Author Topic: Buying land  (Read 5315 times)

IndyPendent

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Buying land
« on: March 06, 2015, 12:35:40 PM »
I'm considering purchasing an undeveloped parcel of land just outside a major growth area in my city, with the long-term eye of building a house (ideally with cash).

I have a number of questions and I thought I'd through them out there for anyone who has experience in buying and building:

1) How do you accurately price acreage? There are few comps and the prices vary widely. The parcel is about 5 acres, not in a subdivision. Most comps are either twice that acreage or 1/5 and in a subdivision. The price per acre for this parcel is at the top end of the range, which potentially means there's room to negotiate.

2) What needs to be known about the land prior to making an offer? My questions so far center around whether there is sewer/water/electric, what the property taxes are, any easements, and any development restrictions. Am I missing something?

3) If the land is purchased, I'll have a million other questions regarding building a house, but not all of them need to be known now. What would be important to know about building before buying the land?

Anything else anyone wants to share about their experiences would be most appreciated!

YTProphet

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Re: Buying land
« Reply #1 on: March 06, 2015, 12:44:52 PM »
1) If you're not real estate savvy, I'd just hire a real estate agent to help you. It'll probably be worth it if you get a good one.

2) You're asking the right questions. Is there city water/sewer? If not, will the property perc (i.e. can you install septic)? How much to run electric out the spot where you want to build? How much to build a road to the house? A few more questions - are there any splits left in the property (i.e. could you break it off into lots and sell those off)? What is the zoning of the property? Are there lot size requirements for residences? What are the setback requirements when building?

3) This is from the National Association of Homebuilders and very helpful: http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=221388&channelID=311

Gone Fishing

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Re: Buying land
« Reply #2 on: March 06, 2015, 12:56:36 PM »
I would also ask about the property's prior use as well as the surrounding property.  Underground fuel storage tanks are common in some areas.  If you need a septic, require a perk test prior to purchase. And if you need a well check with others in the area to see how deep their's are and the quality of the water.  See if the neighboring properties are well kept.  If there is no power, get an estimate from the power company on service.  If you are planning on building away from the road, think about what your driveway will cost. If you are in  a rocky area, consider the potential additional cost when digging a foundation.  See if they already have a survey.  Are you paying cash for the land?  If not, the bank may have their own set of requirements.  If you have an issue with the regular banks, try Farm Credit.   

We ended up buying our acreage with a home already built. When I added up what it would cost to build something similar, the result was much higher and the risk of something going wrong was much higher as well.   

Thegoblinchief

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Re: Buying land
« Reply #3 on: March 06, 2015, 01:05:37 PM »
This post will be helpful to screen properties:

www.frugalwoods.com/2015/02/27/frugal-homestead-series-part-4-searching-for-land/

"Undeveloped" typicals means zero improvements (e.g. not even any utility stubs). But what you're looking for sounds like an already subdivided lot, with utility connections present.

If you do end up buying something that's truly undeveloped, you want to do your homework at the courthouse of the taxing jurisdiction. Make sure it is zoned residential. Or residential/agricultural if you're planning on doing any homesteading. Approach builders/developers/utilities about the cost of bringing utilities to that land. It can be surprisingly expensive in remote areas, less so in cities.

How long before you will be building the house? If more than a year, make sure to calculate the opportunity cost of holding the land. You will pay tax AND lose out on investment returns from the dollars you sink into it.

You also need to do homework about the surrounding properties. Are they residential, commercial, etc? In the linked post, Mr FW finds the absolute deal-killer in an already iffy property when he discovers there is a proposed quarry going in right next door.

Spork

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Re: Buying land
« Reply #4 on: March 06, 2015, 01:11:08 PM »

Another thing to consider: driveways.  If your proposed land has some sort of paved (or at least somehow improved) driveway, it's worth a bit.  If your house is on 5 acres, you probably want your house set back a bit -- just so you can feel a little distance from roads/neighbors/etc.  You'll be surprised how much a 200-300 ft driveway is going to cost you.

