warning signs land

Several years ago, I wrote a blog post that blew up and became one of the most popular articles on REtipster.

It was called The Truth About Land Investing: 21 Warning Signs to Look for When Buying Vacant Land and the reason I wrote this was because after years of buying and selling land, I recognized there were a lot of tricky due diligence issues with every property I dealt with, and I wanted to create a solid list of the most common problems and stumbling blocks I had encountered.

This due diligence checklist can apply to anyone buying land for any purpose, but depending on whether you're a land flipper or the end-user, there will be some differences in your perspective on these issues.

Not all of these issues need to be scrutinized for every deal, depending on where the property is located and what you’re planning to use it for, but regardless of your situation, this is a good list of items to be aware of, so you don't get stuck with a property without recognizing some of the problems ahead of time.

Even with properties that do have some of these problems, there is still hope in many cases, you’ll just be limited in what you can use it for.

Episode 109 Transcription

Seth: Hey, everybody. How’s it going? This is Seth Williams and Jaren Barnes, and you're listening to the REtipster podcast. And in today's episode, Jaren and I are going to rehash a blog post that I wrote many years ago now, and have refreshed several times as time has gone on and as I've learned new things and experienced different things and various deals, I've worked on all about the things you want to watch out for before you buy a piece of vacant land.

There are a few reasons why I think this subject is really important and it's actually been a really popular blog post on the site for years because land it's one of those things that, whether you're a land flipper as a living or just somebody who is buying land because you want to build your house, like it's a one-off purchase and you're only going to do it once in your life, I think this stuff applies to both camps, but there's sort of a different lens to look at this through depending on where you're coming from.

But one thing about land is, on one hand, it is a pretty simple type of property to buy just because there is no house on it. You don't have to get inside a house to inspect it or anything like that. It's just dirt. But on the other hand, there's a lot of tricky things that can be hiding beneath the surface that you would never really know about if you didn't know to look for these things.

And that's really what we're going to go through here is shed some light on those things that are worth investigating. And another thing about this is that not all the things we're going to cover here, there are 21 things in total, but not all of these are going to apply to every piece of land, for example, wetlands, when we get to that item. That's not something you have to spend hardly any time thinking about if you're buying land in the desert because there are no wetlands in a desert area.

Or the topography of a property. If you're buying land in Iowa, where everything is pretty flat, it's not something you usually have to worry a whole lot about. I don't want to say never, but you just have to understand the geographic area where you're working and recognize which of these are the hot button items that you really want to scrutinize and look closely at.

So, we're basically going to just go one by one through these. And some of them I think will be pretty obvious. Others will be like, “Oh, I never would've thought of that.” So, you ready, Jaren?

Jaren: Yeah. Before we dive into this, though, I do want to lay out kind of an 80/20 leverage point or like a pro tip. Something that I found to be very helpful when it comes to due diligence. If there's a house relatively close to your subject property, like right next door or down the street, that is a very helpful indicator that your property is going to be okay from a due diligence standpoint. It's not perfect, and I don't want to throw this out there saying that if you see a house, you don't have to do any digging, but a lot of topography issues, a lot of wetland issues, a lot of issues get resolved, even when we dive into utilities and stuff like that. A lot of that gets resolved just by recognizing, “Oh, there's the presence of other structures here already that they've already gone through the process and have been approved because there are houses.” So just keep that as a rule of thumb. Hey, if there are houses there, that's a good sign.

Seth: Yeah, I would agree. It's a good sign. Another thing to just understand is how much money do you have wrapped up in this property you're going to be buying? Are you paying $500 for it, or are you paying $50,000 or $500,000? Because if you're only paying $500 for a property, a lot of these things that we're going to talk about here to really get to the bottom of them, like to actually hire a professional, to come onsite and do their inspections.

I'm doing this on our property right now, I've already spent over $10,000 just in due diligence, just to look at the property and do surveys and geotechnical investigations and all that. And the reason I'm doing that is that this is a very expensive property that I'm going to be doing development on and billing and taking out loans for and all this stuff. So, it justifies doing that.

But if you're throwing a few thousand bucks at it, you just have to weigh the risks and realize there are some things where it may be okay to go out on a limb. It's okay to not be 100% certain, but maybe be 70% certain because it's not going to destroy you financially if you end up being wrong. And if you end up buying a property way below its market value, there's most likely going to be enough equity built into that that you'll come out okay in the end.

So just keep that in mind. If you're planning to build your own house, you probably want to be really sure about this stuff, but if you're just flipping it and you're paying a very small amount, you may be okay to risk it on some of these things. And you can be the judge of that.

Jaren: And when you approach due diligence, I like to look at it like there are two parts of it. Like part one and part two. Part one is specific to the property itself. So, we're looking at what are the restrictions or the limitations or the best use of the actual property itself. And then on the other side, part two of due diligence is title work. And a lot of gotchas can be covered if you just work with a professional title agent of some kind, whether you're in an attorney-only state, or if you're in a title company state, or one that does both. There's a reason why there's title insurance. If you think about it, these guys do title work 40-plus hours a week, and they still make mistakes. So, I'm a pretty strong advocate for going through titles and just paying the powers that be because it gives you peace of mind and it covers your blind spots, and gives you a surety if something gets missed.

Now you have to weigh that against how much you're going to be buying property for. If you're buying property for a thousand bucks and you have to spend a thousand bucks in closing costs, it probably is not going to work out. But I intentionally buy property that's a little bit more expensive so that I can justify closing costs and agent commissions because that's kind of my go-to strategy. But just keep that in mind that this is all related to these 21 warning signs that we're going to be going over are related specifically to the property. So, it's kind of part one of due diligence.

Seth: Yeah. I feel like we have so many disclaimers before we jump into this. One last thing and I will say is that we're covering 21 of the things that I have just found to be most common that have come up most often, but this is still not everything. There can be other really oddball issues hidden beneath the surface. So just keep in mind, this is not the perfect gold standard.

Jaren: Or like Scrub-Jay territories in Florida. Like that's a whole another state-specific due diligence issue.

Seth: Exactly. But on the same coin, this is probably at least 80% of all the issues you'll ever run into, probably more than that, but not everything.

Jaren: Awesome. Well with that, let's get into it.

