Land investing is a great way to earn some extra passive income and to the untrained eye, vacant land may seem like a simple type of real estate.
Some vacant lots really are as clear as they seem. But, the problem with land is that the dangers and pitfalls aren’t always obvious on the surface.
Just like with single or multifamily, there can be A LOT of hidden problems in a land deal. the biggest issues can go completely unnoticed until it’s too late unless you know what you’re looking for,
Land really is a rock-solid investment, but if you want to play in the land investing space, you’ll need to know what to watch out for, and under what circumstances you should re-adjust your offer price or walk away from the deal altogether.
Today’s guest post is by Seth Williams, an expert land investor. He will cover the biggest 3 issues related to land investing.
Investing in Land – Things to Look For Beforehand
There are over a dozen different things I try to assess before I close on any vacant land purchase, but in this article, I’m going to tell you about 3 of the most common (and most problematic) issues I’ve encountered in my investing career.
These issues are nothing to overlook – because when they rear their ugly head, any one of them can present problems big enough to kill a deal altogether (or at the very least, change my offer amount substantially). If these problems exist at all on the properties you’re pursuing, you’ll definitely want to know about them and react appropriately before you sink your money into the deal.
The presence of wetlands can be a major challenge for landowners.
Not all regions of the U.S. are renowned for their wetland areas, but in the ones that are, this is a significant issue to watch out for.
In the United States, there are federal laws (and usually state laws as well) that require landowners to obtain a permit from the U.S. Army Corps of Engineers prior to developing their property in any way that may adversely affect wetland areas. Because of all the red tape and hassles involved with this process, wetland areas are (practically speaking) very difficult to use in any practical way.
This is why it’s important to identify the presence of wetlands BEFORE closing the deal.
The only way to be sure about the existence of wetlands is to hire a consultant. You can also get a delineation on-site from the appropriate government officials.
The problem with this kind of “textbook answer” is, this is a significant undertaking – both in terms of time and money. When a transaction needs to close quickly, it’s not always feasible to get 100% certainty before closing the deal.
Luckily, there is an alternative that can help point you in the right direction. It is possible to do some high-level research without leaving your computer. You might be able to learn a bit about the wetland situation on your subject property and find some red-flags. I’ll explain one method in this video…
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Mapping Wetlands Online
As mentioned in the video, the wetlands mapper doesn’t always give the most accurate assessment of wetlands in all areas. The NRCS Web Soil Survey is a good tool to cross-reference your results of the Wetlands Mapper. I’ll show you how it works in this video:
You can download this SoilWeb KML file by visiting the Google Earth Library.
Remember, these tools are NOT a suitable replacement for a wetlands consultant and/or delineation from the USACE. Both of these online tools are helpful, but not guaranteed to give you a reliable reading in all areas. They are good if you’re just looking for an educated guess. They’re also good to help you avoid walking into the situation completely blind.
Both of these online tools can be used as a helpful starting point.
When a parcel of land is situated on a steep slope, at the bottom of a ravine, or in any other compromising location – there’s a fair chance that its usability for development will be compromised as well.
Similar to the wetlands issue, it’s important to know if the property can be used for your intended purpose. This is something you’ll want to know about BEFORE you own it. If it’s not you can then adjust your offer price or walk away from the deal altogether.
Luckily, there’s a free topography map from Earth Point that can be integrated with Google Earth. With this KML file, you can find your subject property (using the address or coordinates) and zoom in to see what the elevation, slope, and lay of the land looks like on and near your area of interest.
As you can see, this combination of software can give you a crucial perspective on the properties you’re looking at. And if you want even more clarity on where the parcel lines of your property are, be sure to check out Parlay as another helpful (and paid) resource.
Something that real estate investors (of all types) tend to overlook is the issue of flooding.
Flooding disasters tend to be a highly infrequent, once-in-a-lifetime event that happens to other people. And you may be wondering – even if a flood does occur on your property… does it really matter if it’s just vacant land?
Yes, if you’re buying a property with the intent of building on it. This includes if you plan to sell it to someone who will build on it in the future.
The reality is – most buildings cannot be constructed without some kind of financing (usually from a bank or credit union). When most lenders realize their collateral is in a flood zone, they will require their borrowers to get flood insurance. This is because when a property is at risk of flooding (even with low-risk), it’s their collateral at stake. Someone needs to pay to mitigate that risk!
Flood Insurance can be REALLY expensive. This can be a significant downside to owning that kind of property. You (or any future owner of the property) will have to pay for on an ongoing basis.
There’s are a couple of quick and FREE ways to find out whether a property is in a flood zone. I’ll explain how it works in the video below…
To get started, just search for your property address on FEMA.gov and you’ll get instant access to the nearest, most relevant flood map in the area (hint: if your property doesn’t have a registered address yet, just find the nearest property that does have an address and search for that one). You can also create a free account on FreeFlood.net and search for your property there too (I actually prefer this website over FEMA.gov, because it’s easier to use).
Understand Your Location
The geographic region of your property will have A LOT to do with the prevalence of these issues.
For example, wetland areas may be very common in some states (Michigan, Florida, Louisiana). Other states such as Arizona, Nevada, New Mexico have virtually no wetlands.
Similarly, properties with steep topography will be much more common in mountainous regions (Colorado, Utah, Arizona). Compare this to agricultural states (Iowa, Illinois, Indiana) where the topography is rarely an issue.
In any case – I’ve found that regardless of where my properties are located, it is ALWAYS worth a few extra minutes of my time to investigate these issues while I still have the ability to change the terms of the deal. There’s nothing worse than learning about these things after it’s too late.
Hopefully, you’ll be able to put these research tools to work the next time you pursue a land investing deal.