Buying Vacant Land
Investors must do their due diligence in order to avoid a number of costly headaches while enlisting the services of brokers, architects, surveyors and other related professionals to make sure the job gets done right.
Financing – Land cannot be used as leverage the same way an existing structure can. Thus, one may have to pay cash for this type of investment. Banks typically loan much less to a buyer when there is no structure involved that can be held as collateral. However, developers stand a better chance of obtaining a construction loan for their project as this is considered superior collateral.
Comparable Values – Investors should consider the values of nearby properties to see what the potential value of your structure could be. Especially with construction loans, it is important for the structure’s value to be in line with nearby properties. You generally want to be in line with nearby values in order to not scare the bank if they had to sell the property in the unfortunate incident of a default and it was mispriced.
Environmental Tests – Much like the inspection of a building, a plot of land needs to be put through a series of tests and checks to make sure you’re educated on what you’re buying and what you’ll be able to build on it. Environmental tests check for soil contamination, flood potential, and overall soil condition for building on. You should also have a surveyor assess the boundaries of your property to see exactly where the lines should be drawn.
Utilities/Road Access – Access to sewers, running water and electricity are usually taken as a given when buying an existing structure, but with a vacant lot these things don’t always exist. Depending on the level of development in the area, you’ll want to know what the costs will be if you had to run infrastructure to the land or if it already can be serviced.
Zoning Issues – The local government will have zones, codes and ordinances that govern what can be built on a parcel and what steps are necessary to construct a sound building that’s up to code. For instance there may be required setbacks from the edge of the property or you might be restricted as to what percentage of the land you can develop. Getting exceptions to any of these issues isn’t easy. It’s best to keep in line with existing limitations rather than try to change the zoning.
Architecture/Construction – Lastly and certainly no less significant, you will have to find an architect to help realize your vision and a construction team to make it happen. As always it is best to shop around for the most favorable bids and reputable players. You have to take your concept into reality by knowing specifics and coordinating your ideas with what is feasible. These professionals will help you with permits and other due diligence items along the way.
In concluding, buying land can be a profitable move as long as you do your homework on certain check points and enlist the help of professionals to guide you along the way.