Mississippi Mudstache

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Re: Buying land
« Reply #5 on: March 06, 2015, 01:23:24 PM »
Did I mention you should never buy undeveloped land?

Sorry to hear about your troubles, but that sounds like a pretty broad statement. You never know, the guy who sold the land to you may have done pretty well.

Thegoblinchief

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Re: Buying land
« Reply #6 on: March 06, 2015, 01:25:51 PM »

Another thing to consider: driveways.  If your proposed land has some sort of paved (or at least somehow improved) driveway, it's worth a bit.  If your house is on 5 acres, you probably want your house set back a bit -- just so you can feel a little distance from roads/neighbors/etc.  You'll be surprised how much a 200-300 ft driveway is going to cost you.

And keep costing you in maintenance.

Why haven't we developed our 54 acres of undeveloped land? After we purchased, we learned it would take: (1) $100K to merely build a driveway up the side of a fairly steep mountain, leading to our hoped-for home site (switchbacks, etc.); and (2) $70K to build a very short bridge across a tiny creek to access the lot in the first instance (local zoning requirements were that the bridge be strong enough to carry the weight of a fire truck).

Did I mention you should never buy undeveloped land?

Oof. Not to threadjack, but is there any timber value? I've read, and know others, who've had loggers build roads and bridges in exchange for harvesting X amount of the timber. Proper sylvoculture demands a certain amount of gentle disturbance to enhance forest health anyways.

queenie

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Re: Buying land
« Reply #7 on: March 06, 2015, 01:26:18 PM »
Following.

My DH and I talk about buying my dad's property one day.  He owns 58 acres of rural land that has been in our family for over a century.  I know a few things about the land - it cannot be subdivded any further (he and some of my uncles already divided it up as much as allowed) and it has a farmhouse on it that is not habitable and is not connected to water or utilities.  The structure needs to come down.  He did build a garage on the land and there is a driveway.

As far as I've been told, the land was appraised (for insurance) at about $90k.  Since there is no residential structure, we could only qualify for a mortgage of about 5-10% of the land's value and the interest rate would be higher than a traditional mortgage.  DH and I have considered building a small house on the property before buying the land, but not sure if that would be any easier than saving up for the percentage of the costs that we would have to pay out of pocket to buy just the land.

We need to look into it a lot further.

TN_Steve

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Re: Buying land
« Reply #8 on: March 06, 2015, 01:29:24 PM »
...

Why haven't we developed our 54 acres of undeveloped land? After we purchased, we learned it would take: (1) $100K to merely build a driveway up the side of a fairly steep mountain, leading to our hoped-for home site (switchbacks, etc.); and (2) $70K to build a very short bridge across a tiny creek to access the lot in the first instance (local zoning requirements were that the bridge be strong enough to carry the weight of a fire truck).

Did I mention you should never buy undeveloped land?

This is precisely the reason why we sought land with a house already on it.  Bought 25 acres within 12 minutes of DW's job, well located in growth path, with a crappy house thrown in.  The house, however, had a footprint that was "just big enough," and has worked out well after I spent 10 months gutting it, putting in all new systems, removing walls, etc. Much easier and predictable than raw land--although probably harder to find.

And, second the recommendation to OP to get local real estate attorney involved.  Unlike a broker/agent, that person is responsible to you and only you.  And I'd make sure it is a real estate attorney, not merely an attorney who does some real estate.

Spork

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Re: Buying land
« Reply #9 on: March 06, 2015, 01:30:29 PM »

Another thing to consider: driveways.  If your proposed land has some sort of paved (or at least somehow improved) driveway, it's worth a bit.  If your house is on 5 acres, you probably want your house set back a bit -- just so you can feel a little distance from roads/neighbors/etc.  You'll be surprised how much a 200-300 ft driveway is going to cost you.

And keep costing you in maintenance.

