A great tract of land is the basis for the perfect home for you and your family.
If you are in it as a business, the right land can make the difference between a profitable project and a nightmare.
Finding good land requires careful consideration and planning, and, when the market is healthy, it also requires making quick, knowledgeable decisions.
Here is a step-by-step guide for both:
Step 1 - Get Your Systems In Place Before That Perfect Piece of Land Presents Itself
- Find a friendly realtor and try to talk them into getting access to their listing service so that you can quickly see new properties. Keep as many of the search parameters open as possible.
- Don’t take advantage of their generosity. Explain how you’re only practicing and won’t be demanding of their time, even though you may occasionally need them to get information or make a call.
- Go online and look at websites such as ‘Zillow’ and ‘Redfin’.
- Do as much investigation as possible on construction costs and other soft costs such as civil engineering, surveying, appraisal, etc. Streamline your knowledge as much as possible so that, when the property of your dreams appears, you can make quick decisions.
- Make as many decisions as you can regarding your ‘program’…how many bedrooms, how big a house, etc.
- Decide on your budget, starting with your maximum monthly mortgage payment and backing out all the other project costs (hard and soft).
- Keep your mind open regarding the type of land you could use…rural land, in-town lot, infill site, etc.
Step 2 - Define Your Goals and Needs
- Location, Location, Location: Choose a preferred area based on proximity to work, schools, amenities, and transportation.
- Purpose: Are you looking for a site for your family’s custom home? Will the overall cost of construction, soft costs, and land costs add up to at least the home’s appraised value? If not, move on.
- Are you looking for a project to sell? If you’re looking for that, plug in a number for your profit. If you’re depending an an investor, make sure that you have included a realistic return on investment. If the profit doesn’t work, move on to the next project.
- Budget: Determine how much you can afford to spend on the land, based on the overall cost of the project, versus the appraised value of the finished project. Don’t be overly optimistic and try to force the project into a realistic budget.
Step 3 - Different methods you could use
to find that 'perfect' property.
- Write down phone numbers on real estate signs
- Knock on doors, ask questions
- Note addresses of vacant lots or obviously deserted homes and look up the owner information later
Start conversations with people in the business: realtors, civil engineers, developers, etc.
Step 4 - Research the Area
- Market Trends: Research local real estate trends to understand land prices.
- Zoning and Regulations: Verify zoning laws to ensure the land can be used for residential purposes. Study up on the rules before starting.
- Utilities: Check for access to utilities like water, electricity, gas, sewer, and Internet.
- Future Developments: Investigate planned infrastructure projects or developments in the area.
- Identify neighborhood amenities: shopping, transportation routes, etc.
- Tip: The major coffee shops spend a lot of time and money researching ‘up and coming’ neighborhoods. If you are doing this as a ‘side-hustle’ and your main goal is to sell the house at a profit, try to stay within walking distance to one of these new coffee shops.
You don’t want to buy the first piece of property that you like. Drive around. Knock on doors. Talk with people. Go to the library and look through old newspapers. Get knowledgeable!
Another good source of information is the County offices. Visit the Health Department’s website to see what’s going on. Go to development meetings.
Accessibility: Check road access and evaluate traffic patterns.
Neighborhood: Assess the safety, noise levels, and aesthetic appeal of the surrounding area.
Soil and Drainage: Look for signs of poor drainage or unstable soils, which could add to your ‘sitework’ budget.
Step 5 - Physically Walk The Property. Note Views, Sun Angles, Features, Pros and Cons
Do this step as soon as possible. There might be other people looking at this property and…believe me…you don’t want to find the ‘perfect’ property and learn that it went under contract just before you got there.
Time is of the essence!
Make an inventory of the views that you would like to capture…and the views you would like to avoid. Document the physical features, such as big trees and boulders, that you need to work around. Note the path of the sun across the property…the prominent wind directions…noise generators (like a busy highway), existing curb cuts, utility poles, and steep slopes.
Drive down to the County office…town, parish, …whatever jurisdiction is going to issue the Building Permit. (Or get the information off their website.)
Get a person of authority to tell you the zoning classification of the land that you’re looking at. From that, you should be able to get the setback information; the distance that any construction needs to be set back from the front, sides, and rear property lines.