Seth: Issue number one. I wouldn't say this is in the order of importance necessarily, just realize sometimes there are other things that might be more pertinent to look at. But the number one thing on the list here is “What is the zoning on the property?” Like what will the county or the municipality or the city allow you to do with that property based on how it is zoned.

And for the most part, there are four key zoning classifications. There's residential, agricultural, commercial, and industrial. And it is sort of like sub-zoning categories sometimes beneath those, depending on how specific they want to get it and how you can use that property.

But it's kind of a basic thing. Just understanding what this property zone is. Like, what am I allowed to do with it from a high level? And even then, say, if you buy a property that is zoned commercial, that doesn't necessarily mean you can buy it and tomorrow just start building whatever you want. You still have to put together a site plan and get that reviewed before you can start on it.

And you've got to pull a building permit and things like that, but still, it's the highest level of guidance on what direction can you go with this type of property. Should you plan to build a house here or a strip mall or a manufacturing plant? And of course, if it's not zoned the way you want it to be, you could potentially get that changed. So, it's not the end-all-be-all, but just realize there's sort of a starting point.

Jaren: Yeah. And something that you actually taught me and brought to my attention when I first started working at REtipster was the purpose for zoning. I always ran into zoning stuff and it's frustrating because you're like, “Oh, I want this property to be zoned for whatever makes me the most money as a real estate investor.” But it actually isn't a bad thing that there are zoning classifications. It's actually a good thing.

All things being equal in a perfect world, the city planning will look at the entire region of a city or town and they'll say, “Okay, this portion, we're going to dedicate for businesses like restaurants and nightclubs and entertainment, things to have fun with. Over here, we're going to have a section where there are schools and government buildings and all of that. Now over here, we're going to have car mechanics and gas stations, or maybe even the distributors of gasoline for the entire county or whatever. They can have a building over in this section of the town.”

In an ideal world, they have industrial, they have different types of commercial. Then they have a residence. Because to be honest, none of us want a nightclub right next to our house. I got two young boys. And if there was a nightclub right next door that was popping at 2 to 3 in the morning, it would be horrible and I'd be very angry and it would be a mess. And all of our neighbors would feel the same way.

So, it's a good thing that there are zoning restrictions. Nobody wants a skyscraper in the middle of the country. Like that would just be an eyesore. It'd be horrible. So, take it with a grain of salt. I know ideally, it would be awesome to buy a residential property and then just go through the process to convert it to being commercial. But the reason why there's so much bottleneck and so much process a lot of the time is that the planning is trying to protect the community and make it the best that it possibly can be for everybody to enjoy. So just keep that in mind. That was something that was helpful for me with this zoning conversation.

Seth: Yeah, totally. And I've always sort of been of the mindset of “I don't want to mess with change in the zoning.” I've always been told you can do it, but it's a hassle and there are no guarantees. And that's all true but sometimes, depending on your plan for the property or if the value can change as a result of rezoning, it could be worth looking at that.

And I think if the property is sort of on a borderline between, say, a residential and a commercial area, there's at least a hope of that. What you don't want to try to do is rezone something commercial in the middle of a very dense residential area. That's probably not going to happen.

But two weeks ago, I just successfully rezoned my first property from residential to commercial. And it wasn't really that hard. It was a pretty easy thing to go through because it made sense for this property. And it wasn't like I was asking for something crazy. Just know it can be done, but it's a slow process. It's doable.

I think if you're a flipper, most people probably won't want to mess with that, but it's a potential option on the table. And I know Mike Marshall has got some really good information on that. There's a full course in The Land Investing Masterclass. One of the bonuses that talks all about this. I'll include a link to Mike Marshall's website. And also, our course that has his course inside it in the show notes for this episode. This is retipster.com/109.

Moving on to item number two. What is the topography of the property? And topography basically is just referring to the terrain, the contour lines of the Earth, like if there's hills or valleys, or like a hole in the ground, that kind of thing. And the reason this is important is because, again, especially if you want to build something on that property, it's going to give you a lot of indications as to how much site prep work is going to be necessary to flatten it out, or how much engineering will have to be done on, say, a really steep property.

And you can build a house on pretty much any steepness of land. There are people who literally have built houses on cliffs, but the crazy you try to get, the more expensive it's going to be to engineer that. And you could also potentially run into issues with getting approvals and that kind of thing.

So, this is why it's important to just have at least a vague understanding of how steep the property is. And the good news is in many areas of the U.S. anyway, you can get a pretty decent idea as to what the topography is just with Google Earth, just visually looking at it. But another thing about Google Earth is that it's definitely not perfect. It's like a starting point, but it's not going to give you pinpoint accuracy.

There are also nationwide topographic maps from... I think the federal government or each county put them together. And that can also be a helpful starting point, but even that is not pinpoint accurate. If it's super important, if you really need to know and be a hundred percent certain, you would want to get a topographical survey, and those will run you thousands of dollars to get those. It's a lot more complex than a normal boundary survey because they're literally measuring hundreds of points on the property to figure out the precise elevations.

So, I think it's rare that a land flipper would ever want to go that far, but if you're planning to develop it yourself, you'll probably have to do this if there's any doubt about what those elevations are. And if you are buying a property that's already planted out like part of a bigger subdivision, this has probably already been done for you. So, this is kind of just referring to truly raw land that has not been charted yet.

Jaren: And again, just kind of bring in the high level of down to the brass tacks of all this. Why it's super important is because if you're looking at a property and let's say it's 10 acres, but it's at a 90-degree angle on the side of a mountain, that limits the kind of buyer you can get as a land flipper, because they're either going to have to use it for like hunting property or somebody who's going to do the crazy development of putting the house on the side of a mountain. So, it's lower-hanging fruit for you to just go after property like that.

I think the most ideal is if it has some rolling hills on it, but if the parcel has at least somewhere where it's relatively flat, so it's easy to build. That’s what I look for anyway. Again, it depends on your strategy and your buyers and all that. But if I had a choice between 10 acres on the side of the mountain or 10 acres that was absolutely flat, I would prefer it to get the one that was absolutely flat just because it's easier to sell.

Seth: And also, there is a buyer for pretty much any type of property out there. Even the most obscure landlocked messed up-looking properties, you can always find a buyer at some point. It's just a question of how long it's going to take to find them and how much you'll be able to sell them for.

