hi all, I am trying to learn about different types of land and their uses in terms of invesment. I know that it all depends on zoning of the land. What I am trying to understand is when I search for lands on mls there are usually: acreage, residential lots and farm land that I find. And of the 3 residential lots are the most expensive in terms per acre price, why is this. Also is it possible to buy acreage or farm land and have it converted into a residential lots ? Hopefully someone can guide me or tell me where I can find these answers. Thanks.
Each MLS is different. The one I belong to just has a separate category for property listed as land – it’s not broken down into the categories you mentioned. The residential lots may be the most expensive because agents usually don’t know how to price land in addition to the iinfluence of supply & demand. If you want to transform land into residential lots, you first need to check the current zoning of the property. Then you would have to hire an engineer & surveyor to prepare subdivision plans which would then have to be submitted to, and reviewed and approved by the municipality. A local engineer should be able to give you an estimate of cost as well as how long the whole process should take.
Nancy
Hello machismo,
Land comes in varied forms. From a development stand point, value and price should be connected to the entitlements attached to the land. Entitlements are your approvals and permissions. No entitlements represents high risk, completely entitled represents low risk.
A building lot should be fully entitled and ready to build. When you purchase it, it should have all zoning, approvals and utilities attached.
Basically, these lots are ready to build as soon as you pull building permits. For a builder, he now does not have to worry about risk associated with the land but concentrate on the risk of construction and marketing.
Acerage usually preceeds the building lot. When dealing with acerage, you may find a variety of situations. The acerage might have some permissions and entitlements and some may not. Most of the acerage we see is sold raw with no entitlements. The risky thing about acerage is that zoning laws are changing every day, you need to invest capital to get it ready to build and it provides no cash flow or other use. Financing may or may not be available to help with the land purchase and the entitlement process. This is the stage where you would probably need to make most of your capital investment.
In our area, we first look at arial photos and visit the property. If it has any type of water body or wetlands, or holds species that are traditionally associated with vernal ponds and seasonal wetlands, we know we have a problem. It may still be buildable but often DEP, Wetlands, Shoreline areas, etc may have limitations that take away your acerage. For example, If you have a nice 2 acre lake on a 10 acre property along a designated scenic road, you may find you have very little space to build. If the current zoning requires you to set back all buildings 200 ft from the road, and DEP regulations require you to build at least 150 ft from the lake shore, and you have other set backs applied on the other boundaries, you might find that you have only one building lot available on the 10 acres. You need to be careful, as the owner of the property might be trying to sell as 7 or 8 lake side lots. The swing in value could be significant.
Farm land can be developed but check the farm. There are major initiatives to save open space and farm lands, especially in the North East and MidAtlantic States. Once the farms are in these programs, they cannot be developed. We see a lot of folks asking development prices for farms that are in these programs. Unless you want to work the farm, or live there are enjoy all the acerage, I would make sure what you are looking at is not deed restricted.
Also, most farm land will not have significant road infrastructure or utility infrastruture so you do not want to pay for what you are not getting.
The idea of developing land is all about adding value through entitlement. A raw piece of land once entitled (plans, specs, subdivision approval, DEP approvals, zoning, infrastructure, utility permits and permissions, etc) will greatly increase in value. It will increase because risk has been eliminated. Simply stated, there is less risk in a ready to build lot. There is higher risk on raw acres. What you pay for the land should be reflective of the risk involved.
JAAMJK and NancyChadwick, thanks a lot both of you for your replies. Reading both your comments I gather that land investment is not for complete newbies, and if done only invest in land that has all entitlements. I had asked about transforming land, as it appeared to me that a land that was not transformed with entitlements was a lot cheaper than residential lots. Thanks a lot both of you, your input and the website is very helpful.
Hello machismo,
Your welcome, any time. Entitled land would be best if new to the game. You really need to know your local land use and county and state zoning and regulation.
I would encourage you to learn more about it as it can be rewarding. We started our first land project years ago by making lots of mistakes. We are still mistaken every now and then but the impact of the mistakes are not as significant as they were on the first go around. We learn something new and are faced with a different challenge on each project.
Good Luck.