What to know about buying raw land

Homes of Your Dreams Series (1 of 3)

 

HONOLULU ADVERTISER     August 12, 2007

 

BY LISA SCONTRAS

Custom Publishing Group

 

It’s at the top of your list of things to do when you win the lottery — building that dream home. A state-of-the-art kitchen, plenty of closets, spa-like master bath, windows that clean themselves, energy-efficient — a cross between five-star resort and the Jetsons.

 

Although a financial windfall would definitely be a big step in the right direction, building the house of your dreams may not be so out of reach.

 

While Dolores Bediones, Realtor and partner at Prudential Locations, makes it clear that buying a piece of land is a lot more complicated than buying a home that is already built, she says it doesn’t necessarily cost any more.

 

“Quantitatively, land plus the cost of construction generally costs less than a home that you can buy on the resale market,” says Bediones. “At worst, it will be the same price, but you have a brand new home designed and finished to your taste.”

 

"Like all things real estate, it's best to start with location, location, location."

 

 

Still, the process is considerably more advanced and involves an understanding of geological issues such as soil composition as well as legal issues such as zoning and architectural limitations. Like all things real estate, it is best to start with location, location, location. This explains why the buyers who are attracted to purchasing land to build on either have some background in construction or remodeling or they know an architect or a contractor who can help them.

 

“Clay means the soil is softer and may need a stronger foundation versus rock which is a more solid base but can be more costly to dig,” explains Bediones. “Contractors generally know the type of soil in the different neighborhoods so it is better to choose a contractor and an architect who have built in the neighborhood where you intend to buy the land. These contractors/ architects are also familiar with the architectural guidelines for each neighborhood.”

 

Real estate developers buy land and then build homes to sell as a business — they know how to do it. But if you’re not in the business, Bediones recommends that you educate yourself. Start by interviewing architects. It’s important that you find a match regarding style as well as budget concerns and personality. Ask to see some of the homes they’ve designed so that you get a feel for the artistic style of his or her work.

 

“If you’re budget-conscious, then you must align yourself with one who is cost conscious,” she says. “If you are building a home to fulfill your dreams, then you may go with an architect who will let his artistic designs go full on. In both instances, be prepared for cost overruns.”

 

Financing land is also quite different than financing a home. Lenders will normally extend interest-only loans with a 25- percent down payment on the land and then convert it to a construction loan based on the appraised value of the finished product. The lender will then monitor the progress of the construction and lend in phases based on completed work. The contractor is paid as each phase is completed.

 

Realistically, Bediones says to plan on the entire process taking from between 18 to 24 months from beginning to end.

 

“After you’ve purchased the land, it takes time to get the project going — two to three months interviewing architects, another two to three months to get the plans drawn and approved, two more months bidding out to contractors, and another month getting the permits,” she says. “At the very least six months to get started and then about a year for construction.”

 

And it might take you that much time just to pick from the endless possibilities of finishes. Building your dream home means making all the decisions, from light fixtures and door handles, to appliances, countertops, types of windows, bathrooms sinks and location of the electrical and telephone outlets. It’s a good idea to hire a professional interior designer to help you with these decisions.

 

“Buying raw land and building normally turns out to be a good investment,” Bediones says, emphasizing that the new house is what will appreciate, not so much the land by itself.

 

She warns buyers that unless it’s oceanfront, buying land to hold on to as an investment may not be as good an idea.

 

 

back to Helpful Articles for Buyers