Vacant land is often overlooked and misunderstood as a real estate investment. However, owning the right piece of land can provide simplicity and stability that surpasses other types of real estate. But before jumping into land investing, it is crucial to thoroughly evaluate the property. In this article, we will explore a comprehensive 21-point checklist for due diligence when buying vacant land.
Understanding the Potential Pitfalls
While land investing can be a rock-solid investment, it is essential to recognize the potential problems that can arise. Vacant land may appear simple, but hidden issues can lurk beneath the surface. Understanding and uncovering these issues are critical before making a purchase. Let's dive into the checklist to ensure you make an informed decision.
1. Zoning: Determine the Highest and Best Use
The first step is to understand the zoning classification of the land. Contact your local planning and zoning department to learn about the permitted property uses. This knowledge will help you determine if the land aligns with your needs or those of potential buyers in the future.
2. Topography: Assess the Lay of the Land
The topography of the property plays a significant role in its usability. Evaluate the elevations, cliffs, mountains, valleys, and ravines. This information will inform you about potential restrictions for development or any limitations on the property.
3. Property Taxes: Consider the Annual Financial Obligation
Be aware of the property's tax bill relative to its actual value. A high tax bill may impact your holding costs. Typically, a reasonable annual tax bill falls within the range of 1% - 4% of the property's market value.
4. Public Utilities: Ensure Access to Essential Services
Check if the property has access to public utilities such as water, sewer, electricity, gas, and phone lines. The absence of these utilities may limit your ability to build or affect the long-term desirability of the land.
5. Building Setback Requirements: Understand the Limitations
Consult the local planning department to determine the designated building setbacks for the property. These requirements maintain order and consistency within the area. Ensure that the setbacks align with your intended use for the land.
6. Usage Restrictions: Be Aware of Limitations
Most vacant land will have usage restrictions imposed by municipalities or homeowners' associations. These restrictions define how the land can be used to maintain neighborhood quality. Understand these limitations to avoid conflicts with your intended plans for the property.
7. Flood Zone: Evaluate the Risk
Identify if the property is located in a flood zone or near bodies of water. Properties in flood zones can be expensive to insure. Understand the potential risks and associated costs before purchasing land in these areas.
8. Perc Test or Sewer System: Ensure Feasibility of Building
If building a dwelling, determine if the property has access to a sewer system or if a perc test is required for septic system installation. A failed perc test may hinder construction plans, so it is crucial to know beforehand.
9. Road Access: Confirm Legal Accessibility
Ensure the property has legal road access. Some properties may be landlocked, surrounded by private properties, making legal access challenging. Seek legal easements or neighboring cooperation if necessary.
10. Physical Access: Consider Convenience and Value
Even without road access, physical access through a common area or government-owned land can increase the value and desirability of the property. Assess if any physical access options exist to make the land more accessible.
11. Size, Shape, Dimensions, and Location: Evaluate Usability
Consider the size, shape, dimensions, and location of the land. Some properties may have unconventional shapes or dimensions, limiting their practical use. Research online GIS mapping systems or order a land survey for accurate measurements.
12. Water Access: Assess Availability
Determine if the property has access to municipal water or if alternative water sources such as wells are feasible. Consider the cost and ease of accessing water before making a decision, especially in remote locations.
13. Wetlands: Identify Potential Restrictions
Identify if the property contains wetlands, as there may be legal restrictions on development or usage. Consult experts or online tools like the Wetlands Mapper and the NRCS Web Soil Survey to get an initial understanding of wetland presence.
14. Junk, Tires, Rubble, Oil, or Other Contaminants: Investigate Hidden Issues
Inspect the property to ensure no hidden contaminants or waste are present. Make sure you are purchasing just the land and not inheriting any additional liabilities that may require expensive cleanup.
15. Previous Uses: Verify Environmental Concerns
If the property is commercially zoned, conduct a Phase I Environmental Report to identify any environmental concerns or contamination issues. An understanding of previous uses is crucial to avoid future liabilities.
16. Surrounding Neighborhood: Consider Implications on Value
Evaluate the surrounding properties, as they can significantly impact the value and desirability of the land. Undesirable neighbors or issues beyond your control can diminish the property's value or make it less attractive to potential buyers.
17. Soil Quality: Consider Agricultural Use
For agricultural purposes, assess the soil quality, water table status, fertility, and historical crop yield. Understanding the soil's attributes is vital for determining if the land is suitable for growing crops.
18. Load Bearing Capacity: Ensure Solid Ground
If construction is planned, consider conducting a geotechnical investigation to determine the load-bearing capacity of the soil. This examination helps prevent structural damage by ensuring the foundation can support the building.
19. Title Search: Verify Ownership and Liens
Perform a thorough title search to ensure a clear and equitable title. This search confirms ownership, identifies any outstanding liens or restrictions, and ensures a smooth transfer of property rights.
20. Site Plan and Preparation: Factor in Additional Costs
If construction is planned, account for the cost of creating a site plan and preparing the land for construction. Engage civil engineers to assess the necessary earthwork, utility lines, and other preparations required before building.
21. FSBO Scammers: Protect Yourself
When buying directly from sellers, beware of For Sale By Owner (FSBO) scammers. Use reputable title companies experienced in detecting fraud to protect yourself from potential scams and ensure a secure transaction.
Be Informed and Make Smart Decisions
Land investing can be a rewarding venture if approached with due diligence and careful consideration. By following this 21-point checklist, you can mitigate risks and make informed decisions. Remember, buying vacant land is about being well-informed, not being the "greater fool." Assess the property thoroughly to avoid costly mistakes and ensure a successful investment.