Are you looking for land that you can build your dream home or business on?
If so, unimproved land may sound like a great investment for you.
However, even with unimproved land, you have to make sure you’re investing in the “right” plot.
This blank piece of canvas can be anything at all, but there might be a reason it’s sitting empty.
In this blog, we’ll discuss everything you should know about unimproved land, including when you may be best served walking away altogether.
1. What is improved vs. unimproved land?
Unimproved land is land that lacks services and utilities like electricity, water, telephone, or street access.
Unimproved land is a large, open patch of land that would require significant work to build on.
2. What can you use unimproved land for?
Unimproved land can be used for the following:
Holding and reselling once property values begin to increase
Creating an investment property to rent or sell
Developing a community or private grouping of homes
Designing a park and area for the community
3. What are the pros of buying unimproved land?
There are a handful of advantages that come with purchasing unimproved land.
Here’s what you should consider if you’re wondering if this is a fruitful path for you.
Undeveloped land allows you to use it however you see fit.
You’ll have the flexibility to build on it (as long as it’s legal within the zoning laws of that area).
You can look at the property as a blank slate for whatever you want it to be moving forward.
When you just buy land, you’re automatically lowering your maintenance costs.
If you take the typical home, the average cost of maintenance and repairs are normally around 1 to 3 percent of the purchase price.
If you purchase unimproved land, then you won’t have to worry about any of these expenses off the bat.
You’ll be free from fixing the HVAC, plumbing, roof, etc. until you’re planning to build and take these tasks on.
Now, that doesn’t mean you won’t have to pay maintenance on anything.
The land itself requires financial maintenance through property taxes and insurance.
However, the price for this is still significantly less without the house as a wild card.
Unimproved land presents less competition than a typical single-family home.
Most buyers will want a property that they can move into right away.
Building a home isn’t for everyone and it can take a while for those logistics to get taken care of.
As a result, there’s often less competition for buyers of unimproved land.
This is good news for those in the market for just land.
You’ll be able to avoid the overwhelming demand and build a house on your terms (if that’s what you choose to do).
Return on investment
If you purchase unimproved land, there’s always the potential for a return on your investment.
Land is a finite resource on this planet.
The population is continuing to grow, and space is becoming increasingly limited.
When you invest in land, there is a chance that its value will appreciate over time.
4. What are the cons of buying unimproved land?
For as many pros, there are cons.
Here’s why improved land can be a risky investment to make.
Keep all of the following factors in mind and do your due diligence before putting forth both time and money to make the purchase.
Large down payment
To purchase developed land, you typically need to put down a down payment of roughly 15 to 25 percent.
However, because there’s more risk to the lender when you’re buying unimproved land, you can expect to pay a larger down payment.
This is because the land isn’t ready to build on yet.
There may not be specific plans for the land, and thus the lender doesn’t have a solid guarantee for investment.
A down payment can be up to about 50 percent on the loan as a result.
Local zoning laws will determine how certain areas and plots of land can be used.
These restrictions will change depending on where you are, and as a result, they could limit your ability to use your land for its intended purpose.
Before you purchase unimproved land, make sure you do your research on the area’s zoning laws by visiting your local department of city planning or another local government office.
A permit provides official approval from a local government to build or complete another action on your land.
During the building process on unimproved land, you’ll likely need several permits including septic, well, driveway, and building permits.
Just for the building permit, you can expect to pay $300 to $2,000. Not cheap!
An easement allows other people or organizations to use the property for a specific purpose.
Before you purchase unimproved land, you’ll want to make sure that there aren’t any easements.
If there are, you’ll want to make sure that you’re okay with the access that’s currently granted to these parties.
Sometimes property buyers will find that easements conflict with their plans for the property.
Another issue for unimproved land is also that it can be landlocked.
This means that it’ll be surrounded by property owned by others, or it won’t have access to things like a main road or utilities.
If you’re interested in a landlocked property, then you’ll need to get an easement to gain access.
If the land already has an easement for this purpose, then you need to verify that you fully understand your rights.
There’s always a timeline to consider when you’re building.
If you buy unimproved land, then you’ll need to think about the bigger picture because you won’t be able to move in or build on the land.
Plus, while the building process is normally pretty lengthy, it may take even longer than usual.
There’s a prep process that comes into play when it comes to undeveloped land.
You’ll need to get the property ready and also gain access to and install utilities before you can do anything else.
Don’t think you’ll have a house up and ready to live in in a matter of months!
5. When should you purchase unimproved land?
You should consider buying improved land if you want to develop a property on your own terms.
If you want it to be unique and specially designed, then this is an easy route to go.
Additionally, unimproved plots are normally isolated with a lot of privacy.
So, if you’re looking for somewhere out of the way, then this can be a great option.
Unimproved land can also be a solid option for those who want to control the way their property is designed.
You can control the layout from the get-go — everything from plumbing to utilities to luxuries.
