| Here Are
Some Possible Benefits to Raw Land
1. Land has
the potential to experience tremendous appreciation if bought in the way
of growth, or if a higher and better use can be achieved.
2. Owner financing
can often be obtained through the seller at below-market rates.
3. Subdividing
can create added value and provide for immediate returns.
4. Privacy
and pride of ownership can provide a secure feeling to the holder.
What is
Considered Good and Bad Land?
The worst you
can buy is swamp or marshland. Most often flat land is the least expensive
to develop and the most desired for building purposes. Land with barren
rock will increase costs and virtually eliminate a basement just the same
as a high water table.
A special consideration
to note when hunting legally challenged property is to have sand and some
organic matter, appears rich and dark in color and is considered ideal
for most purposes. As opposed to good soil, you don't want hard cracking
ground when dry and sticky soil when wet. Warning! Check with your state
offices for the presence of expansive soils; this stuff cracks foundations
in the most insidious ways, leading many to ruin.
Many people
are literally being driven to the hills. Granted the views can be spectacular
but roads, utilities, water, sewer, and foundations, such as pilings, can
add 25-30% to building costs alone, further adding to this already expensive
proposition. When considering going vertical, an 8-degree slope is about
the limit when concerning building economically on hillsides.
Plots with
trees, a view, rectangular in shape, a gentle slope or none and a good
location are most often preferred, and streams can boost values by 100%
in some cases.
How to Determine
the Value of Raw Land
Using the appraisers
standard view of estimating value can give us some clues, so let's look
at what appraisers do!
a. Site size
and shape, represented by frontage, width and depth.
b. Corner
influence equals visibility for commercial, or privacy for residential.
c. Plottage,
has assembly or combining of parcels been accomplished.
d. How much
land is excess or surplus; surplus has less value than what is required.
e. Topography:
Land's contour, grading, natural drainage, soil, view and usefulness.
f. Utilities:
Sewers, drinking water, natural gas, electric, telephone, cable, etc.
g. Site improvements:
Landscaping, fences, gutters, walks, drives and irrigation.
h. Accessibility:
Parking, location, streets, alleys, connecting roads and highways.
i. Environment:
Climate, adequate water supply, air quality, rivers, lakes, oceans and
the absence of any hazardous materials.
An old timer
once gave me this advice: He said, "Dan, always try to buy land that is
located as close to those amenities that an area is famous for, as that
is often the reason people come to certain areas. He lived in Florida and
had plenty of beachfront property located in tourist areas, which clearly
illustrated his point.
Who Has
This Raw Land and How Do We Find It?
You may start
your search by contacting farmers, investors, real estate agents, state
and federal agencies, cities with odd lots they need to put back on their
tax rolls, bureaus of land management, federal marshals, tax sales, bank
foreclosures, developers, property heirs, the elderly, and family and friends.
Use
your networks and birddogs while driving areas of interest looking for
further opportunities to buy.
You will most
often be contacting many of these sources by writing to them. Don't get
discouraged when you don't get immediate replies, as the average response
rate is one reply for every eight letters that you send. The pros will
get on lists and pay services to monitor many of these potential sources,
however, good old-fashioned detective work does pay off. When researching
in this manner, secrecy is one key and fast action using all cash is the
other.
Property is
often advertised through newspaper ads, real estate brokers, For Sale by
Owner signs, flyers, bulletin boards, the Internet, etc. A quick note on
how not to buy is in order here. I would not recommend buying land from
a glossy brochure or big development company as it is almost always overpriced
to cover large overhead costs, advertising and profit. Also remember when
a building boom is on, land prices rise. You will do much better buying
when demand is low. Another caveat is to stay away from land that is advertised
outside of its normal market as it is often overpriced or has problems;
otherwise, a local buyer would have bought it!
If you want
to find the deals, then most often you are going to have to dig for them.
A few successful methods may include visiting the county clerk/recorder's
office to search the public records for the following:
-
New probate filings,
use them to contact heirs
-
Eviction proceedings
to contact out of state landowners
-
Arrests - these
people may need money and may also be going away for a while
-
Bail bondsman
who may have forfeited collateral in the form of land
-
Divorces filed,
leading to a division of assets
-
New guardianships
to contact disinterested heirs
-
Deeds in lieu
of foreclosure, private sellers may in turn sell it to you
-
Lis pendens means
litigation pending, often signaling foreclosure
-
Title company
in addition to the regular search of mortgage
-
Tax and easement
liens
-
Also check files
for I.R.S. liens, bankruptcy filings and judgment liens
Quick Review
Up to this
point we have talked about not getting conned when starting out. We also
noted that it pays to understand what everyone wants from the land to start.
