The internet is brimming with cheap raw land for sale and many of the deals seem too good to be true. Land can also be very difficult to finance. This is because it’s difficult for lenders to really assess the true value of raw land because there are so many unknowns, making it nearly impossible to calculate the investment risk.
One increasingly popular way to buy land is through online land brokers. These companies buy and sell land and often provide financing. The benefit is that they make raw land easier to buy, often offering low monthly payments with no credit checks. Common sense tells us that there’s a greater need for due diligence when any deal sounds too good to be true.
Researching land developers
I recently had a dialog with the folks at Classic Country Land. They have taken their real estate investment company to the next level, and have made the primary focus of their business developing larger tracts of land into accessible parcels.
Antler Ridge is one example of the kind of communities that Classic Country Land develops. This particular development is located in the south-east corner of Missouri on the border of the Mark Twain National Forest. It was once a much larger single tract of land and is now split into smaller parcels averaging 21 acres each. Each parcel appears to have deeded access by private dirt road and there is a county maintained road to the development.
They’ve also setup some high level covenants, but unlike many developers they don’t make it hard for folks to build something simple, small, and off-the-grid. For example, the Antler Ridge Covenants (pdf) defines a few limitations that are intended to keep neighbors from setting up something other than a place to live. This protects everyone that buys land there but doesn’t add so many restrictions that construction is prohibitive. Missouri is also well-known for flexible building laws, so a good choice for those looking to build alternative housing.
Doing your due diligence
When you discover a property you like online be sure to do some careful research on the parcel and seller. If the land is being sold by a developer check with the Better Business Bureau to see what kind of reports have been filed for the company. This can give you an idea of their track record; Classic Country Land has an A+ rating for example.
Also be sure to understand the terms of the sale and when you actually get the deed. Some seller financed agreements state that the seller holds the title until the property is paid in full; others put you on the title while you’re making payments like a traditional mortgage.
It’s possible that in the fine print you may find that defaulting on the loan causes the property to revert back to the seller. This would be bad, very bad, since you could loose any equity you’ve built-up. Read the fine print purchase agreements carefully.
If the seller offers financing be sure to review the loan terms carefully too. The folks at Classic Country Land have a strait-forward lending model. They will often discount the purchase price of the land if it’s a cash deal; and the bigger the down payment, the lower the interest rate you’ll pay.
Many of these seller financed land deals also do not require a credit check. This can be a bit of a double-edged sword because it’s the buyer’s responsibility to determine if they can really afford the loan. Many people want to think they can afford monthly payments on their dream property, but often fail to do their own due diligence on themselves. Try to avoid getting caught-up in the excitement and carefully consider all the risks before making the commitment.
The most important part of doing your due diligence may be getting out there and visiting the place in-person. Google Maps and other online research tools can give land shoppers a false sense of security that should really be tempered with a visit in the flesh.
Finding a good deal
If you were to buy land with cash from anyone you increase your chances of getting a good deal. It’s also a sure thing you’ll pay more when you choose a payment plan. But if you’re looking for low-cost, off-grid property to park a tiny house and don’t have the cash, paying the premium to have a place to live while making payments may be a good deal in the greater scheme of things.
Inexpensive land also comes with a natural built-in red flag, which is simply that it is inexpensive, there’s always a reason for that. In the case of Antler Ridge I suspect the low cost is due to it’s remote location, off-grid status, and dirt road access. If you plan to live their full-time and need a local job the cost of your commute may far outpace any savings on cheap land.
Good deals are really in the eye of the beholder. It’s only a good deal if it serves your needs and empowers you to reach your goals. Be patient and choose wisely and more often than not, you’ll be happy with the deals you negotiate.
Avoiding owners’ associations
In my humble opinion property and homeowner associations should be avoided, or at least well-researched before you put down your money. These organizations are setup to add another layer of governance to a community and might work well for those who want to live on the 18th hole, but for most of us they just add a major pain in the neck.
Buying land is not easy and should be approached with lots of caution. It’s not rocket science either, so spend the time to educate yourself and connect with people who’ve done it. Here are a couple of posts I’ve enjoyed from people who’ve gone through the process.
If you have any personal experiences with buying raw land or doing business with land developers I’d love to hear about it in the comments. Thanks!