Beginner's Guide To Buying Land

If you're anything like me, you've probably been dreaming about owning your own piece of land your whole life. But when you actually start that process, what you find out really quickly is that the hardest part of buying your first piece of land is actually knowing where to get started.

When you actually look at land for sale, you can always see that there's no clear correspondence between price and acreage. For example, you have a 2 1/2 acre piece of land that's selling between 15 and 19,000. And yet right around the corner there's a piece of land that's less than one acre that's selling at 75,000.

So not knowing what land is worth and how to know what you can offer on the land that you want is one of the big impediments. And then also the real estate agents in the market, they're not as helpful as they should be because buyer agents don't get paid enough working with land buyers where the business model just doesn't enable them to help you at the level that you would need.

But even if the agents aren't helpful, the good news for you is that buying land doesn't have to be so hard. And that's the topic of this video. What we're going to cover in this video is the beginner's guide to buying land. And we're going to do it in four easy lessons:

Lesson one: why land is valuable.

Lesson two: how to know what land is worth.

Lesson three: how to make offers on land.

And lesson four: how to run due diligence.

If you watch to the end of the video, I'm going to make sure that you get a copy of our free due diligence checklist as well. That's going to be an invaluable tool for you because we developed it after hundreds of successful land transactions for buyers just like you.

Now, let's talk about why land is valuable. There's this old quote that's attributed to Mark Twain: "Buy land. They're not making it anymore."

The conventional wisdom about why you should buy land is that land is intrinsically scarce. The supply of land in the market is limited and it's the scarcity that creates the value for land. And that's repeated all the time. It's like a cliche. You've probably heard it so often, but the problem with this conventional wisdom is it's wrong. It's wrong because just because something is scarce or limited in supply does not mean that by definition it's going to be valuable.

Let me give you an example. You know what else they're not making any more of? Iron.

Iron, for example, is the most widely used metal in the world. Iron comprises 90% of all worldwide metal production and it's used in all manner of everyday industrial products that we basically have set up our entire society on top of things like, for example, machine tools, rail lines, cars, ships, both commercial and military rebar, steel, and really just everything. I mean everything everywhere all the time. Just look around and chances are a lot of the common equipment and materials and buildings that you see in your environment are built with iron.

But beyond that, iron is also essential to human biology because it's the main constituent of a protein called hemoglobin. And hemoglobin is what allows your body to distribute oxygen throughout your cells. So iron is so valuable that our economy like wouldn't work without it. And we wouldn't even survive on this planet if it didn't exist. And yet iron's cheapest dirt. It's $105 per ton. Which means that iron is so cheap that it's actually more expensive to move it than it is to buy it.

So the limited supply and the utility of something is not what makes it valuable. What makes something valuable is when the demand for that commodity or that good or that service exceeds the supply. Because when the demand exceeds supply, that's when the price goes up.

You know, to understand why land is different from other commodities like iron, you have to understand what land is in the market. So, legally speaking, when you buy land, what you're buying is an exclusive claim on location. Land, quite simply, is location.

And all real estate, with the exception of certain things like condos, are actually defined by the four corners of the boundary lines of the lot where the building is situated. You know, buildings are actually irrelevant to land values for a few different reasons. Number one is that they're only good for about 30 or 40 years without major renovations or capital improvements. There's a reason that the accountants let you depreciate buildings, by the way.

The second thing is that the highest and best use of what you could build on a piece of land is actually going to change over time on the basis of shifting economic demand, zoning law, patterns in urban development, etc. And so the current building that's situated on any given property is irrelevant to the value of the underlying land.

See, when you own land, what you own is an exclusive claim on location. And when you own a piece of land that people want to visit, you get to control who comes and who goes. And the process of doing that means you can charge rent. And it's the ability to charge rent at a location that really gives land its value in the market. So land is about location and location is about rent.

But when you own land that's close to big commercial corridors and major metropolitan areas, relatively small pieces of land have disproportionate value in the market because of how much commerce and commercial activity is taking place in those locations and how much demand there is for space in the middle of some of these cities. For example, when you look at this 3D rendering of Oakland, California, you see what I'm talking about. The areas of high commercial activity and business activity located in the center of the city are correlated to much higher land values.

Higher land values also are what incentivize high-rise construction. Because what happens is when the cost of land is higher than the cost of construction, it incentivizes builders to buy smaller pieces of land and build up, not out. That's why in some of these high expense, high cost of living areas, you see a lot of skyscrapers going up because the market justifies it.

