In 2019, around 70,000 properties with ADUs were sold, which shows a rise in demand.
Nowadays, it’s far more accessible to buy a lot of land where you can build the ADU of your dreams. Perhaps this has been your dream for years and you’re ready to take the plunge. Congrats!
To help you, we’ve created a guide so you know the step-by-step process. Read on to learn more.
What Is an ADU?
An ADU, otherwise known as an accessory dwelling unit, are single-family residential lots. They’re also known as tiny homes which are becoming more popular because they’re affordable, flexible, and can increase the location’s value. Common types of ADUs include garage conversions, detached, and even basement conversions.
How to Buy Land
There are many stages to pass before you can get a land deed. Luckily, the process is often hassle-free so you can start building your ADU. Here’s what to do.
Choose a Qualified Agent
It’s important to find a qualified agent who can guide you through the process. Note that not every real estate agent has experience dealing with land lots so find one who does because it’s a specialty practice.
Further, land agents can give you essential information, resources, and access to an extensive network of land experts that can give you confidence in the process. Land agents also have experience with zoning laws, links with land surveys, and help you get permits before constructing your ADU.
Before checking out different listings, perform a title search on the lot so you can learn about its history as status. This will show you how the land can be used and which zoning laws it falls under. Note that zoning laws detail whether any restrictions about the size of the buildings or whether you can construct businesses or residences.
You should also consider the listing’s geographical factors. For example, the land may be in a floodplain which will be harder to insure and could potentially put your ADU at risk.
Figure Out Financing
Financing for land doesn’t work the same way as it does with homes. Often, you pay cash if there’s no structure on it so banks won’t be willing to give you a loan. Instead, apply for a construction loan on the ADU as it will be considered as collateral on the loan.
Because of this, make sure you have the money ready when checking out the options. You may also have to show the seller proof of funds so they know you have access to the money you claim to have. If a large chunk of your money is tied up in other investments, access it immediately to avoid a sudden loss of funds should a disaster happen?
Evaluate the Land
This is a crucial step that shouldn’t be overlooked because it could cost you a fortune in the long run or ruin your chances of building an ADU. Think of environmental tests like a home inspection because you want to know whether you can install an electrical system or sewer connections.
Environmental tests show you if the soil is contaminated which often happens if the previous owner was a gas station or a motor shop. Because of this, residential homes can’t be built as it’s a health risk.
You must also hire an expert to identify the boundaries because neighbors may have unknowingly encroached. To be safe, make sure you get a completed survey, geology, and soil report before sealing the deal.
Consider the Value of Homes in the Neighborhood
Many homeowners build their property because they want to customize it. But make sure you know how much each home is worth before applying for a loan. For example, if the average cost of a home in the neighborhood is $2 million then yours must be worth the same otherwise your construction loan may be denied.
Take Utilities and Road Access into Account
Check whether you can install water sources and electrical lines or whether it’s already serviced. It will depend on how developed the land and area are so take this into account. You don’t want to build the ADU only to find you must spend thousands so your home can access basic utilities.
Like buying a house, don’t be afraid to negotiate for the land. But make sure you have research and data to back up whatever price you’re hoping to pay. For instance, if there is an issue with the soil then try and knock down the price to compensate.
Get a Land Mortgage
Although cash payments are the bet, you can also get a land loan if you don’t have enough savings. The type of loan will depend on the land you’re buying. For instance, there are raw land loans or improved land loans which are for lots that have already seen development (e.g. installed sewage lines).
Complete Your Land Purchase Agreement
To officially make the land laws, you must close on the land purchase. The seller will hand over a land purchase agreement which will specify how much you’re paying overall and the current deposit. You must also review state-based real state forms, a closing statement, and a land deed.
That’s How to Buy a Lot of Land
Hopefully, you now know how to buy a lot of land for your ADU.
Make sure you hire a reputable land agent, secure your financing, and run tests on the land to ensure it’s safe. You should also consider utilities, the average home value in the area, and don’t be afraid to negotiate. Good luck!
Did you find this article helpful? If yes, check out our posts on everything from Home to Real Estate.
Leave a Reply