True enough.  If you keep an eye out, a lot of patching can be done as preventative maintenance using Home Depot type materials.  But actual patching will be required some day.  We patched and top-paved what we thought was "not much" using a well respected local company...  We spent about $5k.

Mississippi Mudstache

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Re: Buying land
« Reply #10 on: March 06, 2015, 01:33:48 PM »
...

Why haven't we developed our 54 acres of undeveloped land? After we purchased, we learned it would take: (1) $100K to merely build a driveway up the side of a fairly steep mountain, leading to our hoped-for home site (switchbacks, etc.); and (2) $70K to build a very short bridge across a tiny creek to access the lot in the first instance (local zoning requirements were that the bridge be strong enough to carry the weight of a fire truck).

Did I mention you should never buy undeveloped land?

This is precisely the reason why we sought land with a house already on it.  Bought 25 acres within 12 minutes of DW's job, well located in growth path, with a crappy house thrown in.  The house, however, had a footprint that was "just big enough," and has worked out well after I spent 10 months gutting it, putting in all new systems, removing walls, etc. Much easier and predictable than raw land--although probably harder to find.

And, second the recommendation to OP to get local real estate attorney involved.  Unlike a broker/agent, that person is responsible to you and only you.  And I'd make sure it is a real estate attorney, not merely an attorney who does some real estate.

I've noticed that in some markets, you can actually get land at a discount if it comes with a crappy house. It detracts from the scenic beauty - which is what many people who are in the market for acreage are after - and many people will figure in demolition costs to the asking price. If you're industrious and willing to do a major remodel, or your own demolition work, there are definitely opportunities out there.

SeniorLibertarian

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Re: Buying land
« Reply #11 on: March 06, 2015, 01:36:54 PM »
"Oof. Not to threadjack, but is there any timber value? I've read, and know others, who've had loggers build roads and bridges in exchange for harvesting X amount of the timber. Proper sylvoculture demands a certain amount of gentle disturbance to enhance forest health anyways."

A sage observation.

We purchased the land via a 1031 like-kind exchange from a LLC that had timbered it (select cut), so we were bottom feeders and have protected capital gains locked up in the land. We could do another 1031 and roll into another property, assuming we find the right buyer :). As to timbering specifically, depending upon tree-type, it can take a decade or more for stocks to regrow (17 years, in our instance). So timbering is a possibility, but only a 17-year soak cycle in our case. And you really need a fairly good-sized chunk of acreage to timber, otherwise it isn't economic for the timbering outfit. In our area, 50 acres is about the minimum, so we're on the cusp.

But a great question, and I thank you for thinking of it.

YTProphet

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Re: Buying land
« Reply #12 on: March 06, 2015, 01:46:12 PM »
...

Why haven't we developed our 54 acres of undeveloped land? After we purchased, we learned it would take: (1) $100K to merely build a driveway up the side of a fairly steep mountain, leading to our hoped-for home site (switchbacks, etc.); and (2) $70K to build a very short bridge across a tiny creek to access the lot in the first instance (local zoning requirements were that the bridge be strong enough to carry the weight of a fire truck).

Did I mention you should never buy undeveloped land?

This is precisely the reason why we sought land with a house already on it.  Bought 25 acres within 12 minutes of DW's job, well located in growth path, with a crappy house thrown in.  The house, however, had a footprint that was "just big enough," and has worked out well after I spent 10 months gutting it, putting in all new systems, removing walls, etc. Much easier and predictable than raw land--although probably harder to find.

And, second the recommendation to OP to get local real estate attorney involved.  Unlike a broker/agent, that person is responsible to you and only you.  And I'd make sure it is a real estate attorney, not merely an attorney who does some real estate.

I've noticed that in some markets, you can actually get land at a discount if it comes with a crappy house. It detracts from the scenic beauty - which is what many people who are in the market for acreage are after - and many people will figure in demolition costs to the asking price. If you're industrious and willing to do a major remodel, or your own demolition work, there are definitely opportunities out there.

