Investment Property
Is there a catch?
By
Jun 14, 2005, 00:03

Is There a Catch?

I often see rural land "ranch properties" for sale at bargain prices. The one I am currently looking into has 36 acres for sale for $16,000. They have sent me a brochure on "what to look out for", but I'd like to hear it from an independent source.
Is there a catch? It seems too good to be true.
Katie

There are tons of things you need to watch for! I am from Montana. There are lots of people stuck in Montana with nothing who are scammed into buying "dream acreage." They sell everything, quit their jobs and then find out there is no water, no access, no jobs, no electricity, no phone, and an oil well sitting on it.

Please don't be tricked! Definitely find a professional to assist you, but also be sure to visit it in person. Talk to multiple people in the area about the economy, the neighbors, the funny smell, etc.
Courtney

Cheap real estate is usually just that. If you are interested, be sure to go to the property and check it out before placing an offer. Consider the following:

Location! Location! Location! It depends upon the location of the property in regard to the location of the nearest shopping facilities and the needs of everyday life like groceries, fuel, simple clothing etc. Sometimes these seem great, but in reality they are really secluded and hard to access. There also may be a problem with easements that have not been put into place for

access to the property. Think about it! I am a licensed real estate broker and this is just some of the pitfalls that you can come across.
Caye

Eight years ago I was routinely looking at the ads for rural properties in order to fulfill a dream of both my husband and myself. When I saw the ad for an old church on two acres about 45 minutes from our city I thought they must have left a zero off the price! We went and looked and my husband, a carpenter, said yes it was doable. So we were able to pay cash for the place. We have spent the last eight years basically building a house in a box, that is, completely renovating. Many months we have spent the same on repairs and renovations as we would have on a mortgage in the city. But my main reason for wanting to own somewhere outright was because my husband works construction and layoffs are very standard at anytime. When the money stops coming in you simply stop renovating.

Some things to look for:

• Water. Does it have a well? Has the water been tested lately? How many gallons per minute do you have? (We had no water at all when we moved in and hauling water and going to the nearest town for showers at the local arena got old real quick)
• Electricity. Has power already been brought to the property? It is very expensive if it has not. Is the electrical service in the building sufficient to a families needs at this time?
• Phone. The difference between getting a new phone service in the city here ($50.00) and rural areas here ($500.00) speaks for itself. Also in rural areas the wait can be longer (12 weeks in our case). Many people find cell phones to be much cheaper both the long and short run.
• Heating. gas, propane, etc. are all pretty high. Getting them brought into a property can be even more expensive.
• Taxes. Different classifications make a lot of difference. "Country residential" is quite high here. Find out what the taxes were last year before you commit.
• Septic. How's the septic system? Hopefully you have one because they are pricey to put in.
• Schools. Bus rides, if available, can easily be an hour each way. Check out the schools.
• Someone who seems to know everything around here is the local postmaster. Take your questions there.
• How are your tax dollars being spent? Here it seems as if the county believes the snow belongs to God and when He put it there. When He wants it moved, He'll do it. Not so good if you are commuting to the city every day.

Lastly, it's great. I would do it again. We recently had our place appraised for $129,000. That's about 1000% increase over eight years. The bad news is that here is where that old saying "location, location, location" comes in. No matter what else we do to this place it can't increase it's value on the real estate market. We were planning on putting a basement under this year. The real estate agent told us it wouldn't add one red cent to the listing price because of location.
Kerry

Living in a rural area myself, I have a few suggestions that might help as the "catch" can be very expensive and often a big surprise for the first time buyer.

Rural land is typically undeveloped, i.e., no utilities, no water source and sometimes no water rights to secondary water. The buyer must be very thorough when checking out these details:

• Are utilities already stubbed to the property line? If not, who would supply utilities and at what cost per foot.
• Has a well been dug? If so, how many cubic feet of water does the well produce. If not, get estimates from well diggers of cost and probabilities of hitting water.
• If sewer is not provided, the land must be tested to determine if a septic tank can be placed. This is called a perk test. If the land does not pass a perk test, it is considered unbuildable.
• Check with county officials to determine what type of zoning this land has been assigned (i.e., commercial, residential, etc.). If you plan to build a home, check if this land has been zoned for housing and how many units can be built.
• Can roads be built on this land? If you are purchasing land to develop and subdivide into smaller lots, roads and easements need to be created. There are oftentimes restrictions already in place.

We have friends who spent over $22,000 digging a well, and still didn't hit water. Utilities (electricity and gas) cost over $70,000 to be brought up to their property. And worst of all, they had no secondary water rights with the property, so they couldn't even farm their land. Take heed to that old saying: "Buyer Beware"!
Lisa

I just finished reading the book The 16% Solution by Joel S. Moskowitz, J.D. It is a book about buying tax lien certificates. Much of what he says could apply to your situation:

Raw land needs an especially careful evaluation. First you want to check the zoning laws to be sure you are allowed to build on it. Some properties have strict limitations such as being designated wetland, or the property may not perk in the winter, making it impossible to install a septic system. Also check to see if the county has a general plan that designates what the uses of the surrounding land are projected to be or if the zoning is due to change. Be sure the property is not in a designated flood plain, and that there is a year-round water supply.

Mr. Moskowitz also gives details on checking to see if hazardous materials have ever been made/stored on the property. If they have, you as the owner may be required to bear the (enormous) cost of cleanup.
Terry