Land
1. You Need to See the Land Before You Buy It
Although you can look at Google maps and even make use of their terrain filter, it’s not until you look at the land yourself that you can see what the terrain really is. Even if you are investing long distance, you still need to go and see the property before you buy it.
To illustrate this point, I’ll share my own experience with you. I own a property in the Smoky Mountains and when I was negotiating the deal, I saw it had 2.8 acres. I was negotiating based on the log cabin itself, but I considered the extra property a bonus. Looking at the satellite view on Google maps I thought there were woods behind the cabin. However, when I went to look at the property, I saw it was 2.8 acres of sheer cliff, which is basically useless.
2. Is the Land Treed or Cleared?
You can see whether the land is treed or cleared on Google maps as well, however you still want to go and see property. This is easily done since you will already be going to check out the terrain of the land.
Be very careful when you’re negotiating deals and make sure that you understand the difference between cleared versus treed land. Clearing treed land is not as easy as it used to be due to increased regulations. In some states you are required to get a permit and often you must plant new trees to replace the trees you cut down. It was front page news when they cut down a 150-year-old oak tree in my town and a lot of the citizens were upset.
3. Find Out if the Land Has Wetlands
What are wetlands and why does it matter? The Department of Environmental Protection defines wetlands based on the type of vegetation growing in the hydric soil, and they are protected. This is significant for several reasons.
- It makes the land a lot less valuable because it limits what you can do with the land. For example, if you need to put a driveway across what they consider a wetlands area. (A wetland doesn’t necessarily have standing water, it could just be the type of vegetation growing on that part of your property.)
- You will have to pay wetlands mitigation credits. They usually sell them by the 10th of the acre and they are costly. In Florida it is about $80,000 an acre.
There are plenty of stories of developers trying to build a subdivision only to discover there is a little softball sized wetland and they must shut down the entire development because of it. In fact, there are some developers that profit off this by becoming a wetlands mitigation credit bank. They contract with the government to buy land and improve it. This helps with the wetlands, and the government gives them credits in return. They then sell the credits to private developers.
In order to use wetlands mitigation credits, you first need to get a delineation done by a civil environmental engineer. They then bring it to the water management district person and together they agree on where the wetlands are.
If you’re investing from afar, and you think you are getting the deal of the century, you need to be sure there are no wetlands because that could be why it’s such a bargain. The vernacular in land investing is, “the land is wet”. So, if that land is wet, you have a problem.
Thankfully there is a tool called the Wetlands Inventory Mapper that you can search for a relative idea of where the government thinks there’s wetlands on the land. Click on the link to access the map.
4. Determine if the Land is in a Flood Zone
Unlike wetlands where you can’t modify the land at all because it’s protected, there are solutions to being in a flood zone. For example, digging a pond in the flood zone, then using that fill dirt to raise the land next to it to build your house on.
You need to know where the flood zones are for a couple reasons:
- Floods are very common, not some rare catastrophic event as some people imagine them to be.
- Flood zones can affect the selling of the property in the future. There have been some proposed changes to flood insurance legislation and this could affect people buying a house. If you’re trying to flip a property and part of it is in a flood zone and flood insurance can’t be issued after July 31st of this year, that could kill the deal right there.
FEMA determines what land is in a flood zone. Click on the link to access FEMA’s map which you can use to check to see if any part of the land you are looking at is in a flood zone.
5. Make Sure the Property has Access to a County Maintained Road
Land deals done in rural areas are sometimes land that doesn’t have road access or only has access to a private road. Ideally, you want to have access to a county-maintained road because often you can’t get permits for a septic without that county-maintained status. This means that the land can never be residential until the road is given that status. You can use it for agriculture, but this can reduce the value of the land.
Solutions for Land with No Road Access
Sometimes people buy land that is locked and surrounded by other parcels, and it has no road access. In fact, I know an investor who studies the maps of his local area, picking out property that has long road frontage and then has some parcels back behind it that do not have that county-maintained status. He purchases the road frontage property first in one name, and then with an agent’s help, purchases the other parcels behind it. Next, he slices up the road frontage and gives each of the parcels access to some of that road frontage. This makes each parcel a lot more valuable and can be incredibly profitable.