I've noticed this to be true as well and find it to be such an odd phenomenon. Even odder given that it's probably cheaper since the utilites have presumably been run already.

Mississippi Mudstache

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Re: Buying land
« Reply #13 on: March 06, 2015, 01:49:34 PM »
...

Why haven't we developed our 54 acres of undeveloped land? After we purchased, we learned it would take: (1) $100K to merely build a driveway up the side of a fairly steep mountain, leading to our hoped-for home site (switchbacks, etc.); and (2) $70K to build a very short bridge across a tiny creek to access the lot in the first instance (local zoning requirements were that the bridge be strong enough to carry the weight of a fire truck).

Did I mention you should never buy undeveloped land?

This is precisely the reason why we sought land with a house already on it.  Bought 25 acres within 12 minutes of DW's job, well located in growth path, with a crappy house thrown in.  The house, however, had a footprint that was "just big enough," and has worked out well after I spent 10 months gutting it, putting in all new systems, removing walls, etc. Much easier and predictable than raw land--although probably harder to find.

And, second the recommendation to OP to get local real estate attorney involved.  Unlike a broker/agent, that person is responsible to you and only you.  And I'd make sure it is a real estate attorney, not merely an attorney who does some real estate.

I've noticed that in some markets, you can actually get land at a discount if it comes with a crappy house. It detracts from the scenic beauty - which is what many people who are in the market for acreage are after - and many people will figure in demolition costs to the asking price. If you're industrious and willing to do a major remodel, or your own demolition work, there are definitely opportunities out there.

I've noticed this to be true as well and find it to be such an odd phenomenon. Even odder given that it's probably cheaper since the utilites have presumably been run already.

My thoughts as well. I will definitely be looking into sites like this when we begin looking for land.

Mr. Green

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Re: Buying land
« Reply #14 on: March 06, 2015, 02:02:46 PM »
I'm considering purchasing an undeveloped parcel of land just outside a major growth area in my city, with the long-term eye of building a house (ideally with cash).

I have a number of questions and I thought I'd through them out there for anyone who has experience in buying and building:

1) How do you accurately price acreage? There are few comps and the prices vary widely. The parcel is about 5 acres, not in a subdivision. Most comps are either twice that acreage or 1/5 and in a subdivision. The price per acre for this parcel is at the top end of the range, which potentially means there's room to negotiate.

2) What needs to be known about the land prior to making an offer? My questions so far center around whether there is sewer/water/electric, what the property taxes are, any easements, and any development restrictions. Am I missing something?

3) If the land is purchased, I'll have a million other questions regarding building a house, but not all of them need to be known now. What would be important to know about building before buying the land?

Anything else anyone wants to share about their experiences would be most appreciated!

The worst investment we ever made was purchasing undeveloped land, which remains in said condition of undevelopment. Undeveloped land also tends not to appreciate, unless you are lucky enough to buy it before the subway comes through. Against those caveats, following are my two cents.

(1) Comps

Hard to get, as you note. Location is everything, even for undeveloped land. I would get a formal appraisal done if you are serious about it, otherwise you are just guessing. Talk to realtors.

(2) Prior to Offer

Don't even think about making an offer until you have done an insane amount of due diligence.     

      + Hire a local real estate attorney. That person will know all the ins and outs of what you are trying to do in that specific area. Never make an offer without an attorney at your side in this situation.

      + Visit the local development office (i.e., each county should have a office that handles zoning and related matters). That office will further inform you of related considerations (lot sizes, future plans of development, needed permits, etc.).

      + Visit a local surveyor and ask some basic questions. He/she will become your best friend. He/she will also know what is buried in the closets in the locality (e.g., rumors about a major interstate planned to go through your lot over the next decade). Local intelligence is critical.

      + Visit a local builder. Ask basic questions.

