Understanding How To Evaluate Land For Purchase
November 05, 2010
Before you spend a penny on land, you need to make sure you know exactly what you are buying
You would never buy something unless you understood what it was, would you? Well, you'd be amazed at how many people buy land with no real concept of what they just purchased. That's just not smart. Before you spend a penny on land, you need to make sure you know exactly what you are buying, what it can be used for, and what its potential is. To do that, you need to understand the physical characteristics of land.
But once you find a prospective tract, how do you evaluate it? What is the qualification process? How do you compare two similar tracts? What determines which tracts warrant further inquiry or elimination? What adds value to the tract?
First, let's acknowledge that everyone values certain "intangibles" about land, even if we can't put our finger on exactly what that means. You have to like the way the land looks, and you will probably be drawn to a tract for reasons you won't completely understand. But beyond the emotional intangibles, there are more objective criteria that need to be understood and analyzed, without emotion. I can't help you put your emotions in check, but I can tell you that a realistic look at land characteristics will give you the grounding (pardon the pun) you need to make a smart decision.
Think about it this way: If you look at an acorn or a tadpole, do you see what's in front of you, or do you see the potential for an oak tree or a frog? The ability to recognize potential helps you understand what a property is, and what it can be. From a purely financial perspective, remember that land characteristics affect utility, and utility affects value.
In my analysis, land characteristics fall into three major categories -- those that can be changed, those that can't, and those that can at great expense. As you evaluate property, make sure you objectively evaluate characteristics with this in mind. Roads and trails are usually easy to build. Natural resources and wildlife habitat can be improved with proper management. On the other hand, location, soil types, wetlands, creeks (or a lack thereof) are going to be with you as long as you own your land. If you are ambitious, access across wetlands is possible, but may be expensive. Ponds can be built, but it may be time-consuming and difficult to receive permits, and may cost more than you think.
While I am certainly gung-ho on land ownership, I also know that for many people this is a once-in-a-lifetime purchase, and no one wants to make a major mistake. You can recover from minor misjudgments, but a big-time mistake can be costly. Fortunately, those kinds of errors can be greatly reduced by developing a process for evaluating land.
Here are some guidelines:
- Make sure you measure each property against clear, objective criteria.
- Don't simply "look" at a property, but actually go through the process of analyzing the land's characteristics so you understand its assets, its potential, and its liabilities.
- Be sure you get what you want. To do this, however, you need to establish exactly what characteristics you're looking for in a property.
- Once you know the characteristics you're seeking, you can utilize them in a two-step process. First, cull any tracts that don't fit your criteria or that have a glaring problem. This prevents you from wasting time on properties you'll never buy. Secondly, rank all "qualified" tracts based on fit, function, potential, and value. Then you can spend your time analyzing and comparing the tracts that are most likely to suit your needs.
ABOUT THE AUTHOR
Don Webb is the author of "Maximizing The Land Ownership Experience" and president of Greenwood Land Company, which provides land acquisition and consulting services. Contact him at (706) 575-4178 or go online to www.greenwoodproject.com.