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Purchasing Land to Build a Dream Home?

Things to know before diving into buying land



When deciding to purchase vacant land, there are many things to consider, as it can be a complicated process. The first thing to know is that buying vacant land is not the same as buying a property with an existing structure or dwelling. As with any real estate purchase, research is incredibly important. It's crucial that as a buyer no stone is left unturned in the due diligence process. It's also important to understand financing options or lack thereof with vacant land.

In many cases, land must be a cash sale. Many lenders will not carry a mortgage on vacant land—although there are a few exceptions. Those few lenders who are willing to lend on a vacant land purchase require a substantial amount down and, in some cases, will also require that construction begin within a specific timeframe. It's important to perform the due diligence on financing options and financing requirements available prior to beginning the land search.

  • Juan de Vojníkov / Wikimedia Commons

Zoning restrictions are a critical piece of the due diligence puzzle, which govern what can and cannot be done with the land. Not all land can be built on, or there are restrictions on what type of building can be built on the land. What will the building be used for? For example, a single-family home cannot be built on a commercial or industrial-zoned lot. It's important to be very clear on the exact use the zoning allows for. This will help with understanding what types of buildings are or are not allowed on the land. In addition, it's beneficial to investigate what the city/county's plans are for the development and zoning of the surrounding area, especially where roads and types of roads are concerned. The last thing one wants to do is build their dream home and it ends up right next to a new highway because that step of the due diligence was skipped.

And then there are utilities. Prior to purchasing vacant land, it's crucial to verify what utilities are available and the potential cost of bringing utilities to the property if they aren't already at the site. There's the topic of public water and sewer versus wells and septic. If public utilities are not available, will the county or city allow for wells and a septic system? Can the property support a septic system or well? These are studies that need to be conducted during the due diligence period to determine feasibility.

In addition to zoning, there are also conditions, covenants and restrictions of the development to consider. What's allowed on the land? Are there limitations to structure size or where on the lot the structure may be placed? Are there architectural guidelines and requirements for review and approval of the building style? As an example, some neighborhoods require that the structure follow a specific building style, like craftsman or contemporary. Are additional structures like a shop or accessory dwelling unit allowed?

Easements are another crucial piece to the puzzle. An easement is defined as an interest in land owned by another that entitles its holder to a specific limited use. If easements exist, one must investigate what, if any, limitations the easement creates for the property.

Surveying the vacant land helps to determine the property boundaries and marks the exact lot lines. A survey can also help determine critical information about flood plains and elevations.

And then there's permitting, which runs in line with zoning. It's important to investigate what permits are going to be required and what are the potential costs of these permits and system development charges. And finally, what is the overall cost to build the building or home? There are many more expenses than just the vertical build, as discussed above. The final puzzle piece is determining expense.

As always, a real estate professional and professional general contractor can help guide one through the due diligence process.

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