4.15 acres for $175,000 right outside Boise. A wooded 1.5 acre lot with mountain views.
You may have seen listings like these in Treasure Valley and considered purchasing these lots to build a home on, only to find they were undeveloped lots and reconsider your decision.
Should you buy undeveloped land to build on? It’s a common question for those who are interested in buying land to build on. It’s also a common consideration for real estate investors. Here we’ll take a look at the pros and cons of buying undeveloped land to help you better determine if this type of property is the right option for you.
What Is Undeveloped Land?
Undeveloped land is property that has not had any development work done on it. It is essentially the land in its natural state. A piece of undeveloped land does not typically have any infrastructure like utilities, roads, or buildings.
Buying Undeveloped Land: Pros
Lower Cost
When you buy undeveloped land, there has been no development on the property so it is typically a lower cost than buying a developed piece of land which may already have road access, utility hookups, and be ready to build on. This lower cost is one of the biggest benefits of buying undeveloped land, whether you are an owner looking to build a home or a real estate developer.
Contains Natural Features
When you buy undeveloped land, you’ll get land in its natural state. This includes the native vegetation. Many people consider this a selling point as you’ll be able to keep this natural vegetation and other topographic features if you want to when the land is yours.
When you buy a developed lot, much of the time the land will have been cleared of much of the natural vegetation to improve buildability, so you’ll need to start from scratch when it comes to landscaping.
Flexibility
Buying undeveloped land gives you greater flexibility than any other land purchase because you make all the development decisions. Where you want to build on your lot, how you want to add road access, and every other development decision.
When you buy a developed lot, often you’ll be subject to existing development, and in residential developments, you may also be subject to neighborhood regulations like CC&Rs. With undeveloped land, you have a blank canvas and unlimited options.
Investment Potential
Many people choose to buy undeveloped land for its investment potential. Particularly in areas with high growth like the Boise area, an undeveloped lot has the potential to appreciate dramatically even if you don’t end up developing on it. This, paired with the fact that undeveloped land is lower cost, makes undeveloped land attractive as an investment for many people.
Buying Undeveloped Land: Cons
Cost of Development
As much as the lower cost of development is a benefit to buying undeveloped land, the cost of development is one of the greatest cons. As we’ve covered before in our hidden costs of building a home on your land, land development costs can be significant.
Many factors, like adding road access and connecting with utilities, can cost more than you expect. Before you purchase an undeveloped lot, be sure to get an idea of what it would cost to add these essential amenities, so you can determine if the cost is worth it for you.
Greater Risk
Another downside to buying undeveloped land is the risk involved. Because the land has had no development, there is greater potential for problems like subsurface issues or zoning and land use issues that you may encounter. You can mitigate some of the risk with thorough land purchase due diligence, which can help you uncover and understand potential risks and issues before you purchase the land.
Financing Can Be More Difficult
If you plan to finance your land purchase, financing is a potential obstacle to be aware of. Typically, a loan for undeveloped land requires a larger down payment, often between 20-50%. This is because lenders view land purchases, and particularly raw land purchases, as greater risk than loans like mortgages, where there is a building that serves as collateral for the loan.
With raw land, there is no collateral beyond the land itself, so along with higher down payments, you can also typically expect higher interest rates and potentially shorter payback periods than a traditional mortgage or even a construction loan.
Although there are cons to purchasing undeveloped land, you may find that in your situation the pros outweigh these cons. If not, you can always look for a developed lot to build your home on and avoid any of the potential downsides of raw land altogether.
Buying Undeveloped Land As A Real Estate Investment
If you aren’t planning to buy undeveloped land to build your own house on, there are many ways to use undeveloped land as a real estate investment. In any of the examples below when you buy and where you buy makes all the difference in your investment outcomes.
Buy Undeveloped Land To Sell After Appreciation
This is one of the most hands-off approaches to using undeveloped land as a real estate investment. In this scenario, you would buy a parcel of undeveloped land and hold it until a time when it has appreciated enough for you to sell at a profit.
During the time you own the land, you don’t do any development on the land. It remains as it did when you purchased it. You are responsible for any property taxes and anything else required to maintain the land and your ownership of it.
When the land has appreciated in value, you sell it at a higher price than you purchased it for and make your profit. This strategy of buying undeveloped land and holding it until it appreciates is a long-term investment plan, as it typically requires holding the property for years or decades before reselling.
Develop The Land & Resell Developed Parcels
Another way to make a profit from buying undeveloped land is to invest in developing the land and then reselling the land as developed parcels to recoup your development costs and make a profit.
In this scenario you would prepare the land for development, add amenities like connection to public roads, utility hookups; however, you would stop before actually building houses or another development on the property.
Once the development is done, you now have developed lots to sell, which are typically a higher price than the undeveloped land you bought. Developed land can be sold to single owners, a real estate developer, or even a home builder.
Develop & Build Residences For Resale
A third option you have when buying undeveloped land as an investment is to go a step further than just developing the land by also building the final residences or structures on the land and selling new construction homes or buildings.
In this scenario, there is a little more work for what could be a much higher reward. When you take this step, you’ll need to go through all the permitting and planning, select a builder to work with, and go through the design and construction process.
If you are building spec homes for sale versus selling a developed lot for someone else to build on, there is a higher up front cost. You’ll also need to understand the type of homes, features, and designs that are likely to sell. The benefit of all this extra upfront work is the ability to make a higher profit.
At Pathway Builders, we work as a builder partner for real estate developers who are going through this process. We know that there is more work involved, which is why we streamline the process for our development partners with a turnkey service, access to host clients in our design center, and flexible options to meet partner development timelines. Learn more about working with us as a real estate developer.
There are many other ways to buy undeveloped land and use it as a real estate investment; however, these are a few common ways we see in our work as a custom home builder in Treasure Valley.
Tips & Considerations When Buying Undeveloped Land
Once you’ve weighed the pros and cons of purchasing undeveloped land and decided to move forward, there are a few other things to consider before you make your final purchase.
Research Planned & Future Development In The Area
Before you buy undeveloped land, whether it is part of your real estate investment strategy or as property to build a house on, it is important to understand the planned and future development in the area.
Area development has the potential to significantly increase or decrease your property value over time. Future development also has an impact on how you imagine or plan to use your new property.
If you’re dreaming of an escape from the hustle and bustle and purchase a property in Garden Valley, only to find out there is a casino and a 700-room hotel being built near your property, you may rethink your land purchase decision.
On the other hand, if you are buying undeveloped land to develop the property for a profit, a planned casino and hotel may make you more eager to buy that same parcel of land because you see there will be demand for housing in the area for employees of the new establishment.
Whether you are a real estate developer or you are buying land to build a house, any planned or future development in the area can impact your decision to buy.
Do Your Due Diligence
While due diligence is important for any real estate transaction, it’s particularly important when buying undeveloped land. This is because there is a higher risk associated with the purchase of undeveloped land. Because there has been no development, you don’t know if there are soil issues or if there is a rock layer underneath that will cause significant construction issues. You’ll also need to confirm land use and zoning restrictions.
If land has already been developed, all of these things will have already been discovered and will be much easier for you to determine. You can use this land purchase due diligence information and checklist to get a better understanding of what’s involved in the due diligence process when purchasing undeveloped land.
Buying Undeveloped Land FAQ
Are undeveloped land and raw land the same?
Yes, raw land is another name for undeveloped land. Both terms signal land that lacks any development and is in its natural or near-natural state.
Where can I find undeveloped land for sale in Treasure Valley?
There are currently pieces of undeveloped land for sale throughout Treasure Valley. Places like Featherville and Mountain Home in Elmore County, Horseshoe Bend and Garden Valley in Boise County, and Emmett in Gem County typically have plots of undeveloped land for sale.
If you are looking into buying raw land in southwestern Idaho, check out sites like LandWatch or Land.com for up-to-date listings. Or, talk with a local real estate agent who is well-versed in buying undeveloped land in the Treasure Valley as an investment or to build a home on.
Is a vacant lot in a subdivision undeveloped land?
No, typically a vacant lot in a subdivision has been developed with at least road access, and it is therefore not considered undeveloped land. Depending on the vacant lot you buy, you may still need to invest in developing the property to ensure it is ready to build a house on, but it should be less than if the property were truly raw land.
Whether you are considering buying undeveloped land to build a custom home or you are interested in the investment potential, our team is here to help. Contact us for a free consultation about building on your land or building your real estate development with us.
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