Buying Land Basics
So, you are thinking about making a land purchase? Great! Land can often been a good investment, depending on the location and/or size of the property.
There are some important things to consider when you are buying land.
Ask yourself some of these questions and do your homework:
Is the property in a good location? What's is the neighborhood like?
This is important for investment reasons and future resale. A desirable location might depend upon the condition of the neighborhood or distance from shopping or recreational activities. If the neighborhood is not desirable, then that may affect the future value of the property.
Does land value adequately appreciate in this area?
This also relates to the location. Some areas appreciate a lot faster than others. For example, waterfront property may appreciate at a higher rate than off water property. Also, land in more populated areas with good job opportunities, will hold and appreciate in value faster than property in poorer regions of the country.
Is there a home owners association? If yes, what are the dues/fees?
Home owner associations can often be a good thing, but at a cost. Association fees can range from as little at $20 per year to $1000's per year, depending on the type of HOA it is. This is something to take into consideration if you are buying property for investment reasons. Will the rate of appreciation offset the cost of these fees over the course of ownership?
What are the land use restrictions?
These restrictions can be county, township, agricultural, commercial or association restrictions. For example, some areas may not allow mobile homes to be placed on property. This is a common restriction throughout many areas. Other areas might restrict the size or color of your home. Restrictions will vary, depending on the location of the property.
If it's a larger parcel of land, can it be split?
If you are buying a larger parcel of land for investment purposes, you may want make sure that some splits are available for the property. Without split rights, they property can only remain as one parcel and not sold into smaller pieces. Laws very on split rights per state and often per township, depending on the local zoning.
Does the property come with the mineral rights? (This applies to larger parcels).
With larger parcels of land, this might be an important issue depending on the area. Often, smaller parcels such as 10 or 20 acres, may no longer have the mineral rights. On occasion these smaller pieces of acreage will still have those rights, but it's rare. With parcels over 30 or 40 acres, there is a much greater chance that the mineral rights still remain. Sometimes the only way to find out if the property still retains all mineral rights, is to have a mineral search done. This can be done through title insurance companies experienced in doing these types of searches. Sometimes this can be very costly and require a lot of research. It that case, it might not be cost effective to have a search done.
If a property still has the mineral rights intact but the seller won't give them to a purchaser, I would questions the reasons why they would want to keep them. In many cases, a buyer will back out of a purchase simply because the seller would not convey those rights will the land.
If the property does not come with the mineral rights, is there much activity in the area with gas or oil wells?
If the property is located in a area with little or no activity, the risk will probably be minimal. It will be up to you to decide whether you are comfortable purchasing a property without these rights. In most cases, a buyer is safe from having any wells placed on their property, but there is never any guarantee.
If the property doesn't have access to public sewer, does it perk?
First of all, what is a perk test? A perk test is usually done by the local health department to determine whether an in ground sewage system can be placed on the property. This is done by boring 4-5 foot holes around the desired area of the property that you would like to have the system placed. The health department will let you know what type of a system can be placed on the property, if any. If the property does not perk or is not suitable for a modified (engineered) septic system, this will greatly hurt the value of the property and you many not be able to ever build on the property. In some cases, an in ground septic tank will be allowed without a drain field, but this allowance will vary, depending on the rules in each state and/or county. In areas with a lot of rock or clay, these systems are common.
What do the water well depths run in that area?
If you are ever planning on having a well drilled on a property, it might be a good idea to find out what the average well depths are in the area. An extremely deep well can be very expensive to have drilled.
Has the property been surveyed?
It's always a good idea to have a property surveyed before or after purchase. This is especially true if you plan to build near a property line in the future. Often an old fence line might be assumed as the property line, when in fact it could be a few to several feet on one side or the other, of that fence line. The best way to determine the actual property line, is to hire a professional surveyor to mark those lines for you. Depending on your region, this can cost from several hundred dollars to thousands of dollars.
A Special Note About Buying Tax Sale Property:
I wanted to bring this up because I see this happen all of the time in one of my neighborhoods here, in Gladwin Michigan.
If you decide to purchase property from a county tax sale, you will want to do your homework first before making a bid on that bargain property. "Buyer Beware!" In many cases, when you purchase a property at a tax sale, the title may not be clear.
I see this problem over and over again. People will go to these tax sales thinking that they can and pick up multiple lots for a couple hundred bucks and instantly turn around and sell them for 1000's of dollars more. Then when they try to list their lots with a real estate company or go to a title company to have their lots insured at a sale, the title company won't insure them. It can often be expensive to file for a quiet title. This will depend on how much research has to be done to quiet these titles.
An educated buyer will not want to buy a property without a warranty deed and title insurance. Most title insurance companies will not insure a property that were bought at a tax sale unless steps have been taken to have the title cleared.
What is even worse, is sometimes these lots are located in a home owners association where the dues are hundreds of dollars per year per lot. The new property owners find that on top of paying to have the titles cleared, they are also having to pay hundreds to thousands of dollars in HOA dues while they sit on these lots waiting for them to get clear titles and then wait for them to sell. It can often be a time consuming and expensive, especially if the lots are only worth a few thousand dollars each. Sometimes the seller is lucky to walk away after a sale, just breaking even.
In many instances, I have seen these owners give up on selling these lots and just let them go back to the county by not paying their taxes. Some of these tax lots have gone through this cycle many times, simply because these owners didn't know what they were getting into when they bough these lots at a tax sale.So do your research before you buy. You'll be thankful you did.
Copyright 2006 Ivie Baker. You may republish this article in its entirety, only if you leave the author's note & website hyperlinks intact.
About the Author
Ivie Baker specializes in waterfront and recreational properties. She has been with Kehoe Realty Inc since April of 1999 and is an Accredited Buyer Representative (ABR). This designation is a benchmark of excellence in buyer representation. She is also her own webmaster for her real estate sites. www.GladwinRealEstateAgent.com
