How to Buy Raw Land Without Getting Ripped Off



How to Buy Raw Land without Getting Ripped Off

Buying a piece of rural land is almost a universal dream. Somewhere outside of town or near your favorite vacation spot are 10 acres of land that could become your secret retreat. Find some secluded acreage and you can escape from the crowds, traffic and pollution that are rapidly becoming a part of life.

Unfortunately, something as seemingly simple as buying your dream acreage can actually be fairly complicated. In fact, many real estate experts correctly advise real estate investors to shy away from buying raw land. This is because the factors that create appealing rural land, including limited access, low population density and limited development, often reduce the number of potential buyers should you want to sell. In addition, available amenities such as water, electricity and telephone service may be limited. These factors do make the rural real estate game, especially if the property is raw land without any structures, a more difficult proposition for real estate investors.

However, if your goal is to buy the land for yourself or you intend to be long-term investor, rural real estate can be a good investment. Like anything else in life, if you understand the basic rules of the game and take some steps to reduce the potential risks, you can still find a good deal. Here are the steps and tips you should follow if you are thinking about trying to find some reasonable, rural land.

Defining Your Goal

You will waste a lot of time if you do not define what you are looking for. Unlike most residential properties, rural land can have very wide-ranging characteristics and prices. Here is a checklist of the items you need to focus on when deciding what your dream acreage should be:

• Money available: Unfortunately, this is probably the most important determinant in defining your goal. Over the last 10 to 15 years, the price of rural land in most areas has risen quite a bit due to pressure from development. Unless you are buying hundreds of acres, the days of buying land for $500 or even a $1000 per acre are largely over. Although prices vary a great deal, in most cases the minimum you will pay for small parcels of undeveloped land (less than 20 acres) is $3,000 to $5,000 per acre in the Midwest; $5,000 to $10,000 in mountainous areas; and $10,000 to $20,000 in coastal areas. These are very general ranges. Prices can be much higher in certain areas. For example, secluded land anywhere near Santa Fe, New Mexico, routinely goes for over $1 million per acre, and any type of property with certain features (beach access, incredible views, etc.) will be extremely expensive. Also, generally speaking, the greater the distance from civilization the lower the price, and the greater amount of land being purchased the lower the price.

• Number of acres: Smaller parcels typically command higher prices per acre. Rural landowners usually do not like to break up their land and would rather sell larger tracts to one or two buyers. This reduces the transaction costs and hassles for them and, if they plan to continue living near the area, also the number of neighbors. This means you will have to accept a higher price per acre if you do not plan on buying more than 25 acres. Five- to ten-acre parcels will likely be even more expensive.

• Area: Defining the area is extremely important. You will need to become familiar with the area before you can make an intelligent offer. When you are buying rural property, things like roads, utilities, water rights, access, easements and title issues become extremely important. It will take time to learn the range of land prices and answers to all of the above issues. Define your area to a radius of 100 miles or less, if possible.

• Features: If this is to be your dream property, you should figure out exactly what you want. You should list the features you desire in their order of importance. For example, waterfront property, old trees, distance from civilization, and gravel road access would be an example of the order of importance.

Overall, the process of defining your goal should be an enjoyable task that you perform with patience. Often defining what is acceptable and what you can afford makes it much more likely that you will be happy with the outcome.

Narrowing Your Search

Once you have defined what you want, you need to narrow your search to potential properties that meet your needs. To accomplish this goal, follow three steps: study, drive by and communicate.

Study

After you have determined the basic area you are interested in, buy some topographical maps (7.5 minute quadrangle maps) of the area from the U.S. Geological Survey. You can go to their website () and locate the maps you want, or sometimes a local bookstore will have quadrangle maps for nearby areas. These maps will give you a general idea of the lay of the land, including the location of drainage ways, roads and often structures that include houses. After you have narrowed your search to areas that look interesting, go to the county courthouse and buy a plat book. A plat book is a series of plat maps that show the estimated legal property boundaries of the property and who is the property owner. Use these books to determine where roads and property boundaries are located and what properties deserve a drive by. You will also use the property descriptions later on if you decide to contact the landowners.

