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Buying Vacant Land – Do’s and Don’ts

Buying vacant land gives you an opportunity to customize a property it to your liking, especially as a real estate investor. You can put a home on it, landscape it as you wish and sit on the property as it appreciates in value with low holding costs. There are considerations that you need to keep in mind when buying a vacant lot. Follow these do’s and don’ts when buying vacant land to protect your investment and ensure that you can use the land how you intend.

Do: Aim for a Construction Loan

It’s unlikely you’ll be able to get approved for a loan without some type of collateral. A typical mortgage uses the house to secure the funds, but an empty piece of land doesn’t give the bank the same guarantee. Apply for a construction loan to improve your chances of getting the funding you need, especially if you don’t have an established relationship with the lender.

Do: Look at Values of Neighboring Homesbuying vacant properties

Take a look into how homes in the area are valued. Building your own home gives you endless customization opportunities, but aiming too high can deny your loan if it’s excessive for where the land is located. Trying to build a million dollar home where neighboring homes average $200,000 will probably not get you approved for a construction loan or mortgage.

Do: Get an Accurate Survey and Environmental Testing

Get the appropriate tests done to determine if the land is suitable for building and that it isn’t contaminated by pollutants or other factors, such as the likelihood of flooding that would deem it unsuitable for building on. Verify that the necessary electric, water, sewer, and heating lines are present on the property or can be run by the utility companies if necessary.

Don’t: Talk to the Neighbors First

Neighbors in the area might not be so happy to know that an empty piece of land is going to have a structure erected on it. If you really want the project to go forward, put your plans in motion and deal with the feelings of the neighbors once it is underway and the construction crew has broken ground.

Don’t: Think You Can Change Zoning Laws

Areas are zoned for a specific use and can’t be changed without appealing to the city for a variance. Verify that the property is zoned for what you intend to use it for to prevent issues once construction is completed. Instead of trying to change zoning, modify your expectations and design to comply with existing requirements. These can include needing to be a certain distance from the road or neighbor’s properties. Of course there is a value add play if you can obtain a zoning variance and increase the unit density or change the use of the property (i.e.: residential to commercial) but first verify the likelihood of this with your zoning attorney and architect. There will be an inherent risk in trying to obtain a variance but it could turn out to be a lucrative play if you are successful. My recommendation is to structure your purchase agreement to make the transaction contingent upon zoning approval if you are trying to get a use or density change on the property, this will hedge your risk being stuck with the land if cannot get the variance but you may still be out some money for paying your service providers (architect, zoning attorney, etc).

Real estate laws aren’t always the easiest to understand. It is to your benefit when choosing to purchase vacant land to work with an experienced real estate professional with knowledge of the industry and the market you want to invest in. Contact us now for more information on how you can invest in off-market properties in the Philadelphia area.

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