Many people have taken unimproved lots and converted them to their dream homes where they’ve sat on the pool deck or balcony watching the sunrise with coffee in hand.
They’ve done this by ensuring that their windows or doors face a certain direction and building out in an isolated area, so no neighbors block their view.
Keep in mind, however, that you’ll want to be able to check the natural obstacles and zoning laws before purchasing just in case these conflict with your vision!
Real estate investors can sometimes take an interest in unimproved properties in areas predicted to become hot spots in the next few years.
This allows them to eventually sell to buyers who will choose exactly what they want during the building process.
6. When is buying unimproved land a bad idea?
Keep in mind that buying unimproved land isn’t always the right choice.
Here’s why you might decide against it in the end.
You don’t have the funds for unforeseen obstacles or time delays
There are no utilities or street access to the vacant lots
The city, county, or town where the land is located requires special permits that delay you
The land has title issues
You don’t have the time and patience for the long process that often accompanies developing unimproved land
Unimproved land can be a great investment.
However, it’s important to be realistic about the land and its situation.
You could be looking at a short-term loss at the very least or even a long-term loss depending on the investment.
If you can’t absorb this, then you probably shouldn’t invest in it.
7. What is the cost of building on undeveloped land?
If you’re interested in building on unimproved land, then you should know it can cost a pretty penny to do so.
The average cost of building a house on unimproved land is $295,000 according to HomeAdvisor.
This cost will depend on several factors, including:
The location of the build
The size of the home
The complexity of the layout
The materials used
You’ll also have to account for certain expenses like clearing and grading the land, building an access road, getting environmental testing, purchasing additional permits, and obtaining building access to utilities like water, natural gas, and sewage.
8. How do you buy and finance unimproved land?
If you’re still interested in buying unimproved land after reading the pros and cons above, then there are a handful of steps you can follow for a good experience.
Keep in mind that working with an experienced real estate agent can help make your process a lot smoother, so that’s always a helpful tip to keep in mind!
First, keep an eye out for appropriate land.
Not all unimproved land is a good fit for you.
You’ll need to scout the best land for your intended purpose.
Here’s a list of things you should keep in mind when searching for land.
Are there easements on the property?
Do you have the ability to access a main road and utilities?
Are there permits required for the land?
What are the local zoning laws and restrictions on the property?
Is there cell service?
What is the amount of time and money needed to prepare the land?
What is the proximity to other structures or land that could hurt or help land value in the future?
Next, you’ll need to get the right surveys and tests on the land.
For this, you shouldn’t simply rely on what the seller says.
They’ll mention whatever is advantageous for the sale of their property.
Instead, you should hire a professional to help you conduct these procedures.
The results of the survey will inform you of where the property lines are located.
Additionally, it’ll help you determine if there are any easements and encroachments.
If there are, you’ll get to see where they’re located.
During this process, you’ll also want to get environmental tests done to see if there are contaminants in the soil.
Then, you’ll need to apply for a land loan (also called a raw land loan).
Be aware that these can come with much higher interest rates and a larger down payment requirement since it’s riskier for the lender.
It will be beneficial for your case to be proactive and come up with a comprehensive plan.
The lender wants to know exactly what you’ll do with the land to see that they’re making a good investment.
If you’re choosing to purchase this land for commercial purposes rather than residential, then the SBA 504 loan could be a good way to go.
Otherwise, a USDA construction loan is another option for those building a home on the land.
9. Do you need to perform a title search for unimproved land?
Yes, just like any other piece of land, performing a title search on the property will serve you (as the potential owner).
A title search retrieves a record of the land’s history and status.
It determines if there are liens against previous owners or any issues with the property.
Remember, once you purchase the property, previous issues with the land can become your issue.
Don’t leave that stone unturned!
10. Do you need to work with an agent?
Yes, we recommend working with a real estate agent whether you’re purchasing improved or unimproved land.
This professional will help you to navigate parts of the process like negotiations, due diligence, and closing.
That said, you’ll want to hire an agent who is experienced in negotiating land deals specifically.
Don’t hire someone who is specialized in single-family homes — they won’t provide you with the expertise you need!
11. Are there any limits to building on unimproved land?
Yes and no.
If you’ve already checked with the zoning restrictions, utilities, and easements/encroachments near your plot, you may be in the clear for many of the restrictions that would typically prevent building on the land.
However, that doesn’t mean there aren’t other factors you should take into consideration.
Many property owners love that unimproved land allows them to completely customize their homes.
It’s a big draw.
That said, you should take the surrounding neighborhood into account when it comes to this.
The neighboring properties will impact your resale value, so it’s worth noting what will stick out versus blend in during the building process.
Unimproved land can be a great investment as long as you perform due diligence and create a plan for what you want the land to be.
A big factor in property owner happiness throughout the process is understanding what to expect ahead of time — especially because it requires a lot of time and money.
Fortunately, if you commit to the process and see it through, you can end up with exactly what you want.
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Disclaimer: we are not lawyers, accountants, or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.