On the surface, finding and buying a piece of vacant land sounds easier than buying or building a house. However, buying land can be tricky and time-consuming for many reasons. My family has been searching for the perfect land for months, and we’ve learned some important lessons along the way.
If you’re planning on buying land, here’s what you need to know before you start scouring properties and how to avoid making a big financial mistake.
Why Buy Vacant Land?
Staking a claim on vacant land and raising a house is an American dream that goes back hundreds of years. Whether it’s to build a tiny house or a larger dream home, some pioneering spirits are willing to take a chance to create exactly what they want.
But not everyone buys land with the intention of building a house on it. Plenty of people buy land for more unconventional reasons.
Some people, like my family, live in an RV full time and want to buy land to park their camper on. More and more people are going this route for a number of reasons: they want to live debt-free, downsize and live in a tiny home, travel part of the year, or they simply don’t want to spend time and money maintaining a bigger house. In our case, all four reasons apply.
Some people buy land and use it for farming or hunting purposes. Others buy land and rent it out to travelers on sites like Hipcamp. There are a number of ways to make a full-time income with the right piece of land.
Other people buy land as an investment. It’s especially common in real estate markets where land values maintain a slow and steady climb upward. Buying and holding on to land for two to three years can yield a solid profit, especially if you do something to improve the land while you own it. However, this can be risky, especially if the market takes an unexpected nosedive after your purchase.
Dos & Don’ts of Buying Vacant Land
Buying land can be a great investment — if you buy the right land at the right time. However, if you buy vacant land without doing your homework, it could result in a huge financial loss. Here’s what you should (and shouldn’t) do to get it right.
DO: Work With a Great Realtor
Finding a great real estate agent is imperative when you’re looking for vacant land. A good agent will educate you about the area and research what each parcel is zoned for and what it’s really worth.
A great agent can also keep you from making a financial mistake. For example, my husband and I were ready to make an offer on 6 acres in Western North Carolina. The land was flat — a rarity in the mountains — and had great views and an ample open area for solar power.
Our real estate agent did some homework while we considered our offer, and she dug up an unpleasant surprise: Our dream land was actually classified as a waste site by the state. Several acres had been dug up for dirt and then filled back in with a mixture of dirt, concrete, stone, and asphalt. Just putting a well on this property would have been prohibitively expensive, and there’s no way we could have created the gardens we were planning because of the contaminated soil. Thanks to our agent’s diligence, we were able to walk away without wasting any time and money on a bad investment.
Your real estate agent will spend time researching every parcel of land you’re interested in to make sure it’s a safe investment. Experience counts here; a great agent will know what information to look for and where to find it.
Some real estate agents even specialize in buying and selling vacant land. When it comes time to start interviewing agents, ask each candidate how much experience they have with land sales or what percentage of their last year’s sales were vacant land.
DO: Understand Zoning Laws
Every town, city, and municipality has zoning laws that regulate what land can and can’t be used for. These laws protect every landowner and homeowner’s investment and ensure the area is growing in the right direction. It’s important to understand zoning laws so you buy land that’s zoned for your desired purpose.
Imagine you want to buy some land and start a self-storage business. You find the perfect-sized lot just outside of a busy downtown, and you’re ready to make an offer. However, the land is zoned residential, not commercial, which means you can’t legally operate a business there.
If you’re working with a real estate agent, they will be able to quickly find out what a parcel of land is zoned for. If you’re looking at land on your own, you can access zoning records at the city’s planning office or city hall. Many larger towns and municipalities also have this information online.
There are several different zoning classifications you must be familiar with when looking for vacant land.
Areas zoned residential allow single-family homes, apartments, condos, duplexes, trailer parks, and co-ops.
If you work at home, you may face some restrictions in residential zones. If you telecommute, you likely won’t have a problem. However, if you have customers that come to your home for business reasons or you employ staff, you might find yourself in violation. The rules regarding what’s allowed in a residential zone can vary dramatically between cities, so it’s essential to contact your local planning and zoning office to see exactly what you can do on a parcel of land before you make an offer on it.
You might also face violations in a residential zone if you plan on keeping animals. Pets such as dogs and cats are not regulated in a residential zone. Other animals, such as chickens, sheep, cows, and rabbits, are often not allowed. If your dream is to start a mini farm or homestead, check the rules before you make an offer on land that’s zoned residential.
Mixed-use residential, or mixed-use development, areas are a blend of residential and commercial buildings, often located within walking distance of a thriving downtown. In most cases, land that’s zoned for mixed-use means the landowner can designate what they want the land used for: residential, commercial, or both.
Keep in mind that mixed-use has a different definition wherever you go. In some cities, mixed-use might mean you can build a three-story building with commercial space on the ground floor and apartments above. Other cities restrict mixed-use to only include homes that have been turned into a small business, such as a three-bedroom home that’s now a law office or hair salon.
Land that’s zoned commercial means you can build and operate a wide variety of businesses on it, including hotels, night clubs, restaurants, and retail. Commercial zoning has a number of restrictions and rules, depending on the city, which might include parking availability and the proximity of one type of business to another.
Agricultural zoning is typically used in farming or rural areas to protect against high-density development. Land that’s zoned agricultural has a large minimum lot size to ensure it can’t be sold to developers who want to build a subdivision or apartment community.
DON’T: Assume You’ll Get a Bank Loan
Many banks won’t grant you a loan to buy land. If you’re lucky enough to get a loan, you might not be granted more than 50% of the land’s value.
Banks see land as a risky investment, especially if you plan to use it for unconventional living or working arrangements. If there’s no house on it, then it’s considered a red flag.