Also, when you look at this graph of Knox County, Tennessee, what's really interesting is that you see that the actual land value on a per acre basis in the central business district in the center city location is as much as 100 to a,000 times higher price per acre as land that's located just 2 miles outside the city.

All of this is to say that when urban land is more valuable than rural land, the reason that is is because you have much higher and more intense demand for specific locations in specific cities. And so the supply is so constrained that that's when prices rise. So rural land on the other hand is located in areas where on a given acreage there's less demand for specific locations in the country. So, for that reason, rural land is generally going to be lower cost than urban land.

Now, let's talk about how to know what land is worth. And I want to say first of all, like I love rural land. You know, I bought hundreds of rural properties. And if you're a first-time land buyer, that's probably where you're looking to buy your land as well. And because of that, you have to know what land in the country is worth.

Knowing what land is worth is actually a topic that we cover really exhaustively on this channel and also in the land purchase navigator course that's available on our website. So, what I want to do in this video instead of going through everything, I want to give you a highly summarized method that you can follow to understand rural land values in markets that you're looking for land.

So, to illustrate this example, we're going to use a property that is located in Claremont, Florida. This is a 0.93 acre building lot off of State Route 33 in Claremont, Florida. Current asking price is $75,000.

So, there's a couple things I want to tell you right off the bat. Number one is that when you're estimating land values for property that's listed on the market, the first thing you have to do is ignore the asking price. I know it seems kind of crazy, but for example, this lot has been listed on the market for over a year and it hasn't sold, which means that the marketplace has already rejected the $75,000 asking price. So, the seller's price isn't real here. And so, you cannot let that influence your analysis of market value.

The second thing that you have to understand is not to overly focus on acreage. Because sure, all things being equal, if you have a 1-acre lot and a 10-acre lot immediately next to it, the 10-acre lot is going to tend to be more valuable. But when it comes to actually understanding the value of rural land, it's the qualitative features like location and character and the different aspects of the environmental features of the property that are going to be much more impactful on the value of that land than just acreage.

So to get a good view of the price points in this local market, what I'm going to do is go on Zillow. I'm going to center my screen on the subject property for sale and I'm going to switch from for sale to sold property. I'm going to make sure that my home type filter is set to lots and land only. I'm also going to sort my acreage filter from a 1/4 acre to 2 acres and the sold date to the last 36 months. And then I'm going to sort by price from low to high.

So, the reason that I sort from a 1/4 acre to 2 acres, even though our lot is 0.93 acres, is because any land that's within that acreage range in this nearby location, it's going to have a similar land use and character. So, we're talking about land that is generally going to be zoned for rural residential use. And the buyer of these properties is probably going to look to build a home. And then, you know, acreage on the margins will play an impact on price. But, like I said, the bigger aspects of value are going to be neighborhood home values, the accessibility of the property, and then the development cost of actually building at that location.

Setting our sold date to the last 36 months is not ideal because really what you would want is to see comps in the last 12 months because prices can really change in a shorter period of time than 3 years. But the reason I did it is 'cuz I want to really focus on a tighter area. And if I go to 12 months, it's like harder to pull the right number of data, the right number of properties. And so I just rather have like closer properties that are more similar and I'll deal with a little bit of uncertainty around the market changes because really in this market I think that you're going to see a little bit of appreciation but the prices are not going to be that different.

So when you actually look at the sold data in this market and you sort the sold lands in this data set from lowest to highest, you have a range that starts at the bottom at $10,000 going all the way up to $170,000 with a median of $99,000.

A really simple and effective way to estimate land values is to look at your data set as a classroom and to look at every individual property as a student. So the valedictorian to the class is this 1.09 acre lot in a high-value subdivision that backs to a private lake and that lot sold at 170 grand. So that's your number one student. And your class clown on the bottom of the class rank is going to be this landlocked property here that sold at 10,000 bucks probably to a neighbor and that is the bottom student in this classroom.

So to estimate the value of the subject property, what you want to do is you want to look at your classroom. You want to sort by all your students, all your lots that have sold in this data set and you want to try to slot the target property somewhere into this class rank. And what I mean by that is you want to figure out which land would you rather own, and you just go down the line and try to figure out where the property would sit in that list. If the money wasn't an issue and you could pick any of these properties, which one would you pick and in what order? And by putting your target property into the stack of data, you're going to get a really good idea on a tight window of the likely value of this property. And you're going to be able to estimate land value more precisely than most real estate agents that you would talk to.

