The Pros & Cons of Buying Undeveloped Land
Before buying and using raw, undeveloped land, it’s crucial to consider the process of purchasing it and the potential benefits and drawbacks. The possibilities of owning such land are numerous, but it’s important to weigh the pros and cons before making a decision.
What is Undeveloped Land?
Often referred to as raw land, undeveloped land is a vacant area without public utilities, buildings, or driveways. This is often in rural areas found on off-country roads. It can be used for many other purposes as well:
- Recreational Use
- Renting Out to Farmers or Vehicle Dwellers
- Using as Storage
- Working a Side Hustle (Growing Produce, Raising Bees & Livestock, Growing Flowers, or Raising Christmas Trees)
- Using as a Parking Lot
- Selling the Land at the Right Price
Undeveloped land has great appreciation value due to its limited supply and growing demand. Despite the appreciated value, it can still be difficult to get financing for land. Before investing, take into consideration the pros and cons of buying undeveloped land, as well as the costs associated with building on said land, and how to go about financing the purchase.
Pros of Purchasing Undeveloped Land
Undeveloped land is a blank slate for the use of building. This means legally you can choose how to use this land, as well as customize your build from the ground up to your exact specifications. They do, however, have to keep up with local zoning laws. Since nothing is on the property, there won’t be a need for debate about what is a dealbreaker and what to “live with.”
Fewer Maintenance Costs
When you buy property without buildings on the plot of land, there is less to maintain. Average costs of owning a home inlaced maintenance repairs and the upkeep of major home repairs as well as appliances. On undeveloped land, there is no HVAC or plumbing to replace. The only thing to maintain is the land, such as keeping up on property taxes, insurance, and financial maintenance.
When it comes to buyer competition, it is far easier to purchase undeveloped land than a traditional single-family home. Many want something move-in ready, not wanting to deal with the stress that comes with building a home or planning out a home blueprint. With the housing market as it is, there is high demand and low inventory. Therefore buying land and avoiding competition can be in your best interest.
Return on Investment
The land is finite and with that in mind, there is only so much space on the earth. As the population grows and space becomes limited, the price of land can increase in cost. Undeveloped land has the potential to become a more solid investment property.
Cons of Purchasing Undeveloped Land
The downpayment to purchase land is usually around 15%-25%. This average doesn’t always hold when it comes down to raw land due to a higher risk to the lender. The lender doesn’t always have a solid guarantee for an investment with the land not being ready for a build, or nonspecific plans to build. Raw land is typically a TBD investment, or “to be determined.”
Zoning laws are there to dictate how certain plots of land can be used. That means these laws can vary by location, ending up limiting or ruining the intended purpose of the land. Before buying land, do research on zoning laws by visiting the department of city planning.
Permits are used as evidence of the official approval from local governments to build or complete action on a piece of land. Several permits will be needed to get to build a house on undeveloped land. These permits can include septic, well, driveway, and building permits.
An easement allows another person or organization the right to use the property for a specific purpose. The property should not have any easements, and if it does, then you have to be prepared to be okay with access that is granted and it won’t impede on the plans for your property. You will also want your land to not be landlocked, meaning it is surrounded by property owned by others without access to main roads or utilities.
If you plan to build on raw land, you will have to consider the timeline. You won’t be able to move in right away or build the land immediately. It can take longer to build on undeveloped land than on developed land because you’ll need to prep the property to gain access and begin installing utilities.
The Bottom Line
If you consider buying undeveloped land as an investment or as the new location of your dream home, it is important to have a plan in place for the land, and how to finance the purchase. Knowing what to expect ahead of time will help you save money. Factor in all costs, and the steps needed to take to purchase and prep the land to be used in the right way.