You can use this time to call local realtors, but don’t be disappointed if they are not much help. The market for rural land is usually smaller than that for residential land. And rural land that realtors do have for sale may be the most prized and expensive in the area, suitable for development. Remember, often the sole reason you are looking for this land is to find a bargain that will probably not even be listed with a realtor. Your best opportunity may come from a landowner who is not even planning on selling their property; that is, until you call them. You can also check the following government websites for surplus land that may be for sale from the government in the area you are looking: Bureau of Land Management (BLM) () and Government Services Administration (). There is a lot of BLM land in the western half of the United States.

Drive By

There is no substitute for driving by each piece of property that looks interesting. No map can convey the visual features in the detail that is required to evaluate it. Look for the closest utility hookups, road conditions, potential flooding problems, property slope, and unusual features like trash, sheens or soil stains. Make sure you thoroughly inspect any property you intend to buy, acre by acre.

Communicate

As you spend time in the area, start to communicate with the locals. Find out about landowners who may have property for sale, and visit with officials at the county courthouse to learn about local regulations and customs regarding property deeds. If you see individuals who appear to be locals during your drives, strike up a conversation and ask about local land. This process of chat can be very important to your chances for obtaining the property you want for a fair price. Taking an ad out in several local papers is probably the best way to find sellers. In the ad, define what you want and leave a phone number. For example:

WANTED: 10 to 20 acres of land,

water rights, road access in

Calhoun County, 644-676-8832

Call landowners you have identified from the plat book who have promising sections of land. Be patient, as this process can take a year or more. Unlike residential properties, realtors may not be helpful, causing you to spend a lot of time developing and chasing leads.

Making the Offer

When you are dealing with rural land, it is best to hire a lawyer unless the deal has no complications. At a minimum, have a title company research the title and determine that you will have clear title if you purchase the property. If you hire a lawyer, they can research the title and draw up the contract. If the property boundaries are not clear, you may need to have a survey of the property performed. The county courthouse will usually tell you if they require a survey of the property. Before you make an offer on the property, make sure you understand the following: (1) water rights and the costs for getting water to the property, (2) nearest electricity/ gas/telephone to the property and the costs for getting utilities to the property, (3) any easements on the property (easements are legal agreements allowing someone else to use portions of the land; e.g., utility easements, road easements), (4) road access and, if no road access is available, the costs for getting a road to the property, (5) taxes and (6) available services. All these factors should go into making a decision regarding the property. Be careful if the costs of bringing utilities, roads and water to the property are more than 25 percent of the total value of the property. Remember, these costs cannot necessarily be recouped if you decide to sell the property.

Things You Should Avoid

Like many real estate deals, there are always more properties than you can buy, so part of your job is to avoid problems to the extent possible. Here are the five main items that you should avoid when buying rural land:

• Price or improvement costs too high: Before you buy, find out how much raw land typically sells for in the area you are interested in. The county courthouse will help with this information. Local realtors may also be useful, but their prices may be biased a little high. Unless the property has unique features, don’t pay more than approximately two times the local averages for any property. Also, do not buy property where the costs of bringing utilities, water and/or roads exceed more than 25 percent of the total value of the property.

• Water rights: If the property does not have reliable sources of rural water, do not buy it if you cannot obtain the water rights. Also, if groundwater is the source of water, be prepared for drilling expenses and make sure you research if groundwater is available and at what depth. If water appears to be a problem, find a new property. Without a source of water, most raw land has limited value. You can haul water, but it is problematic and usually not what most landowners want.

• Environment problems: Entire books have been written on environmental issues regarding real estate purchases. Generally, avoid any raw land that has even a hint of environmental problems. You can go to the county courthouse and research past owners and uses of the property. Avoid any properties where underground storage tanks were ever present. Avoid properties near gas stations, tank farms, dry cleaners, mines, landfills, power plants, hazardous waste sites and just about any large-scale industrial operation. Inspect any water bodies on the property (creeks, rivers, ponds, lakes) to determine if any seeps, unusual odors or staining are present. How does the water body receive its water? From what appears to be a clean, undeveloped stream or from agricultural runoff? Often, with a little research and a good property inspection, you can spot environmental problems. For more on potential environmental problems, see Chapter 10 of Rogue Real Estate Investor.

• Flooding: To find out how prone the property is to flooding, visit the county courthouse. The U.S. Army Corps of Engineers () publishes floodplain maps that can be used to assess the potential of a property to flooding. If the property is in a floodplain, do not buy it. You can also inspect the property to see if any debris or large trees have been deposited on the property recently.

• Clear title: If you can’t get clear title to the property, don’t make an offer, period.

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