This past weekend, my SO and I were driving around an area we’re interested in buying land in and casually taking a look at the real estate on the market. We’re not planning on buying anything very soon, but we were interested in finding out what the local market was like.
As we drove around and Googled properties for sale in the area for more information, we began asking questions of each other about each property. At first there were only a couple of questions – How big is it? Is it pretty?
But after a few rounds of Googling and reading, we started to get a little more savvy with our questions. Suddenly the suspiciously cheap piece of land didn’t look so enticing anymore, because we knew it was in an area with a moratorium on building.
By the end of the weekend, we had a little working list of questions that we were asking about each property for sale that we looked at. The experience inspired me to do a little more research. If we came up with this list of questions on our own, with little experience in buying land, surely more experienced investors must have a much longer list of questions to ask about a potential property.
1) What is it zoned for? You don’t want to buy land with the intention of building a strip mall only to find out it’s zoned for residential use only. Before you put in any offers on a piece of land, make sure that if there is zoning on the property it is appropriate for your needs.
You should also find out if there is a Home Owner’s Association (HOA) and if so, what kinds of restrictions they impose and what kinds of fees they charge.
2) Is there legal access? This may or may not be a make-or-break question for you, but for us it is. We just don’t want to get involved with the trouble it would take to build a road to our property or deal with easements, so finding out if it is already accessible via public road is very important to us.
Whether or not the lack of public road access to a property is a deal breaker for you, you should make sure to find out about what kind of access exists to the property anyway, because this could be a big consideration in your budget (of time and money).
3) Are there public utilities on the property? Are they available? This is a big one for us as well. No matter what you decide to do with your land, you are probably going to need at least some utilities like electric, water, and sewage. You need to find out if it’s possible to hook up your property to the public utilities, or if you’ll need to dig a well and install a septic system – and if that will even be possible.
4) Are there any legal building requirements? Most cities require a minimum setback in order to be able to build. This means your building needs to be at least X feet from the road. Other cities (like my hometown) have a limit to the number of stories high you can build. Still others have total moratoriums on issuing building permits, which would certainly set you back if you were planning on building.
There are other legal requirements you should consider here, too. In California we are in a drought, and many cities have water restrictions in place. Would restrictions like this impact your building plans?
If you’re planning to build at all, you should make yourself familiar with the local laws, restrictions, and building codes, as well as find out all the permits you would need in order to complete the project you have in mind.
5) Is this land in a natural disaster zone? By natural disaster I here mean floods, fires, earthquakes, tornadoes, etc. If so, how high is the risk? How will it affect building costs? In California, for instance, building code has certain requirements because of the possibility of earthquakes. Similarly, in one of the areas we were looking at land, we were very excited to see how cheap it was – until we read about the high risk of wildfires in the area.
Before putting in an offer on a piece of land, make sure you know if it’s prone to any types of natural disasters, and then weigh the risk. Floods are a particularly important consideration. If you still choose to go ahead with your project, you’ll want to factor in possible higher insurance premiums because of the risk.
6) Is there a good building site on the property? According to BuildingAdvisor.com, the type of soil, slope, and poor drainage are just a few potential problems when it comes to building. Most of these problems can be overcome with a good builder and a big budget, but they could certainly set your project back, cost you much more than you were planning, or even change the course of your project completely.
Make sure you get the scoop on the type of soil you’re on, the slope of the land, and any surface or subsurface water on the property so that you can have a full picture of the property before you make a decision.
7) How much are the annual taxes? It’s important to find out how much you’re going to owe each year in taxes on your land. If the tax rate is too high, which happens occasionally, you might want to consider looking at a different parcel.
According to real estate investing guru Seth Williams of RETipster, an annual tax rate of 1-4% of the value of the property is reasonable.
8) What is the surrounding area like? If you’re planning to build a home or a multifamily residence on the land you’re looking at, you’ll want to consider if people are going to want to live there. Are the roads decent? Are there shopping areas nearby? What about the local schools?
For instance, we are planning to build our own home on our land, so we are most concerned with the neighborhood from a family perspective. Are there busy, dangerous highways nearby? Are the local schools good? Will the commute to work or school be too long? All of these are important questions to ask before diving into a land investment.
Regardless of what you’re planning to do with your land, the surroundings matter. Get familiar with the area and find out as much as you can about local demographics, businesses, and whatever else might be pertinent to your plans.
Of course, these basic questions will probably lead to other, more specific questions about the property you’re looking at. The idea with this list is to help weed out completely unsuitable properties so that you can be more efficient in your search.
What do you think? Are there any other questions you’ve found to be very important when buying land? My SO and I would certainly benefit from learning them, so leave them in the comments below!