You’ve probably heard that land is a good investment. Maybe you even want to get in on the action or find a piece of land to build your dream home.
Either way, before you jump in, there are some things to consider first.
After searching for a home in the blazing-hot Canadian housing market, I know how stressful it can be.
For starters, there isn’t much inventory. If you are lucky enough to find something, you need to act quickly and sometimes bid way over asking.
It’s gotten so out of hand that Canada’s Prime Minister recently banned foreigners from buying a home in the country for the next two years. With prices soaring, many are thinking of trying their hand at finding a piece of land and building.
But before you go down that route, make sure you know what you’re getting into. If you’re wondering how to buy land in Ontario, here are the next steps you should take.
- Figure out your preferred location and determine the purpose of the land.
- Look for land for sale online.
- Consider zoning laws, subdivision requirements, or neighbourhood associations.
- Consider easements, utility access, and other environmental factors.
- Understand your financing options.
Buying land gives you endless options, but if the thought of going through the process stresses you out, read on. Here are the things to consider and the steps needed to make the big purchase.
First things first, why purchase the land? Are you going to build on it? Hunt? Or maybe use it as an investment property that you’ll eventually sell?
How you plan to use the property will help determine the best location, price point, and environmental factors necessary.
For example, purchasing land within a subdivision makes sense if you wish to build a house in a family-friendly community.
However, if you’re looking to hunt and fish or use it for agricultural purposes, you’re out of luck.
Also, if you want to build your dream home, you better make sure the land is suitable for building.
In other words, will your local government office issue a building permit?
The size of your lot is usually dependent on your location. Most land for sale around the city or suburbs is smaller in size but higher in price.
The convenience of nearby amenities drives up both real estate and land prices.
On the flip side, you could get more acreage for less the further out you go. However, you’ll have to make a trade – fewer conveniences and more driving.
Finding the actual land to purchase is probably the hardest part of the whole process.
With the Canadian housing market sizzling and prices higher than ever, many buyers have started to focus on building their own homes instead of looking through the limited inventory available.
To find land for sale, contacting a local real estate agent might be your best bet. They have insight into new properties just about to hit the market and could potentially broker you a great deal.
However, you don’t have to leave it up to the experts. These days, most properties for sale are listed somewhere on the internet.
But don’t hesitate to look on your own. Drive around and see if there’s anything available that’s not listed on the internet.
Each province has its own land registry, so if you find something that’s perfect, you could always search out who the owner is and see if they’re willing to sell. It never hurts to ask!
Most municipalities have zoning regulations relating to how pieces of property are used. For example, some areas are designated as residential, while others deemed commercial or agricultural.
For someone buying land with the intent to plant crops, a residentially zoned area wouldn’t be the best bet. Instead, you’d need to find land zoned as agricultural.
Zoning laws can get much deeper than whether a property is commercial or not.
Many municipalities have strict codes that require citizens to follow certain parameters like building height and distance from sidewalks, roadways, and waterways.
In addition, there can be guidelines on garages, decks, and even pools.
If something doesn’t adhere to the municipality’s zoning requirements, you might have to remove or adjust it based on specific regulations.
Buying land within a subdivision could come with additional restrictions. These subdivision agreements can provide adequate sites for development and maintain high design standards for residents within the neighbourhood. However, before you buy, be aware of the fine print.
Many of these contracts will require homeowners to keep a certain aesthetic. The terms can range from certain colours you can use on your home to whether you can put up an additional garage.
Not knowing the ins and outs of your agreement can cause potential friction and adversity in the future.
Also, consider if your new neighbourhood will have its own homeowner’s association. These organizations could charge you a monthly or yearly fee for basic maintenance of shared common areas like swimming pools, tennis courts, etc.
When buying land, you’ll find two different types of properties. The first is vacant land. This kind of property already has access to utilities, including power and water. The other kind is raw land.
With this type of property, there isn’t access to electricity, water, and maybe even a roadway.
Buying raw land could mean shelling out thousands more for your basic necessities. Running power to your new build could be time-consuming and costly.
Additionally, purchasing secluded land may require you to install a well for water and a septic system for waste.