      + The local real estate attorney and local development office will likely flag issues such as the following: (1) title (you will want to conduct a title search); (2) access to infrastructure (utilities, sewer, phone, internet, water, etc.); (3) in the absence of access to infrastructure, what can be done (septic, off-grid, etc.); (4) further to (3), specific access to telecommunications infrastructure (high-speed internet, satellite, etc.), water (is water even available? -- a test well may need to be drilled), and does the land perc (if not on a sewer system); (5) zoning restrictions (current and planned and both for your lot and surrounding lots -- for example, the county may be planning to site a landfill next door to your lot in the year 2020); (6) possible environmental hurdles (for example, if a creek crosses your land, federal and state permits to build a bridge across it may be required); (7) taxes, as you note (and note that some jurisdictions offer reduced taxation for undeveloped land, but you have to file for it); (8) get a survey; (9) mark the boundaries (if you purchase undeveloped land then do nothing with it for ten years and don't defend your rights, you run the risk of adverse possession claims); (10) how much does it cost to build a road?; and (11) 10,000 other things I've forgotten.

Unless you are a developer and/or otherwise willing to spend a huge wad of cash and countless days, weeks, and months on this, I'd proceed with extreme caution and don't pull the trigger on anything until you are fully informed.

Why haven't we developed our 54 acres of undeveloped land? After we purchased, we learned it would take: (1) $100K to merely build a driveway up the side of a fairly steep mountain, leading to our hoped-for home site (switchbacks, etc.); and (2) $70K to build a very short bridge across a tiny creek to access the lot in the first instance (local zoning requirements were that the bridge be strong enough to carry the weight of a fire truck).

Did I mention you should never buy undeveloped land?
I disagree. I bought undeveloped land and it has worked out wonderfully. In my area, most of the information you list like zoning, etc. can be found on your own if you're willing to put in the time. That all depends on the buyer though. I do all my own research because you can't even trust real estate agents to get it right. I've corrected them on numerous occasions.

Any offer you make should include a "due diligence" period where you can bail for any reason. I wouldn't lift a finger until I had a contract. Then you use that period to get educated. Find out where water/sewer is, electric, do you need to perc it, etc. If you don't find any problems, you can proceed with the sale. If you find a problem, you are within your right to cancel the contract or seek a renegotiated price.

jba302

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Re: Buying land
« Reply #15 on: March 06, 2015, 02:14:00 PM »
...

Why haven't we developed our 54 acres of undeveloped land? After we purchased, we learned it would take: (1) $100K to merely build a driveway up the side of a fairly steep mountain, leading to our hoped-for home site (switchbacks, etc.); and (2) $70K to build a very short bridge across a tiny creek to access the lot in the first instance (local zoning requirements were that the bridge be strong enough to carry the weight of a fire truck).

Did I mention you should never buy undeveloped land?

This is precisely the reason why we sought land with a house already on it.  Bought 25 acres within 12 minutes of DW's job, well located in growth path, with a crappy house thrown in.  The house, however, had a footprint that was "just big enough," and has worked out well after I spent 10 months gutting it, putting in all new systems, removing walls, etc. Much easier and predictable than raw land--although probably harder to find.

And, second the recommendation to OP to get local real estate attorney involved.  Unlike a broker/agent, that person is responsible to you and only you.  And I'd make sure it is a real estate attorney, not merely an attorney who does some real estate.

I've noticed that in some markets, you can actually get land at a discount if it comes with a crappy house. It detracts from the scenic beauty - which is what many people who are in the market for acreage are after - and many people will figure in demolition costs to the asking price. If you're industrious and willing to do a major remodel, or your own demolition work, there are definitely opportunities out there.

I've noticed this to be true as well and find it to be such an odd phenomenon. Even odder given that it's probably cheaper since the utilites have presumably been run already.

Love this bit. Now that the wife is on board with more serious renovations, we're starting to look at land with / without houses on them. As long as the building is square and upright I'm all for it.