IMPROVING RAW LAND

One way to get a real education in rural land is to buy some raw acreage and improve it. Think of it as a blank canvas. One goal, of course, is to eventually sell it as improved for a profit. I am not a land developer but hopefully the comments below will provide some guidance.

Raw v Improved

Raw acreage offers endless potential but also involves significant investment, planning and work. The ideal blank canvas would be an overgrown tract owned by a buyer who is either tired of the property or someone with financial challenges or both. In other words, a truly ugly property. The idea is to clean it up and add some features which will enhance the value more than their cost. An improved property is acreage which has site improvements and /or buildings on it.

Rural Land Broker

A good place to start would be to engage a knowledgeable land broker to help you find the right property to buy and just as importantly, guide you during the process of development and resale. Your land broker can provide you with names of the various venders and contractors you will need to develop the property.

Economic Feasibility

Your profit will depend upon four items; initial purchase price, cost of improvements, cost of holding and profit margin. Your initial budget must include each of the four and the total will have to reflect what the market will pay for the final product. Estimating the final market value will depend on what comparable sales of similar improved properties indicate. Not all improvements will necessarily add as much value as their cost.

Buy the right property

Choosing the right property is key. A low initial investment is crucial. Generally speaking the larger the property the more alternatives are available. Size and remoteness will usually result in a lower price per acre purchase price. A larger property may lend itself to subdividing. A property with a tax exemption is essential. Finally, It is hard to improve a small acre tract before the improvements begin to overwhelm the end value. More is better when it comes to land.

Which Improvements and When

While it will certainly be fun making improvements to your new property, a certain amount of discipline is necessary. The order in which the improvements are made is important. Site improvements should come first and buildings later. The residence should be built last. The next consideration is cost of the improvements. A good rule of thumb is to spend less on all improvements than the land costs. Will the market pay for a particular feature? Not always. Avoiding improvements that involve government regulation is an expense saver.

Timing

There are several timing alternatives. One might be to develop quickly and move on to market. Another option might be to hold and lease the property for grazing and add improvements little by little. You might use the property as a second home but that would require an investment in a house. There is always the question as to whether a buyer will like the residence you have built. Homes are particularly personal.

Financing

The purchase and improvement of almost all rural land will require financing. Your loan will need to cover both the acquisition of the raw land itself and your planned improvements. You don’t want to run out of funds before compilations of planned improvements. Local banks and Farm Credit associations are the typical source of loans. Also you might consider asking the seller for owner financing.

Survey

Having a survey is absolutely necessary. Be sure the your earnest money contract calls for the seller to provide you with a current boundary survey with all easements indicated.

Access

The first consideration is legal access to the property. The best access is road frontage with permits for a driveway. Extensive frontage might add the possibility of subdividing. If the property does not have road frontage it will be necessary to have a written document indicating a right of way to the property across the adjacent landowner. If a property does not have legal access you should not consider buying it unless it is adjacent to property you already own.

Electric Service
Availability of electric service is absolutely necessary. Check with the local provider to be sure it is in place or available. I always request an appointment with a representative on the ground to make sure. Do not buy the property if there is no electrical service available.

Appeal

The final product will need to be visually appealing. Hire a land clearing contractor to build interior roads and remove brush. If a portion of the property is inaccessible extend roads and culverts. All trash should be removed.

Fencing and Gates

Repair all fencing around the perimeter. Ask your adjoining neighbor to cooperate with you on costs. Some decorative fencing and entry gate will add to the appeal of the property.

Ponds

Ponds are popular and may result in adding value beyond their cost. There are a lot of variables associated with ponds; location, permits, leaking, etc. An experienced dirt contractor is essential. On the other hand, if you are going to hold the property for a period of time and perhaps lease it for grazing building a pond may be an option.

Water Well

Investigate the presence of a water well. If there is one you might want to get an inspection by a certified water well driller. If there is no well get a bid for a new one. New water wells are expensive. This an improvement you can put off but you might want to extend power to the future site of the well.

Septic System

Installing a septic system is not necessary initially. A septic permit is almost always required by the county. Unless you plan to build a house put off installing a septic system. A potential buyer may not choose the same location as you would.

Buildings

Buildings are expensive and may not necessarily appeal to some buyers who plan to build their own. Barns and sheds, if any, should be built before a house.

Summary

Before buying raw acreage, budget carefully the cost to install site improvements such as roads, fencing, ponds, brush removal, water wells, septic systems and buildings. Do your best to make sure the market will pay for your initial land purchase and all improvements. Even if you do not intend to sell the above comments apply.

Let us hear from you

If you have experience with developing raw land we would very much appreciate your comments and advice. If you are contemplating developing some raw land call us with your questions.

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Allen Realty Advisors represents buyers and sellers of fine quality rural land near Houston. We specialize in weekend retreats, country estates, farms and ranches, recreational property and investment land. Our market area is generally within 100 miles (two hours) of Houston.