Much has been said and many irreversible mistakes have been made when investing in land. Whether buying to baby sit a raw piece of property for a future profit or simply for your new home site, having basic knowledge about any parcel of land you hope to purchase will lead to a successful deal.
Before we get down to business, let’s assume you have performed your due-diligence toward the certainty that the property you are purchasing is clear of all liens, power is available, access (ingress/ egress) is not an issue and the land has all governmental jurisdictional issues squared away.
Hands down, one of the most important factors that land investors fail to realize is the cost after the sale. Simply put, the cost to develop land by adding improvements. You want to position yourself so that no financial surprises knock down your budget or take you completely out of the game once the land development process begins.
For example when we purchase a new car we kick a few tires and check under the hood. What does that tell us? It tells us the tires support the vehicle and any of us along for the ride. The engine represents the power to get us from point A to point B and that we are confident it won’t break down on a dark road. Deep inside we feel a need to pacify our confidence in what we purchase.
How do we check under the hood of a piece of property we hope to call our own? How do we know what lies beneath the surface? The answer is extremely important because we don’t want to overpay for something that has an extreme attached cost when we hit the development stages. Nobody desires to purchase a piece of property where the cost to develop it exceeds the price point of the property. But it happens.
There are pressing issues other than the purchase price alone. Imagine you have bought a parcel of land and your well driller is at a depth of 500 feet. Your calculating the cost in your head as your jaw drops. Now, at around ten thousand dollars and no water, do you have him move and start all over or do you tell him to keep drilling?
Imagine this scenario: Your well driller has just hit water at 300 feet only to find your drinking water is loaded with sulfur. Sulfur combined with well water is a disaster. It can be fixed by purification systems, but there will be ongoing maintenance agreements to pay. I don’t know about you, but just the thought of filtering rotten, egg fragrant water through my kitchen sink nauseates me.
Here are some tips to keep you ahead of the game when in the selection process of purchasing property.
1.) Never purchase land just because it possesses a beautiful view.
2.) If your water source is to be a new well, then you should consider contacting at least two well drillers in the area. They should have the knowledge necessary to tell you where the best water is, how deep and an approximate cost. Another great idea is to seek out a potential neighbor and just ask them. They might even offer you a refreshing glass of ice water.
3.) If your property is not tied into city utilities (water and sewer) and a septic system is required on the property you hope to purchase, I highly recommend you have a perk test performed. Septic systems can make or break a deal because of the cost factor. The cost for a new septic system can be into the tens of thousands of dollars. Even a perk test where a back hoe is involved can run about $500 or more. Whether the seller pays or co-pays for a perk test, it is always a good idea as you will want to avoid any brutal surprises. Perk tests are like looking under the hood.
Obviously there are many factors that lead us to making an educated selection when buying land. Many books have been written on the subject. If you truly want to choose properties of good value, I first suggest that you know more about the land you wish to purchase than the owner and work outward from there. The more investigation you perform, the easier it will be to meet your budget.
As a land investor, I make it a rule to buy property that is inexpensive to develop. I don’t have to hide facts about the characteristics of any of my properties. There is value to that and there are no sleepless nights under those conditions.
Good luck on your next purchase.