Attracted by cheap prices and the promise of profit, real estate investors and potential homeowners alike are asking “what is undeveloped land?”
Undeveloped land, or raw land, is land with no significant structures on it. It usually hasn’t had any utilities put in, and often isn’t even connected to a road. Or, if it is, it’s likely a dirt road. Essentially, it’s land in its natural state.
Undeveloped land hasn’t been used for anything, nothing (except, occasionally, simple barns or storage sheds) has been built on it, and no one lives there or farms there. It’s typically the cheapest real estate you can find and it’s popular with investors because, if you can afford to buy it and develop it, you can make a huge profit from it.
Navigating the world of real estate is confusing, and time consuming. To make your life easier, we’ve done all the hard work for you. We’ve researched this topic extensively, and condensed what we’ve learned into this article. Everything you need to know about undeveloped land is right here.
What is undeveloped land?
Undeveloped land is, basically, just land. Nothing’s been done to it, or built on it.
That means there are no significant structures or facilities, and it often means that there’s no electrical power or plumbing on the land.
Sometimes land with simple structures like barns and storage sheds is still considered undeveloped, as long as there are no other structures on it.
Undeveloped land, also called raw land, is a blank canvas for investors. Since it’s empty land the price is usually very low and once it’s been developed the investor can often sell it for far more than they paid for it.
Should I buy undeveloped land?
Undeveloped land isn’t worth much, but that’s the whole point. Buying undeveloped land and building on it is usually much cheaper than buying developed land. Most of the time, it’s going to be cheaper to buy an empty lot and build a house on it than to buy a house that’s already built.
Likewise, buying undeveloped land and developing it can make you a lot of money if you do it right.
Buying undeveloped land is just as risky as most investments, so don’t buy if you aren’t willing to risk losing the money you spend on it. You also shouldn’t buy undeveloped land if you aren’t willing to spend the money to develop it. Owning a bunch of undeveloped land isn’t going to do you much good- you need to develop it after you buy it.
What do I need to know about buying undeveloped land?
One of the biggest surprises, and biggest obstacles, in buying undeveloped land is that it’s very difficult to secure a loan for it. For most lenders, loaning you money to buy undeveloped land is not going to make them a profit. If you do find a lender willing to loan you the money, odds are the interest rate will be high and the term of the loan will be short.
This means that buying undeveloped land is easiest if you can pay cash for it. Fortunately, since undeveloped land is cheap, it’s easier to save up the money to buy than it would be to buy a house.
You also need to be aware of how you can use the land. Depending on where you buy, there might be significant restrictions, either from local governments or local homeowners associations, on what you can do with the land you buy. The more rural the land is, the less of an issue this is.
Finally, be prepared to spend a lot of money developing it. No matter what you’re putting on the land, development costs are high. You’ll likely be paying to have power, internet, sewer and water lines put in, on top of any construction costs and legal fees. In all likelihood you would still be able to sell it for a profit, but you’re going to need a serious amount of cash on hand to pay for the development costs if you can’t get a loan. You may even have to build roads in order for workers to access the property.
It’s best to view undeveloped land as a long term investment. It may be a long time before you’re able to develop it, but if you’re ok with that, it can still turn out to be a good investment.
Why is undeveloped land so cheap?
Undeveloped land is cheap because no one has spent any money on it. Whether you’re buying from a private owner or from the government, they’re going to make a tidy profit on it at almost any price.You, the buyer, are the one who's going to be spending money on the land, and the expense of developing raw land is high.
In other words, undeveloped land actually isn’t all that cheap, it’s just that much of the cost is going into the development of the land rather than the sale.Normally, all of that money would be going into the sale, but since the owner never spent any money on the land they don’t really have any expenses to recoup.
Think about it this way: you can easily spend the same amount at a restaurant for one meal that you would for several days worth of groceries. Why? Because at the restaurant you aren’t just paying for the food. You’re paying for the servers who bring it to you, you’re paying for the chef who cooked it, you’re paying the dishwasher, the bus boy, the hostess, the cleaners, and the building the restaurant is in. At the grocery store, you’re just paying for the food.
Undeveloped land is a lot like that. When you’re buying developed land someone else has already paid to have utilities run to that property, there are already roads that lead to it, houses or commercial buildings are already built. With undeveloped land none of that has been done yet, and you’ll have to pay for all of it eventually.
You’ll still probably spend less money in the long run, but it can be a bit intimidating if you’ve never done it before. Just remember that if you develop the land well you’ll still make a profit in the end.
About THE AUTHOR
We loved family’s outdoor adventures so much we started a land business just to help others buy their own land. We’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans five western states. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling