Buying land, like any significant purchase, can seem daunting if you’ve never done it before and don’t know the rules of the game. As a commercial real estate investment strategy, you can buy a plot during a dip and sell it when the market rebounds, hold it and hope for an even bigger pay-off further down the road, or develop it for your commercial purposes.
No matter how you want to use it, when it comes to buying land for sale in Canada, the importance of doing due diligence before you sign on the dotted line can’t be overstated.
Types of Land
Land for sale in Canada is broken down into two categories:
Raw land is property that hasn’t been developed before, that may not have ready access to utilities such as electricity, gas and water, and may even lack road access altogether.
Vacant land is property that may have been developed before, and that is serviced or partially serviced by utilities offering potentially viable power or water. It may also have existing vacant buildings or structures on it.
How Land is Valued
A variety of factors determine the value and cost of plots of land, including:
Raw or vacant land designation – Even though it may come with access to utilities and roads, vacant land doesn’t always outvalue raw land. A developer with a big budget looking to create an eco-luxury experience may favour the privacy and remote feel that raw land can offer, knowing they can use solar, wind and geothermal energy to power up their property, draw their water from an onsite well, fly clients into the area and bring them to the site on the roads they’ll build.
Lot size – Again, although larger lots will usually have higher valuations, small lots with access to utilities and roads or located in an up-and-coming location or community could end up being more costly than their cousins with more acreage.
Proximity to utilities – It’s hard to build, let alone work without access to utilities. Construction requires electricity to run tools and water to mix cement, and even when onsite generators are available, they can be costly to run or prohibited due to noise restrictions or environmental regulations.
As a result, access to utilities almost always increases the value of a property. The few exceptions might be where a utility line cuts across a lot, restricting the useable space for development, or where utility or water mains can only be accessed via a neighbouring property. In that case, the land might be less valuable than a plot with utility access at the road’s edge.
Access to roads – Road access isn’t just needed to bring customers to your plot should you decide to develop it as a retail, restaurant, hotel or multi-use facility; it’s also the way you’ll transport building materials and construction workers to the site in the initial development phase, how employees will commute to the location and how you’ll restock the facility with supplies once it’s up and running. As with utility access, road access almost always increases the value of a property.
Verifying the Value of Land With The Help Of a Real Estate or Land Agent
Commercial real estate agents specializing in land for sale in Canada or licensed land agents can help you verify the value of the land you’re interested in by comparing it with similar plots in the area and by conducting a strategic location analysis.
Compiling Information and Doing Due Diligence
Once you have a plot in mind, you’ll need to carry out the following due diligence to determine if the property is right for you:
Conduct or Review a Recent Land Survey
A land survey determines a property’s legal boundaries and easements but will also provide information on gas and power connections, water drainage and sewage systems, plus other features that could affect a build. Unless a survey was done within the last year or two, it’s essential that you conduct your own survey and ensure your name is appended to the effort so that it’s considered legally valid.
Conduct a Topographical Study
It’s more expensive and takes more planning to develop land on an incline. Snow melt, rainwater runoff and mudslides can damage building structures, basements and foundations and cause significant environmental and health issues. Your architect, site engineer, and contractor will each need to take the topography of the land into account when creating their designs and quotes for development.
Conduct a Soil Test
You won’t be able to build if your land fails a soil test. You’ll need to hire a geotechnical engineer to conduct the test, which, along with listing the soil’s characteristics, ensures your land can support the structures built upon it, can absorb water as required, and if a septic system is needed, keep fluid leaks or effluent from the drain field from contaminating your property or the water table. Like the water well test that we’ll describe later, you can’t do a soil test prior to purchasing the land, but you can make buying the land contingent on your approval of the test’s results within a contingency section of your Agreement of Purchase and Sale.
Make Sure Zoning is Correct
As with all other commercial real estate purchases, it’s imperative that the zoning of the land you want to purchase matches up with how you want to use or develop it. You can check your lot’s zoning by accessing the online resources available from your municipal planning department or by contacting the department directly. Your commercial real estate agent and a lawyer can also assist in the process.
Request a List of Restrictions
Make sure you’re aware of any restrictions on your land, as restrictions remain in place even when the land changes ownership. Restrictions can include building height, number of vehicles allowed on a lot, permissions for fencing, etc. While you may be able to negotiate changes to an outdated list of restrictions, it’s better to walk away from the deal if the rules threaten to undermine your development plans.
Evaluate the Land in Terms of Future Growth and Expansion
If you plan on developing the land and your business expands, will the site be able to handle the addition of new buildings or facilities? Or, if you want to rent space to one or more tenants, do zoning bylaws and restrictions allow it?
Understand Environmental Protections
Contact your local conservation authority to ensure your lot isn’t located in an environmentally protected area. If it is, development may not be allowed, or restrictions may severely limit the type and size of buildings you can construct. Additional setback requirements from rivers or lakes will also be required.
Estimate the Total Cost of Tapping into Utilities
If you want to construct a commercial building on your land, you’ll need to outfit the property with utilities such as water, gas, electricity and even Internet access. First, you’ll want to ensure the land you purchase is near power lines and a water main; otherwise, accessing the nearest utility hub could be costly.
Then, you’ll need to factor in the following:
- Septic System: If your land isn’t connected to municipal sewer lines, you’ll need to install a biodigester or septic system with a drain field. First, check that square footage can accommodate both, and review your soil test to determine if the land meets standard percolation requirements.
- Water Well: If you’re buying vacant land with a water well, you’ll want to conduct flow rate and water quality tests. As with soil tests, well-testing cannot be conducted prior to purchase and must be part of the conditions of your offer.
- Gas Lines: Your soil test will determine whether gas lines pass through the property. If they do, it could be a deal breaker, as not only will it restrict the area you can build on, but it could also be a serious safety concern.
Aim to Stay Out of the Way of Natural Disasters
Some locations are more prone to natural disasters than others. Remote locations can be subject to fire, wind, hail and snow events, while areas closer to city centres may be prone to flash flooding.
Your land survey should identify the environmental factors that could impact on your property. If it doesn’t provide the level of detail you want, dig deeper by researching the frequency of natural disasters in the local area and also note whether you’re in the path of dams, noisy power plants or municipal sewer drains. A history of flooding, tornadoes, wildfires or earthquakes could dramatically increase the cost of your insurance, if you can get it at all, while being in the path of a dam that’s not been well-maintained could spell disaster in more ways than one.
Explore Financing Options
The last thing you’ll need to determine is whether you need financing to buy the land and, if so, what type of mortgage best suits your plans for the property.
Options include:
- Land Mortgages: These loans are similar to residential mortgages but require a more significant down payment and are usually repaid at higher interest rates.
- Construction Mortgages: These loans provide short-term financing for buying land and building on it. During the construction phase, you typically make interest-only payments (or no payments at all, in some cases) based on your outstanding loan balance. Often, repayment doesn’t begin until six to 24 months after receiving the loan.
- Agricultural Loans: The Canadian Agricultural Loans Act (CALA) Program is designed to increase the availability of loans to farmers and agricultural co-operatives. Farmers can use these loans to establish, improve and develop farms, while agricultural co-operatives may also access loans to process, distribute, or market the products of farming.
Don’t Shy Away from Purchasing Land for Sale in Canada
Investing in raw or vacant land comes with inherent risks, but as with any commercial real estate endeavour, thorough due diligence surfaces them so you can make informed decisions. Don’t shy away from purchasing land for sale in Canada. With the right team by your side and a step-by-step process for evaluating properties, you could find yourself unfurling the deed to your land in no time flat.