DO NOT depend on the seller’s real estate agent or a helpful neighbor for this information!! Believe me, I’ve learned that lesson the hard way (a couple of times.)
Try to get a plat of the property to see if there are any existing easements on the property. Is there any utility easements running across the property? Does your neighbor have an egress easement? Are you in the flood plain?
Verify what jurisdictions need to be dealt with. Is it just the County? Or do you need to get HOA approval? Any Historical Preservation Groups?
What unique code requirements do you need to deal with? Are there height restrictions? Is there a maximum lot coverage? If so, how do you calculate?
If you are going ‘well and septic’, what are the County Codes for clearance requirements?
It’s also a good time to find out whether you’re going to have to submit an engineered site plan for approval. Do you need to hire a civil engineer? (on most urban lots, you generally do need to hire a civil engineer. On my rural lot, I was able to draw a house footprint on a scaled survey plat and dimension the well and septic setbacks.)
I would also encourage you to ask for your realtor’s advice. Your realtor had probably been through similar experiences. Your civil engineer is also a good source of information.
Also…I would recommend just chatting with the County person. What surprises are in store? What do I need to look out for? (I was involved in a project where there was a surprise ‘water tap fee’ of $26K, which almost instantly made the project unprofitable.)
Do your homework now and do a thorough job! An hour of standing in line down at the County is much quicker than re-drawing the plans.
Step 7 - Draw a Rough Site Plan Using The Setback Information Learned
Try to get an engineered plat or survey of the property and enlarge it on a large sheet of graph paper at 1/8″ = 1′-0″ or 1:100 metric scale. Worst case: Go onto Google Maps and scale off the property lines.
Draw in all the setbacks, easements, and physical features that you discovered on the previous step.
What’s left over is referred to as ‘The Building Envelope’. If you were a painter, that area would be the canvas that you have to work with.
Where would the house be located? Where should you locate the specific rooms to take advantage of the sun? The views? What views or noises do you want to block?
Step 8 - Do A Quick Sketch of the Floor Plan
We are going to get into the design process in our next blog post, and just want to do enough here to prove that you can fit your house within the building envelope you just defined.
That sounds as though it may be a simple thing to prove, particularly on large rural lots, although it might surprise you. Using our example project, for instance, after subtracting out the drain field for the septic system, the pond, and the swampy forest areas, the buildable area was actually quite small.
I used to do a lot of infill projects in this town that had a maximum lot coverage rule, and really had to struggle sometimes to fit the house that my client wanted on the lot that he wanted to buy without exceeding the 25% coverage.
It may not be a problem for you, but still, it’s a good idea to at least confirm that your house will fit on the property before you buy the lot.
Step 9 - Perform Cost Analysis
You should already have a working project proforma started. Insert the cost of this specific lot into your proforma and adjust the sitework costs as necessary to see if the numbers still work.
Start by filling out the numbers in these categories:
* Construction (sticks and bricks cost) Estimated hard cost in the area for similar construction X number of square feet. (Remember that some items, such as garages, screened porches, covered decks, outdoor improvements, etc., don’t contribute to a house’s square footage. Make sure that you include these items separately in your estimate.
* Soft Costs (Architect, Civil and Soils Structural Engineers, Realtors, Lawyers, Accountants, etc.)
* Sitework: Grading, well, septic, sewer, fencing, electrical, and Internet service,
* Run a quick mental appraisal. How much money would a similar house sell for on a similar lot, etc? Subtract the Hard, Soft and Sitework costs from that number.
* Land Cost: Should be less than what’s left over. (and not much more than 20% of the total project cost)
Step 10 - Verify Ownership and Legal Details
It’s always good to ask around and get ‘the story’ on a piece of land. With divorces and deaths generating sales, land deals can sometimes get complicated.
I wouldn’t formally bother with investigating until the deal looks successful, but through your realtor, you should get a real estate attorney or title company involved several days before closing.
Step 11 - Be Realistic
Regardless of how awesome this property is, be ready to walk away if the numbers don’t work. Don’t try to pound a square peg into a round hole. There will always be another property to look at.
FINAL THOUGHTS:
Spend a few hours doing your homework now so that you don’t have a lifetime of regret later.
