real estate

Grill the owners, locals when buying 'raw' land

Steve McLindenDear Real Estate Adviser,
I'm interested in buying a 91-acre parcel of unimproved land in northwestern Indiana where I would eventually build a home. What are some of the challenges I might face and questions I might ask? What types of loans are available when buying raw land?
Robert C.

Dear Robert,
Due diligence is your top priority in sizing up unimproved -- or "raw" -- land. First, don't buy raw land until you have the end game in mind. That is, even if your home construction is years away, you still need to determine precisely where you would build and what, if any, other uses you foresee there such as subdividing, leases for farming or hunting, and so on. That way, you can "master-plan" the acreage, and there will be fewer usage conflicts in the future.

Getting electricity, water and septic services to certain remote plots can be quite a challenge. Look to a homebuilding consultant or landscape architect who is well-versed in topography, drainage, road access and utility easements. Many would-be buyers make their purchases contingent on the land's ability to accommodate a standard septic system because custom systems can cost up to five times more. Environmental issues are a concern, particularly if the land was farmed and there are old fuel-storage tanks and pesticides present.

And please use your own agent. Relying on the listing agent to present the full picture, especially in a 91-acre purchase, is a dubious strategy. For good measure, get the land resurveyed to make sure there are no property-line disparities. Ask the current owners about any past or ongoing authorized or unauthorized uses of the land, and check for recent tire tracks; poachers, marijuana farmers and the like show up in the darndest places. You might want to camp out on the site a few nights for a more up-close experience.

Make sure there's adequate cellphone coverage on the parcel. It might also behoove you to check with a few locals about winter conditions on connecting roads and whether immediate snowplowing can be relied upon. If you do buy the land, purchase title insurance to ensure there are no liens or other encumbrances on the property.

As a rule, buying unimproved land makes better financial sense where land is cheap. And there are many great land deals out there now, especially in the post-recession Midwest. But don't be afraid to bargain and counteroffer for additional savings. Start as low as 80 percent of the list price, and go from there. By the way, Indiana, like other states, has government land preservation programs that can result in significant property-tax savings if you plan to leave the acreage undeveloped for a while.

As for financing, you'll probably be asked to put a little more skin in the game than in a conventional home purchase. Because the land has no improvements, making it easier for you to just walk away from your obligation, your down payment and interest rate will be higher than standard mortgages; lenders may want 25 percent or more down. Start with local credit unions and community banks because they're more familiar with the area. Or find a mortgage broker to do that legwork for you.

If all those raw-land complexities and expenses don't rub you raw, then blaze your trail into the wild. Good luck!

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