Ten tips: Avoid a raw deal when buying raw landBy LAURA T. COFFEY
© St. Petersburg Times
published August 11, 2002
People consider buying undeveloped land for a variety of reasons: to build a dream home, to cash in on a region's future commercial development or simply to diversify their investment portfolio. Such an investment can be profitable, or incredibly risky. Before you purchase a plot of raw land, consider these tips:
1. Know what you want. The success of your investment will depend on where the property is, what you plan to do with it and how quickly you plan to do it. Lenders can be skittish about providing loans for raw land if you don't have immediate plans for the kind of construction the land is zoned to accommodate.
2. Be prepared to make a hefty down payment. A loan for raw land without added improvements such as sewers, utilities, streets or buildings will require a higher down payment and interest rate. Some lenders will ask for 50 percent down, but try to find a lender who will let you pay 20 percent.
3. Shop around for a land loan. Approach your bank, credit union and mortgage brokers. Be prepared to explain the story behind the property and your plans for it.
4. Think locally. A lender with knowledge of the area and the property in question will be more likely to consider your loan application.
5. Consider a home equity loan. A home equity loan may meet your needs better than a land loan, and it could result in a lower interest rate since it represents less risk to the lender. The interest on the loan also may be tax-deductible.
6. Survey the situation. Pay for a staked survey of the property. This will let you know exactly what services, such as sewage and water, are available in the area. If the answer is none, you must assess the feasibility and cost of installing a septic system and a well and making other improvements.
7. Reflect on easements and access. Both factors will affect the value of the property and your ability to qualify for a loan.
8. Don't expect great tax benefits. If you buy a residential or commercial building and rent it out, you can deduct a portion of the building as depreciation, along with your expenses for maintaining it. Because you can't count the depreciation of raw land, your tax breaks won't be as generous.
9. Make sure you own it. When the time comes to purchase the property, be sure you have clear title to it by securing a warranty deed and title insurance.
10. Be in it for the long haul. Recognize that it could take a long time for you to see a return on your investment. During that time, you must repay your loan and pay to insure and maintain the property. If you don't have a lot of money and you can't hang on to the land for two to 10 years, another kind of investment may be better for you.
-- Sources: Bankrate.com; MSN Money (moneycentral.msn.com/home.asp)
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