Before buying any land, you should note if there are special easements. Easements give another person or entity the right to use a portion of the property for special purposes. The most common easements are for utility companies and the right of way.
A right of way allows for the movement of traffic through a defined pathway. The most common example includes two properties, one in front and one behind.
In order for the rear lot to have access to the road, a right of way would be added to the deed, stating a driveway easement is necessary.
In addition, inquire if there are any issues with flooding or other natural disasters that could affect your insurance coverage.
Make sure the land isn’t environmentally protected with additional requirements like animal and plant protection or setback regulations.
Similar to buying a home, you can finance your land purchase with a land loan, personal loan, or a home equity line of credit.
However, land is much riskier to finance for banks than a typical home sale since you don’t have much collateral. If you miss a few mortgage payments on your house, you could lose it, but it’s more complicated with vacant land.
Because of this, many banks and other financial institutions will require higher down payment percentages and charge higher interest rates.
You’ll also probably find it difficult to find a broker willing to work with you if you don’t already have building plans in your possession.
Typically, most lenders will want buyers to have anywhere from 20% to 30% down before agreeing to finance the rest.
However, that figure really depends on where the land is located, how many acres it is, and if there are any utilities already on the property. That figure could go as high as 50% for raw land.
Buyers should be aware of this and also understand that if their downpayment is below 20%, they’ll most likely need to include mortgage insurance into their monthly payments.
As with any mortgage or loan type, it can vary from bank to bank, so the best option is to shop around and talk with different lenders before settling on one.
Working with a Real Estate Agent
Buying land in Ontario involves several steps, and a real estate agent can be helpful to guide you through the process. Here’s a broad overview of the steps involved:
- Identify Your Needs: Define your needs and wants clearly. What size and location do you prefer? Are there specific features you want, such as waterfront access or proximity to a city? What is your budget?
- Hire a Real Estate Agent: While it’s possible to buy land without an agent, an experienced agent can guide you through the process, negotiate on your behalf, and help you avoid potential pitfalls. When choosing an agent, look for someone who specializes in land purchases in the Ontario region.
- Financing Pre-Approval: Contact a lender to get pre-approved for a loan if you’re planning to finance the purchase. Lenders will consider factors like your credit history, income, and the nature of the property you intend to buy. In some cases, getting a loan for land can be more difficult than for a house, so it’s good to start this process early.
- Search for Property: Your real estate agent will search for properties that fit your criteria using resources like the Multiple Listing Service (MLS). They can also arrange for you to visit properties in person.
- Make an Offer: Once you’ve found a property you like, your agent will help you prepare an offer, considering factors like market conditions and comparable sales. The offer may include conditions like securing financing or satisfactory inspection results.
- Due Diligence: If the seller accepts your offer, your agent will help you perform due diligence. This may include hiring a surveyor to verify property lines, checking zoning laws and building restrictions, and conducting environmental assessments.
- Close the Sale: Once all conditions are met, you’ll work with a lawyer to finalize the transaction. The lawyer will prepare the necessary documents, arrange for the transfer of funds, and register the new title in your name.
- Take Possession: Once the sale is closed, you’ll take possession of the land. If you plan to build on it, this may involve hiring a builder or contractor and applying for building permits.
Is Buying Land In Ontario a Good Investment?
Because land is scarce and there’s only so much of it to go around, it’s usually a good investment.
However, as discussed above, purchasing raw land without a solid understanding of the additional (and sometimes monumental) costs possible probably isn’t the best start for a first-time investor.
While raw land has the potential to be a lucrative business, especially if you plan on developing it, the buyer should be ready to shell out a lot of cash upfront before seeing any profits.
On the other hand, a vacant lot has the potential to be a serious cash cow in the future. Such a piece of land requires little maintenance and cost other than its initial investment.
Of course, there’s always a risk that it’ll be worth less than what you paid, but that generally isn’t the case. If it is, you don’t have to sell it. You can hold onto it until it’s worth more.
Whether buying land for investment purposes or using it for your own personal satisfaction, there are steps you need to follow so your purchase doesn’t turn into a nightmare.
If purchasing land is on your horizon, you want to save up for it. Check out these top ways to add to your savings.