My father-in-law is a builder. He's built single million dollar homes and developments, and sold them of course, for profit. Being a successful builder begins with buying the right lot or parcel. The price of the lot or plot is important, but there are so many more things to consider that aren't so obvious. And if you don't do your homework, you'll have made one sorry decision, for you'll end up paying taxes on your purchased liability (not asset) for decades!
Okay so if you're interested in buying land as an investment, you should do so because you're intending to flip it before you die or to build on it immediately and sell the designer home(s). It makes absolutely no sense whatsoever to buy land if your primary intention or motivation is to one day pass it to your children. Why would they want to inherit a liability? Below are things to consider before you purchase any land:
1) Are there established homes or developments in the vicinity (neighbors)? If you're being sold a parcel out in the desert with nothing but cacti as neighbors, you're either a gambler or a dope.
2) If the lot is in an established community, what are the homes selling for? Remember, everyone has to make money. Is there enough there for a builder to make a profit once they take the lot off your hands? Example: Lot is priced at $150K in a neighborhood with $700K to $900K homes. The higher the property values the more you can flip your lot for so review the property value trends of the established homes before buying the lot.
3) If conditions 1 and 2 from above are met, the lot with a view always trumps one without a view. A city view or a view of a hole on a golf course will always be more desirable than a plot with nothing to entice a buyer.
4) Check the fees to build! Even if you're not planning on building anything, you have to know how much out of pocket a builder would be to get their permits from the planning department. Are the fees discouraging, meaning, exorbitant compared to other neighboring cities or counties?
5) Can you even build on the site? I kid you not, we were lured into physically checking out a residential lot in San Diego city that was priced well below what other lots were going for nearby. Luckily, we smelled a rat. We went to the city planning department and discovered you couldn't build anything there. The realtor had left this information out. Probably fraud. Check what the lot is zoned for, and if you can build on it!
6) Is there a well or a water hook-up already there? Do you know how costly it is for a builder to get water to the property he or she will build? Very $$$. So do the builder who will buy your lot (for more) in the near future a huge favor, and buy the lot with water in place.
7) While you're at it, buy a lot with as many public utilities already in place as you possibly can have. Sewer, electric, gas, and you're on a roll! Nice job, land investor.
8) How's the access? Will a builder need to pave a mile of road to get to the property? If so, skip it. By the way, grading is okay so long as you won't have to level off half a mountain.
9) Is there enough space for a home with similar square footage to the established homes in the area. Tiny homes don't make money for builders! So check the required setbacks on any property that would potentially be built there.
Alright so the moral of this story is to think like a builder whenever you're considering purchasing land as an investment. I suggest you create a checklist using these 9 tips and cross them off one by one before pulling the trigger on a purchase. Thanks for reading! If you liked this post and want to get more like them on automatic, please subscribe to this blog by entering your email below:
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