Investing in Raw Land

Investing in Raw Land

When you’re looking to diversify your investments, consider your options when it comes to raw land. Land is considered ‘raw’ or ‘unimproved’ if there are no man-made changes to the property. An investment on land that is raw is typically solid, especially near a developed area. Whether you are interested in developing, subdividing, or are a land speculator, opportunities will always arise for raw land. Here, we’ll help give you some insight on purchasing raw land. When you’re ready to make a move, INCO Commercial can work with you and help guide every step of the way.

Exploring Your Purpose

What are your subsequent plans for acquiring raw land? Will it sit and appreciate, or will you develop it in the near future? Your answers can determine how this process unfolds. In the eyes of the bank, purchasing raw or “unimproved” land is riskier than purchasing “improved” land. If you need a loan, you may encounter a hesitation on the bank’s part to front the money on raw land since it isn’t actively producing profits (as opposed to a building with businesses that potentially generates income). A larger down payment is not uncommon, as well as a high interest rate on a loan. The lender will likely also want to see a development plan and what your intentions are before approving a loan. However, don’t let these factors alone deter you; land is still considered a good investment because it’s a tangible asset, versus stocks or bonds, for example. It’s also a limited resource, and highly coveted as our populations and developments continue to increase.

It’s also important to consider the logistics of maintaining raw land. For instance you will still have to pay property tax, although on unimproved land, it is typically less than if it has development on it. Other maintenance costs can include upkeep as well as ensuring that there are no overtly dangerous liabilities on the property where people can potentially become injured or worse. But again, that should not be a deterrent and often can be mitigated with something as simple as posting “No Trespassing” signs or creating boundaries.

Surveying the Land

As clichéd as it is, location is always a big factor, whether you choose to develop the land or not. If the property is more remote, road and utility line accessibility should be assessed; even features such as the soil type and grade can be crucial, depending on what your intended use for the property is. Having the land surveyed can help answer all of those questions. It can also help find out if there are any ‘easements,’ meaning that a neighbor or other party is entitled to use part of your land for a specific purpose (i.e., passing through). Different kinds of surveys are available; subdivision survey if you plan on dividing and selling or leasing the land, or have a more comprehensive survey conducted, like the ALTA/ACSM land survey (American Land Title Association/American Congress on Surveying and Mapping). The ALTA Survey can reveal all of that information, including the easements or encroachments on the property.

Be sure to consider even uncommon situations, for example the need for a septic system if the property is too far from the main municipal sewage system. Situations like this could create other obstacles, in this example it would be determining if you have adequate space for a septic system while maintaining enough distance from the water source to prevent contamination. Navigating situations like this is where the value of a great team with experience starts to really pay off.

Remember that unless you have immediate need and/or plans, raw land is often a long term investment. This allows for savvy investors to be strategic with their land purchases. Land within a city or at a city’s edge will increase at a faster rate, but that doesn’t mean that raw land in other areas will not appreciate quickly as well. INCO Commercial can help look into the city or county’s long-term land use plans or scheduled additions, which can indicate any progress or development that may benefit you in the long-run.

Title Insurance & Due Diligence

Title insurance is not mandatory, but it can help ease the minds of lenders, and yourself. Unlike most insurance, which protects you in the event that something might happen, title insurance protects you from things which have already transpired, but aren’t necessarily apparent even to the trained eye. This can include forgeries or fraud on the part of previous owners, or forgotten responsibilities (or previously undisclosed inheritances, etc.), or other errors in previous transactions. Title insurance serves to help you with any legal fees or expenses if the ownership of the property is ever questioned.

Proper due diligence on your part can also save you unexpected costs and headache in the long run with a thorough research on the property and its history.  Here again is where a great team with the right experience can prove to be invaluable. The INCO Commercial team can help with your due diligence efforts to ensure maximum transparency and that you are always acting with the most accurate information possible. For example, the seller’s intentions could give insight on the true value of the property. If the current owner has only possessed the land for a short time or is selling far below market value, it raises some flags; they may know something about the land that they are not readily disclosing. With the right research and information INCO can help you assess all possible situations to help ensure that you are making a legitimate investment.

Our affiliated IMC Municipal Consulting can also work closely with you and provide assistance throughout economic development projects with as little or as much consulting as you need.

If you have any more questions about raw land investments, or any other ventures in commercial real estate, please feel free to explore our website, or contact us at (562) 498-3395 for more information! We are happy to help answer any of your questions.