If you're running into a property that is just as full of problems that we're talking about here, that doesn't mean that it's doomed. It just means that if you buy it, you better be paying a very, very, very low price, sometimes free in some cases, because you just have to make the math work. Look forward to how much you'll be able to sell this thing for and how much you're paying for it. And just understand, there's got to be a profit margin there. And if the profit margin is not there, then is it worth your time? I guess you have to decide that. But in a lot of cases, you may want to walk from some properties if they have tons of these issues that are potential deal killers.

Jaren: Yeah. A hundred percent. Real quick, I do want to mention MapRight because I'm using MapRight a lot in my land business right now. And I know you made a review about it. I feel like six months ago or something.

Seth: Yeah, a few months back.

Jaren: You always come out with these earth-shattering content pieces, but you're just so subtle about it that probably over half the time I ended up missing it. And this is one of them. I want to really encourage our listeners today to check out the review that Seth did because this software is awesome.

And the reason why I'm even bringing it up is if you were to be following along with us in the 21 warning signs actual blog posts, Seth has a big video and a big plug for MapRight underneath the second bullet point of talking about topography. So, I have a full-time VA. He's actually my brother-in-law. What I have him do is I have him scrub my direct mail list because I do blind offers and I try to do as much due diligence as I possibly can on the front end so that when I actually get responses, there's a very high likelihood that if they want to move forward, we're going to be able to do a deal.

I spent a lot of time and resources on the front end so that on the backend it's very, very quick. I literally have my brother-in-law go property by property and look up a number of different pieces of due diligence. Is it landlocked? Is it a weird-shaped parcel? We're going to get into a lot, literally everything that we're talking about here in our episode today on this blog post and our conversation.

MapRight has significantly expedited that process. We used to have to open up the Wetlands Mapper and we used to have to go into all these different databases and do all this. In MapRight you go in and it's all right there. You can click on layers. I think that's what it's called, layers. And you can click on flood zones or wetlands and it pops up all right there.

Now no data service provider is perfect. And even if you were to go to the official Wetlands Mapper database that's provided by the government, it's not perfect. There are still properties that will be in wetlands that aren't shown as wetlands on that database. But for my purposes to get to that 80%, 90% of hyper-scrubbed, really good direct mail list, MapRight has, I want to say, at least cut our time in half, which is huge when you're doing high volume. So, I'm a big fan. I'm all in on MapRight.

Seth: I really like how MapRight did that. Not only is it super convenient because it's right there, but it's just easier to use. The wetland areas really stick out like a sore thumb so you can't miss them. FEMA or whoever put the actual Wetlands Mapper together is so janky and hard to use.

Jaren: Old school, man. That's like from the 90s.

Seth: Like you said, it's still totally not accurate in a lot of areas. So, you always got to double-check everything it's saying, but still, I think MapRight did a really good job of taking what was there and making it as easy as possible to make sense of it on their platform.

Jaren: Before we move on this, I do want to ask you about something and I'm kind of jumping ahead. So, I'll try to be discreet in my details because I don't want to steal the thunder when we talk about soil percolation. But one of the things that would be really helpful is learning how to read the soil report that MapRight will provide. It's awesome that you can turn off parcels and then click that. And then it pops up what kind of soil type it is. But I don't know how to read it. I don't know what it means compared to other soil types and stuff like that.

But I think that could be again, not to get ahead of ourselves, but when we talk about soil percolation, where it really comes in as a land developer, at least in my experience is seeing if the property is going to be able to have a septic tank installed. If it doesn't have city sewage hookups. And if there is a certain type of soil that has a high likelihood that it will perk based on MapRight, that's going to save me even more time. So, that's a really great feature that they provide. I just don't know how to read it. I don't know if you have any insight there. I'm jumping ahead on a bunch of points here. We will keep it on MapRight. We will close the chapter on MapRight and then move on.

Seth: Yeah. What Jaren is talking about, it really does apply to a few different things we're going to talk about here. There is a soil map, sort of like the topography map and also sort of like the Wetlands Mapper that's nationwide.

I think the bottom line is it's not that precise, but it's still a good starting point. It's worth looking at before you do anything else because it's free and it's readily available. And there's a file you can get using Google Earth as well, which will also make this really easy. And it's also free, but it just shows you over the entire U.S., Hey, this little blob of soil over here is sandy loam soil. And this over here is clay. And this is this, and this is that. I think what it comes down to is understanding what types of soil are more likely to drain well versus not.

One of the inherent problems with this is that again, it's not perfect. This is not the same thing as getting a geotechnical investigation, which we're also going to cover later on where they literally go onsite and drill into the ground at several points to really know for sure what type of soil it is. It's just a vague indication.

You can sort of figure out, for example, where I live, there's a lot of clay in my neighborhood and really in the town that I live in. And this can be a problem when it comes to building septic systems because septic systems rely on the ability for water to drain easily through the soil. And if it doesn't drain, then the septic system can fail or you have to replace the soil with something that will drain. It's a hugely expensive ordeal to do this. So, you want that soil to just be the right kind of soil so you don't have to worry about that.

In terms of what this applies to, I think it was originally USDA that came up with this map and it was originally intended for farmers to figure out what type of soil was on different land. But it can also be used just to get a feel for “Does this area perk well? Is this soil going to be strong enough to hold a heavy building?” That kind of thing. Very, very high level. But if you want real accuracy, you have to actually send somebody outside to test it.

Jaren: But it would be really helpful if I can learn how to read those reports from MapRight because even if it's a 60% or 70% accuracy, that will tell me, hey, you can go ahead and mail this property because it will most likely perk if it doesn't have city sewage.

Seth: Yeah. I don't know that I would necessarily filter your mailing campaign. That would just be a ton of work to start that early on.

Jaren: Yeah. That's what we do right now. We do that level of granular work. It takes a month, sometimes a month and a half to prepare one direct mail campaign. That's crazy.

Seth: Soil type doesn't necessarily mean a property is useless. You just have to understand, okay, we're only mailing properties that a house can be built on. If you know what your goal is, maybe it's worth that. But is that your goal?

Jaren: It's a market-specific thing. I'm testing out North Carolina. At least in the counties that I have been targeting, they're really strict when it comes to soil, having the perk if it doesn't have hookups to city sewage. I use land specialized agents and I've had multiple agents tell me if your property does not perk, don't buy it. It is a waste of time. You will never get rid of it.

I think that's very strict and very specific to North Carolina because all of the years I've done like Indiana, Florida, I've done a little bit of stuff in Georgia too, I never ran into any percolation soil issues that are very, very strict. And I think it's just a North Carolina thing.

Seth: Well, item three on our list: “What is the annual cost of property taxes?” This one kind of depends on how long you intend to hold the property for because that's going to affect you as long as you own the property. And it also depends on, I guess the reason that's consequential is that with most vacant land properties, just by the nature of the fact that it's vacant, the property tax bill should be very, very low. But sometimes it might be part of an HOA or there could be some weird assessment.

Now, I had several properties that recently had a sewer system put in by the local municipality. And because of that, they tacked on this huge annual fee of the property tax bill to pay for that. And it doesn't mean it's a deal-breaker, but it's something you want to know about, which you can find out pretty easily just by looking it up for free on the city or a county website, or just picking up the phone and calling the treasurer and saying, “Hey, what's the annual property tax bill?” DataTree usually will tell you this as well. So, it's not hard to find this number, but it's something you'd just want to be aware of.

And again, most of the time expect it to be pretty low compared to what it would be for a house or an improved property. But if you do see that it's like through the roof, or if it has a lot of delinquent taxes owed on it, it's just another factor you're going to want to be aware of before you dive in and pursue that property further.

Jaren: I think you hit that one out of the park, man. No commentary from me.

Seth: And then the next one here is understanding what public utilities are available to the property, if any. So, if you're working in a super rural area, you may find that there is no water, sewer, electricity, gas, phone lines, internet, any of that. It's just not there. Again, it’s not necessarily a deal-breaker. There's a lot of workarounds you can do for that kind of thing. There's solar power, you can drill a well in a lot of cases.

Jaren: Some buyers are actually specifically looking for property that is off-grid. So, it's just something you have to be aware of.

Seth: Yeah. One thing usually more often than not, it's a good thing if it has access to that stuff, just because it's a lot easier, it's just there. It doesn't mean you have to use it. It just means if and when a person, whether it's you or your future buyer wants that stuff, it's not going to be hard to tap into it.

And if it is missing one of those, for example, if there is no sewer line available, and this is very common in rural areas, that would then mean you have to start thinking about, “Okay, so I'll need a septic tank here.” And in order to get a septic tank, you have to pass a perc test, which is one of the future items on our list we're going to go through here. So, if something is missing and if that's important, just understand the consequences of that missing. And if that is something that's going to be a problem, or if you can deal with that.

And again, there are solutions to most of these things. Even if you're buying land in the desert and there's no water anywhere in sight, some people have giant water tanks on their property and they get water trucked in to deal with that issue. I'm sure that's expensive and it's a hassle, but again, there are ways to deal with most of it. But you just want to make sure you know that so you can deal with any consequences or price that into your offer before you proceed with buying the property.

Jaren: Yeah. A hundred percent. There are alternatives to septic tanks as well. I think that's worth mentioning. If you have a property and it doesn't perk and you can't install a traditional septic tank, there are other options, they're just typically really expensive. So, the numbers would have to work for you to justify that. Or not even if you were to install it, but for your buyer. You'd have to be able to price that all in and run those numbers. So just keep that in mind.

Seth: Totally. I've never tried to get one of those myself, but I think the raised beds septic system where they might dig some out, but they basically create an area with the correct type of soil that does drain properly. And they kind of build it up. It's a lot more expensive than if the property just had the right soil in the first place.

Jaren: Yeah. I've heard a lot of people throw out around $25,000 for that kind of stuff.

Seth: Yeah. I think it partially depends on the slope of the land. Like if it's flat versus if it's like a 45-degree angle or something, it is going to take a lot more soil to make that work.

Jaren: Yeah. Needless to say, it's expensive. I think a normal septic tank is like $3,500 as a comparison.

Seth: That's a good question. I don't know. I've never had to develop a property where I had to do that. It's just been there or I didn't have a septic tank, so I'm not sure. But probably a quick phone call to any septic tank company or engineer, I'm sure they could tell you.

Jaren: Hey Seth, before we dive into the next one, I just want to throw out there outside of septic tank issues and sewage issues, probably the most common thing that I run into is water. So, if your property doesn't have access to city water, you'll have to establish a well. And so again, that's going to be something that if you're going to be selling this property as though it's going to be somebody's secondary home or their dream home, or a developed residential house or building in some capacity, you'll have to factor in the cost of establishing a well. And do you know if there's anything involved with the soil or the land itself as to whether or not it will be able to host the well? Like if you drill down deep enough, is it always guaranteed that you'll have a well?

Seth: No. I think there are some places where water just literally isn't there. And the soil thing, I don't think really matters unless you're dealing with a rock, which is probably a bigger issue in Arizona and places like that. I'm speaking out of ignorance here, I'm not really sure. But it needs to be drillable first of all. But yeah, I think out west water is generally a concern. It's a problem. I keep hearing about California, how they're like overbuilding, and probably other states too. It's just an ongoing concern. Whereas in places like Michigan, we're trying to find a way to get rid of the water. There's so much everywhere. Again, I think the trucking water on site is a potential option, but I'm sure there are big ongoing costs associated with that too. And also with the electricity, there's always solar power, wind power if you want a windmill on your property.

I know solar power has been coming down a lot in recent years. I don't know much though, about the cost-benefit and that kind of thing, but that's an option. But I think, for the most part, the electric grid does reach a lot of places. If there is a road nearby, not a guarantee, but it's probably not going to be that far away to tap into that. And with natural gas, again, if the city has that, you're golden. If not, a propane tank would be your next option.

And with phones, I think most people don't even really use a landline anymore. They've got a cell phone. So, it’s more a question of is there a cell phone tower close enough? So, again, there are usually solutions to these things. It's just a question of how much is that going to cost you.

Alrighty, moving on here. The required building setbacks. And this is basically just about understanding the dimensions of the property and how far back are you required to put a building. And it only really matters if you're planning to build something. If you're not, then you can just skip over this.

But the reason that this is important, this kind of hit me in my first year of doing business as a land flipper. I was buying these properties that would be like, I don't know, 50 feet wide by 50 feet deep, like pretty small. And in some cases, I've found that the setback requirements would be like 30 feet from the road or something like that. And it basically just what it boiled down to was there would be a very, very tiny space on the property where I would be allowed to build something. Or in some cases, it would totally eliminate any place to build anything just because the property was too small.

And when you contrast that with places like Chicago, where buildings are literally touching each other, there are no setbacks. At least not from the sides, maybe from the front. But it's kind of understanding, is there enough room to do what I think? There may be physically enough room, but legally, or based on the setback requirements, is this still usable?

Jaren: Now be aware, guys, you can get something like a variance by going through a special process with the county or city, where you can get special permission if your property doesn't meet the required setbacks, but you have to have a really strong case and there's no guarantee.

And that's something that's always been really hard for me to wrap my head around from a development standpoint. Developers will go and buy a property that they don't know if they're going to actually get approved for what they want to do with the property. So, it’s in my mind, a big risk. So just take that with a major grain of salt.

Technically if you've got a property that doesn't meet the setback requirements, but you have some inclination that it's going to for whatever get approved for a variance or for a special exception, that can happen, but you just have to really have a really solid reason and go through a pretty long, drawn-out process. So just be aware of that.

Seth: And again, even if this doesn't matter to you, you have to think about your future buyer and whether or not they care about this. If it's going to matter to them or most likely at what would a person want to use this property for, what's the highest and best use of it. And if the highest and best use is building something, and if the setback requirements are not good for your situation, then that's why it's important. Even if you're not going to build something on it.

Okay. So, moving on. The next thing here is, “Does the property have any usage restrictions?” And this is kind of tied in with zoning, but it takes it one step further because a property may be zoned for residential, for example, but there can be more restrictions beyond that. So, for example, the neighborhood that I live in, it's part of a small homeowner’s association, and it basically creates another layer of things you can't do with your property or rules you need to abide by.

Ultimately, the purpose of an HOA, as much as so many people despise them,  is kind of a good intent. It's just to make sure everybody in the neighborhood is on the same page in terms of what their houses look like and what the yards look like. And nobody's parking broken down cars in their front yard and that kind of thing.

Jaren: Painting their house neon purple.

Seth: Exactly, exactly. So, part of this boils down to understanding there is a homeowner’s association, which I've got a separate video on. I will try to link to that in the show notes. And the long and the short of it is usually you can figure that out relatively simple, but there's no mandated way that all HOAs have to report their existence. So, it can get tricky sometimes.

But a lot of times you'll find this in your title search. If there's HOA documentation or if there's a restriction put on one of the previous deeds. Say if the seller 20 years ago said, “I will sell this property to you, buyer, but I prohibit this use for the property.” That kind of thing. It's not common, but sometimes that stuff exists and you'll just want to make sure you understand what it is. And I'd say, it's a pretty rare thing that I run into this. And when I do it's because an HOA is involved. So that's why I kind of point to the HOA as the biggest issue most of the time to figure this out.

Jaren: Yeah. I think I run into usage issues compared to just the zoning. Sometimes it's in an HOA, but sometimes it's just the neighborhood that is sanctioned. Hey, in this particular area, you cannot have a trailer at all or an RV. You have to have a stick-built house with a foundation. So, that's what I run into the most with this.

Seth: Next item on the list here is whether the property is located in or anywhere near a flood zone. This is a big one. Yeah, this is kind of an interesting one. It matters to the extent that somebody is going to live on the property. Is somebody going to try to build a house or a building there? And it also matters what type of flood zone it is because it's not a one-size-fits-all. There's the 500-year flood plain, there's the 100-year flood plain. There are several others. Basically, just different levels of severity. Like you should expect this thing to flood every year, or this will flood once every 500 years. Like it's very rare, but it could happen. And just understanding what zone it's in.

The reason this matters is because if it's in one of these bad flood zones, anybody who builds a house there and gets financing on that is most likely going to be required by their lender to get flood insurance. And depending on the area that they're in and depending on the flood zone, that can get very expensive. And sometimes it's just a nominal fee, it's not a huge deal, but it's one of these added ongoing costs that a person will need to think about.

And even if the person buys the property cash and doesn't ever get financing, they still may want to get flood insurance just to protect themselves. And if it's a risk that they'll have to live with, living in that flood zone, that's when you want to be aware of it. And luckily, it's usually pretty easy to figure this out and there are very quick reports. You can do it for free. There are free websites. If you're a subscriber to DataTree or MapRight all of these things will tell you this in a flash. And I've got a whole blog post all about this at retipster.com/floodzone where I explain a lot of this stuff. So, you can check that out too.

Jaren: One thing I want to add to that, Seth, do flood zones really come into play depending on what market you're in? So, in Florida, it's much more common to see properties in flood zones. I actually was looking at a deal the other day that was literally a house that was built on stilts. And it was like a flood zone where it floods there every single year without failure. It was kind of on a peninsula right on the ocean. And that's common in Florida.

So, if you were to mail and target properties that are in the flood zone, for Florida, it wouldn't be that big of a deal. As long as it wasn't like the hardcore extreme flood zone because there's like different tiers as Seth went over.

Now, if you were to get a property in say, I don't know, Arizona or Southern California, or some other market where flood zones are not as common, that could be a really strong deterrent from people buying your property from you. So you need to understand how important flood zones are based on what market you're in.

Seth: Yeah. This is sort of like the wetland issue in a way where flooding is usually not a thing you will have to worry a lot about in the desert. But in Florida, it's something to think about, in Michigan, in a lot of east coast states, Wisconsin. Places where water is everywhere. Minnesota, the land of 10,000 lakes. Be aware, this is probably going to be an issue that may come up.

Alrighty, moving on. So, the next thing here is, “Does the soil percolate?” This is the perc test which we've kind of mentioned already early in the conversation. But again, just to sum it up, a perc test is just a test that you can do. Sometimes it's pretty inexpensive, like $150, sometimes it's thousands of dollars depending on the county where you're doing this. But basically, the health department or some official will come out and they can dig a hole either with a shovel or with a huge contraption.

Essentially, what they're doing is they're digging a hole, they pour water in it and the time how long it takes for that water to drain to the soil because that's a decent indication of can a septic system go here? When the septic runoff goes into the soil, is it just going to sit on the soil forever? Or is it going to seep into the soil?

