Buying Undeveloped Land-What You Need to Know

an undeveloped land 26 Mar, 2019

It's hard to find that perfect dream house or a great spot for real estate business. Sometimes it even comes with a home already built up and it might not be to your preference. That's why undeveloped land can be a more viable option. It gives you flexibility on what you want to do with the property according to your preference. But there's also some regulations and procedures you have to follow before doing so.

Buying Undeveloped Land - What You Need to Know


If you're buying undeveloped land, then you have to develop it and it comes with expenses. The most important thing would be the utilities in order for the property to be functional.

Building Materials

Before committing to buying undeveloped land, you should weigh in how much you're gonna spend in building materials. You'll have to pay for the engineers and construction workers. The foundation and decorations for the property. If so, think for yourself if the investment is worth it.

Further Reading:


Electricity - an undeveloped land will commonly have no electricity. It can get more costly if the property is situated in a remote area like a forest or mountain (if you might want to develop a property for rental vacations). So be prepared to shell out more than expected.

Plumbing - Depending if there is a water system nearby, you might have to dig for a water well which requires money and professional help.

Waste Management System - It can also be a hassle if there's no sewer system within your property. You'll have to install a septic system which also needs to be done by a professional. You might also have to do a "Perk Test" to see if water is able to drain through the soil.

Ventilation - Depending on the area, you might want to invest in heating if it gets too cold or an AC if it's situated near the tropical area.

Annual Taxes

With property, the purchase comes your obligation to pay taxes to the government. Your annual tax obligation commonly ranges to 1% - 4% of the full market value of the property. Be also aware that certain properties have very high annual taxes for various reasons. Do check on it before making your purchase.

Property Insurance

If your property is financed, then the lender may have to require that you get land insurance. Land insurance helps you cover for lawsuits or if someone had an accident and you're proven to be at fault. If you're unsure whether to take land insurance, you better consult with a well-informed agent.

Also, do remember that the property must not have any structures to get land insurance. Additionally, if you own a home you can extend your liability coverage which will also cover your undeveloped land property. This is by far the easiest method to get land insurance.

If you don't have one, then you can buy land insurance. Usually, there are no deductibles and it's very affordable. It's a great thing to have cause you'll never know what'll happen with your property. The land insurance also DO NOT COVER DAMAGES TO YOUR PROPERTY.

For that, you'll need property insurance. Property insurance covers damages or theft. The usual coverage for this insurance is flood, earthquake, and fire. If you're renting out then you're still covered by the insurance. Property insurance also helps cover for liability in the case that a 3rd party was injured in the premise of the property and sued.

Further Reading:


If you don't have cash at the ready or have someone to finance your land purchase then you might have opted to get a land loan. You can consider choosing one of these 5 land loans for your land purchase:

  1. Lender Land Loans - You're better off getting your loan in local community banks or credit unions as they know more about the local area and can have a better assessment of the value and potential of the land. They're also more likely to offer longer repayment terms. The only downside of it is that it may charge higher interest if you plan to leave the land undeveloped.
  2. USDA Rural Housing Site Loans - This is only applicable if you're planning to build a home in the rural area. The USDA offers 2 types of loan, Section 523 and 524 loans. Section 523 loans are for those who plan to build their own home while 524 are for those who will hire a contractor to build your home. They have 2 years of repayment term but the interest rates are very low.
  3. SBA 504 Loan - This is for business owners who are planning to use the land for business. It comes with 10-20 years of repayment period with interest rates based on the current market.
  4. Home Equity Loan - If you already have a home, then you can use it as a leverage and get a loan. It typically has a low-interest rate but you stand to lose your home if you fail to make payments.
  5. Seller Financing - The owner of the land can offer you short-term financing if they're willing to. However, if the owner is inexperienced in loans and lending business then expect to get high-interest rates and high downpayment.

Further Reading:

Zoning and Environmental Concerns

There are certain requirements before developing your undeveloped land. Check first with your local authorities, on any requirements that you need to get before the development. There might be certain restrictions on it.

You can also consult with the zoning department to check what zoning classification your land belongs. It could either be residential, mixed-use, commercial, industrial, agricultural, etc… This will give you an added an idea on what to do with your undeveloped land.

Also, be knowledgeable of your neighboring area. There might be smells coming from mines, quarries, farms, etc… this may make you uncomfortable or can even lead to a health hazard.

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Make sure you check with the locals if the area you're gonna purchase is prone to flooding. If you didn't, then it'll be really expensive to get your land insured. You can check with local authorities if the area is elevated, in the lowlands, etc… It'll give you an idea of what scenarios might happen.

Also, be cautious of streams and rivers if they're close. A clog during heavy rain can cause major flooding that can affect you even if you're a certain distance.


If you're buying a property in California then you should know about this law.

The California Environmental Quality Act requires state and local government agencies to inform the public about the potential environmental impacts of any proposed projects. They're also required to reduce these environmental impact so that the project can be feasible.

If your project does not cause adverse environmental impact then the public agency can adopt a document called as a Negative Declaration. If it will cause adverse environmental impact then the public agency will present a detailed study called Environmental Impact Report.

The Governor's Office of Planning and Research (OPR) have functions and administration regarding this law. While the National Resources Agency along with OPR develops the guidelines for CEQA.

Further Reading:


Before even buying a property you should consider knowing your neighbors they could stand to go against whatever you try to develop your property. Or you can use to build first before approaching your neighbors. Your neighbors might also be very loud so it's really essential to gather information about the neighborhood first.


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