The Do’s and Don’ts of Buying Vacant Land
Finding your land purchase isn’t easy. You’ll spend a lot of time and resources in scouring online listings, attending land auctions for commercial parcels and scoping out neighborhoods when it comes to residential build outs and you may still come up empty-handed. This process can take months and even up to a year in some cases.
Maybe your dream property just doesn’t exist yet. In this case, building either a commercial building or residential custom home on a vacant piece of land may be your next move.
But before you get serious about laying a foot print of your build out, be aware that a land purchase may yield more surprises than buying a home from easements, zoning, natural contour of land and restrictions to environmental conditions that could easily turn your dream build out into a headache that makes your project unrealistic and not feasible financially
Whether you’re purchasing vacant land to build a commercial or residential project I always recommend appraisal values to be established for a profit in the future, follow these rules to avoid buyer’s remorse.
Working with a professional who knows land – Working with a real estate broker when you purchase land is important to help you navigate the complex details, especially when you’re unfamiliar with zoning, building lot setbacks and negotiations, due diligence and closing a land purchase deal is essential to your success. But when you’re purchasing land, hire an agent who has unprecedented experience negotiating land deals.
A common mistake many land sellers and reality firms make is to advertise a plot of land as having the potential to be zoned for specific commercial projects or even subdivided parcels, Buyers may be left with a plot of land that will yield less profit than expected, while sellers could easily face a lawsuit for false advertising.
Don’t expect to get a loan – A commercial land purchase will in many cases be leveraged by a bank loan. The main reason Panama City Beach, FL commercial parcels can be leveraged depends on their past profitability in businesses they already have equity in. Banks look at the commercial project build out through a financial business plan corporately structured that proves sustainability in business. A land purchase will not be leveraged in most cases when it comes to a residential custom home project. When your planning for a new residential custom home you should typically be aware that your land purchase needs to be secure prior to approaching your banking institution in most cases.
The investor world of purchasing your land for apartment buildings, for example, “might be able to put down 20 percent and get 80 percent from a financial institution, putting up the land and the building for a mortgage note is possible, But if you have a piece of land with a clean deed, you might be lucky if a bank gives you 40 percent or 50 percent of the lands value and that’s typically if you have a good bank relationship or other collateral available .
You’ll have a much better chance of being approved for a construction loan on the building structure you want to put on the land, since the building you’ll build serves as collateral attached to the loan.
Do consider comparable properties surrounding your land purchase. One of the biggest draws of picking out you land purchase should involve comparable property values and resent sales history but be sure you’re building your commercial building or residential custom home with in these small tips.
I recall working with several clients who purchased land and designed a building only to be turned down for a construction loan because the cost of the land combined with the cost to build was way over the true appraisal value, significantly more than commercial or residential property comparable in their area, which were closer to 15% less.
“If it’s overpriced, then you’re not getting your construction loan unless you’re willing to place additional money on the closing table.
Don’t skip the survey or environmental tests. Like a cars history and background research through a car fax, a plot of land needs to be subjected to tests and checks to ensure you know what you’re buying and that you’ll be able to build on it.
Environmental tests check the soil for contamination from previous use, these are very important to consider when you’re thinking about purchasing a commercial parcel of property to build on. The site of a former gas station, auto body shop and salvage yard are more likely to have contaminated soil, for example, and residential homes can’t be built there. The land’s potential for flooding or poor soil conditions for building are also of concern.
You’ll also want to have a local surveyor look at your property to identify the true onsite building setbacks and boundaries. Especially if the land is in a neighborhood and has been vacant for years, neighbors may have encroached beyond the property lines, intentionally or not.
“You may be shocked that part of there fence and part of your driveway access that these people next door have been attending to for the last eight years is on your property parcel.
Always consider utilities and road access into account. It’s easy to take access to running water, electricity, sewers and drain pipes for granted when you’re buying an existing structure, but with vacant land these are not always a given. Depending on how developed the area is around the land, you want to know if it’s going to cost money for infrastructure.
Don’t depend on your adjacent property owners to give you creditable information – While speaking to adjacent land owners you should always be aware of the following issues when you’re looking to make an offer on real estate land parcels. You need to approach the appropriate department in the county you are interested in obtaining vacant land, discussing your plans to build on a vacant lot with your local planning and development can easily lead to organized opposition to your future build out plans.
It’s common for neighbors who are used to having vacant parcels of land near their home to get upset when the status quo is about change and seek to keep you from building. “All they’re doing is gathering information to use against you in most cases we have been involved in.
Holding off on making acquaintances with your adjacent land owner until any build out is completed is your best option. Otherwise, discussing plans could lead to adjacent land owner disputes before you’ve even broken ground.
Don’t assume you can have property rezoned – Your local governing body will have zones, codes and ordinances that limit what can be built on any property or require certain steps to build a sound structure.
For example, there may be required setbacks from the edge of the property, mandates to build a sea wall if you’re on the waterfront, or a percentage of the land may be restricted from development. Getting an exception to the rule isn’t easy, and there’s a good chance it will be denied by your state of city planning and development.
Rather than trying to rezone property, it’s best to keep your build out within existing limits. Seek land that will allow you to build the commercial or residential build out you want but know your plot’s restrictions before finalizing the build out plans.