The demand for residential land real estate continues to increase, but its important to recognize that residential is one of the trickier land types. If you Google residential land, you’ll find articles about houses (but not the land they are on), vacant land, farmland, and various reality shows. Residential land overlaps with other land types. One of the most common overlaps is residential and vacant. Many undeveloped residential lots can also be categorized as vacant lots, and many vacant lots can be transitioned into land fit for residents. Since residential land is such a broad term, many people are hesitant to get involved in a field with so many gray areas. Today, we are going back to basics to learn the need-to-know information about residential land real estate.
Different Types Of Clients
You might think that people buying residential land real estate and those buying houses are the same. Actually, they often have very different goals. Home buyers typically want their property to be move-in ready. Residential land buyers, on the other hand, typically want a blank canvas to build their dream house on. While both groups are searching for land to live on, the specific type of land will vary based on the client.
Everyone has heard the old saying location, location, location, but what does it actually mean? It means two properties that are identical in every single way (amenities, quality, size) can have wildly different values based solely off the location. The ideal location is different for every client. For example, families with young children are often willing to pay extra for residential land in districts with excellent schools. Be sure to know the priorities of your client and how those priorities may affect the types of properties they would be most interested in seeing.
Don’t Assume Anything
One of the most common mistakes made when buying residential land real estate is assuming things will be included. For example, many people assume that most residential land will allow you to build most types of housing, included manufactured housing (also called mobile homes). However, many properties include strict regulations on what type of residence can be built. Many areas do not allow manufactured homes.
One way to avoid this problem is to stay on top of local land news. Are there zoning changes on the horizon? Are land values on the rise? Are there plans for new roads that could impact the access to your property?
Another way is to run your own tests. Before buying residential land real estate, you need to go through a series of tests. Environmental tests can determine any potential damage from previous owners. These tests are extremely important because if the soil has been tainted from previous owners (a former gas station or auto body shops, for example), housing can’t be built there.
Having a surveyor look at the boundaries can also be a lifesaver, especially for plots that have had many previous owners. You don’t want to build on land that legally belongs to your neighbor!
The Ups and Downs Of Nature
Nature has a huge role to play in the value of residential land real estate. Properties near oceans, rivers, lakes or parks tend to hold their value because beautiful views and the proximity to outdoor activities (such as hiking, fishing, and hunting) are always in demand. But be careful if the property is near a possible natural hazard (volcano) or at a high risk for a natural disaster (earthquakes, floods, etc.). These risks can cause values to plummet.
When buying residential land, make sure your client’s budget is similar to the prices of the neighborhood houses. Construction loans are frequently rejected if the cost of the land combined with the cost to build is higher than the average home prices in the neighborhood.
The lines between residential land real estate and other land types are blurry. There is no one set of rules about what qualifies or what doesn’t when it comes to residential land. While this land type might be confusing, residential land real estate is always in high demand. We hope this article has piqued your interest about residential land real estate.
About the Author: Laura Barker is the Membership and Communications Specialist for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and has been with RLI since October 2017.