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How to Buy Land – The Ultimate Guide

By William Flood on October 23, 2017 | How To, Property Types, Real Estate Investing, Strategy | Comments (3)

Buying land is an often overlooked form of real estate investment that can produce good returns.
Land is a fairly hands-o investment but generating returns is more involved than with rental
property. This is because to buy land there’s more research, evaluation, and rm pro t strategy
needed.

Here are 4 stages to buying land and successfully pro ting from it:

Step 1. Locate Land to Buy

The rst step is simply to locate a good piece of land to buy. Searches for property can involve real
estate agents, land brokers, online sites, properties for sale by owner, auction companies, and
government agencies holding surplus property.

Real Estate Agents

Real estate brokerages and their agents have access to the largest body of property for sale, and that
includes raw land. In fact, according to the NAR, only 8% of real estate sales are for sale by owner,
meaning that more land is listed through real estate agencies than anywhere else. Every real estate
o ce has access to one or more Multiple Listing Services (MLS) that contain all the properties for sale
by the various agencies that belong to that MLS.

The downside to searching for property with an agent is that the seller has agreed to pay a
commission for the sale, which will be re ected in the price. So, the commission e ectively makes the
asking price of the land perhaps 3%-5% higher than if you nd an alternative without an agent. Keep
in mind that land prices are generally negotiable, so you may be able to overcome the higher asking
price with good negotiation.

Additionally, keep in mind that not every real estate agent or even brokerage is experienced with land
sales. So, be sure you are working with agent and o ce experienced with land sales.

Land Brokers
While not every neighborhood real estate o ce is familiar with land deals, there are specialized real
estate agencies know as land brokers that are very familiar because it’s all they do. Typically, you’ll nd
land brokers in rural and agricultural areas and they will be familiar with the speci cs of the parcels
available, their physical characteristics, survey information, and uses.

Land Brokers’ commissions tend to be a bit higher than typical residential real estate agencies, with
commissions more in the 7%-10% range. Land is harder to sell and these agencies price their work into
the commission. Again, as a buyer, the e ect of the commissions may be reduced with good
negotiation.

Online Sites
You have many options for searching for land online. Craigslist has land listed in virtually every state
and community. Online real estate websites like Zillow and Trulia are great sources of lots and raw
land. Additionally, there are online equivalents to land brokers such as Land and Farm which can
provide a wealth of potential deals.

For Sale By Owner

A lot of land is for sale directly by its owner. If you’ve ever driven in less developed parts of town or in
more rural areas, you’ve probably seen any number of signs advertising a parcel of ground for sale. For
sale by owner (FSBO) sites often have lots, developable parcels, and rural land listed.

If you are looking to uncover potential bargains and want to investigate land being sold by owner or
even land foreclosures, Redx can supply you with for sale by owner leads and expired real estate
listings which often include land and lots. Redx can also supply listings of preforeclosures which can
be a great source of discounted properties.

Visit Redx

Auction Sites
A very common way land is o ered for sale is via auction. In fact, land sales are one of the most
common things that auction companies handle! You can nd local auction companies with a simple
Google search such as “Chicago auctions” or “Chicago auctioneer”. Local auction companies may hold
their auctions live or through their own online auction sites.
National online auction sites are also a good possibility for nding land to buy. In its real estate
section, eBay has a great amount of land for sale at any given time. Other national auction sites like
Bid4Assets are also tremendously useful in nding land and lots being auctioned.

Government Owned Land

Many government agencies have land available for sale. Their inventory usually takes two forms. The
rst is surplus land that local, state, or Federal agencies actually own but no longer need. The other
comes from when people fail to pay property taxes and property is sold at tax lien and tax deed sales
and auctions.

Step 2. Evaluate the Land Purchase

Land deals can be enticing simply because of their pricing. Inexperienced buyers are often lured by
amazing-sounding deals on lots and parcels, literally costing only a few hundred dollars, or promoted
as “can’t lose” investments by shady dealers. Be prepared to thoroughly research potential purchases
before you end up buying a piece of dirt that’s good only for holding the earth together!

Pro led below, the areas to investigate before you buy a piece of land are:

Deed and Ownership History

Property Taxes
Zoning and Potential Zoning Issues
Physical Characteristics of the Parcel
Usage Restrictions and Building Requirements
Availability of Utilities
Property Survey and Plat Maps

Research the Deed and Ownership History

Ownership claims on vacant land can be more involved than with property on which buildings have
been constructed. That’s because a built-out property has most likely already been through title
searches and any liens or claims on ownership resolved.

Previous legal searches are often not the case with vacant land. You may nd multiple parties who
have legitimate claims to a parcel by way of inheritance, easements, or gifting. Sometimes unrecorded
claims will come out of the woodwork, but in the end, may be substantiated.
When you are considering buying land, always pay for a thorough title search and get title insurance
when you buy. This can be accomplished by a title or escrow company or real estate law o ce. It will
uncover those who have claims to the property or who have led liens against it. Buying title
insurance will protect your interest in the property should an unforeseen claim come to light.

