You have probably visited Zillow, Realtor.com, Trulia, Redfin, or other real estate sites looking for your dream investment property. But have you ever considered buying land and building a home? This is an option that is often overlooked by many real estate investors.
If you want to learn how to buy land and build a house, you are in the right place. In this article, we will look at the benefits of buying land to build, as well as the steps involved in the process.
Related: 10 Best Real Estate Strategies for 2021
Benefits of Buying Land and Building
Here are some of the advantages of purchasing land and building a house:
- Customization: When you construct a house from the ground up, you get to personalize the details to suit your potential tenants – from the flooring, cabinets, and layouts, to the doorknobs, paint colors, and sinks
- Lower maintenance: Since new houses are built to satisfy current building codes and have the latest technology, you will not have to worry about major repairs or maintenance for the first few years. This means no faulty HVAC systems, leaky roofs, or shaky foundations
- Low energy costs: New homes can be built using the latest energy-efficient materials and systems. This could significantly lower your energy bills
- Low competition: Currently, there is a very high demand for existing homes in the US. With houses flying off the market so fast, finding a property at a low price can be difficult. Buying land and building is a cheaper option since there is less competition
Steps to Buying Land and Building a House
Despite the benefits, the buying land and building a house process can be very complex. To avoid making costly mistakes, here are the steps you need to take when buying land to build a house:
Find land for sale
The first step is to find a good piece of land to purchase. You can locate the ideal property through the following sources:
- Real estate agents: Hiring a professional to guide you through the land buying process could save you lots of headaches and money. An experienced real estate agent is familiar with the nuances of the housing market and can help you get a good deal. To find the right agent, start by asking friends, family, and neighbors for recommendations. You might also want to look at local real estate association websites. Be sure to find a real estate agent that has experience selling property in the area you would want to invest in
- Vacant land for sale websites: Land Central, The Land Spot, Land Elevated, LandHub, LandFlip, and Land Watch are some of the sites you might want to look at. Real estate sites like Trulia and Zillow could also be great sources of land. However, only work with vacant land marketplaces that have trusted reviews from real customers
- For Sale By Owner (FSBO): There is a lot of land being sold directly by its owners. You can find such properties by searching real estate sites, magazines, newspapers, or classifieds for homes listed as FSBO
- Auction sites: To find land being sold by auction companies, simply search Google using terms like ‘California land auctions’ or ‘California land auctioneer’. Such companies might hold their auctions online or live
- Government-owned land: Most government agencies offer land for sale. This usually takes two forms. One is the land repossessed from people that fail to pay property taxes, and the other is surplus land that federal, state, or local agencies own but no longer need. Visit sites like HUD.gov, treasury.gov, and gsa.gov to find single family homes, condos, multi family homes, and apartments being sold by government agencies
Evaluate the Land Purchase
Before buying any property, you need to conduct thorough research. Here are some of the areas you need to investigate:
- Deed and ownership history: Pay a real estate law office or escrow company to conduct a thorough title search. This will reveal if anyone that has claims to the land or has filed liens against it
- Property taxes: When you purchase land, you will be required to pay annual property taxes. Be sure to find out what the tax rate is for your area
- Zoning and potential zoning issues: Zoning limits the kind of buildings that can be constructed and how they can be used. Common zoning designations are residential, multi family, commercial, agricultural and industrial. Get familiar with the current zoning designations and pending zoning changes
- Physical characteristics of the land: Is the parcel landlocked? Does it have access to a road? Is it in a flood zone or wetland? These are some of the questions to ask when buying land to build a house
- Availability of utilities: Find out which utilities are available at the property or nearby. This includes water, sewer, gas, electricity, internet, and phone. If there are no utilities, calculate the cost of installing them. You could get a quote from an experienced local contractor
Get Financing for Your Land Purchase
Once you’ve found a parcel that meets your requirements and specifications, the next thing you need to do is fund the purchase. If you have enough money saved up, paying in cash is the best option. You are likely to get a discount from the seller, and you won’t have to worry about paying interest on a mortgage. If you have to borrow money, here are the options to consider:
- Seller financing: At times, the person or company selling the property might be willing to provide short-term financing. However, be ready to pay a hefty down payment and a high-interest rate. You are also unlikely to get a long repayment term. Consider seller financing only if you are unable to qualify for other kinds of loan
- Home equity loan: In case you have an existing house with good equity, go for a home equity loan. There are no down payments involved, and you could enjoy a low-interest rate. However, defaulting on the loan could mean losing your home
- Lender land loans: Find a local credit union or community bank that offers land loans. If you have plans to build soon, the lender might charge a lower interest rate and lower down payment
Related: Real Estate Investment Financing: 7 Ways That Work for Beginners
Choose a home builder
Getting your home built is probably the best part of the buying land and building process. To find the right builder, you could ask relatives and friends for recommendations of builders they have worked with directly. You could also reach out to the local home builders’ association to get a list of approved companies in the area. The real estate section of the local newspaper could be another great source of builders active in your area.
Before hiring a builder, be sure to visit homes they have built recently. Don’t forget to talk to homeowners to find out if they are happy with their properties.
Conclusion
Whether you are buying land in California, Seattle, Chicago, New York, or Illinois, make sure to follow the above steps to buying land and building a home. While you can find a good deal by yourself, it would be advisable to work with a real estate agent. Don’t forget to use tools like the Mashvisor real estate heatmap to find the most profitable neighborhoods in your area.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.