Purchasing Land: Developed vs UnDeveloped

When I first started my career in real estate, one of my first contracts was on raw land.

Not quite sure how to best serve my clients with the purchase of raw land, I sat down with one of the contract experts in my market center to discuss how to write this deal up. I quickly found out that purchasing raw land is WAY more involved than purchasing a house on land or land in a development.

Why is this?

Well think about it…when you purchase a house, you KNOW what you are getting. You know that the infrastructure is there, that you have access to water, electricity, etc… You know that what is there is meant to be there.

You can be assured that someone at some point had a building plan, pulled permits, and got the thumbs up, and that yes, this site IS appropriate for a home.

Now, when you are purchasing raw land, you as a buyer MUST do your due diligence. You should have a due diligence list to check all of those boxes (yes I have a list for this)..after all, you don’t want to end up owning something that you can’t do what you intend to do with right?

So let’s talk about purchasing land, specifically developed vs undeveloped…Both are great options, as long as you know how to do the research.

Developed Land: Infrastructure in place. Survey/plats/utilities/roads/amenities.

1. Immediate Usability: One of the most significant advantages of purchasing developed land is that it’s ready for use right away. With infrastructure such as roads, utilities, and sometimes even buildings already in place, you can start using the land for your intended purpose immediately after purchase.
2. Reduced Risk and Time: Developing land from scratch can be a lengthy and costly process. By purchasing developed land, you bypass the risks and time associated with obtaining permits, conducting feasibility studies, and overseeing construction. This can save you both time and money in the long run.
3. Easier Financing: Lenders often view developed land as less risky than raw land since it already has established infrastructure and potential for immediate use. As a result, obtaining financing for developed land purchases may be easier and come with more favorable terms compared to raw land purchases.
4. Potential for Income Generation: Depending on the type of development on the land (such as residential or commercial buildings), purchasing developed land can offer immediate income-generating opportunities through rental income or business operations. This can provide a quicker return on investment compared to raw land, which may take longer to develop and generate income.
5. Greater Certainty: With developed land, you have a clearer picture of what you’re getting. You can assess the existing infrastructure, zoning regulations, and neighboring properties to make more informed decisions about how to use the land and its potential for appreciation.

Raw Land: Road?Water?Survey?Plat?Road Frontage? Sewer? Restrictions? (and more).

1. Flexibility and Customization: One of the primary benefits of purchasing raw land is the flexibility it offers. You have the freedom to design and develop the land according to your specific vision and needs without being constrained by existing structures or infrastructure. This allows for greater customization and creativity in your development plans.
2. Lower Initial Cost: Raw land typically comes with a lower upfront cost compared to developed land since you’re not paying for existing infrastructure or improvements. This can make raw land an attractive option for investors with limited capital or those looking to acquire a larger parcel of land at a lower cost.
3. Potential for Higher Returns: While developing raw land requires time, effort, and investment, it also offers the potential for higher returns. If you can successfully navigate the development process and add value to the land through improvements, such as subdivision, rezoning, or infrastructure development, you may realize significant appreciation in the land’s value over time.
4. Less Competition: Since raw land requires more effort and resources to develop, there may be less competition from other buyers compared to developed land. This can present opportunities for savvy investors to negotiate favorable purchase terms and acquire land at below-market prices.
5. Long-Term Investment Potential: Investing in raw land allows you to take a long-term view and capitalize on potential future growth and development opportunities. As urban areas expand and populations grow, undeveloped land on the outskirts of cities or in emerging markets may become increasingly valuable over time.

Ultimately, the decision between purchasing developed land and raw land depends on your investment goals, risk tolerance, available resources, and timeline. Both options offer unique advantages and considerations, so it’s essential to carefully evaluate your options and conduct thorough due diligence before making a decision.