Now, when you look at the properties in this list that sold for over $100,000, what you find is that they typically have distinctive advantages that our subject property lacks. So, number one, they're all located on paved asphalt roads. Ours is on a dirt road. What that means is that because ours is on a dirt road, it's unlikely to be maintained by the city or county, and so the owner of that land is going to have to pay more money to maintain that road. It's also less curb appeal and potentially less subdivide potential because a lot of times the subdivide ordinance will require new building lots to front out to a county-maintained road that has asphalt. The other thing is that you're also going to be further away from public utilities if you're on a dirt road. Typically like you're going to want to install a well and a septic system which is great. I mean, a lot of land you have well in septic, but if you're closer to county roads, you're also closer to the municipal utilities, which can save you a bunch of money when you actually go to construction.

Second is that the lots that are selling in the hundreds are in more established residential areas with higher home values. What that means is that, you know, in addition to having a lower construction cost, to actually build the same style of home at these neighborhood lots, the actual finished construction of the home that you build is typically going to be higher value.

Third, the lots that we're looking at that sold for higher numbers are generally cleared and graded, which is also going to save about $10,000 or maybe $15,000 in site prep relative to our subject property.

Now, let's look a little further down the list. And when you do that, what you see is that there's a price range in this list between about $40,000 and $68,000. When you look at this one and a quarter acre lot that's sold on Oil Well Road that's sold at 68K, you see why it's more valuable than our subject property. For starters, it's on a county maintained asphalt road and it's also flat and cleared in addition to being 30% larger.

If you look at the 0.37 acre lot though over here that sold at 40K, you see it has great access against that road, but it's a lot smaller. And in some ways, that busy county road might not be the best place for a homesite 'cuz cars are just going to be rushing past you. There's going to be some noise from that road. So, I think that for the 40K lot, our land is going to be a little bit better than that one.

But what's interesting is you look at this third comp, that's a 1.58 acre lot that sold at 56K. But what you actually scrutinize this property, what you realize is that it's in the exact same subdivision as our land. And in fact, the subject property, the 75K listing, is two lots to the west of this property that sold. Now, this 1.58 acres that sold at 56K, it's about 60% larger than our property, and it's also got enough width against that road that it may have more subdivide potential and may be able to be split into two separate building lots. For that reason, I think that this land is going to be a lot more valuable than ours.

But based on the class rank, what I would say is that the 0.93 acre target property is probably worth somewhere between 40,000 and 56,000 just based on where I would slot it into the class rank here. And because of that, I would probably put it on the lower end of that range. And I would estimate the value of the target property at $45,000.

Now that you know what land is worth and you have some ideas about what land is going to be right for you, the next step is you got to figure out how to make an offer. So, you want to be aware of the psychology of making offers. Number one is base your offers on market price, not asking price.

Sometimes the seller has like a runaway fantasy about the value of their property. You don't want to join them in the fantasy because as a buyer, you want to live here in the real world in the here and now. And you want to base your offer on market price. And if you're doing that correctly, the reality is that you got to be ready for 90% or more of your offers to either be rejected or countered. That's what you want.

Most land on the market is overpriced. And so most sellers of that overpriced land are also not actually motivated to sell. And so they may act high and mighty when you make a market offer or they may counter at an unrealistic price that's like $2 lower than their original asking price. And if that's the case, move on. Because if they're unwilling to sell the land at a market price, like what are we talking about? It's just not worth your time. And if they think that you're lowballing and you think that they're highballing, you guys can just meet in the middle and just walk the other way and not do business because I'm here to tell you it's not worth chasing those listings.

See, real sellers, they might not like your initial offer when you make it, but when you start walking away, like they're going to chase you back because what ends up happening is that the people that actually want to sell, they're not going to let you walk away from the negotiation until they know your highest and best offer. Those are the only people that you want to do business with, not because they're desperate. In fact, in some cases, they're really not at all. The reason that you want to work with them is that they're real sellers. And because of that, they've made a choice to sell that land at the market price or the best price that they can get. And if you're the person that can offer them that, it's going to be a win-win deal. You're going to get deals done way faster at way more valuable prices for you. And it's going to be way easier to deal with these folks.

And so, you have to make a volume of offers in the market, not to actually try to convert every single offer or buy every single property. The whole reason that you have to make a bunch of offers is you have to figure out who the real sellers are. And if the real sellers are less than 10% of the actual listing inventory, and like it actually might be that low in today's market, don't be surprised if that's the case, then those are the deals that are going to be viable for you.

