Buying undeveloped land: Costs, risks, and financing tips

Owning undeveloped land puts a blank canvas directly into your hands—one that you can shape into your dream home. But before you start planning construction and envisioning possibilities, you need to understand the fundamentals: what raw land is, how you can utilize it, and what steps you must take to acquire and develop it successfully.

By investing time upfront to research your options, you'll ensure your vision remains realistic and that you select a property that truly fits your needs.

Key takeaways:

• Undeveloped land is land that has no structures, utilities, or other improvements, potentially even lacking road access.
• Undeveloped land tends to be cheaper than improved land and offers lots of flexibility in how you can develop it.
• However, this land can be difficult and complicated to buy and improve due to zoning regulations and construction timelines.

What is undeveloped land?

Before we explore the potential benefits and drawbacks of buying undeveloped land, it’s essential to understand what the term means and the potential challenges you may encounter along the way.

Definition and characteristics

Undeveloped land is often referred to as raw land. This is land with no structures or utilities, and it may not even have road access. Think of undeveloped land as a blank slate, ready for various potential uses.

This means you’ll have to manage building road access and driveways, connect utilities for power, water, natural gas, and internet, and navigate the complex world of zoning and construction approval. Topography and proximity to existing development can influence the cost and difficulty of developing.

The land may already be cleared and ready to build on, or it could be a forested lot, rural acreage, or used as farmland.

Common uses for raw land

Typically, undeveloped land is in rural areas, found off county roads, and could be the place to build your dream home. It can be used for many other purposes as well, including:

• Building a custom home
• Recreational use
• Renting to farmers or recreational vehicle dwellers
• Using it as storage or for parking
• Working a side hustle
• Selling the land at the right price

Raw land is incredibly flexible. However, legal use is dependent on local zoning regulations. Check with the county and city before buying to ensure you don’t run into any unpleasant surprises that could restrict your plans.

Raw land vs. unimproved land

Raw land and unimproved land are two similar categories of real estate, but there are a few key differences.

Raw land is entirely undeveloped and unimproved. It’s just a plot of land with no buildings, structures, or any other signs of development or civilization, such as access to roads or utilities.

Undeveloped land, by contrast, doesn’t have any specific improvements, such as buildings, but may have some signs of development, such as being located alongside existing roads and utilities. Significant construction and connection to existing utilities are needed to improve the land, but you won’t need to lay miles of sewer pipes, electric lines, and the like.

Can you build on undeveloped land?

In general, yes, you can build on undeveloped land. However, there are some major caveats. You’ll need to check local zoning regulations to see what you can build on the land, if anything. You may also need to apply for building permits, check for easements, and do tests to ensure that the land is suitable for certain types of construction. You will need to do research to find out the cheapest ways to build a house on undeveloped land.

Check zoning and permits

Zoning refers to regulations put in place by local governments that place restrictions or limitations on how specific properties can be used. For example, your town may zone certain areas for residential homes, others for commercial real estate, and yet others for industrial uses.

These laws help make sure that factories don’t pop up in residential neighborhoods or that shopping malls aren’t put in places that will generate huge amounts of traffic and annoyance for residents.

If you want to buy unimproved land, you’ll want to check how the land is zoned, as that will impact how you can use it. In some cases, you can petition the local government to offer a variance so you can use it in ways it’s not zoned for, but that isn’t guaranteed.

Also check for local permitting requirements to see what permits, if any, you’ll need to get before developing the land.

Confirm access and easements

Undeveloped land may not have any access to utilities or existing roads, so you’ll need to investigate whether, and how easy, it is to reach the land. In some cases, you may have to pay to build a road to access the property after you buy it if you want to develop it.

Also look for easements. An easement is a legal agreement that gives someone other than the property owner the right to use the property. For example, if you want to buy undeveloped land near a lake, nearby homeowners may have easements allowing them to use the beach on that property or to walk through it to access their own land.

Depending on how you want to develop the land, easements can cause major headaches or not be a problem at all, so it’s important to check before you consider buying.

Test water, soil, and septic feasibility

You’ll also have to test the land and soil itself to make sure it can handle development. If the land is very sandy, for example, it may make it difficult or expensive to build large structures on it.

Other tests you should do depend on specifics for how you’ll develop the land. If you want to build a septic system, you might order a percolation test. If the land fails the test, it likely won’t be able to handle a septic system, which could impact whether the local government permits specific types of construction.

