When most people hear the phrase “real estate,” they tend to think of buildings like houses, condos, or even storefronts. That’s a relatively normal reaction, but most people forget that real estate traditionally refers to the plot of land that those buildings are built on.
Though land purchases are getting rarer these days, there are still plenty of reasons why a person might prefer to get some land. It’s a great way to park money and give you a decent amount of freedom to build your own dream home exactly as you want it. Knowing the ins and outs of a land purchase can help you figure out if this is the right move for you.
Land is an investment unlike any other. It offers a lot of potential for building and development, with none of the need to demolish everything. It can also appreciate in value depending on what is around. All of this means that buying land can be a smart way to invest your money.
Buying land is a good idea if:
- You want to build your own home.
- You want to create a large development.
- You want to park money.
Unlike with a regular home sale, buying up land requires you to have a lot more financial stability. There aren’t really any special programs that allow first-time homeowners to buy a plot of land on the cheap—at least, not very good ones.
Most financial professionals suggest that you should only buy land if:
- You are completely debt-free
- You have at least six months of savings to fall back on.
- You have a down payment of 20 percent for a traditional mortgage, and won’t be spending more than a quarter of your income on that land. Some land mortgages can require as much as 50 percent down just for approval.
These restrictions are a little tighter than if you are just buying a house. After all, when you’re buying land, you will need to build a house to use it. In most situations, buying a home that already exists will be more affordable than purchasing the land and building the house later.
For the most part, buying up land is rarely a bad investment unless you’re literally buying a toxic waste dump. With that said, the price of land and the potential value of land will increase or decrease based on the following factors:
- Nearby Demand: A tract of land out in the middle of nowhere is not going to get much interest from others when you want to sell it. On the other hand, if your land is located right outside of a major city or has a nice suburban feel, getting interest will be a cinch. After all, people will prefer to live on a city's outskirts over a more rural area, to enjoy a quick and easy commute.
- Local Amenities: Land that’s located near a shopping mall or a restaurant district will always have more demand (and a higher price) than land that doesn’t have much to do around it.
- Utility Access: If you have to construct (or petition to construct) pipes for water access or electric poles, you probably will have a hard time living there.
- Topographics: Most people overlook this, but they shouldn’t. It’s tough to build homes on plots of land that involve lots of hills, lakes, trees, rocks, or chasms. Knowing what the land is capable of being used for makes a huge difference in its value.
- Zoning: What purposes the local town approves your land for can make a huge difference in how much your land is worth. Zoning can change from time to time, but you should never buy land with the belief that you can change a zoning board’s decision. Make sure that your land is zoned for residential purposes.
- Road Access: Most people have experienced difficulty trying to find a home that is “way off the beaten path.” That’s why having road access is a major selling point for land. It’s a matter of convenience and making sure that you don’t end up getting lost trying to go home!
- How Quickly You Can Begin Building: If you’re just looking to keep land in the family, this might not be a significant issue. However, if you’re looking to set up a home for yourself ASAP, this should be a concern.
Though land purchases are not as common as they once were, it’s not wise to assume that demand ceased. If anything, the recent boom in real estate development companies means that the demand for land actually increased.
It’s not unusual to see unused land tracts go up for auction with multiple bidders, especially if they are in or near metropolitan areas.
If you’re looking to buy land, then you have a lot of options to choose from. You can search for land for sale on Zillow and Craigslist, as well as more specialized sites like LandWatch or LandAndFarm. If you are looking for bank-owned land plots or government-subsidized land plots, you can also try the government’s site for Real Estate Sales.
Buying land isn’t something that most people do as a first investment, and rightfully so. The price to get a standard plot of land for a new home can cost an arm and a leg. Moreover, the transaction often requires a skilled real estate agent to complete successfully.
If you aren’t sure whether you’re ready to jump into land buying, you’re not alone. Thankfully, there are people that you can ask for help and advice on the matter. To find out if it’s the right move for you, give a financial advisor, a real estate investment professional, or a qualified realtor a call.
Buying land is a relatively straightforward process, especially if you're paying with cash. However, if you need to get a loan to fund your land purchase, you'll need to do a bit more work. It's also critical to do your due diligence when buying land as you want to ensure you don't overpay for the property. If it's your first time purchasing land, your best bet is to work with an experienced realtor who can guide you through the process.