So remember, like when you offer a price to a seller, you're not trying to convince them of anything. You're not trying to convince them that your price is like the real value or that they can't get more or that their price is crazy. You're not in the business of convincing. You're in the business of conviction. And your conviction is, look, I like the property. I went out there yesterday, talked to my wife. We really like it. I'm prepared to make you an offer. And that offer is in the range of $42,000 cash. I can close in 6 weeks. And if that doesn't work for you, I totally get it.

When you make your offer, you can't know everything about the land that you're offering on. In fact, you can't even be totally certain of the price that you're offering is actually going to be viable because the due diligence that you have to do before you actually close that purchase is going to come later. And if you took all the time that you would need to be a total expert on every single property that you bought, by the time you made the offer, it would have already sold or the listing would expire.

So, you have to make reasonable assumptions about value and you have to make reasonable assumptions about the development potential of the site because what you're going to have to do is make sure that you can actually build a home on that land if that's what your intention is. And to do that, you have to get a soil report and/or a septic permit. And that just takes a couple weeks to get done. And so, if that doesn't pan out, then you're not going to buy the land. Or if you do, you're going to have to negotiate way lower.

Guys, the worst case scenario here is it just doesn't work out. Something comes up and you have to terminate the contract and you're just going to lose. If you lose anything at all, it's going to be a little bit of earnest money. And so, you have to feel really, really good about the property that you're buying or else you shouldn't buy it. Period.

So, don't worry about the fancy paperwork on the purchase agreement yet. Like, don't get bottlenecked on like how to write out your offer and this like, you know, 25-page agreement that the real estate agents want you to use. Like that's all fine, but before you do that, you want to make sure that you have an actual seller and you have alignment on terms, like you have like a general understanding.

So, I like to make verbal offers and I actually like to do it over text message. So, for example, if you were texting the agent for this listing in Claremont that we're talking about, I'd say, "Look, you know, I'm interested in making an offer on your property on State Route 33 in Claremont. I reviewed everything. I can make a cash offer at this price and I can close in this number of weeks. Like, do you think your seller would be open to entertaining that?"

So, a lot of times deals actually get negotiated on text even between agents. It's super common. And the agent that is that's working for the seller, you know, they can help you write the purchase agreement or write the offer. You can negotiate to have the seller pay their, you know, pay the commission for you as the buyer. Or you can just use a one-page simple agreement like we do. You know, don't get caught up in it. You just need to tell the seller like what the property is, what the offer price is, when you're going to close it, and that's basically it.

So, generally speaking, you should feel confident making offers that are lower than the asking price for a property, especially if it's been sitting on the market for over 6 months. But if you have a property that's like got a lot of hits on Zillow and it's like four or five days on market and you're going to offer half of asking price, like you're probably not going to have a lot of success. That's probably not where I would start.

But if a property's been sitting out there, like your offer may give that seller their best and potentially only opportunity to sell that land. So, the question that I always reflect on is for the seller, do you actually want to sell? Because if so, if you're making an offer that you can afford to pay and it's a reasonable semblance of market price or a discounted price that makes sense for the seller under certain circumstances 'cuz you can close, you're all cash and you're real easy, then like that's fine. And if you're respectful about it, don't be timid. In fact, you actually want to offer a little bit lower these days because you want to make sure if you have to sell that land down the line, you can at least get your money out, and ideally make a little money, too.

Once you have the purchase agreement signed with the seller, what you're going to do is send that over to a local title company or real estate attorney, just depending on your state. They're going to get everything lined up for you guys, and they'll handle all the paperwork.

So, next is how to run due diligence on your land. Once you've got that land under contract and you've sent the agreement to the attorney or the title company, the next step is you got to figure out how to run due diligence. And the way that you do that is you start by clicking the link in the description below and downloading our free due diligence checklist that is specific for land buyers.

This is a version of what we use that we've developed it over hundreds of deals and it's got like a lot of the information that you need to find out about your property as well as like actually the sources of where that data is going to be found. So, it's going to save you hours and hours of time and potentially a lot of money by helping you find stuff that either steers you away from bad properties or allows you to negotiate thousands of dollars in discounts.

So, what we've done with this tracker is we've divided the due diligence checklist into two basic phases. First is initial due diligence. Then second is advanced due diligence. The goal with initial due diligence basically is to identify the potential and most likely red flags as early as possible in the process so that if the property's not going to work out, you can just find that out like without having a lot of effort in the process. And so if your initial due diligence does check out, then that's when you move to advanced due diligence. And when you do that, it's like, okay, we checked the initial boxes and now we know that it's going to be worth our time to actually finish the research.