The thing about perc tests is that, say, if you have a property that's sending out five acres in size, it is entirely possible that you could have one corner of the property that does not pass the perc test, but another corner where it does. Because there are different soil types going throughout most properties, especially the bigger ones.

This is one of those things where the only way to be a hundred percent certain about this is to order a perc test, have somebody physically go on the property and do it. And for understandable reasons, especially for land flippers who are paying seriously discounted prices for land, it's really hard to justify the time and the cost to do that.

So, this is kind of going back to what Jaren was mentioning earlier, where this is totally not a bulletproof test, but it is worth taking note of. Is there a house next door? Is there a house on the other side? Is there a house across the street? If there are houses in the area, they were somehow able to overcome that issue. And it could be that your property is still out of luck, but with no other information at your disposal, that's something that could get you comfortable taking that risk, especially if you're not paying a whole lot for the property in the first place.

But if you want to be certain about it, like if you're going to build your dream home there and it really matters, that's when you would want to order that perc test to be sure.

Jaren: Yeah, you have to be careful. Sometimes other properties are grandfathered in, which means that before the city planning or the county made all these rules and restrictions, they were already existing. So, they were like, “All right. We'll just ignore them.” They don't apply to the rules, but everybody else does. So, take it with a grain of salt. But as a general rule of thumb, if there's a property or several properties established around your subject property, that's a pretty strong indicator that you're going to be all right.

Seth: Yeah. And also, for some of these creative property uses, if they're allowed to park an RV there or put a tiny house there or something with a septic system that just lives within the unit itself, it doesn't go on the ground at all. It's not like the property is useless if it doesn't perk. And sometimes you can do these alternative septic systems that get around the perk test issue. But again, the idea being, try to make yourself aware of whether the thing perk or is it likely to perk based on the soil type or the surrounding properties? Just take a look at that.

Next one on the list here is, “Does the property have road access?” And this is a big issue. As a lot of land flippers, you're going to encounter this at some point. It's surprisingly not uncommon to find properties that you literally cannot get to because I don't know what genius or geniuses throughout the country are making these parcels or splitting them up so that you can't get to them, but they're all over the place.

It's worth noting that there's a difference between legal road access and physical access. Sometimes you can physically park your car somewhere and walk through somebody else's land to your property. Sometimes you'll find like ATV trails or just foot trails, or even somebody to drive them through somebody else's property or going through government land, that kind of thing.

So, the absence of road access doesn't always doom a deal, but it should definitely cause you to pay a heck of a lot less for that property because that's a big benefit that it doesn't have. And there are ways to overcome this and, in some areas, you can force easements. I know Jaren has dealt with that. In other areas you can't, though. So don't assume you're able to do that, but just be aware that that could be a path to pursue.

And sometimes the properties that are in front of yours, they don't care. They're never there. So, it's one of those things where road access is the preferred situation, physical access it's definitely not as good, but that's definitely preferred over literally no access at all. Like your property is 50 miles from the nearest road.

Jaren: The one thing that I would add on landlocked properties is road access, just because the parcel aerial map picture of your parcel lines shows a road right next to it, does not mean that that road is actually legal access as Seth pointed out.

The one of the few times I've actually lost money on a deal, it was a property in Volusia County, Florida, and it was the case in point that exact situation. There was a road on the parcel line right next to my property. But after we closed and we were marketing it for sale, all of a sudden, we found out, “Oh, that's a private road and there's no easement established.” I didn't know that you could actually force easement at the time in the state of Florida. So, I ended up just fire-selling it and I lost like $2,000 on the deal just to count my losses and move on.

But that is one of the few things that can really get you in land. Just because it looks like there's something similar to a road on the aerial map, it doesn't necessarily mean that it is. And the reverse is true as well. So, you might be looking at a property and it looks landlocked, but there is an established easement on a neighbor's property. And so, you can't just go off at a first glance, checking out the parcel line. So, you got to do a little bit more digging when it comes to landlocked stuff.

Seth: Yeah. And did you say there was a gate at the front of that private road? It's not like you couldn't have just gone on somebody's private road.

Jaren: Yeah. You had physical access to it, but technically it was landlocked. If it were a few years back, I would've handled that deal a lot differently these days with the knowledge that I have now. But needless to say, it would still gotcha. Because it looked like it would have road access and it didn’t.

Seth: Yeah, man. It's an annoying issue. So, the next one on the list is “What is the size and shape of the parcel?” And similar to the whole thing about understanding setbacks along those same lines of just doing a common-sense check when you look at the parcel map and figuring, does this look useful for anything?

For example, I got a lead last week or two weeks ago. It was for a property that was 25 feet wide by over 2,000 feet long. Basically, it's too narrow to build anything on. And technically, the acreage of it, I can't remember what it was. Looking at a spreadsheet, it was totally sizable. It fits in the profile of what I was looking for based on the acreage, but because of the dimensions of it, it totally did make sense. Just kind of looking at it basically. Usually, you can figure this out pretty easily or if there's weird like pie-shaped properties that are just odd.

Jaren: Or a parcel that sits within a parcel. Like you actually will see that sometimes. It's like a different owner. It’s almost a circle within a square. And somebody owns the square and somebody else owns the circle.

Seth: What does that even mean? Like how does that happen?

Jaren: I have no idea.

Jaren: Yeah. So really just look at the parcel map and use your common sense to make sure there are no big question marks that come up from that. And again, even when it is a weird shape, sometimes there are strange uses you can still find for that, like on this long, thin property I was looking at. I posted it in our Facebook group and people were saying, “Hey, you could use that as a rifle range or you could use that as a trail.” It was basically connected to a river, 2,000 feet down from the road. So, that alone is worth something. Even though you can't build something at it, it doesn't mean there's no value to it. So, you are just kind of thinking outside the box a little bit.

And some helpful tools for looking at these parcel maps. There are lots of places. Usually, they're free on the county website or you could use DataTree, you could use Parlay, you could use MapRight. I'll link to all these things in the show notes. Again, retipster.com/109.

Jaren: Moving on to wetlands. This is another one that's really a big deal, in my opinion, looking at Florida as a market.

Seth: It's similar to the perc test in its difficulty I feel like to deal with. So basically, wetland areas, sometimes they're very, very obvious like a swamp or a bog or basically when there's sitting water on the property. And animals use this as a habitat. It's also just a valuable thing in nature to filter water and that kind of thing.