6. Access to Utilities
Ideally, you want a property with access to both power and sewer. If it doesn’t have sewer, you can probably put in a septic so long as it has county-maintained access. However, you still must consider access to electricity because it can cost anywhere from $20,000 to $100,000 for the power company to run a line from the road to the home site. It’s great when the land already has an old mobile home and the electricity has already been run to it. Access to utilities makes a huge difference and gives the land more value.
7. Good Cell Service is Important
When you are out looking at the property, make sure you are getting decent cell coverage. This is important if you intend to live on the property. Even as an investor trying to develop or flip the land, it’s frustrating when I’m out there and my cell doesn’t work. It renders me useless.
Other people are concerned about their internet options like cable internet or DSL. I’m not as concerned about that anymore because services like Verizon allow you to have unlimited home MyFi, provided Verizon has decent service in the area. I’ve done this with some of my cabins in the Smoky Mountains because my only other option is satellite Internet which is limited and expensive.
8. Get to Know the Neighbors
It may take some time to do this, but if you are planning to move to that property, you need to study the neighbors.
- Do they have a shooting range and a hobby of shooting clay pigeons?
- What about a noisy motorcross track?
- Is there a landfill a mile away where the wind could blow and make your house smell?
This isn’t easy because you usually can’t figure it out the first time you show up. You need to go there at different times of the day, as well as knock on their doors and talk to them. Find out who they are and what it’s like to live there. I have literally walked away from deals because of all three examples.
9. Endangered Species
Whether you’re building your dream home or planning to build a subdivision, you need to know if there’s any endangered species because that can shut you down forever. The same people that do the wetlands delineation can assist you with endangered species.
In Florida, an endangered species we deal with are gopher tortoises, which are everywhere. It will cost you $6,000 to have one picked up to be driven over to some state land and dropped off. You need to figure this out if you’re going to be doing any development.
If you’re just flipping land, this won’t be as much of an issue. So long as you are ignorant of a problem, by the time you flip the land it will be somebody else’s headache.
Zoning is a critical part of land deals and is usually county or city specific. This is the aspect of land owning that is the most complicated. You will need to do a lot of digging to learn exactly what zoning allows and doesn’t allow with that piece of property. One of the reasons why this can be so difficult is because there’s so many shades of gray.
There could be zoning overlays that can play a key role. I’ve done deals in Daytona that had a zoning overlay that allowed me to do vacation rentals. However, the Hard Rock, Marriott, and Hilton moved in and lobbied for legislation removing some of that overlay loophole that I had discovered. Get your zoning dialed in and then learn if there’s any overlays.
Another example of zoning is conservation easements. This is when a landowner sells land to the government, giving them complete control limiting how the land is used, yet still retaining “ownership”. There are a lot of deals in Florida where you can buy 400 acres for $1,000 an acre and those are conservation easements. You can basically run some cattle on it and that’s about it.
Zoning Impacts Value
Zoning has the biggest impact on value. Property can be zoned commercial, industrial, agricultural, or residential, which will impact the value a property has. Then you need to consider how many units per acre you can develop with zoning which will be specific to your area.
I don’t recommend you ever get into the business of trying to change zoning. It takes several years and doesn’t always end in your favour. Instead look for properties that already have the correct zoning.
Zoning and Land Rights
It’s crucial you understand the rights or lack of rights that you have with zoning. However, in America, you don’t own the real estate. You have your name on the deed, but technically the government owns the land. They control what you can and can’t do and charge you what I call rent on the land. If you don’t pay that rent or those taxes, they take your land away. I have a video called Biggest Lie in Real Estate you can watch to learn more about this.
Each one of these tips will enable you to negotiate better if you’re trying to talk a seller down. It will also give you confidence when you find land that has powerful intrinsic value because it has many of these features. As an investor you can also use this wisdom to negotiate good deals to resell.