Consult an architect or builder

An experienced architect or builder will be a huge help when buying undeveloped land. They can help you weigh whether it’s less expensive to build vs. buy a house.

For one, you’ll need a builder to help you develop the land no matter what kind of structures you plan to put on it. An architect or builder will also have experience with developing raw land and can offer advice on the best place to locate different structures or advise on whether a plot of land is suitable for development in the first place.

What are the pros of buying undeveloped land?

There are many benefits to buying undeveloped land rather than buying an existing home or looking at rural areas for buying a cottage or cabin. Here are a few to consider.

Flexibility and customization

Undeveloped land is a completely blank slate. That means you can choose to use it however you want, within local zoning laws, and customize your build from the ground up to your exact specifications. As nothing is on the property, you won’t have to debate features of a home you don’t like.

Lower purchase price

Note that undeveloped land often costs significantly less than a property with an existing home. When you look at the cost per acre, it may feel like a bargain. As you get into less in-demand areas outside of big cities, you may also find much lower prices.

Low maintenance costs

Buying real estate property without any buildings means there’s less to maintain. You don’t have to worry about broken appliances, broken HVAC systems, plumbing problems, or a leaky roof. While you’ll still need to keep up with property taxes and insurance, you’ll have very little, if any, ongoing maintenance.

Less competition

When it comes to buyer competition, it’s often easier to purchase undeveloped land than a traditional single-family home. Many buyers want something they can move into right away.

They don’t want to deal with the stress that may come with building a home, and they may not want to deal with the challenges of a new build. Many can’t wait that long to move in, either. However, buying land and avoiding the competition could be a good move if you have the time to wait.

Potential return on investment

Land is finite. There’s only so much in existence, and nobody is making more of it. As the population grows and space becomes more limited, the price of land can increase over time. Undeveloped land has the potential to be a high-return investment property.

Natural features

If you find a plot of land with unique or appealing natural features, buying the land lets you develop around those features in a way that appeals to you. For example, buying land near a lake means you could build a lake house that lets you maximize enjoyment of the water. If you buy a large field, you could leave some of it undeveloped for future gardening.

What are the cons of buying undeveloped land?

Undeveloped land is often viewed as having significant appreciation value due to limited supply and growing demand. However, you may still have difficulty getting financing. Before you invest, consider the pros and cons of buying undeveloped land, the costs associated with building on the land, and how you’ll go about financing your purchase.

Lack of infrastructure

Buying a property with no access to water, sewer, electricity, or roads can be challenging. You’ll need to build a road and install or connect utilities, and that can be a costly and time-consuming endeavor.

Financing difficulties

Many lenders don’t offer traditional mortgage loans for raw land. You’ll likely need to make a much larger down payment and pay higher interest rates than single-family homes. Working with experienced lenders for undeveloped land can help facilitate a smooth purchase process.

Zoning and permitting challenges

Zoning laws dictate how certain pieces of land can be used. They can vary by location and may ultimately limit your intended purpose for the land. It could be restricted to agriculture, residential only, or to protect wildlife.

Before buying land, do your research on the area’s zoning laws by visiting the Department of City Planning or another local government office. You may also be able to find info on the zoning laws at the library or on the city’s website.

Permitting costs

Permits demonstrate approval from the local government to build or complete a project on a property. You’ll likely need several permits to build on undeveloped land. These commonly include septic, well, driveway, and building permits. Don’t underestimate the cost or time it takes to get permitted. Some cities and counties are easier to work with than others, and local regulations are likely unique.

Easements

An easement allows another person or business the right to use someone else’s property for a specific purpose, such as shared driveways or underground pipes. You’ll want to make sure the property doesn’t have any easements and, if it does, that you’re okay with the access that’s granted and that it won’t interfere with your plans for the property. And if the property is landlocked, you’ll need to make sure you have an easement to gain access. If the property already has an easement for this purpose, ensure you fully understand your rights.

Development timelines

If you plan on building on your raw land, consider your timeline. Unless you’re just looking to go camping, you may not be able to move in or build on the land right away. And it may take longer to build on undeveloped land because you’ll need to prepare the property, gain access, and install utilities.