There's a reason why you're not allowed to just fill in wetlands with sand and build on it because it's just a valuable natural resource, but it's also a huge pain because sometimes it's not obvious. You can look right at it and never know that you're looking at wetlands. Sometimes it's classified by the types of plants that are growing on it. It can be really weird. And there is, like we mentioned earlier though, the Wetlands Mapper, which is built into MapRight if you subscribe to that.

I'll have a couple of videos explaining this stuff. If you go to retipster.com/wetlands you can see some tutorials on how to use this. Not only the SoilMap but also the Wetlands Mapper and how you can use those things to identify where there may be wetlands without actually paying for a wetland delineation.

So, there are free ways to get educated on it. But the only way to know a hundred percent is to get a wetland consultant to go on your property and test this stuff out. And in terms of when you should be alarmed or wondering about this is usually if your property is on or near a body of water. It's usually these swamps that are connected to a river or a lake, that kind of thing. So, if you're looking in Arizona, you don't have to worry about wetlands. You're not going to find much of that out there, but if you're looking in one of the wetter states, that's when you would at least want to have it on your radar.

Jaren: And this is where I bring in my land-specialized real estate agents quite a bit. So, there are pros and cons to using a land-specialized real estate agent. And we've talked in the past about that. And I don't want to dive super deep into the ins and outs of that because they would take another podcast entirely.

But one of the major benefits to my strategy of strategically using land-specialized real estate agents is when I'm doing due diligence before I even buy, my agents will go to the property and they'll walk it. So, what happens a lot in Florida is if the property doesn't show up as wetlands on the Wetlands Mapper, my agent will go and walk the property. And if he notices cypress trees, then with any presence of cypress trees automatically we step away from the property because practically it's wetlands.

Now sometimes if the property is a little bit bigger and there are some wetlands in the back, but the main portion of the property is useful, then we might proceed buying that kind of a deal. But by and large, it's really crazy that it's really hard to beat that I can have somebody literally walk my property for free and give me that kind of insight or feedback. It's really hard to beat that. Again, it's not perfect, it's not a perfect system and that's a conversation for a different day, but that's one of the major purposes that I actually get eyes on every property that I buy. They're not my eyes, but I do get eyes on it.

Seth: Yeah, that's a valuable person to have on your team if you can find a good one. The next two items here are sort of connected, but they're still different. First one here is if you get an agent or hire a local photographer on Craigslist to drive by and snap some pictures for you, or even if you visit it yourself. Just getting eyes on the property and seeing, is there any junk on the property, like a trashed-out mobile home, or did somebody literally use it as a landfill and just dump garbage all over it, tires and rubble and that kind of thing? I can't tell you how many properties I've come across, especially back in the days when I used to drive out and visit my properties, this is what happened surprisingly often, where they would just be horrible-looking properties.

And again, you can fix this just by getting somebody to haul the junk off the property. So, you don't have to say “no” to a probably because of this, but it still needs to be dealt with, you need to account for it before you buy it. Figure out what it is going to cost you to dismantle a mobile home and take it away or whatever you have to do. Just be aware of it before you go into it, thinking that it's fine when it's not.

And along the same lines as understanding what the previous uses of the property were. This is particularly important with commercial land and you usually want to get some kind of environmental report ordered when you're buying commercial land because you can literally be held liable for environmental contamination if you buy a contaminated property. Say if it was an old gas station or somebody's dumped all kinds of chemicals all over it, you didn't know about it when you bought it. If you don't investigate that and find out the facts of what was there before you owned it, it could be pinned on you.

With residential, you don't need to worry about this, but even then, sometimes you can come across the residential properties that have old ghosts haunting them from what people did previously on the property.

Jaren: An example that comes to mind there, in Southern Indiana, a couple of times I got leads on properties that used to be dumps. Like a place where everybody dumped their trash. And it had been years since it was used as a dump. However, from a due diligence standpoint, that was a big red flag because I think it was like five acres if I remember correctly. It was a beautiful five-acre property in a great county and all that. But because of the soil, I guess, with trash, the way it builds, like if you build on top of it, you can actually create some kind of combustion or something. So, it was not sanctioned by the county to actually build on that property, even though it was like this huge five-acre lot. So, you'll run into some of that stuff.

I also wanted to just say it too, looking at the aerial map or looking at Google Street view will also be a good indicator. It's not perfect because it wasn't taken today, but that's a pretty strong indicator for junk and tires and stuff.

Seth: Actually, Google Earth can be useful on a number of levels for this. Again, still imperfect because it's not today, but not only Street View, when it's available, can sometimes reveal stuff, but also using the historical timeline because you've got historical snapshots from satellites going back decades in some cases, and you can get a really good feel for, okay, what was there last year? What was there five years ago? What was there 10 years ago? And it can sort of tell a story of what may have happened there. So, that's another thing worth checking out.

I've got a video on how to do that, by the way, it's on the blog. It's called “10 Google Earth Hacks Every Real Estate Professional Should Know,” but I'll include the link to that in the show notes.

Jaren: Man, Seth got a video for everything.

Seth: I do. It's true. And if anybody ever has a question where I don't have a video, tell me, and I'll make one. Okay. So, next on the list here. Some might call this common sense, but it's surprisingly easy to forget about this is just understanding what does the surrounding neighborhood look like? 

And I ran into this issue in my first year when I found a bunch of really cheap land in the inner city of one of the towns near me. And it seemed like a great deal, but when I looked further into it and figured out, “Oh, this is actually like in the middle of a ghetto.” And the only use for this property is to build a new house. And who was going to spend the money to build a new house in the trashiest armpit of town? And this was also at a time when the housing market was just doing terrible. Like people weren't building anything at all and they definitely weren't going to do it in the inner city.

So, it was just one of those things to be aware of. The price could look great on paper, even based on the acreage. But if the surrounding area doesn't make sense for what the best use of the property is, or even just say if you're going to buy it for yourself and you don't like the area, you want to know about that before you sink your life savings into this thing.

Jaren: Yeah. And look at the neighbors too, because even if your property doesn't have a bunch of junk and stuff thrown on it, if the neighbor’s property has a bunch of trash all over it, that can be an indicator that they might be troublemakers.

