Investing in vacant land may be an excellent investment if the investor is aware of the risks and can knowledgeably assess the issues unique to developing vacant land. I have helped various real estate professionals purchase and develop vacant land and the following is a list of the key issues that every investor should be aware of before buying and developing vacant land.
- Zoning and Subdivision Regulations. What Can I Build? – Before purchasing and developing vacant land, a prudent investor will research the zoning and subdivision regulations to fully understand they can and cannot build on the land. Subdivision regulations will likely impose restrictions on how many lots can be carved out of the vacant land and possibly certain other requirements like requiring open space. Moreover, zoning regulations govern what types of property can be constructed. It is imperative to understand what can be build there before moving forward with the acquisition to understand whether the planned development is feasible. For example, if you would like to construct an apartment building on the lot, make sure that the zoning regulations allow this. Working an attorney sooner rather later may save you a big headache down the road.
- Will You Need Any Type of Permit for Your Planned Development? –Your intended project, no matter how big or small, may require some sort of permit to make it become reality. For example, if you want to construct a building of a certain size or use, it may be permitted but you may need to obtain a special permit, which will require additional legal and professional fees. If the permit is imperative to what you want to build, you should know this ahead of time so you can make the deal contingent on obtaining the permit. It better to know before you sign rather than after you close whether you need a permit for your project.
- Sewer and Utilities –Prior to purchasing vacant land, another important component to understand is whether the land is connected to the sewer line and utilities. If not, this could impose additional cost on your budget. Moreover, the ability to connect to the sewer is important to understand which could increase the development potential and value of your property. If the land is not connected to the sewer, a septic system will not only increase the cost of your development but may limit the square footage of development potential. Accordingly, it is important to understand to what extent the land is connected to utilities to assess the development potential and costs of the project.
- Environmental Concerns – Environmental Concerns are always an issue when purchasing real estate. However, they are more of a focus on vacant land, especially in commercial areas, when the land is going to be dug up and developed. If you are contemplating purchasing vacant land, particularly in a commercial area, you should strongly consider consulting with environmental professionals and conducting environmental testing to make sure there are no hazardous contaminants on the land. If you discover such contaminants after the purchase, you will have a big problem on your hand.
- Due Diligence Provision in Land Acquisitions –Due to the unique issues involved in purchasing vacant land, it is important to have a broad, carefully drafted due diligence provision, that allows you to conduct due diligence on zoning, utilities, environmental and so forth. The standard due diligence provision in a residential real estate contract is likely insufficient. Before you sign a contract for land, make sure you review the due diligence clause carefully and make sure it includes your right to conduct due diligence broadly.