Were you a Lego kid? As any avid amateur builder will tell you, in order to perfect your brick castle, pirate ship, or Millennium Falcon, you needed a good foundation – a solid, empty patch of table or floor, where you could build what you wanted, free of obstacles and obstructions.
Well, when building a new home or commercial space from the ground up, you’re dealing with similar principles – albeit on a much larger scale. Because of this, many developers and aspiring homeowners dream of purchasing raw or undeveloped land – that is, land free of existing structures, utilities, or building sites – to make their own.
While many people have dreams of buying undeveloped or raw land and turning it into something incredible, it’s important to realize that there are just as many drawbacks and challenges to investing in or developing undeveloped land as there are opportunities.
Here are three keys things to keep in mind as you consider purchasing undeveloped or raw land here in Illinois:
1.) The Ups and Downs of the Economy and the Local Real Estate Market
Recent surveys suggest that Americans view buying real estate as one of the most secure long-term investments there is. With that being said, however, it’s important to remember that there are always going to be risks involved in investing in real estate – and those challenges and risks can be amplified when you’re purchasing undeveloped land, rather than an existing structure.
For one thing, it’s important to remember, as Zillow notes, that land is “a 100 percent speculative investment.” There isn’t a guarantee that you’ll get the rate of return you want, when you want it, whether from holding onto your land or developing it from the ground up. Remember that the value of raw land can vary, based on the strength of the economy overall, as well as countless factors unique to the local market.
Thinking locally? It’s incredibly important to remember that local markets go through hot and cold cycles – or, as The Nest puts it a bit more grimly, “boom and bust cycles.” It’s important to understand the recent and long-term real estate market trends for the area where you’re buying land. The timing of when you buy, build, or sell could make all the difference when it comes to how much value you can actually get from this raw patch of dirt.
At the same time, it’s important to remember that the unique characteristics of the local real estate market can affect you in ways that are not as obvious. For instance? The types of properties available on the market, and the value of those properties, can ultimately limit how much your new construction may be worth. The aesthetics and prices of the neighborhood may also affect how and what type of structure you can ultimately build and sell.
2.) Getting to Know the Land
As real estate writer Devon Thorsby put it for U.S. News & World Report:
“Similar to a home inspection and background research on a house, a plot of land needs to be subjected to tests and checks to ensure you know what you’re buying and that you’ll be able to build on it.”
In fact, it may ultimately prove even more essential to thoroughly research, inspect, and test this raw land – since you’re starting with fewer guideposts to go by, compared to a finished property.
Over the course of purchasing and preparing to develop land, you may need to work with different service providers to research your land, taking steps including:
- Surveying the property and noting the boundaries. In some cases, neighbors may, intentionally or unintentionally, be encroaching on the lot.
- Accounting for easements, which could impact your ability to use all parts of the land, or build as you’d like.
- Performing environmental testing. Is the land safe and suitable for the type of development you want to do? Are there any species or features that should be preserved or accounted for?
- Researching the history of development on the property. Why are previous owners selling? Have others tried to build on this land and failed – and if so, what challenges did they face?
- Planning for access to utilities, infrastructure, and roads.
- Looking into local zoning ordinances. It’s important to know what you can and can’t do with a parcel of land – and remember that it can be very difficult to rezone a lot, in many circumstances.
3.) Factor in the Costs
When considering whether or not to purchase raw land, it’s important to remember that there are some unique costs associated with creating something, where once there was nothing.
Even if raw land is cheaper initially than a lot with a home or structure already in place, there are some unique costs associated with undeveloped land, whether bought for development or investment.
In both cases, there are costs associated with surveying, inspecting, and performing a title search. If you want to pursue rezoning, or remedy an easement, that can also take an investment of time and money, as well. It’s also important to remember that construction costs can really add up, in the short term and the long.
And even if you’re not building on the land, there can be costs associated with maintaining it. Here in Chicago, for example, land owners are, broadly speaking, expected to keep the vacant land clear (i.e., free of overgrowth and weeds) and provide adequate fencing and security . This upkeep can take some capital, and owners may face fines if their land is not maintained properly
At the same time? As Thorsby notes for U.S. News, there can be some difficulties when it comes to getting a loan for undeveloped land. It can be challenging to get a lender to finance your purchase of raw land, which banks and other lenders often view as less of a surefire investment than already-built properties. You may qualify for less of a loan in total with a higher interest rate – though keep in mind that may still be able to secure loans for your construction/development projects on the land.
Building the Right Team for Your Chicagoland Real Estate Project
Whether you want to build your dream home from the ground up or construct Chicago’s next iconic condo complex, it’s important to surround yourself with the right team as you pursue your local real estate dreams. That includes working with brokers, insurance agents, and, perhaps most importantly, a real estate attorney who brings significant experience and wide-ranging knowledge to your unique real estate project.
An experienced real estate attorney can provide insights and a working knowledge of local laws, taxes, real estate regulations, purchase and sales agreements, title, and so much more – all to help ensure that you can move your project forward, with all the moving pieces falling into place as easily and smoothly as humanly possible.
Curious about the ups and downs of investing in or developing raw or undeveloped land in the Chicagoland area? Have any questions about any aspect of real estate law in Illinois? Ready to find out more?
The attorneys and staff of The Gunderson Law Firm specialize in helping individuals and businesses in the State of Illinois with real estate transactions insightfully, promptly, and professionally, with a focus on providing unparalleled legal expertise and financial insight tailored to your unique needs. Don’t hesitate to drop us a line or give us a call to arrange your free initial consultation or to continue the conversation.