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What Do First Time Land Buyers Need to Be Aware Of?

Published on Thursday, December 31, 2015 by Land Century

The excitement that first-time land buyers feel is difficult to put into words. When you first dive into this long-term investment, you know that you’re buying something that actually has value. You can touch the land under your feet, and you can use it to build a home, farm or simply hold onto it and sell it in the future. It’s far more exciting to own land than a stock; an investment you never actually get to touch.

And when you own the land, you have full control over what happens to it. This is an investment that I recommend to everyone, and real estate in general has been a very profitable vehicle for investors. It’s not something that is new either – people have been owning land since the beginning of time.

But there are a lot of different factors that first-time buyers need to be aware of before they make their purchase. It’s simply not enough to give a random stranger your cash, and not really know what you’re going to do with the land. Land can be an amazing investment, or it can be a major bust – just like what happens with the stock market. You wouldn’t invest in a random penny stock you knew nothing about, but you may invest in Facebook stock because you know about the company.

The moral of the story: you need to know little bit about the land and the buying process before you get started.

Traditional Loans for Land Are Difficult to Obtain

Land is not viewed as low risk by banks. Banks will provide you with a loan to buy your home, but they're not likely to give you a loan for land. Why? It matters what you do to the land to increase its value. Lenders know that they can sell a home if you don't pay your mortgage, but it's much harder to sell land, and it doesn’t provide the same return on investment that a home would in most cases.

You’ll have a few avenues to pay for your land:

* Owner financing
* Cash payment

What many people choose to do is buy a small lot of land, and learn about the land buying process. They’ll flip this property, and reinvest into a new property until they buy a substantial piece of land. This the perfect situation because it allows you to understand the land buying process and what makes land valuable.

Start saving now, so you can buy a property.

If you're planning a commercial venture, you may be able to get funding for the land itself. Lenders may be able to provide you with a loan, but I wouldn't rely on traditional lending practices when buying a piece of property.

Easements

Easements are very difficult to understand, but they're essential for any homebuyer to become accustomed to before buying. Essentially, an easement allows you access to your land. If your property is in between two different parcels of land, an easement may be in place that allows you to use your neighbor’s road to access your property.

There are also different types of easements:

Express Easements: A written agreement between the land owners granting the easement.

Implied Easements: An implied easement is when an easement would be granted for the enjoyment of the land. This often occurs when a piece of property is divided and sold.

Prescriptive Easements: An easement that is been granted because an individual has utilized an easement for a given time period.

You need to know what easements exist on your property, and ensure that you’ll be able to use the property accordingly.

Liens May Exist

Whether you’re buying a home or a piece of property, you need to know if any liens have been taken out against the property. This normally occurs when the previous owner does not pay their taxes accordingly. If there are property taxes outstanding on the property, you'll be responsible for paying these property taxes as the new owner. Always make sure that the property is free and clear of any liens before you purchase it, or at least be notified of them prior to finalizing the purchase.

Property Taxes Can Be Expensive

Property taxes are normally much less expensive on a raw piece of land, but you also need to ensure that you know what the current property taxes are for your particular property. Property taxes can go up yearly, and you’ll want to know what the tax rates have been for the past three years.

You need to know this information so that you can understand how much you’ll be responsible to pay to the government every year. If the property taxes are immense, this may negate the return on investment that you would get as the property increases in value.

Land Drainage

Land drainage will be a very important factor when buying land. You don’t want to buy land that routinely floods because it will not be a smart investment. This type of land is obviously less desirable, and not the best option for any piece of farmland or even residential land.

Soil Quality Matters

In the event that you're buying farmland, you'll want to ensure that a soil test has been performed. This will help you understand the quality of the soil, and what needs to be done to the land to restore it to a premium quality.

This is most important with farmland, and you should consult with an expert before buying farmland to ensure that it's a quality property.

Land Enhancements

Land enhancements will be one of the following:

* Utility line hookups
* Water lines
* Septic systems
* Road access
* Cleared land

All of this information is very important when buying land. If there are already utility lines in place, this means that you'll have to spend less if you want to build a home or structure on the property. Cleared land also allows you to quickly start the building process if you wish, and is far more desirable than raw land if using the property for residential purposes.
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