Financial Advice

Buy & Own a Home

TOPICS

Investing in Land

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

Finding the Ideal Location

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, your agent can look at comparable recent sales and advise you on the appropriate amount to offer for the property. They can write an offer that is legally correct and that protects you, negotiate with the lot owner on your behalf, and supervise the process to closing. Even if you are interested in a “For Sale by Owner” property, your agent can still represent you, and negotiate with the lot owner to pay the agent’s customary fee.

Drive around. Spend some time driving around areas that appeal to you. It’s likely you’ll 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 you have retained an agent to represent you, just pass the information along to your agent, and they will do the legwork. If you are experienced in making real estate purchases, you can contact the lot owner yourself 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 your search. Remember, these properties are listed by real estate agents who represent the seller. You will want to employ an agent that represents you. Let your agent know what lots you have seen online that look appealing. They can research the properties, and organize a “shopping trip” to look at lots of interest and within your 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 you like the builder, his pricing and his reputation. It is important to look at the entire package: the land, the builder, your home, and price when you take this path. The most beautiful lot in Austin will not compensate for a nightmarish building experience or a poorly constructed home.

Lot and Building Site Issues

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

Central Austin location: The land in Central Austin is considered very valuable and the land cost may actually exceed the value of the improvements. You can expect to get much less house for your 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, you are 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 your lot, make the preliminary trip to an architect to discuss some basics: Size of your home, one story or two, pool and landscaping considerations. Then visit the site with the architect to make sure that what you want will work with the land. Every lot offer should be contingent upon a survey and your architect’s approval. If the property requires a septic and/or well, have those contractors walk the lot also. They’ll be able to give you 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, your 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. Your greenbelt view and your home’s value would be significantly affected if high volume electrical towers are in the five-year utility plans.

What are your plans for a pool, outdoor structures, and the general placement of your home? If your home must sit in a certain position on the lot, will easements prevent you from building any of these types of structures? While you 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 you try to sell your home.

Zoning: For more information on zoning, visit http://www.austintexas.gov/department/zoning.

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

Agricultural Exemption Rules and Regs: If you are considering purchasing property that carries with it an agricultural tax exemption, you will want to have some knowledge of whether you can continue with this exemption or if you will have to rescind it. Methods of qualification can be found in the Texas Tax Code at the Texas Legislature Online site.