Research the Property Taxes

When you buy land, taxes are the one ongoing expense you will face aside from a mortgage payment.
So, even if you pay cash for the parcel, you’ll still have annual property taxes to pay.

Be sure you know what the tax amount will be prior to purchasing. In some areas of the country –
particularly rural areas – property taxes are minimal. However, in densely populated urban or
suburban areas like New York, Boston, or Los Angeles, taxes are signi cant and can run almost as
much as a mortgage payment would be in less expensive markets.

Research the Zoning and Potential Zoning Issues

Each parcel of ground will have a certain zoning designation, often delineated by a series of letters
and/numbers unique to the local area. Zoning limits the potential use of a property and what can be
built on the parcel.

Zoning Types
There are several categories of zoning, each unique to the kind of use and user allowed in that area.
Zoning ultimately limits the types of buildings that can be constructed, what the functions are within
them, and even the density of the building.

While the designations for zoning vary across the country, the major categories are fairly similar. The
most common are:

Residential – this form of zoning usually allows for single-family homes

Multi-family – this zoning will allow for single-family homes along with duplexes, triplexes, and
other multi-unit properties as well as apartments
Commercial – permits o ce buildings, retail, and sometimes hotels
Industrial – generally reserved for warehouses, factories, and light manufacturing
Agricultural – for farms, orchards, ranches and similar. Single-family homes and small multi-
units like duplexes are sometimes allowed with this zoning.

Rezoning Concerns When You Buy Land

One thing to be especially watchful of when buying land is pending zoning changes. Zoning changes
can make land less (or more) desirable. But, rezoning always a ects what you can do with the land,
and that can often be costly to you.

For example, if you intend to build a single family house on a lot zoned as agricultural, but the county
rezones it as industrial land, your plans may be thwarted. Similarly, if an area is zoned for light
commercial and you planned to build a small retail center, but then the land is rezoned to residential,
you’ll have to pursue a di erent project.

Research the Physical Characteristics of the Land

Even though buying a piece of land should seem easy, there are a lot of areas to be mindful of. You
can easily buy a piece of worthless or nearly worthless land if you are not careful.

Here are areas to pay attention to when evaluating the physical characteristics of a land purchase:

Landlocked Parcels – landlocked means a parcel is fully surrounded by other properties with no
access such as a driveway.Since value is ultimately rooted in people being able to make use of a
property, they must have access.
No Road Access – similar to the above is a parcel that has no access to a road. This is especially
important for more intense uses such as commercial or industrial zoning.
Flood Zones – a lot of land remains undeveloped because it is in a ood zone. If it is, you may
never be able to build on it, or if you can, it still may be impossible to insure.
Environmental Issues – there is a wide range of possible environmental concerns ranging from
being a wetland protected area to a former junkyard. Check with your local

Research Usage Restrictions and Building Requirements for Vacant Land

Zoning and other restrictions will often control what you can and cannot do with a piece of land. Here
are some very important considerations to investigate regarding building and use restrictions:

Building Moratoriums – Make sure you can actually build on the lot you’ve purchased. There are
many areas of the country where building moratoriums are in place.
Easements – sometimes land has been designated with some form of easement limiting what
can be done with it. Examples include wildlife and historic preservation easements that may
prevent all future development.
Inadequate Size and Shape of the Parcel – make sure the lot is su ciently large to build on.
Also, make sure the shape naturally allows for the building or development you are planning.
 Setbacks – Many local areas specify how far back a building must sit on a lot, yet many lots
don’t conform.

Research Utility Availability and Options

One of the most basic, yet complex factors related to buying raw land is the availability or lack of
availability of utilities at the lot. If utilities are not available at the lot, you will either need to have them
brought to the lot line (which is costly) or make use of other options such bottled gas for heating if
there’s no gas line.

Investigate What Utilities Are Available

Start by determining what utilities are either at the lot or very nearby. You are looking for the
following:

Water – if municipal water has not been run, then you must investigate whether digging a well is
possible. A lot without water is unbuildable in most cases
Sewer – if municipal sewer is not available, then a percolation test (perk test) must be run to see
if the parcel can have a septic tank. If it won’t perk, you probably can’t get a permit to build.
Electricity – electricity is one of the easiest utilities to run to a lot if it’s nearby but not yet at the
lot line. Check with your local electric utility to estimate the cost of running a line if it’s not there
already.
Gas (optional) – fortunately, if a lot has electricity it doesn’t necessarily need gas. But, if gas is
the custom in the area, then you will want to check with the gas provider to investigate the cost
of running a line to the lot.
Phone, Communication, and Internet (optional) – the lack of telephone, cable TV, or Internet
lines won’t prevent you from building, but lacking them will certainly be unacceptable for
anyone eventually planning on living or working on the land you develop.

Research Surveys and Plat Maps

As you investigate issues like the lot size, whether a parcel may be landlocked or have environmental
issues, look to property surveys and plat maps to provide you with many answers.

In virtually any county, you will nd a county surveyor. That o ce or perhaps a county geographic
Information service (GIS) o ce will have plat maps that show all the various parcels, their lot lines,
measurements, zoning, topographic and geographic features and what they are adjacent to. Many of
these o ces maps and surveys are searchable online.
Step 3. Finance Your Land Purchase
When you buy land, there are two paths to fund the purchase. You can use cash, which is quite
common; or, you can obtain a mortgage or other nancing which will allow you buy the property even
if you don’t have the full cash amount.

