How to Buy Raw Land (acreage) or a Vacant Lot
Posted: January 29th, 2007
Category: Tips, Tools & Tech
A client of mine is beginning the process to purchase a vacant lot to build his new home. As expected, he has many questions about how to do find the right property and then what to do with it once he has found it. After searching the web for a good website that explains the process of buying raw land, I realized there aren’t any great ones and very few at all that I would recommend he read. So I decided to put this post together to send to my client and share with everyone else.
Steps to Purchasing Vacant Land
- Save Money: Typically you will need a 20-percent down payment with the interest rate and terms of the loan being somewhat negotiable, generally up to 15 years. If the purchase price isn’t that large, you might also consider taking out a home equity loan on your current residence and enjoy the tax deduction. A community bank is best for these type of purchases as they know the local market better and are willing to take more risks than the larger mega-banks.
You’ll have a better chance borrowing money if there are other improved properties in the area and if you’re planning to build a personal residence as opposed to speculating for investment. You’ll win points if you have other business at the bank or if you plan to come back for a construction loan.
- Research Properties: When searching the local market for vacant land you will need to consider all of the following factors before making your final decision:
A) Review the local government’s Current Land Use Plan and Proposed Future Land Use Plan to make sure you know what is happening in the area.
B) Determine existing Zoning to make sure you can build a house on the property.
C) Review the subdivision Covenants & Restrictions (if applicable) to ensure you get to build the house you have in mind and see how much the fees are to be a part of the community amenities.
D) Investigate for Easements to understand if a neighbor has the right to drive on the property or if the local utility company needs to maintain a pipe or line, etc…
E) Speaking of Utilities, make sure that the proper utilities are on-site and able to tap into them for your new home. You may need to dig a well or install a septic system.
F) Locate property Boundaries by reviewing the Seller’s survey or getting your own.
G) Environmental analysis will let you know if there are buried items such as tanks or tires that may cause construction problems and also determine if you are in a flood plain created by nearby creeks or rivers.
H) Contact the local governing agency who issues Building Permits to determine what is required to obtain permission to build your new home on the land.
I) Tax research is required to determine if you pay county or city or both and how much will it cost you each year.
J) Insurance will also be needed on the property and may required additional flood insurance if the property is in a flood zone.
- Make an Offer: Of course I recommend a good real estate agent at this point (which should have been selected after you determined you have the money to help you with the research phase). Before you make an offer, think about the what ifs–things that would make the property unusable for your purposes. Add these to the offer as contingencies, things that must or must not happen before you buy. For example:
- Offers for land without sewer hookups should be contingent on your ability to obtain permits for a septic system.
- If an architectural review committee must approve your home plans, the offer should be contingent on obtaining approval.
- The offer should be contingent on obtaining the type of financing you desire.
Some contingencies are included in standard contracts, but your real estate agent can help you determine if other contingencies should be added.
4. Close on the Property: After satisfying all contingencies in the contract, including financing, proceed to closing and take title to your new piece of real estate.
Welcome to Land Ownership!
I also recommend using the following tools and calculators during your research:
Loan Calculator
Lot Dimensions to Acreage Converter
Land & Construction Loan Calculator
If the property you want happens to be in Cobb County, then these links may be helpful:
Cobb County Zoning & Land Use
Cobb County Permits
Cobb Tax Records
Cobb Utility Information
Resources: Bankrate.com, About: Home Buying & Selling, Building your own Home
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