The Three Rules to Follow When Buying Commercial Land
Commercial land is an interesting investment. On one hand, no other commercial real estate sector is as secure of an investment and as simple to maintain. On the other hand, no other sector has as many potential problems that could arise. While there are some commercial land disaster stories floating around out there, the benefits of investing far outweigh the possible problems.
The reason land is such a safe and secure investment is that it can be relatively inexpensive and it holds its value…for simply existing. When you purchase commercial land you don’t need to do anything with it if you don’t want. If you want to simply hold on it to, go ahead, it won’t cost you anything. No maintenance to take care of, no tenants to keep happy. And when you are ready to add value and develop, it’s waiting. While commercial land is a great investment for both new and established investors, it’s not without complications; or rather we will call them “rules”. Below we outline the three most important rules to remember when buying commercial land.
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Commercial Land Rule 1: Know the Zoning and Usage
Know this: not all commercial land is created equal. Every local government has established zoning ordinances and usage restrictions that regulate land use. Be certain that the commercial land you want to purchase is designated to a specific classification, i.e. residential, multifamily, retail, industrial. If there is one thing to make sure you know about a potential land investment, it’s whether or not it’s suited for what you want to build.
Can you imagine going through the entire process and purchasing a parcel of commercial land with plans to build a mixed-use retail center, only to find out that it’s zoned for agriculture? Now you own a piece of real estate you can’t use. We’ve seen it happen, and it’s not pretty.
So, follow commercial land rule 1 and make sure that before any purchase you call your local planning and zoning department to learn the exact zoning ordinances and usage restrictions of that parcel.
Land Rule 2: Perform Excessive Due Diligence
There is a saying in land investments, it’s not what you can see that becomes a problem, it’s what you can’t. Due diligence is a rule of thumb when purchasing any type of commercial real estate. Although, there is no other sector that requires more research than commercial land. In addition to zoning and usage, there are several other areas that deserve critical attention when performing commercial land due diligence. They include, but are not limited to:
- Topography: Land is raw, and as such it comes with variations. It’s crucial to understand the topography of a parcel to ensure that it aligns with what you want to build. Just because the zoning matches up doesn’t mean the land can physically support the structure to you want to build.
- Underground: What’s below commercial land is just as important as what is above. Make sure to test the soil for any hazardous waste and be aware of any old wells or underground pipes.
- Utilities: What public utilities are available? You shouldn’t assume that you have access to everything you need. Make sure to investigate to avoid any issues with building later.
- Parcel size and shape: This may seem obvious, but there is commercial land on market that is inexpensive and enticing, but in reality could never support any type of real use due to its layout.
Land Rule 3: Always Use a Professional
The complexities of a commercial land investment are numerous. As such, it is critical that you always use a professional broker to assist with the transaction. A knowledgeable land Advisor will guide you through the important due diligence phase all the way to closing. This will ensure that you purchase your investment at the best value and for the best use. Clients who use a professional broker set themselves up to maximize current and future returns.
We hope that we have given you a lot to think about before you invest in commercial land. If you have any questions, or need us to point you in the right direction, give one of our dedicated land Advisors a call today.
Percival Partners is one of Charlotte’s most recognized and respected commercial real estate firms with more than 50 years experience in the region. Our professional and experienced real estate Advisors are in the business of listening, understanding, and adding value. No matter the commercial property type you own or seek, you can count on the Percival Partners team to maximize your return and peace of mind. To reach us, you can call us at 704.632.1000 or follow us on Twitter at @SVNPercival, LinkedIn or Facebook.