Raw Land - What You Need To Know (Part 1)

Raw Land - What You Need To Know (Part 1)

    There is more than meets the eye when it comes to buying raw land, and going in unawares can result in a raw deal. This two-part guide details the many considerations involved, and how to manage them in a rational, logical manner. Part 1 looks at the basic ideas behind buying raw land.

    What constitutes land?
    Generally speaking, land is made up of a few basic components - soil, geology, water and climate. Most landowners have common basic requirements when seeking to purchase a piece of land. These can be broadly listed as clean air, water, electricity, sewage disposal and trash removal.

    • Clean air means air that is fresh-smelling and free from pollution sources such as industry, traffic or human activities.

    • Clean water is essential for daily activities, such as consumption, bathing and washing, cooking, cleaning and watering. Natural features such as lakes, rivers and streams are also valued for their recreational and relaxation value.

    • Electricity is an essential requirement of the modern lifestyle, and access to power plants and oil and gas suppliers should be a major consideration. Having to lay down power lines on your own can prove to be prohibitively expensive.

    • Access to sewage disposal is another prime consideration. In the event of non-access to public utilities, can your land support a septic system and does it have the necessary water system to operate it?

    • Solid waste disposal facilities need to be available as well, as not everything can be burned. Is there a nearby landfill, and are collection services available?

    Besides the above, there are also many other essentials of modern living that should not be overlooked. These include facilities and services such as telecommunications and internet access, mail and postal services, security, emergency and hospital services, schools, churches, and recreational spots like parks and playgrounds. As well, accessibility via a good transportation network is also crucial.

    Who knows the land?
    Clearly, there is a great deal of information to be researched. Start by turning to the relevant authorities for help. County officials will be able to provide data on zoning and development plans, whereas utility companies can tell you about the water, waste disposal, electricity and telecommunications amenities available. In particular, the departments in charge of planning and zoning can furnish you with essential information including maps, future developments, planned roads, utilities and facilities, as well as details on environmental areas and future land uses.

    Some questions to ask: What is the location of the site? What weather conditions can you expect? Are there any natural disasters the location is prone to? What are they, and what is the severity of the effects?

    Also consider speaking to neighbours, real estate agents, contractors, developers and surveyors to gain a more complete picture on population, employment and education, as well as the local norms and culture. And remember, is it usually a bad idea to simply rely on the information given by the seller.

    Raw land - pros and cons
    Raw land is defined as land that has no improvements - i.e., no utilities, streets, structures and sewers. Raw land must usually be cleared.

    For some, buying a piece of raw land represents a fresh new start. For others, raw land is seen as disadvantageous to own. The following are some pros and cons of buying and owning raw land.

    Pros:

    • Has the potential for excellent growth and appreciation

    • Seller can often provide owner with below-market interest rates for loans

    • Immediate returns and added value may be achieved by sub-dividing the parcel

    • Land holder can gain privacy and sense of security

    Cons:

    • The land usually has a negative cash flow during the initial stages, generating no income while the owner has to pay the principle, interest, taxes and development costs

    • Land cannot be depreciated, conferring little, if any, tax benefits

    • Poor decision making or unforeseen circumstances can result in losses upon resale of land

    • Obtaining financing for buying raw land is difficult

    To buy or not to buy?
    So it seems that there is a lot to get through when buying raw land. However, besides these primary considerations, there are other factors you need to know. Further your knowledge with Part 2 of our raw land guide, which discusses how to find, evaluate and finance a raw land deal.
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