Land Acquisition: How Does It Work?
Land acquisition (buying land) is different from buying a pre-existing home or business. For obvious reasons, before you buy land you want to be clear on what the purchase is going to be used for. Your decision will impact whether or not a certain piece of land can be bought and used for its intended purpose. It would be a shame to buy your perfect property for the intention of building a house, only to find out it’s zoned a different way. There are a lot of special considerations to think about when buying land, and we want you to be well informed before making any decisions.
For our purpose as contractors, we’re going to assume you want to build something. There are seven basic steps to take as you find yourself on your land acquisition journey. In many cases, these steps will apply for both commercial and residential construction.
7 Steps to Buying Land
- Determine its use: As stated earlier, before you start hunting for your land, figure out why you’re in the market. For the most part, this is the easiest of the steps. Some examples include: Building a house, building a commercial property, farmland, diversifying your portfolio, and even speculation.
- Budget: Having a budget in place for purchasing your land is very important. Because buying raw land can include several steps most other property purchases do not require, it’s best to do your due diligence and research before you buy. Down payments tend to be higher for raw land purchases, ranging from 20-50% of the property price. You’ll also need to consider all of the conversion costs (this includes anything you have to convert on your property for its intended use). Talking with your construction team and getting an estimate for these costs will help you determine your budget, if you’re unsure.
- Hunt for land: This can be done a variety of ways: searching through property listings online, classified ads in newspapers, or by utilizing the help of a Real Estate Agent. If you’d like some help finding real estate professionals, surveyors, or other professionals contact us. We can also come out with you to preview the land before you purchase to ensure the style and size will fit your dream home. We do a lot of pre-purchase lot viewing with and for our clients. Regardless of how you land hunt, the choice depends on you and what you’re most comfortable with. If you live in a different location, often times a real estate agent is helpful because they can scope out properties on your behalf, letting you know which ones they believe work best for your intended use, and filling you in on the neighborhood, and even zoning issues.
- Considerations for Due Diligence: There are a number of things to consider when choosing your raw land to build on. If you are using a real estate agent and a team of contractors to, they can answer a lot of these questions for you. However, it’s never a bad thing to do your own due diligence. Here are some questions to consider.
- Sewer/Septic – Does the property have access to city septic? Or is the property capable of handling a septic system?
- Wells – Will the land have access to city water (along with sewer), or will a well need to be installed? If so, what type of well needs to be considered, as there are different types. Will your loan allow you to purchase the property with the kind of well you’ll need to use?
- Road Access & Easements – Does the property have easy access to a road? Can you get in and out of the property? If not, are you willing and able to build a road to the land? Give careful considerations to easements as it can affect how you use the land.
- Utility companies – Are the utility companies willing to bring electricity, Internet, and telephone out to your location? Do you have to pay a fee to have this accomplished? How does this affect your budget?
- Environmental restrictions – Pay particular attention to this, as knowing what environmental restrictions your land may have can impact its use. This can be from zoning down to whether or not wetlands can be altered, or if toxic chemicals have been left behind by previous owner’s usage. In the Brainerd Lakes, for example, owners searching for waterfront properties have to be especially careful, as these lands have a variety of strict guidelines about use and building, which can limit what you can do.
- Check the plat – When you get serious about a piece of land, consider checking the plat for its legal description and survey to be sure it matches what you’re being sold.
- Hire a Surveyor – Even if the sellers include a survey of the property you’re about to buy, it’s really best to hire one of your own to determine the soil, topography, and where you should build. This will help you and your construction team avoid certain pitfalls when beginning construction.
- Make an offer: Generally speaking, land will appreciate as it’s developed. Because of this, the rule of thumb is to start low and negotiate as you go along. Most raw land properties sell for 85% of the original asking price.
- Financing: If you can’t buy the land outright – and remember, down payments are higher at 20-50% – you can consider a more traditional lender to finance the purchase. This may include higher interest rates than a standard home mortgage, and your lender could require a detailed timeline for development. A final option is owner financing, or purchasing the land through the seller. This can be beneficial in certain circumstances, but it’s best to discuss your options with your real estate attorney.
- Close: If all of your hard work and research has paid off and both you and the land owner want to finalize your purchase, you’ll finalize everything at the closing of the property. In this meeting, you’ll be signing your land contract, the deed for the land will be transferred, and you’ll receive a closing statement. Congratulations! The land is now yours!
If you’re in the market to build a new custom home, develop a commercial construction project, start a renovation, or if you’re just curious about what we offer at Baratto Brothers, contact us today by filling out our contact form, stopping in to say hello, or by giving us a call at (218) 692-1070. We’re here to help you sift through your options, and make building as easy as possible for you. We’ll do everything we can to become your Builder for Life.