Greater risk

The market for undeveloped land is much smaller than the market for prebuilt homes. That means that if you decide you want to sell the land, you’ll find it more difficult to do. Once you start development, you may also run into unexpected issues that could lead to higher-than-expected costs or scuttle your plans entirely. That can leave you dealing with an expensive bill to develop the property with few options for recouping your investment.

Costs associated with developing raw land

If you want to develop raw land into improved land or build structures on it, you’ll face a variety of costs. Knowing what to expect can help you decide whether buying raw land is the right move for you.

Clearing, grading, and access road costs

The first step in developing raw land is to clear and grade the property. That means removing anything that’s already on the land, such as trees, plants, foliage, rocks, and anything else that would impede construction.

Next is grading, which means flattening the land so that you can build structures on it. All of that can add up to thousands of dollars in expenses.

Depending on where the nearest road is, you may also have to construct a long driveway or a road that connects to the existing road system.

Utility, water well, and septic costs

Next, you’ll need to come up with a plan for basic utilities like electricity, internet, water, and sewer. That means paying to connect to the existing grid and utilities or paying for construction of a septic system or well.

Expect to pay as much as $10,000 or more to connect to existing utilities, while septic systems can cost as much as $5,000.

Surveys, environmental tests, and permit costs

Before you can build on your land, you’ll likely need to hire a surveyor to tell you exactly where your property lines are so that you don’t build on land you don’t own. You may also need to do environmental tests to ensure the land is suitable for specific uses.

For example, if you find high concentrations of lead in the soil, you may not want to use the land for residential purposes.

You’ll also need to apply for building permits from the local government. Expect to pay as much as 10% to 20% of the cost of developing the land in permitting fees, but check with your local government to find more precise amounts.

Financing options for undeveloped land

Not all lenders work with raw land, and many lenders have special rules for financing undeveloped land and building projects. Experienced lenders and real estate agents can guide you through the financing process.

Raw land loans

As the name implies, raw land loans are a special type of mortgage for undeveloped land. Lenders generally consider them riskier than home loans, so you can expect a higher down payment requirement and interest rate than with a conventional mortgage.

Down payment expectations

Undeveloped and raw land is usually a riskier proposition than pre-developed properties. Fewer people are willing to buy undeveloped land, and developing it takes time and money. That means lenders typically demand better credit profiles and higher down payment amounts from people who want to borrow money to buy undeveloped land.

Expect a minimum down payment of 20% for traditional bank financing, though that could go as high as 50% depending on your credit and the plot of land in question.

Local lenders and credit unions

When it comes to financing the purchase of undeveloped land, you’ll often have the best luck with local lenders and credit unions. These institutions will have a better understanding of the local real estate market than larger banks and may be more willing to work with you on raw land purchases.

Seller financing

If a private landowner is looking to sell, they may also act as the lender. With seller financing, you pay the original owner over time, rather than a bank or other lender. Seller financing can offer more flexible terms, but it’s crucial to have carefully reviewed contracts. You may want to hire a real estate lawyer to help draft the terms and protect your interests.

Government programs

Government programs may be an option for buying commercial land, agricultural property, or rural homebuilding. SBA 504 loans and USDA construction loans are government-backed programs that may offer an easier approval process and lower costs. Rocket Mortgage doesn’t offer these types of loans, but they may be worth exploring when buying land.

Can you buy land with no money?

Yes, it is possible to buy land with little to no money, but it can be quite difficult and risky to do.

Most commonly, you can buy land with no money through seller financing. This means that rather than getting a mortgage from a bank, the previous owner of the land sells it to you and sets up a payment deal. You make monthly payments to the person who sold the land to you. Depending on the situation, you may find a seller willing to offer seller financing with no down payment required.

You can then apply for loans to help you develop the land. However, keep in mind that if you run into problems and can’t afford to solve them or struggle to make payments, you could lose the land and wind up in significant amounts of debt with nothing to show for it.

How to buy and finance undeveloped land

If you want to buy and finance undeveloped land, whether it’s for a future home or holding as an investment, you’ll want to follow these general steps. Working with an experienced real estate agent is also instrumental in making your purchase of vacant land go smoothly.

1.   Do research and due diligence

Once you decide how you want to use the land, you can start scouting land for sale to find a property that will best serve that purpose. Once you find one or more potential parcels, some other important considerations include:

• Easements on the property
• Ability to access a main road and utilities
• Permits required for the land
• Local zoning laws and restrictions on the property
• Cell service
• Amount of time and money needed to prepare the land

Proximity to other structures or land that could hurt or help land value in the future

Once you’ve done due diligence and think the land can be a good fit for your goals, you can begin more thorough surveys and evaluations to ensure it’s the right choice.

2.   Conduct a land survey and environmental tests

While the seller may be honest and have the best intentions, don’t blindly rely on what the seller says. Instead, hire a professional to conduct a thorough property survey. The results will tell you where the property lines are located, if there are any easements and where they are located, and if there are any encroachments on the property. You’ll also want to get environmental tests done to check for contaminants.

Arrange to walk the property and get a feel for the topography and land features you particularly enjoy or dislike.

3.   Order a title search and legal review

Whenever you’re buying real estate, it’s essential to order a title search and legal review. Property titles are the legal rights that are related to ownership and use of property. Title searches track the history of a house’s title to ensure that the person selling it truly does own it with no competing claims and has the legal right to sell it to you.

A title search company can conduct the search for you and do a legal review to make sure that when you buy a plot of land no one else could come along and claim that they owned it previously and that you bought it from someone who did not have the right to sell it to you.

4.   Coordinate soil and percolation tests

When buying raw or unimproved land, you’ll need to conduct soil and percolation tests to ensure you understand the characteristics of the land you’re buying. Certain types of soil can be harder to build on, and contamination by things like lead could restrict you from specific types of development. Failing percolation tests could also cause permitting difficulties by making it hard or impossible to build a septic system.

5.   Apply for a land loan

If you need financing to buy undeveloped land, you’ll need to apply for a land loan, specifically a raw land loan. This loan may come with higher interest rates and a significantly larger down payment requirement.

When applying for a land loan, ensure you’re proactive and come prepared with a solid, comprehensive plan for what you’ll do with the land to demonstrate the investment potential to the lender. You’ll also want to prepare your financial information, such as tax returns and financial statements, to prove your ability to afford the costs.

6.   Understand legal considerations

Before signing purchase and loan documents, double-check any issues, such as access to landlocked lots, unclear title issues, and existing easements. A title company, real estate attorney, and experienced land-buying agent can work together as your advisory council to identify and navigate any problems before they become an expensive surprise.

FAQ

Before buying undeveloped land, make sure you understand the pros and cons.

Is buying undeveloped land a good investment?

Undeveloped land can be a good investment, but it’s far from guaranteed. Land can appreciate and offer more flexibility, but it can be more challenging to sell, and development timelines can be quite lengthy.

What are the typical costs associated with developing raw land?

In addition to buying the property, buying raw land and developing it can include costs such as access roads, utilities, permits, and environmental testing. Costs can vary widely depending on location and terrain. An expert real estate agent can help you understand what you’re getting into before buying.

Are there tax benefits to owning undeveloped land?

Undeveloped land may offer some tax advantages. Those can include property tax deductions and savings on capital gains when reselling, depending on use and location. When in doubt, working with an experienced tax professional can ensure you maximize benefits while avoiding missteps.

Do I need a real estate agent to buy undeveloped land?

You may be able to buy land without a real estate agent, but it’s strongly recommended to work with a qualified professional. A licensed agent understands state and local real estate laws can help you deal with questions around zoning and easements. They can also spearhead negotiations with sellers, which can lead to significant savings.

Can I live or camp on undeveloped land right away?

You may be able to set up camp on raw land immediately after purchase, but not always. Some areas restrict camping or habitation without prior approval, and such activities may be prohibited by zoning and health codes. You may need permits or access to specific infrastructure before you can stay on the property overnight.

What red flags should I look for before buying raw land?

Some key red flags to look out for include poor drainage, which can be costly or impossible to fix, contamination by chemicals or heavy metals, bad grading that is difficult or impossible to fix, and soil that cannot support a septic system.

The bottom line: Buying undeveloped land takes planning

If you’re considering buying undeveloped land as an investment or the location of your new home, it’s essential to have a plan in place for the land and how you’ll finance the purchase. Knowing what to expect ahead of the purchase helps you save time and money. If you factor in all costs and all the steps you’ll need to take to purchase, prepare, and use the land, you’re putting yourself on track for land ownership success.

If you’re interested in purchasing a home that’s already built, you can get started on the mortgage process today.