There are many ways to invest in real estate, and purchasing vacant land is one that many investors overlook or are hesitant to get into. In fact, this is arguably the most overlooked and misunderstood form of real estate investment out there. But it can be quite lucrative, as long as you’re familiar with the important considerations when buying vacant land that help guide you to smart decisions.
While owning a parcel of vacant land is in many ways simpler than owning a residential or commercial property, there are certainly potential complications and pitfalls. However, by making the right considerations when buying vacant land before signing the paperwork, you can usually spot the problems in advance and avoid them—and a money-losing deal.
What to Evaluate Before Buying Vacant Land
- What is the land zoned for? Contact the local zoning and planning department to find out the property’s zoning classification (residential, commercial, industrial, agricultural, etc.), but also ask what its “highest and best use” is.
- What is the building setback requirement? While you’re speaking to the zoning and planning department, ask about this too. How far must buildings be from the street? When you take this into account, is the property large enough to still construct something worthwhile?
- Are there any usage restrictions on the land? This is another question for the zoning and planning department. However, keep in mind that if there’s another governing body, like an HOA, it may have usage restrictions in place as well.
- What is the topography? The elevation, land features, and other aspects of the terrain directly affect land use, construction possibilities and costs, and more. It’s crucial that you understand how the property’s topography will impact your investment costs and potential returns.
- What’s the parcel’s size and shape? Of course, this too affects what you can build and how easily and cost-effectively it can be built. Make sure the property is big enough for your purposes, and that use of the total space isn’t limited by irregular land shapes and boundaries.
- How much are annual property taxes? In rare instances, property taxes on vacant land are quite high relative to the value of the land. Generally, aim for a figure at or below 4% of the property’s full market value. This is an important cost to consider if you plan to hold onto the land for a significant period of time.
- Is the property in a flood zone? This is another of the important considerations when buying vacant land. Not only can it cause all sorts of costly complications, it can make the property more expensive to insure.
- Which utilities are available on the site? If the land doesn’t have access to sewer, electric, water, gas, phone, or other utility lines, that obviously has a major affect on the land usage. While you can often find alternatives, they may be costly and less convenient.
- Does the soil pass a percolation test if there’s no sewer access? This refers to how well water drains through the earth on the property, and it’s mostly an issue when buying rural land. A perc test determines whether a septic system can be installed. If you can’t have sewer or a septic system, your land use options become extremely limited.
- Is there road access? If a property is surrounded by private property, it’s essentially inaccessible from a legal standpoint. You can typically get around this with easements, but that can be costly and a hassle.
- What are the surroundings? Obviously, the uses and condition of the properties around a vacant plot of land affect its value and appeal. Is the area desirable for your intended use?
- Are there wetlands on the property? Wetlands are often protected against development by state and federal laws. If there’s any possibility there are wetlands on the parcel, contact the appropriate local government agency to find out, and how it would affect use of the land.
- Is it a makeshift landfill? Inspect the property (or have someone else do so if you’re not local) for trash accumulation like tires, large junk, rubble, oil drums, or other contaminants. This can be very expensive to clean up. Also, finding out what the previous uses of the land were can tip you off to potential issues with contamination.