That said, you can get a loan to buy land if you already have plans to build on it. This is called a construction loan, and it bundles the cost of the land with the estimated cost to build your home. In order to get a construction loan, you’ll need to present building plans to the lender, have an experienced builder picked out, and have good credit.
You also must have a down payment. Typically, you’ll need 10% to 20% of the total loan amount, but might need more, depending on the type of land you want to buy. If you’re buying raw land, you might need a 40% to 50% down payment. The term of the loan will also be much shorter — often 15 years or less — and you’ll probably have a higher interest rate.
Raw Land vs. Finished Lot
The type of land you want to build influences the bank’s willingness to grant you a construction loan that includes the land cost. There are two classifications of land: raw and finished.
Raw land is pure, undeveloped land untouched by any type of improvements, like a well, electric line, or septic system. These improvements can be expensive and time-consuming to install, so banks see raw land as a bigger risk.
A finished lot is land that already has some improvements. There might be a well and septic on the property or underground electric and water running up to a cleared house pad. Banks are typically more willing to grant construction loans that include a finished lot.
DO: Visit the Tax Assessor
Once you’ve picked out a piece of land you really love, your first stop should be the tax assessor’s office. This is where you’ll learn the estimated value of the land, as well as what you’d be expected to pay for property taxes.
The tax assessor can also fill you in on some other really important information. For example, is this land in a flood plain? Are there wetlands nearby that would restrict where you can build? Are there restrictions dictating a minimum home size or an HOA with other restrictions in place? Does a neighbor have an easement running through the property? Are there local view ordinances that would prohibit a home with a second story?
All of this is information you need before you invest time and energy making an offer.
DO: Price the Neighborhood
Unless you’re paying cash for everything, you need to spend some time looking at your neighbors. Even if you don’t care who you live next to, the bank sure will.
If you’re planning on building a home, you need to make sure the combined value of the land and your future home doesn’t greatly exceed the value of surrounding homes. If it does, the bank won’t grant you a construction home because you’ll end up losing money on your investment, which increases their risk.
For example, imagine you spend $50,000 buying 2 acres of land. The home you want to build is estimated at $300,000, making the combined value for your project $350,000. However, the homes in the surrounding area are valued at $200,000 or less. You’ll be unlikely to get a construction loan because your home’s value is so much higher than the surrounding homes.
DON’T: Assume a Drive-By Is Enough
During our land search, we found a beautiful 10-acre tract that seemed perfect when we did a drive-by. We went back the next day to spend some time on the property and learned the neighbor next door bred coonhounds. There weren’t just one or two dogs; there were over a dozen. As soon as we started walking the property, they bayed nonstop. We love dogs, but these were so loud there was no way we could live on that land and listen to them on a daily basis. So, we walked away.
Whenever you find a piece of land that seems to fit your needs, spend as much time on the property as you legally can, looking and listening. Drive up and down the road several times a day, at different times, to experience what the traffic and noise levels are like. Look carefully at neighboring homes. Are they well-kept and in good condition?
DON’T: Immediately Introduce Yourself to the Neighbors
One thing you might want to avoid is introducing yourself to potential neighbors, especially if you’re planning on building a home on the land. Some people like having empty lots next door because it means no neighbors to potentially bother them. If you tell them you’re about to dig up that land to build a house, they might go on the defensive. They might even try to block your plans however they can.
Most people don’t like change, so try to stay a stranger until you start construction.
DO: Check the Topography
It’s important to understand the elevation changes in the land you’re considering, especially if you’re in or near the mountains. If you have to significantly alter the land to build on it, your costs will go up significantly.
DO: Conduct a Percolation Test
If you’re planning on building a home on vacant land that’s not hooked up to a municipal water and sewer system, then you must do a percolation, or “perc,” test on the soil to make sure it can support a septic system.
You can’t just install a septic system anywhere. The soil has to be able to filter a certain amount of water over a certain amount of time for it to pass health ordinances.
A perc test assesses the rate at which water passes through the soil. If the soil is too sandy, wastewater will pass through too quickly and contaminate the groundwater. If the soil has too much clay, the wastewater won’t pass through quickly enough, and raw sewage might pool near the surface.
If the soil doesn’t pass the test, then a septic system can’t legally be installed, making the property virtually useless.
Keep in mind that soil conditions can sometimes change dramatically over short distances. Just because soil conditions won’t support a septic system in one area, that doesn’t mean the entire parcel of land is useless. If one area fails a perc test, conduct a few more tests around the land to see if you can find a better candidate for the septic field.
Do: Conduct a Soil Test
The land you’re looking at might seem untouched and pristine right now. However, there’s no way to know what that land was used for 10 or 20 years ago. It could have been a junkyard full of abandoned cars, a common dumpsite for unscrupulous locals, or a garage or workshop that frequently spilled oil, gasoline, or other chemicals onto the soil.
A soil test will tell you exactly what’s in the soil and what isn’t.
A basic soil test on Amazon will tell you about the pH and nutrient levels. This information is helpful if you’re planning a garden, but you’ll need a deeper analysis to check for pollutants. An in-depth soil test will look at heavy metals like lead, arsenic, mercury, copper, nickel, and other environmental hazards to make sure they’re at safe levels. Most extension offices offer soil testing packages.
Buying land is often more complex than buying a home, especially if you’re planning to build on it. There are lots of hurdles to jump through. You have to understand zoning and restrictions and do a lot of research to make sure you’ll be able to build and use the land as you want.
You also have to be prepared financially. If you’re not paying cash, you’ll likely have to have a significant down payment and be prepared for a higher interest rate over a shorter loan period than if you were buying a house.
However, vacant land can be a great investment. After all, land is the only thing you can’t make more of. If you find the right land at the right time for the right price, you can make a great profit when you decide to sell.
Have you ever bought vacant land? Do you have any stories or tips to share?