You are aware that utilities and basic necessities are very important considerations.
You know whom to contact to get further in-depth information on properties
of interest. You know flat land with natural amenities is the most desirable
and economical to develop. You are more familiar with the risks involved
with this type of real estate and you also know that rock, marshes and
hillsides can be expensive to develop. You have a better idea of how an
appraiser begins to determine value and you may have a few ideas on how
to find land and the people who own it.
With that said,
we are ready to get down to the business of evaluating, negotiating and
financing our well-sought piece of terra firma. What follows is a basic
checklist. There is more to consider but this will get you off to a running
start.
Basic Raw
Land Checklist
a. Get the
most recent and valid information available: A copy of the deed containing
the legal description with any covenants and/or restrictions
b. Get the
street address, a plot plan indicating the specific property location,
a survey, a preliminary title report, a recent map and any aerial or land
based photographs to help you locate fence lines, trails, roads, streams,
ponds, building locations, etc. Walk the land to verify, evaluate and correlate
what is indicated, also looking for any signs of hazardous waste dumping,
burying or burning.
c. Determine
present use in zoning, according to what planning and zoning tells you.
Symbols are used to designate uses - here are a few:
A1 - Agricultural with single family home
C - Commercial business
CO - Commercial office
FP - Flood plain
M - Industrial
R1 - Residential single family
R1H - Residential hillside
R2 - Residential multifamily
RT - Recreational tourist/ Residential transitional
General categories include:
Farm, Ranch and Timberland
Recreational or Resort
Industrial
Commercial/Business
Residential
Mixed use
d.Confirm who
owns it, their full name, address and phone number
e. Find out
what they do; are they a dealer in real estate?
f. Ask if
anyone else is on the title or has authority to act
g. What are
the annual taxes and assessed values?
h. Ask why
they are selling and how long they have owned it
i. If the
owner doesn't want to sell, ask if they would consider selling a parcel
of it
The preceding
is an abbreviated checklist. It is meant to get you started off on the
right foot. Many people will research buying a new car more thoroughly
than they would when buying raw land; there are many good books that are
devoted solely to the subject of raw land. This type of investment is generally
not the best choice for the new investor but often times people look to
build they're dream homes away from developed areas and for that reason
I have included my two cents here.
Finance
Considerations $$$
Raw land as
opposed to improved property is much more difficult to finance through
traditional lenders. The main reasons are that it generates very little
income, development costs can be expensive, there are no buildings or improvements
that can be used as collateral and it is often considered speculative.
For those reasons
mentioned we find that sellers are often our first choice regarding financing.
It is typical for a seller of raw land to accept 10% down and the rest
to be paid over time at a specified (below market) interest rate. This
would be an example of an installment land contract. Other forms are contract
for deed, mortgage and note and purchase money mortgages. In these cases,
a real estate attorney usually drafts these contracts and a bank will act
as an escrow agent to facilitate verifiable records of payments received.
The seller often retains the deed until the property is paid for in full.
If you want
to investigate bank financing, then you may start out by offering 30% down
with a seven-year mortgage, with the bank getting an extra percentage point
over and above the current interest rates for standard loans. This may
not be accepted but it does give you a starting point to see just what
they may be willing to do.
If you plan
on building on your land, then having a development plan with an appraised
set of blue prints for the project will help the lender in justifying your
loan. If you can use equity from other property, then paying substantial
down payments may also be an option.
My final words
of caution here would be to know values and don't overpay. Always offer
less when possible and research recent sales of comparable properties.
The larger a parcel is, the cheaper it tends to get per acre. Ask an agent
what an acre of land tends to go for in the area that you are considering;
try to buy more than one acre.
When buying
residential lots, builders try to keep raw land costs down to 10% of the
overall value of the project. If streets and utilities are already in place,
then they will use 25% as their guideline. If you can combine or assemble
parcels or achieve zoning changes with property, you have a good chance
of immediately increasing its value. Always physically inspect the property
and do your research before obligating yourself to buy it. Try using contracts
with contingencies put in to protect yourself. In essence, these are really
options that let you control the deal while you investigate and research
the land's potential to satisfy your objectives. Happy Hunting and buy
the high grounds! |
