It’s often said that home ownership is the essence of the American Dream. But if there’s one thing that goes beyond mere ownership — that cuts to the heart of what it means to be an American — it’s being able to purchase your own undeveloped plot of land and build a custom home on the property.
If you’ve always dreamed of owning your own tract and designing a home from scratch, you aren’t alone. In Houston, as in cities all across the U.S., thousands of people are inspired by that same intense desire as you.
However, relatively few individuals will ever take a chance and act upon this dream. Will you?
Here’s What You Need to Know
There’s a huge disparity between the number of people who would like to own land and build a house on it, and those who actually make it happen. Money certainly plays a role, the obstacles not usually financial.
At bottom, it comes down to one’s willingness to step out and take on some risk in order to enjoy the fabulous but distant rewards. Buying land and building a house is risky.
Not only are you tying up a bunch of money in a concept that will not come to fruition for some time, but it will demand much effort and throw a series of logistical challenges at you. If you’re unsure about where to start, the following six tips should provide some clarity and direction.
- Figure Out What You Want in a Lot
Saying you want to buy a piece of land and build a house is a lot like saying you want to go to Baskin Robbins and buy three scoops of ice cream (on a much grander scale). Okay, that’s great, but there are thousands of combinations you could end up getting.
In order to narrow your search and increase your chances of finding a piece of land you’ll be happy with, first you have to figure out what you want exactly. Some of the key elements to think about would be location, acreage, terrain, and cost.
Something like “I’d prefer at least a 10-acre rural tract of land outside of Katy for less than $350,000” is a lot more precise than saying “I want a big piece of land in the Houston area.”
- Look Early and Often
The key to acquiring good land is to start looking early and often. Even if you suspect you could be three to five years out from being ready to break ground, you can always start your search right away, buy the land, then sit on it for a while.
Many online real estate listing sites will let you set up search parameters that notify you when a new property comes on the market. If you do this, you’re less likely to miss the perfect lot for your purposes, even if you don’t search actively every month or week.
- Perform the Due Diligence
Buying a piece of land is a lot different from buying a finished single-family home in a residential neighborhood. When you buy a small property with an existing house, it typically has all of the things you need to move in immediately: utilities, proper zoning, access roads, proper environmental levels, etc.
When you buy a vacant property — especially a rural one — you can’t necessarily count on the presence of those items. So it’s wise to perform the due diligence and chase down all paper trails when you grow seriously interested in a particular piece of property.
Strict laws require sellers to disclose all issues, defects, and knowledge they have about a piece of property when they sell it. The problem is that many property owners don’t have all of the relevant information.
So you’ll need to contact as many departments as possible — which includes planning commissions, health departments, and tax specialists — to get the full scoop.
- Figure Out the Financing Options
Financing isn’t as straightforward for the purchase of land as it is when you buy a house. You’ll need to be prepared for this.
Someone who purchases an apartment building, for instance, “might be able to put down 20 percent and get 80 percent from a bank, putting up the land and the building for a mortgage,” real estate broker Larry Link says.
“But if you have a piece of land, you might be lucky if [a lender] gives you 40 percent or 50 percent of the value — and that’s typically if you have a good bank relationship or other collateral. You’re more likely to get zero.”
You need to be prepared to pay with cash, or have a hard-money lender working with you. Assuming you will be able to finance 75 or 80 percent of the deal is naïve.
- Consider Buying and Holding
As stated earlier, there’s nothing wrong with buying and holding a piece of property for a few months or years before you start to build on it, assuming you can absorb the cost. Finding land that fits your criteria may prove difficult, so purchasing when you see an opportunity is crucial. Having said that, you don’t want to change your mind and find yourself stuck with a piece of land that doesn’t quite fit your plans, so make sure to have as much of the details worked out as you can.
- Work With the Right People
If you’ve never purchased land before, then you may need someone to hold your hand. There’s nothing wrong with this; the essential thing is to find the right people for that job.
Many folks will assure you they can help you buy land, but a partner who has a certain level of experience and familiarity with the process is most likely to maximize your time and investment. Once you have taken ownership of the plot, you’ll need to turn your attention to working with a builder and contractors.
Contact Green Residential Today
At Green Residential, our team knows the Houston real estate market like the back of our hands. Not only do we offer professional property management services, but we also help people buy and sell real estate.
If you’re interested in surrounding yourself with the most experienced and honest team in the entire Houston real estate industry, please contact us today. We’d be happy to help you in any way we can!