Land 101: Understanding The Basics

Owning land is like raising a kid, it’s a lot harder than it looks. It can be very rewarding if you are committed to it; someone always has something to say about it (including the government); and, if you don’t put some thought into what you are doing, it will come back to haunt you.  Joking aside, while it’s not entirely like raising a kid, the point is that if you are thinking about buying land, or have inherited land, you will want to become knowledgeable about the subject because even a little bit of knowledge can help you sidestep some real issues, and prepare you for a wealth building opportunity.

What’s it good for?

Before you get into how much it costs, you really need to know what the purpose of the land will be?  A simple check of your county’s property records will tell you the zoning designation, land use plan, and environmental factors that can seriously impact the short and long term use of the property.  Each of these data points will have an impact on the highest and best use of land.

Not knowing these data points is like buying one of those mystery boxes on a second hand online shopping portal.  Seriously, who does that?  Of course, if you are inheriting the land, then it could be like getting one of those unexpected holiday presents from a distant family member. The point is, these data points will help to answer what is the land good for.  

What’s it worth?

Once you have the initial data points, then you can begin to assess what the property is worth.  Certainly, having your professional broker run a comparable market analysis is very useful, but if the broker only compares it to other land that sold nearby, without truly knowing what makes the land comparable, then you could be seriously misled on the worth.  Above all else, the simplest question to determine the worth of the land comes down to what is the highest and best use that can be put on the land in the least amount of time, with the least amount of municipal oversight, and least amount of cost?  The path of least resistance to use the land is typically the easiest way to begin to calculate its worth.  Add resistance by way of rezoning, extensive land planning, and/or development and construction, and the land’s worth can go up significantly, but so do the costs.  If you don’t have the knowledge or appetite to become knowledgeable, as well as the money to spend to achieve significantly  higher wealth opportunities, then the KISS method is the easiest way to go: Keep It Super Simple!

Financing land purchases can be a specialized matter as well, particularly if development is not the immediate or eventual intention.  If you are planning to borrow money, expect that lenders are going to have timetable related questions as well as income/repayment related questions if the land isn’t going to make you money immediately.

Who can help?

Finding the options of available (and not so available land) is where a good land broker can help.  But we aren’t the only ones that can help!  If your municipality has an economic development office, they may be able to help you find land for specific uses.  Municipal planners can also be a good resource, but I’ve heard several say that it can be like being a foot doctor, you get tired of seeing them everyday, and after a while they all look the same.  The easiest way to shop for land is to understand where the path of growth is occurring then find land that is further down the path.  Many times this is literal to traffic corridors and how far people are willing to commute on a main or secondary road.  If you’re not sure what I mean, look up maps of the local metro area from 100 years ago, and you will quickly see the paths growth has taken.

There’s a whole other set of people who can help with land as well, once you’ve narrowed down the options: site engineers, surveyors, soil scientists and land attorneys to name a few will be critical to the planning process if you plan to develop the land.  The prep work they do can also help you increase the value of the land because they will help answer the very first question: What’s the land good for?

What’s the catch?

Land is rarely a short game strategy.  It’s an easy way to put money into a stable, long term investment that is likely only going to appreciate over a period of time.  Taxes and some level of maintenance should be expected, but if there’s good timber, or it’s flat or good farming soils or permissible game for hunting in place, there could well be income that easily offsets the taxes.  If taxes from other investments are a burden, then land could be a good investment to balance out your liabilities.  That’s a good question for your accountant, if that’s your situation.  Ultimately, it goes back to the first question, you have to have a sense of what it’ll be good for.

If you have any questions about land, please feel free to reach out and ask.  We are always happy to help, and bring value to your experience.

Diego Munoz

KW Commercial

diegom@kw.com