How to Choose and Develop a Lot
Decided to build your dream home? Start here.
If you’re ready to build your dream house, the first order of business after pre-approval is to acquire land. But finding just the right piece of land can be a bit more complicated than many people expect. There are two major categories of land you can purchase—an existing “lot” or “raw” land—and the choice you make will have a significant impact on your costs, financing options, and the steps you’ll need to take before construction can begin.
Choosing a Building Lot vs. Raw Land
If you choose to buy an existing, developable “lot” of land that is already surveyed and zoned, you’ll likely take out a “lot loan,” which generally requires a down payment of at least 20% and carries a higher rate than a mortgage. Though you’ll need to do your research on the lot’s zoning, permit status, and hookups to water, sewer, electricity, and cable, those pieces will often already be in place, or at least easily accessible. While the lot may require a certain amount of excavation or other alteration to build on, you can reasonably expect to start construction within months after purchase.
“Raw” land, on the other hand, is often more rural and has no existing improvements like connections to municipal utilities. It might even be so rural that it’s only reachable by dirt road. This kind of land can be a great deal for savvy investors since the price is usually far lower than that of developed lots—but it also comes with significant risks and costs. For one, banks consider raw land an especially risky investment, so buyers often need to pay upwards of 50% of the purchase price and face higher rates than buyers of developed lots. Further, they’ll need to prepare to put a significant amount of time and work into developing the property, and do significant due diligence before purchase.
Issues to Consider Before Buying Raw Land
Before you invest in a piece of raw land, there are a number of factors to consider. First, consider the zoning. Will you be able to build residential property on the land? If so, are there any setbacks, pass-throughs, or other restrictions to consider?
Just like you would pay a home inspector to ensure that a house is structurally sound, you’ll also want to work with specialists like engineers and surveyors to ensure that the land will meet your needs. Especially in rural areas, deeds can be vague and property lines unclear, making a proper survey essential. Soil tests are also important to ensure that the land is free of contaminants and that it is appropriate for building.
Access to Utilities and Roads
Can your land be hooked up to local utilities? If so, look into the cost—in some areas, hookups that require significant extra pipeline or laying electrical lines can turn expensive quickly. And if your land is too remote to hook up to water and sewer, you’ll need to work with specialists to identify a site for a well, as well as a septic system. Since careful considerations must be taken as to how close a water source and a septic system can be to the home and to each other, those pieces must be in place before a building site can be chosen. And how close are you to a road? Will any clearing or paving be necessary? These factors can also impact the final costs of developing a lot.
Finding the Property That’s Right For You
While developing raw land isn’t a path that makes sense for everyone, it can be rewarding and cost-effective for a buyer who goes in with a solid foundation of research and preparation. And of course, developing the land is only the first step on the road to your dream home.
Once you’re ready to build, reach out to Atmos for help bringing your vision to life.
