Building Your Custom Home For Dummies - Peter Economy

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some land and a lot may seem like an easy distinction, but not so fast! The two are, in fact, quite different. All lots can be considered land, but not all pieces of land can be called lots. Are you scratching your head? If so, here’s the distinction:

       A lot or finished lot is a piece of property that is ready for building a house. It may or may not have all the utilities (gas, electric, water, sewer, telephone, and so on) at the site, but they usually aren’t far away.

       Land is a catchall term that people in the construction industry use for any piece of property without a finished, habitable structure. Land can be commercial, residential, or agricultural. Raw land or undeveloped land is terminology that most people in the construction industry use when referring to land that isn’t ready for building.

      

If you’re anxious to get your new home built or if your finances are limited, plan to buy a finished lot, not raw land. You can find a good loan more easily with a lot, you’ll likely pay a lower down payment, and you’ll have to spend less to prepare the property for building — all resulting in major savings in both time and money.

      Raw land can be more difficult or more expensive to finance because it usually requires additional work (often, significant additional work), such as putting in roads and utilities, before building can begin. Fewer buyers are willing to put the time and effort into this type of property, which makes it less marketable than finished lots. As a result, fewer lenders will be willing to lend you the money you need — you may have to find private financing or encourage the seller to loan you the money (referred to as having the seller carryback paper). If you do find a lender, you’ll probably need to make a larger down payment. In most communities, non-institutional individuals (also known as private investors) invest money in real estate — banks usually know these people. (See “Using private or hard money” later in this chapter for more information.)

      If you buy raw land, plan to allow yourself more time to complete the entire project, because preparing raw land into a finished lot — getting approvals and permits, building roads, extending utilities to the lot, drilling wells, if necessary, and more — can take months or even years. Make sure you consider the extra time when discussing the term of your lot loan with the seller or lender.

      Of course, you don’t want to buy just any lot. You want a lot that meets your desires and will retain its value, if not appreciate.

      Several criteria can affect the sales price of different properties both today and when your house is finished. Picking the right lot is just like picking a finished house. Factors such as location and amenities can make a lot undesirable. If a lot is undesirable to you, it may be undesirable to others as well, which can have an effect on the marketability of the property and, ultimately, the resale value. You need to consider many factors when deciding on the right location for your lot.

      The following sections contain some questions to ask yourself. When answering them, take into account not only your own lifestyle, but also the factors that will impact your ability to resell the finished house. Use this checklist when searching for the right neighborhood, as well as when evaluating a prospective lot for sale.

      Lifestyle

      You need to decide how you want to live in your home. These elements are a matter of personal taste. Many of the lifestyle items in the following list may be important to you and unimportant to other people:

       Should the lot be in an urban, suburban, or rural area?

       Should the lot be flat or sloped?

       Should the lot have much usable land?

       How much ongoing maintenance should the lot require?

       Should the lot be in close proximity to the neighbors?

       Should the lot afford privacy?

       Should the lot be sunny or shady?

       Should the lot have natural vegetation?

       Should the lot have available on-street parking?

      Marketability

      The list that follows includes a variety of factors that impact value; use these factors when evaluating a lot to purchase:

       Is the lot on a busy street?

       What kind of view does the lot have?

       Does the lot have waterfront access?

       What is the lot’s proximity to power lines?

       Is the lot next to or near commercial buildings or apartments?

       What’s the noise factor? How close is the lot to planes, trains, and automobiles?

       Is the lot on or near an earthquake fault line or in a floodplain?

       Are there good schools in the area?

       What type of power, water, and sewer are available?

       What does city planning have in mind for this neighborhood?

      

You may have to sacrifice some of these factors to meet your budget. Talk to a real-estate professional to understand the market demand of a particular lot based on these issues.

      Acquiring the right lot may be the biggest challenge you’ll face in the custom-home-building process. Property values have been steadily increasing in most places since World War II, and not every piece of land will suit your particular needs or be cost-effective for building. Finding the right lot isn’t easy, and you need to plan for a long hunt. Some helpful resources are available, but not as many as you may think. Finding the right lot requires sleuthing and persistence. Your best resources are the Internet, experienced real-estate agents, and your own initiative.

      Surfing for turf

       Land.Net (www.land.net): This site has listings for large parcels of agricultural and residential land, as well as individual lots.

       LandWatch (www.landwatch.com): This site has a large database of land for sale, although some of it is commercial land or raw land.

       LotNetwork.com (https://lotnetwork.com): In addition to listing lots for sale, this site provides educational information on purchasing lots and a directory for helping sell lots you own. More information is also available on the site’s blog.

       Realtor.com (www.realtor.com): Owned by the National Association of Realtors, this site can show you every piece of land listed in the real-estate bible, the Multiple Listing Service (MLS).

      Engaging a real-estate agent/lot specialist

      Finding a real-estate agent who specializes in

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