One of the first properties I bought, it was weird. One side of the street was really nice and trimmed properly. And the other was pretty trashy. And that particular property was weird and it was hard to figure out how to get to the main section of the property. You had to walk across the river. And so, I set up signposts “Hey, go here, go here, go here.” Well, the neighbors would come on their property when I wasn't there and remove the signposts and they would hoot and holler whenever there were potential buyers to come and walk the property. And they'd be like, “Get outta here, get off my land,” and all that. And so, they really caused a lot of problems with me selling that property. So, just keep that in mind.

Seth: Yeah. A lot of this can be the whole neighbor thing. I don't know how you're going to figure that out without knocking on everybody's doors and saying hi. But that’s usually not a problem. I have encountered some versions of that. Not quite as extreme as what you're saying, Jaren, but I know it can definitely happen. So, it's not impossible, but I don't know if it's common either.

But again, just having your photographer take pictures of not only the property but turn around, get pictures across the street. Like, let me see what the area looks like. And Google Street view again can be useful with this as well.

The one other major thing worth reiterating is the title search portion of it. This is kind of a given and if you're closing with a title company, this is going to happen anyway. But if you try to close this yourself, for some reason, a lot of things could potentially be revealed at a title search. Not only what you can do with the land, but also just title issues. Like does the person that's selling the property to you actually own it? Is there a clear chain of title? Are there any other mortgages or liens on the property? Things you want to know about before you actually own it. Just revealing what those issues could be.

Jaren: Even easement stuff.

Seth: Yeah, for sure.

Jaren: Easement stuff will come up on a title search too. I'm dealing with that right now on our property. I've bought it and the title company, nor this seller, nor my agent, nobody caught that there were easements established. But after the fact, we found out that there were, so we're probably going to be filing a title insurance claim.

Seth: Yeah. A lot of things can be understood just through a good title search. Not everything obviously, but it’s a very important step in this. And then the other ones here, I'm going to sort of burn through these pretty quick, because these are not as critical for land flippers who are not going to deal with the property or for residential property specifically. But if you are planning to farm it or build a building or anything like that, that's where this kind of thing would come in.

So, if you're planning to spend a ton of money on a property, close to its full market value and do something significant with it, that's when these things come into play. So, one thing is soil quality, which again, sort of is covered in this soil map even though it's not perfect.

But for example, if you were planning to farm property, like grow crops on it, you want to understand what is the crop yield and what is the average annual rainfall and things like that which is not hard to get this information. I've got a separate blog post explaining a lot of farmland issues to look at, but just understanding if that's what you're going to use it for, figure out the quality of the soil and is there enough water nearby and that kind of thing.

Another thing that I'm dealing with for the first time right now is understanding the soil load-bearing capacity, which you can find out by doing what's called the geotechnical investigation. And the reason I've never dealt with this is that I don't really develop my properties ever. I just flip them as they are. I don't touch them.

But I'm working on a property right now where I am actually trying to develop something. And I'd never even heard of this. I was like, “What is this?” And it's expensive. I'm paying $6,000 for this thing. And all they do is drill a few holes in the ground in select spots and they take that soil and they test it to figure out how much weight can sit on this soil in different places of the property.

And the reason that's important is that if you try to put too heavy of a building on soil that cannot support it, over time, that foundation will sag in subtle and break and the facade of your building can fall apart. And now that I'm keenly aware of this issue, I've actually seen a few buildings in the past month that have had this problem, or the corner of the building is like sagging down and the bricks are breaking and stuff. So, it is a very real issue.

And again, it only matters if you're planning to build something on it. And most developers when they develop a subdivision, they're going to do this as part of that. So, if you're buying a vacant infill lot, it's probably already been done and figured out. But if you're looking at raw land where nobody's ever looked at building anything at it, that's when you'll want to at least account for this cost, because it's not cheap to do it. And it is important to know about.

And then also site plan and preparation. Again, only if you're planning to develop it yourself or build something at it, depending on what you're trying to build, that can be a pretty expensive thing. I'm putting together a site plan right now that's costing me $12,000 just to plan out what we're going to do with the property, not actually doing anything to it, just having the plan. So again, that only applies to people who are developing the land.

And lastly on our list here is if you were buying this property with somebody else, say if you and a spouse will be on title together or you and a business partner or a family member, it's important to know how you're going to hold title to that land. There are—usually in most states—at least a few different options you can go by and they do have a significant difference. One common one is joint tenants. And another option is tenants-in-common. Those are kind of the big two. And most of the other ones are sort of variations on that.

But the main difference is with joint tenants, if one of the two people dies, all of their ownership automatically goes to the surviving owner. They own everything together. When the property is sold, everybody has to be in agreement, they both have to sign the deed and do everything at the same time. With a married couple, that's usually how it works anyway.

And with tenants-in-common, it's more of fractional ownership where John owns 50% of this property and Joe owns the other 50% or 60/40, that kind of thing. It's actually like John can sell his portion of the property to somebody else and Joe can hold onto it. So, some new owner now comes into the picture. So, you just want to understand, are you trying to own a percentage of the property or do you want to own everything together as one? If you're buying it just yourself and you're only the only person on the title, then this is nothing you have to worry about. But if there are multiple owners involved, that's something to get figured out. And I'm sure an attorney in your state or a title company can help you figure this out.

Jaren: Awesome, man. I feel like that was like a master class. That was like an entire course, man. That was really good.

Seth: Hopefully people find this helpful. Again, this is based on the original blog post, “The Truth About Land Investing: 21 Warning Signs To Look For When Buying Vacant Land.” Obviously, I'll link to that in the show notes as well.

This is also its own standalone lesson in the land investing masterclass, where we offer a lot of insight on this. One of the 80-plus lessons in that course.

Jaren: And counting.

Seth: Yeah, exactly. So, I hope you guys enjoyed it. Again, show notes retipster.com/109. We're kind of running out of time here. Jaren’s got to hop off soon, so we're not going to do our usual little fun question at the end.

But if you guys are listening to this on your phone, feel free to text the word “FREE” to the number 33777 and you can stay up to date with all the things that we've got going on REtipster. Is there anything you want to add Jaren before we wrap it up?

Jaren: No, I just love being able to be a part of the team here at REtipster. I love you guys. Make lots of money in land and beyond.

Seth: Thanks, guys. We will talk to you next time.

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Seth Williams is the Founder of REtipster.com - an online community that offers real-world guidance for real estate investors.

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