What you need to know when
Buying Vacant Land
When you drive across the province of Ontario often you will see For Sale signs on parcels of Vacant Land. Have you ever considered purchasing land? If you have, there are a few things you need to know. In this post you will find some relevant information and links to sites that can help with making the decision to research before making a purchase on land.
One of the biggest reasons vacant land appeals to potential buyers is the dream of long term investment, the potential of the land or the possibility of future development. Each of these reasons really depends on the buyer and their vision. Perhaps for building a dream custom home or cottage, the investor/developer who sees the potential for building a neighbourhood or buildings or the commercial investor who is looking to build a factory, warehouse or shop. Finding the right parcel of land for whatever the use will be is important.
In Ontario there are 3 kinds of Land. VACANT LAND (zoned), RAW LAND, AND CROWN LAND.
The differences between these can vary from cost, cost to develop, type of use (zoning and regulations), how they can be financed, and its future potential.
Vacant Land-
This land has some existing services or partial services available and is ready for some development. This land is privately owned and is generally more expensive because of it’s development potential.
Raw Land-
Found in more remote areas and undeveloped, raw land has no utility connections, possibly no road access, and can often be found for sale at a cheaper price. It could offer great potential, however the development costs are greater. Raw land is also privately owned.
Crown Land-
Did you know that 87% of land in Ontario is classified as Crown Land? While 95% of that is located in Northern Ontario it is important to be aware of the land that you are considering if is is a parcel of crown land. Here is a great resource from the Province of Ontario regarding Crown Land
Crown Land can be purchased or rented from the Government but be aware that the are very specific processes in place when making this land purchase. There will also be restrictions on how you can build or use it.
Research is critical before taking the step in purchasing land. Knowing the restrictions and zoning for each county and the different municipalities and townships will also help you when looking for a parcel of land.
Zoning and Development maps for Simcoe County and Dufferin County can be found here.
Vacant Land- Need to know
While the dream of owning land can be exciting we can’t stress enough that you must do your research. There are many important steps that need to be addressed before moving forward directly into purchase. There would be nothing more disappointing than making a purchase and then not being able to develop the land as you had wished.
You found land that you love!
Using a real estate agent that specializes in vacant and rural land purchases will be an invaluable help in moving forward with this purchase. Your agent may also be able to connect you with other people that will be essential to your land purchase, including land surveyors, real estate lawyers, developers, builders and those who specialize in vacant land development.
- Check local municipalities for guidelines and local laws
- Zoning– make sure you know what this parcel of land is zoned for. Often there are restrictions for building due to Conservation Areas and Flood plains.
- You will need a land survey to determine land boundaries– sometimes a survey is available and this would be a bonus before purchase.
- You will also need a geological survey to determine if you can build on the land.
- Financial Planning– outside of the costs for the purchase of the land you also need to do a discovery sheet on the costs for development, permits, applications etc.
- HST will only apply to vacant land that has been used for business purposes. If the land was for personal use, such as for a residential home, then there would be no HST charged.
Check out this graph that will give you more information regarding the three different kinds of land, the uses, classifications, and typical downpayments required.
Raw Land while cheaper to purchase will require more to develop. You will be responsible to develop the land such as bringing utilities to the lot and perhaps even paying to bring road access to the lot.
Financing Land in Ontario
There are different ways to finance land in Ontario
- Land Loans– these loans are financed usually through private lending and can often be tricky as they a risky for a lender. Unlike a residential mortgage where the lender can take your home if you fail to make the mortgage payments, land is not as secure as a residential property. Rates for private lending are typically higher. Depending on the type of land you purchase you will need between 35-50% as a downpayment.
- HELOCS and Personal Loans– using the equity in your home or credit line could be an option for financing the land or using the savings in your investment. Depending on the purchase amount this could be a different option.
- Seller Financing – this is often referred to a VTB (Vendor Take Back) . This is when the Seller offers to be the lender on the property and hold the loan. This can only be offered by the Seller is there is no mortgage or any holdings against the property. This can often benefit the Seller and Buyer when conventional methods of lending are difficult.
Making a wise decision around purchasing land is key to a sound investment. There are alot of excellent resources that are available across the internet. If you are considering purchasing land, feel free reach out to us and we would be happy to help!
