Buying land to buy your dream home or farm is an exciting venture! If you’re thinking about buying land to build on, there are a number of things you need to keep in mind as you look at properties. Topography and location are among the first things buyers consider when looking at land. Is the property too hilly or too waterlogged? Will your commute be bearable? Here’s the nitty-gritty of what you need to consider when looking at land.
Zoning. A for agriculture. R for residential. It seems pretty straightforward, but each county will have it’s own laws. There are often multiple types of residential zoning. Some allow for keeping animals or building additional structures while others will have very restricted permitted uses. Keep in mind that agricultural zoning may allow you to keep animals, but prohibit you from subdividing down the line, which will diminish investment value. Also note that you may be able to apply for a zoning exception to allow for a certain use. In some cases, a county might allow you to apply before buying a property. With permission from the owner, you may be able to represent the property to get an exception approved.
It is important to become well acquainted with the zoning laws in the area before you start looking at properties. Be sure to stay abreast of any upcoming developments or changes in the area. Unimproved land is often considered one of the least profitable and most risky types of real estate investment because zoning may change and undeveloped land takes quite some time to sell should you need to off-load it. For these reasons, it is inadvisable to buy land years before you intend to build.
Easements. An easement may be as simple as a shared driveway, but it may also mean your neighbors will have access to some portion of your land. Conservation easements are very important to be on the lookout for. For example, a Forest Resource Ordinance will prevent you from clearing trees and keeping grazing animals on the specified acreage.
Planning. Plan your property well. If you are building in phases, make sure the land won’t be overdeveloped by the end of construction. Too many outbuildings on a small lot will cause problems down the line. Think about any environmental issues that may become a problem like flooding or wind and plan accordingly. Though you may be building your dream home or farm with no intention of selling, it is wise to keep investment value in mind. Future buyers may not be overly fond of a large home in the middle of a lot. It is important to ensure that the acreage is useable and that your design is functional.
Financing. Depending on where you choose to buy land, the price per acre may be pretty steep. It isn’t uncommon to see a few acres of land listed at more than 500k. Most people don’t have that kind of money lying around so finding good financing is important. Getting a loan on land that you don’t plan to develop can be tricky and interest rates tend to be high, but if you have plans to develop the land, then obtaining financing becomes a bit easier. Keep in mind that local and regional banks and credit unions are more likely to finance a land purchase than a national bank or lending institution. A construction loan can be used to buy land and build on it. Interest rates on construction loans tend to be higher as these are temporary loans that are refinanced to a 30-year loan or other more suitable loan upon completion of construction.
Qualifying for a construction loan isn’t too dissimilar from qualifying for a conventional loan. The lender will look at your credit and income, but the biggest difference is that the lender will also need to approve your construction plans. They will likely require architectural drawings and cost projections. If you have already chosen a builder, ask if they have a lender they typically work with as it may expedite the process. Beware that banks are typically less willing to work with owner-builders due to the level of risk. I strongly encourage clients to shop around not only for favorable rates, but for a lender they trust.
Perc Test. Most farms will not have access to public water and sewer. A percolation test will be necessary to determine if a septic system is feasible. A hole is drilled into the ground and filled with water to determine the rate at which water drains and what size septic system (and dwelling) the land can support. This is why you will see land listings that say something like “perc’d for a six bedroom house.” Soil that is sandy tends to pass a perc test more easily. If the land you are considering hasn’t been perc’d yet and you aren’t sure if it will perc, check with the county. Neighboring properties with newer constructions may also be a good indicator. A dwelling without access to public water and sewer must have a septic system. If the Health Department does not approve a septic permit based on the results of the perc test, then a home cannot be built on the land. For most farm buyers, this will make the property unfeasible. Not to mention, a piece of land that has failed to perc in the past will not hold nearly as much investment value as a piece of land that can be built upon. Occasionally, a piece of land that has failed to perc in the past will pass a few years later, but that is a gamble most buyers are unwilling to make.
Permitting. To build on a piece of land, you will need to submit detailed plans to the county. This includes any houses, outbuildings, wells, and septic systems. It may be helpful to have some of the plans thought out already as you look for a piece of land. This not only aids you in finding the right property, but it also might be helpful if you have any questions. Sellers will sometimes allow a perspective buyer to get an opinion from the county to see if their plans are possible given the soil, zoning, or other factors.
In some ways, buying land with the intention to build is more complicated and risky than buying a turnkey farm, but armed with detailed knowledge of the process and a good plan, it is possible to build your dream farm!
Sarah is a Realtor specializing in both residential and equestrian properties. She is based in Bethesda, Maryland and Wellington, Florida.