When browsing real estate, you will likely come across a lot of undeveloped lands that cost much less than developed properties, but why are they so cheap?
The reason that undeveloped land is so cheap is that the parcel has received a lack of investment, it’s less profitable, and often involves more work for the landowner. In addition, undeveloped land may have poor utility access, easements, and strict zoning laws.
For many people in the real estate business, undeveloped land offers a lot of potential for a great investment, as these properties can prove to be a goldmine when approached properly. Given that you are dealing with a clean slate, you will find that a lot of undeveloped properties are often significantly cheaper than lands that have been developed, which can be highly attractive to a lot of buyers. However, there are a number of variables and factors that are tied to the price of undeveloped land that you should be aware of. To help you understand this further, we are going to take a closer look at some of the reasons why undeveloped land is so cheap.
After years of working as a real estate investor, I have had a lot of experience assessing undeveloped land parcels. My experience has taught me that the price of undeveloped land is based on the qualities of the property and its surrounding location.
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Cheap Undeveloped Land
If you are on a budget and looking to buy a property, then an undeveloped land parcel may just be your best bet. This type of land is significantly cheaper than a developed property, which is why many real estate investors and aspiring homeowners opt for buying these kinds of parcels.
With that being said, there are a lot of variables that affect the price of any type of land - including undeveloped properties, which is why you should not assume that every undeveloped land that you review will have a desirable price tag. The first and foremost factor that will determine the cost of undeveloped land will be its location. Any real estate investor will tell you that location is everything, as it is often the deal-breaker for just about every property.
If the location of undeveloped land is somewhere that has modest surroundings or is perhaps even in the middle of nowhere, then you can expect the price of the property to be very reasonable - or even insanely cheap. However, if the undeveloped land is located somewhere that is highly attractive to a lot of buyers, you can expect the cost to be lower than a developed property but still considerably high.
Once, the location of the undeveloped land has been determined, you should also take into account whether the undeveloped land is classified as vacant or raw. Raw land is a property that has seen virtually no improvements. Whereas vacant land may have had some improvements done to it that could affect the overall price of the property. Here are some factors to be aware of when determining why undeveloped land is so cheap.
Lack Of Investment
A key factor that often makes undeveloped land so cheap is that the property has likely seen a lack of investment. Most properties are evaluated for their qualities and how much money has been put into the land. Given that most undeveloped lands have often seen little to no investment, the cost of the land is determined solely by the location and the worth of the land itself.
Properties that have developments such as houses and businesses are generally more complex to evaluate. These types of developments have been heavily invested in by the previous owner, which will greatly increase the market value of the land. This could involve things such as buildings, structures, and barriers.
However, undeveloped properties have not had this initial investment, which implies that these additional costs would not be included in the price tag of the land. However, undeveloped lands may still have had some kind of upkeep or maintenance done to them, which could potentially increase the value of the property.
If the undeveloped land has been looked after properly and its condition has been kept in a good state, the value of the land will increase. With that being said, undeveloped land that has been left in its raw untouched state will be the cheapest, as there has been virtually zero investment and improvement done to the property.
If you are buying your undeveloped land to immediately pursue a building project, then you will be putting your property to good use right from the get-go. However, many real estate investors and land buyers do not have the intention of starting development as soon as they acquire their property.
In this case, it makes much more sense to rent out the land to a tenant that can use the property for something else, which enables you to profit from their rent. The issue with this is that undeveloped land is much harder to rent out and lease to people - given that it lacks a lot of the qualities that renters look for such as a private residence or business space.
This can greatly affect the number of people that would be interested in renting your land from you, which will ultimately make the price much cheaper than a developed property. If you are struggling to find someone to rent your land to, then the property will be less profitable, as it will essentially be sitting there unused.
In addition, you may have a harder time finding a tenant for your land if your location is not attractive. A lot of undeveloped properties are located in the middle of nowhere and if your area does not have ideal surroundings or access to urban amenities, then you will have a much smaller range of potential renters.
The bottom line is that undeveloped land often presents a lot more work for the landowner. Unless you plan on leaving your undeveloped land untouched or unimproved, then you are likely going to have your work cut out for you.
While starting with a clean slate is incredible for many developers, it also presents a lot of challenges and obstacles. You will have to work out the logistics of the property and determine the most pragmatic approach to pursue your build, which can be complicated if you are not an experienced real estate developer.
Another factor that can determine the amount of work that the undeveloped land will present will be based on the condition of the property. If the land has been left in a pristine state and the property was properly maintained, then you can take comfort in avoiding a lot of the tedious steps of improving the property to your desired condition.
However, many undeveloped properties require a considerable amount of groundwork before you can get the ball rolling on your project, which will require investing your money, as well as your time.
Utility Access & Zoning Restrictions
When assessing why a vacant land parcel is so cheap, you should always confirm what the zoning restrictions are for the property, as well as whether the parcel has proper utility access.
If there is one thing that causes a lot of headaches for developers it is the zoning restrictions that can be attached to properties. While this may not be much of a concern if you are buying undeveloped land that is located in a rural area, parcels that are in urban areas often have a lot of red tape, which could greatly affect the price of the property.
These restrictions could greatly limit the kind of developments that you can pursue on the undeveloped land. The zoning restrictions of the property may dictate that only a specific type of development be allowed to be built on the land - if any at all. In addition, the specs of the development may be limited the what the local building authority allows.
Once you have confirmed the zoning restrictions of the property, you should assess the utility access of the undeveloped land. If you do not plan on developing your land, utilities may not be such an important factor, but if you intend to build, having access to at least basic utilities will be mandatory. Here are some utilities to consider when reviewing the undeveloped land:
- Waste Management
If the undeveloped land has strict zoning laws or a lack of utility access, you can expect the price of the property to be very cheap.
A common factor that makes undeveloped land parcels so cheap is the potential easements that could be attached to them. Easements are essentially developmental rights that the previous landowner has relinquished.
In order for an easement to be put in place on a property, a landowner must come to an agreement with a land trust or the United States Government about certain developmental guidelines or obligations for the property. How much or how little an easement will affect the price of the undeveloped land will be determined by how strenuous the property’s restrictions or guidelines are.
A lot of easements simply involve the landowner agreeing to allow public access to a small part of the property such as for road access - or perhaps the shared maintenance of a border or fence between neighbors. These sorts of easements are generally not invasive to developments and will not greatly affect the price of the land.
However, some easements have been established for environmental protection, which may significantly lower the value of the property. These are called conservation easements and they generally have much stricter regulations that can greatly limit the amount of development that a landowner may pursue.
Conservation easements have been known to make the market value of undeveloped land parcels drop by as much as 50%. These undeveloped lands have been established as conservation lands to protect critical habitat, natural resources, or the preservation of natural beauty. In these cases, you can expect there to be very strict regulations on what kind of developments can be built - with some conservation easements prohibiting development altogether.
With that being said, if a conservation easement is in place of the undeveloped land, you always want to carefully review the conditions of the agreement to ensure that they are in line with the vision that you have for the property. However, if you do not mind giving up certain developmental rights to your undeveloped land, you will find that properties with conservation easements in place are some of the cheapest land parcels on the market.
About THE AUTHOR
Cameron Scott has been in the land development industry for over 20 years. During that time, he has worked on hundreds of development deals ranging from 5 acres to over 100 acres. Most of his work has been in Utah and Texas, where he has worked for large, national home builders as well as local companies. He has worked as Land Entitlement Manager, Land Development Manager, and most currently as Land Acquisition Manager.Read more about Cameron Scott