Investing in Land

Whether it is a neighborhood lot for building your employee’s next home, country acreage or lakeside tract for weekend getaways, investing in land can bring years of enjoyment and be a valuable addition to their investment portfolio.

There are several ways to find your lot.

Work with a real estate agent. Through the MLS system, office networking, builder connections, and experience, a professional and competent real estate agent can locate a wide variety of available building sites. In addition to locating the lot, the agent can look at comparable recent sales and provide advice on the appropriate amount to offer for the property. They can write an offer that is legally correct and that protects the buyer, negotiate with the lot owner on the buyer’s behalf, and supervise the process to closing. Even if your employee is interested in a “For Sale by Owner” property, the agent can still represent them, and negotiate with the lot owner to pay the agent’s customary fee.

Drive around. We recommend employees spend some time driving around areas that appeal to them. It’s likely you’re employee will uncover for sale signs on available property. Often, a lot owner will simply put up a sign and use no other method of marketing the property. If one has retained an agent to represent them, just pass the information along to the buyer’s agent, and they will do the legwork. If your employee is experienced in making real estate purchases, they can contact the lot owner themselves and get the information.

Check the classifieds. Both builders and property owners use the classified section of the newspaper to advertise their offerings.

Search online. A good site for MLS listings is www.austinhomesearch.com. Click on Lot Search and enter the parameters of the search. Remember, these properties are listed by real estate agents who represent the seller. You’re employee will want to employ an agent that represents them. They should let the agent know what lots are appealing. They can research the properties, and organize a “shopping trip” to look at lots of interest and within the price range.

Talk to builders. Many builders “take down” lots from a subdivision developer, planning to sell the lot with a home built on it. Most builders advertise by placing signs on their available lots. Some list their lots with a real estate agent. These lots are a “package deal." The builder usually has little or no profit built into the lot. Their profit comes in building the home. This is a good arrangement, provided one likes the builder, his pricing, and his reputation. It is important to look at the entire package: the land, the builder, the home, and price when one takes this path. The most beautiful lot will not compensate for a nightmarish building experience or a poorly constructed home.

Lot and Building Site Issues

What to spend

Of the total building budget, how much should be allocated to the lot purchase? As a general rule of thumb, the lot should constitute 20% - 30% of the total value of your future home. This can change dramatically in the following instances (Texas examples):

Central Austin location: The land in Central Austin is considered very valuable and the land cost may actually exceed the value of the improvements. One can expect to get much less house for one’s money in these areas.

Acreage, Views, Location: A lot that backs up to a main road or street will have less value than one that does not. Acreage and views will, of course, cost more.

Country Club Environment: In these locations, one is paying for the additional amenities and lifestyle and the cost of those improvements is built into the cost of the lot.

Build-able?

Before committing to purchase the lot, make the preliminary trip to an architect to discuss some basics: Size of the home, one story or two, pool and landscaping considerations. Then visit the site with the architect to make sure that what one wants will work with the land. Every lot offer should be contingent upon a survey and the architect’s approval. If the property requires a septic system and/or well, have those contractors walk the lot also. They’ll be able to give a ballpark estimate based on the topography and soil type.

Slope

That view to die for may also require a very expensive foundation or significant engineering expense. Many outlying properties require a septic system; significant sloping or cuts in the property (such as a creek) can have a big impact on whether there’s ample space for a septic system. Again, the architect and a survey are necessary in making this decision.

Easements

The survey will indicate all utility easements. Review these closely. Consider the following issues:

The lot has a wide utility easement across the back. Research what type of utility structures can be placed here. The greenbelt view and the home’s value would be significantly affected if high volume electrical towers are in the five-year utility plans.

What are the plans for a pool, outdoor structures, and the general placement of the home? If the home must sit in a certain position on the lot, will easements prevent building any of these types of structures? While one can build a permanent structure over an easement, the easement owner has every right to destroy or remove it to do work. Structures over easements will also create a large problem when it comes time to sell the home.

Zoning

Check local community zoning restrictions that are generally found on the community website. For more information on Austin zoning, visit http://www.ci.austin.tx.us/development/zonginfo1.htm.

Restrictions

Many neighborhoods have very specific restrictions. They can include:

Minimum and maximum square footage of the home.
Exterior requirements: these can be as specific as “100% masonry, stone. If stucco is used, 40% of the exterior must consist of stone.”
Roof types: Restrictions can limit roofing choices to tile or concrete, which can add $30,000 - $40,000 and more to the cost of the home.
Fencing: Privacy fencing may be prohibited, or specific materials, such as masonry and iron may be required.
Landscaping: Specific types of trees may be mandated.

Homeowners’ Associations

The Homeowners’ Association dues and administration should also influence the choice of a neighborhood.

Community associations do a number of different things. They set and collect the maintenance fees needed to run neighborhood operations. They may maintain landscaping or recreation centers. They may provide for events or meeting places for neighborhood functions. However, the most important function of an association is to enforce deed restrictions.

Deed restrictions are legally binding rules, filed with the real property records, which provide for building, maintaining, and using the homes in your neighborhood. They control how homes look and what can be done in the subdivision.

Utilities

Make sure there is clarification on what utilities are available on the lot and what the approximate costs will be to supply them. Often, in more rural settings, one will need to bring power from a somewhat distant pole to the lot, dig a well, and install a septic system. If high-speed internet is a requirement, check to see if service is available.

Agricultural Exemption Rules and Regulations

If one is considering purchasing property that carries with it an agricultural tax exemption, one will want to have some knowledge of whether or not this exemption can be continued or if one will have to rescind it. Methods of qualification can be found in the State Tax codes. For example, Texas Tax Code at the Texas Legislature Online site.

As with all tax related information, please consult and rely on your own counsel for final interpretation of regulations.