Paying Cash
Because prices for raw land are often less than their developed counterparts, it’s very common for
purchasers to pay cash. Additionally, nancing raw land is more di cult than nancing a building
because banks view raw land as a riskier investment. This leads to even more cash purchases. Also
keep in mind that paying cash eliminates the mortgage expense, meaning you only have to cover
property taxes until you sell or develop the property.

Conventional Loan Options

A portion of conventional lenders do o er long-term mortgages for land purchases. Generally, the
loan-to-value (LTV) is rather low, so be prepared for loan options to cover as little as 50% of the
purchase price.

Land Loans and Lot Loans

There are many lenders that specialize in land loans or lot loans. Often, these are savings and loan
institutions in more rural areas. Land loans tend to be shorter term (10 years or less), typically higher
than market rate and require 20%-50% down.

Owner Financing
You’ll nd that owner nancing is more prevalent with raw land that with developed parcels. That’s
because vacant land is typically harder to sell than developed properties and it’s more common for
them to be owned outright, which makes owner nancing easier.

Step 4. Pro t When You Buy Land

Once you’ve purchased a parcel, there are several ways to pro t from it. Some of the options will
generate a return in a fairly short timeframe. Others take longer and require holding the property,
perhaps for years.

Hold Long-Term
One of the most basic land investment strategies is simply holding for the long term, then reselling
when the price rises. If development is moving in the direction of the land you own it will apply upward
price pressure. The closer development gets, the more valuable your land is likely to get, even if you
do nothing to it.

Improve the Lot

Building on the lot will naturally increase its value. Whether it’s a single residential house or a small
commercial building, improving from an undeveloped lot to a developed one is a basic way to pro t
from the land investment. Even running utilities to a lot or adding a gravel driveway to make a parcel
more accessible can add value.

Get the Property Rezoned to a Higher Use

There is a principle in real estate knows as “highest and best use” that can make land more valuable
simply by changing its zoning, thus what it can be used for.

For example, if a large parcel was zoned for, say, agricultural use and you successfully got it rezoned
for residential development, chances are the value of the parcel will increase tremendously.

Lease the Land

This is an often overlooked option for land purchases. In certain cities like Baltimore, Maryland, many
buildings sit on leased lots (called ground rent). Mobile home parks are structured around leased lots.
Rural land can be leased to farmers to cultivate or to graze livestock. Even large parcels of the most
rural countryside can be leased to hunters.

Flip the Land Purchase

While not as common as ipping property that has already been built on, it is possible to acquire a lot
at a below-market price, then quickly resell it at a higher price.

One route that land ippers use to do this is to owner nance the lot purchase for the new buyer.
Because the relatively easy owner nancing makes the land purchase attractive, sellers can ask a
higher price. That way, the seller has earned a pro t on the resale and will also collect periodic
interest.

The Pros and Cons of Buying Land

Land is often overlooked as a potential real estate investment. Yet, there are clear bene ts as an
investment option. Of course, there are limitations and downsides to be aware of.

Pros to Buying Land

There are many arguments in favor of investing in undeveloped land. They include supply and
demand, the comparatively small price tag of many parcels, and the hands-o nature of land as an
investment.

It’s a Limited Resource – both Mark Twain and Will Rogers said in some fashion, “Buy Land, they
aren’t making any more of it.” That’s very true – and points to the simple investment reality that
there’s a xed supply of land.
Land is an Inexpensive entry into investing – for a new investor, a land purchase can be a very
inexpensive way to start investing in real estate. There are places in the country where building
lots can be purchased for under $1,000.
It’s a Hands-O Investment – vacant land is basically a passive investment. There are no toilets
to x, no tenants to evict, and no worries over roof damage in a storm. The only inescapable
obligation is paying your property taxes.

Cons to Buying Land

Despite the noted bene ts, land investments do have their downsides. Undeveloped land isn’t
typically a cash generator, and there are costs involved in ownership.

Doesn’t Produce Immediate Income – unless you are in the position to lease the land to a
farmer or develop a mobile home park, your land purchase isn’t going to generate current
income. It’s a long-term investment that may take years before producing a return.
Does Have Carrying Costs – even though land doesn’t typically generate current income, it
does have current costs. Property taxes are due either annually or semi-annually. If you’ve
nanced the parcel, you’ll have periodic payments. Even if you paid cash, that money is no
longer invested elsewhere, and you’ve also spent cash on closing costs, surveys and title
insurance.

Bottom Line
Buying land can be a lucrative investment, particularly as a long-term investment strategy. Buying
good parcels involves careful research. Land investments are fairly passive, but generating returns
often has a long timeline, yet they incur current costs.

If you are looking to uncover potential bargains in vacant land and want to investigate FSBO’s or even
land foreclosures, Redx can supply you with for sale by owner leads and expired real estate listings
which often include land and lots. Redx can also supply listings of preforeclosures which can be a
great source of discounted properties.