So generally in initial due diligence there's a few main flags that are going to hurt you and they can be found without a whole lot of effort on your part. The big red flags at this stage are going to be really in three categories: One is title. The second is going to be access and then the third is going to be environmental.

So when it comes to title, you want to make sure you have a clear chain of title on the land that you're buying, meaning that like all the previous transfers from the former one former owner to another were lawful and that there's no like in-laws or like cousins or like business partners that actually have a claim to that property that you're trying to spend your hard-earned money to buy. So, a recent warranty deed for the property you're buying that was recently filed and filed by a title company that has a title insurance policy, it's a very good indication that you have good title.

But if it's an old deed, if it's a family deed or an old quick claim deed, it's a chance that this is old family property. And that may indicate that there's really like kind of a messy title history here, which sometimes is really difficult, if not unfeasible, to actually manage and clean up. And in other cases, you know, you can do affidavit, patch up the chain of title, but it may delay closing and add a couple hundred bucks to the closing cost.

So, what you want to do here for title is you want to call the register of deeds or access the register of deeds online. You want to find like all the public records that relate to the property that you're buying. So, plat maps, old deeds, any road maintenance agreements, any covenants, anything that's recorded, an easement agreement, utility easement, driveway easement, these are the types of things that you want to pull from public record. And the register of deeds is where you get those.

The second thing that you're going to run into potentially is access. So access for land is like a big topic and it can really hurt you if you don't understand what you're looking for. Access for land comes in two phases. One is legal access. The other is physical access. Legal access is basically can I get to this property without illegally trespassing on someone else's land. Physical access is can I get to this property by car? Can I drive to it?

So, when we look at Land ID and we pull the maps for our subject property, what you see is that it's got legal access on that dirt road. And so, you see like the subdivision photo from satellite. It's got physical access on that dirt road as well. Just so you know, the title report that you get from the title company should reveal any issues to access 'cuz they're going to go through all those public records, but it's still going to be helpful for you to know like what to look for.

So, the third thing you want to be aware of as a red flag in due diligence is going to be environmental issues. So, this is where you really want to call the county environmental health office, the flood plane administrator, and you want to also check the state flood plane maps and the wetlands maps. And sometimes they pull that data into the county GIS maps as well.

You also want to call the environmental health office and just see if they have any old denied septic permits on file or even active septic permits because if they have a septic permit from last year, that can save you time and due diligence and it gives you the idea that okay, like someone actually went through this and now we know that we can put a septic which means we can build a house too. And you're going to want to go and look at some of these environmental maps in detail.

So for example, I want to go back to the property that we've been talking about, this 0.93 acres in Claremont. When you actually look at Land ID, you get a good look at it from satellite, but then when you expose the environmental filters, you see that there's just massive wetlands in the middle of the property, which is not ideal. And when you remove the wetlands filter, you see that it's in a 100-year flood zone as well. And so when you actually go to the soil map, the soil series that is mapped on this property is literally called swamp. And I've never seen that.

Just to be aware like the precision of the FEMA flood maps is going to be greater than wetlands maps. I don't know why that is. I would speculate but the FEMA mapping is like really tight on county maps and county filters. But I've seen cases where wetlands maps are actually wrong. So what you'd want to do is if you wanted to pursue this property, your soil scientist could go out there, do a soil evaluation on the site, and if they say there's no wetlands there, there's no wetlands there. They really are qualified to make that call. And in fact, they can submit the map to the county or the state and actually update the wetlands maps. There's like a process for doing that.

But like the flood maps are they're pretty hardcore about the precision. Like they map those down to the pixel. It's worth double-checking, but the precision of the FEMA maps is like so good. And you have a flood zone here for sure. So look, I don't know. If you wanted to pursue this property and you saw this information, you'd probably want to look at this and find it before you got this deal under contract. But at the very least, if you sent a purchase agreement out to buy this land, you would find this in your first 5 minutes of online research and well before you actually close the transaction.

If I'm you and I'm trying to buy my first piece of land, I don't think that this one will be it because if it was, I'd try to negotiate to a dirt cheap price. But more than likely, I'd want to move on to another property that would end up working out better.

The next video on our channel I think you're going to like is called "Land Buyers Go Broke Making These 10 Mistakes." And what this video is all about is in detail like the big due diligence issues that land buyers run into and specifically how to avoid making those same costly mistakes for the land that you're buying.