The Most Common Pitfalls to Avoid When Buying Land for Homebuilding

Building a custom home, one that suits all the wants and needs of its owner, is a dream for many of us. But before you start planning how your ideal home should look, you need to purchase a plot of land – a task that is even more important than designing the home. That’s the one thing you won’t be able to change about your home – the location. So, take at least the same amount of time for shopping around for land as you take for your design-related decisions. And, once you have found the perfect location, you might also want to rent self storage in that area – building a house often goes off schedule, and you will very likely need space to store some of your belongings until the new home is all done.

Additionally, when searching for a plot of land for your future home, it’s essential that you consider all the practicalities and the financial and legal implications that might occur. For investors, establishing an LLC can provide invaluable legal protection during the land acquisition process. Choosing the best state to from an LLC is important to maximizing these advantages, ensuring it harmonizes seamlessly with all of your investment objectives and land purchase plans.

Here are the most important aspects you should pay attention to when purchasing your plot, in order to avoid potential land-related pitfalls:

1. Zoning

Zoning regulations establish the legal framework for plots of land within a municipality. Zoning tells you whether you can build, what you can build on a particular plot, plus other details such as the height of the building, the amount of space that can be taken up by construction, and so on. In other words, it’s of vital importance to learn all the details regarding zoning before deciding whether to buy land.

“Before investing in land, you should review the zoning restrictions,” explains Kurt Walker, a realtor with Mill City Home Buyers. “This measure would help prevent your money going down the drain. You should ensure that the state has allowed the construction of a home on the vacant land you are planning to buy. To avoid this pitfall, you can also seek help from the homeowner’s association and city ordinances,” he added.

2. Utilities

If you’re looking for peaceful surroundings for your new home, you might be tempted to purchase a plot of land that’s more remote, or at least away from main roads. However, you need to find out whether you have access to public utilities (water, sewage, electricity, gas, internet connection) and, if not, how much it would cost to have them brought to the land plot. Don’t count on the fact that the municipality will cover the costs, or that it cannot be that expensive. Contact the county or the city’s authorities to learn the details about bringing utilities to the vacant plot and ask for a cost estimate as well. There are alternatives to public utilities, but they are generally expensive and complicated.

“Centering where the land is bought, the supply of utility is different,” Matt Ward tells us. “After buying land to build a house, the owners realize there isn’t enough usable water available in the area. Either there are no easy sources like rivers or ponds, or the water needs to be lifted from deep inside the earth which is expensive and another added cost. A lot of areas don’t have a large power grid or enough cables which limit the amount of energy supplied”, he advised.

3. Environmental hazards

Depending on where the plot of land was located and how it was used previously, there is a possibility of it containing environmental hazards. This can happen especially in areas that were previously zoned for industrial activities, and unknowingly purchasing such a property can seriously burden your budget. Bruce Ailion, an experienced realtor, details the risks of purchasing land without having all the information about it: “An acquaintance found what he thought was a great bargain on a foreclosed property he purchased from the bank to build a building for his business. He paid $250,000 for the land. However, when his contractor started moving dirt, he found that the property had been used as a tire dump. There were over 3,000 tires buried on the property. The municipal fee to dispose of them was $8.00 each plus the labor to remove them, and the cost of filling and compacting the soil cost over $175,000 to correct the problem,” he remarks. Using an experienced realtor is thus very important when purchasing land. Also, you should check out land records – you can usually find them online, and, if they’re not available this way, by contacting the county clerk or recorder’s office for the area.

4. Asset liquidity issues

When purchasing a plot of land as a long-term investment, or for building a home at some point down the road, you need to be perfectly aware that your money will be tied up in that land. Generally, land value increases over time, but that’s a long-term thing. If your plans change or if you need cash unexpectedly, it’s more difficult to sell land than it would be to sell stocks, for example. Also, depending on how the real estate market was when you bought the land, selling shortly after you acquired it because you need cash, or because you changed your plans (you no longer want to build a home, you’re moving to a different area, and so on) could end up costing you money.

5. Financing difficulties

Loans for purchasing a plot of land are less accessible and generally more complex than your standard mortgage. They are riskier for lenders, as there’s no house to act as collateral. These types of loans are approved if you have a great credit score (over 700) but expect higher rates compared to home loans. In some cases, a bridging loan might be a useful short-term solution to secure the land while you arrange for long-term financing.

6. Adverse soil conditions

The area where you’re interested in buying land might be prone to floods, or the soil conditions might not allow for the construction of your dream home. It’s advisable that you hire professionals to perform a soil survey before purchasing the land, to make sure that it can properly support a foundation. Also, you should be aware that very sloped plots can incur higher foundation building costs.

7. Building codes and homeowners’ association requirements

Make sure you have all the information about what can be built in the area before purchasing a plot of land. Otherwise, you might end up in a situation where you can’t, for example, build an accessory dwelling unit on your plot or install a pool in your backyard. “Another potential pitfall is building codes,” said Jennifer Spinelli from Watson Buys. “Be sure to research the building codes in your area to make sure that your home or other structure will meet all of the necessary requirements. Check the rules and regulations of the homeowners’ association as well. There may be restrictions on the type of home you can build or other requirements you’ll need to meet.”

8. Incurring costs

Buying a plot of land to build on it in the future can be a good investment, particularly if you find one that suits all your requirements. However, you should also consider the fact that owning a plot of land incurs costs (property taxes, mortgage payments, improvement costs, and even association fees if there’s a homeowner association the area), without generating any type of profit. So, if you’re planning to build a home, a good idea would be to start shopping around for land by the time you’re also ready to start the construction. This way, you won’t have to pay property taxes for years without drawing any benefits from that property.

9. Underdeveloped area

Some people want to find land in areas that are quiet and secluded – this way, they know for sure they’ll have plenty of privacy after they build their home. Plots of land that are more remote tend to be less expensive as well. However, it’s still important to ensure that the area has potential. You might change your priorities in the long run, and you don’t want to be stuck to an area without services or amenities. “Underdeveloped land is the biggest downfall of a purchase,” explains Jasen Edwards from AgentAdvice. “So, buyers should check the plans of the authorities to determine whether they plan on developing the land or not. This can give a clear idea of what they’re getting themselves into. You can’t buy land without researching growth potential in the future,” he concluded.

10. Easements and deed restrictions

Last, but not least, you need to know all the legal implications regarding the plot of land you plan on purchasing, to avoid a scenario where someone else shows up and builds a road through your property.  “Another potential pitfall to be aware of when buying land are easements and deed restrictions,” argues realtor Shaun Martin. “Easements are rights that someone else has to use your property for a specific purpose, such as utility lines or access roads. Deed restrictions are limitations that are placed on how a piece of property can be used, such as not being able to build a commercial structure on a residential lot,” he adds, emphasizing the importance of understanding the legal implications of the transactions.

To make sure you march forward fully prepared, you should also consider getting self storage close to the future construction site. It can prove extremely useful during the moving process, until your new home is ready for move in, and afterwards as you get everything in order. It will be much easier if you have a storage space nearby which you can access anytime.

Buying a plot of land and building your custom home is a huge project – hopefully our suggestions will help you avoid major pitfalls and allow you to start off on the right foot.