When it comes to investing your money, land has always been a valuable commodity to consider.
Some investors purchase a vacant lot for immediate development. However, others buy lots with the intention of letting the value grow over time. It’s also possible to purchase land close to your own home to increase its overall value too.
Did you know that Canada makes up more than 6 per cent of the Earth’s surface? That’s a whole lot of space! Great news for anyone moving to Canada with dreams of building their own home. But where do you start? With a plot of land. Like with any investment, there are some key strategies to help you make the best purchase decision. While no investment can be 100% guaranteed, land remains a safe one so long as you take into consideration some key pointers.
Buying land allows you to build the home of your dreams or preserve a slice of nature. However, land can be expensive, so you may need a loan to fund your land purchase. Although you might assume that land is a safe investment—after all, “they’re not making any more of it”—lenders see land loans as risky.
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Am I allowed to buy land to build on in Canada?
In true Canadian style, home- and land-buyers from all countries are welcome in Canada. In fact, there is so much space in Canada, that free land is being given away in some areas, as long as those that take it on agree to develop it. If you’ve been watching Grand Designs and you’ve caught the self-build bug – the first step you’ll need to take is sourcing that perfect plot.
What are my building options?
When you decide to build your own home, you have a couple of options. Firstly, you can buy land to build on in Canada, employ an architect to design your dream home and have a builder complete the process. This way you get the home you want, exactly as you want it. Alternatively, you can buy a home from a developer, which is called buying off-plan. Choosing this approach might restrict you to certain designs or property sizes, but you’ll be able to pick your own fixtures, fittings, and certain added features.
What factors do I need to consider when buying a plot?
1 – Location
Once you’ve chosen your province, you need to look at the exact location of your plot. What kind of view do you have? What amenities are you close to? Who are your neighbours? If they are farmers, bear in mind stinky odours from could be problematic. What might the surrounding land be used for in the future? Are you under a flight path? If your plot is rural, how will you access it? Don’t make the common mistake of buying a plot of land and then having to pay an extortionate amount to the neighbouring land owner to use the strip of land you need for your driveway! Consider how building materials will be delivered to the house? If you’re in the middle of nowhere, delivery costs and logistics need to be factored into the budget. Establish whether the plot is connected to electric, gas, sewerage and water. If not, connection costs will need to factored into your budget. Also, establish whether you have good internet and mobile phone access, because if not – you could be facing a lifetime of standing in the garden hoping to get a little service!
2 – Is the land suitable to build on?
Some plots might be idyllic, but if they aren’t suitable to build on you could find yourself stuck with a piece of land that’s impossible to sell. In addition to whether it is big enough to build your dream property on, is the site sloped? What’s the soil like? Will it be possible to build decent foundations? You must check the water table on your piece of land – how wet it is will determine whether or not you can build on the land, and what type of property can be built. Finding this out early will save you a costly mistake! Levelling out land to be able to build on it can be very expensive, so keep that in mind if you’re looking at a plot on the side of a mountain. Also, are there any obstacles that could affect the build, i.e. water pipes, electricity pylons, trees, existing buildings?
3 – Can you obtain a building permit?
Before the building can commence, you must obtain a building permit. These permits are the official go-ahead to break land, and are issued by your local government department. The permit has a unique number on it, and the document must be clearly visible on the construction site. Typically, the builder or architect will take care of this, but if you are taking the project on yourself – it’s down to you. When applying, you must submit all plans and designs for the work – the more complicated the designs, the longer it will take for the permit to come through. Please note – applying for the permit will cost you, but there is no guarantee it will be issued. Permits tend to range in cost from CAD$360-$1,730. Also, building inspectors can drop by the site any time. Should your permit not be displayed correctly, you will foot the bill – even if the builder or architect is the one who applied for the permit in the first place!
4 – Is the site regulated by the Conservation Authority?
Certain plots of land are regulated by the Conservation Authority, and if that applies to your plot, securing a permit can take a while and be pricey. Even if you do secure the permit, you could find yourself having to stick to their guidelines about how and where you can build. While it is definitely possible to buy land to build on that is regulated by these guys, be aware that it could make things decidedly trickier, and take a considerable while longer. The agent selling you the land will be able to tell you whether or not the land is zoned by the Conservation Authority – make it one of the first questions you ask, so you don’t waste precious time.
5 – How is the land zoned?
Certain plots of land have been zoned, which means they are subject to restrictions on what can be built or cannot be built on at all. This could affect where you build, how high, what you’re allowed to do on the land and so on. Make sure you check specifics with the realtor before you decide.
How much will it cost?
According to Home Builder, the average cost (per square foot) of building a detached home in Canada’s most popular cities is as follows.
- Vancouver –$130-$230
- Toronto – $110-$210
- Calgary – $115-$150
- Montreal – $95-$160
- Halifax – $115-150
Don't forget that's just the house.
One of the major advantages of building your own house is that you can, to some extent, control the budget. You can save money in a number of ways. For example, shop around for your contractors. Always seek multiple quotes to ensure the price you secure is competitive. While it might be tempting to go with the cheapest option, always do your research – they might be cheap for a reason! Secondly, if you’re not bothered about working with an architect to design a home that is completely unique, you can save a considerable sum by choosing an existing home design. This automatically removes the cost of the architect – which can cut a considerable amount from your budget. Furthermore, you can cut costs by doing some of the labour yourself…although, unless you’re a professional, we’d leave the plumbing, electrics, and so on to the experts.
Anyone building a home should be considering how eco-friendly their property is. Does it need to be enormous? A smaller property that still matches your needs will be cheaper. You can also deck the property out with reclaimed, recycled and repurposed goods, which will save you cash, while giving the property a stylish look. Salvage yards and shops selling such goods are found all across Canada, or you can check out Habitat for Humanity, a charity that sells everything from furniture to the kitchen sink (literally). There are ways to cut costs – just make sure you don’t scrimp on the important things!
If your purely looking to invest in land and sell later
When you invest in a piece of land, the opportunities are endless. You could hold onto it until the value appreciates and sell it to a developer. Some people even purchase a plot of land to raise cattle on, knowing that at some point they can sell it on if they wish.
Land has so much potential, that it makes for a very flexible investment.
It’s A Great Retirement Plan
If you’re currently working, thinking about what you do when you retire can seem tedious at best. Bare land has much less overhead than a piece of land with a house and the maintenance is much less as well.
If you own land, you can sell it at a reasonable sale price later. Alternatively, similar to real estate you can rent it for a fixed monthly price. So, owning a parcel of land can really help your personal finance grow during retirement.
It Steadily Appreciates, Especially In Good Locations.
The great thing about land is there will always be a use for it. So, if you put some research into the area your land is based in, along with the types of usage it would suit – it could generate some future income.
For example, say you find a piece of land in an up and coming area. There are some developments close by, and the area is desirable. Buying a piece of land near such an area would be fantastic, especially if your main goal is seeing that land appreciate over time.
A good location also comes down to your intended usage. It’s always worth checking out the types of businesses that operate in the area, along with typical asking prices before you buy. Buying the right piece of land at the right time is also key.
There are land investors who bought plots many years ago, who are now able to retire from the value, so it’s definitely worth researching.
Land Can Be A Great Source Of Passive Income
Passive income is money earned in the background of your other revenue streams. For example, a job would be considered an active income because you are paid to show up each day. However, passive income requires either a one-time or very little effort. Think of how bloggers or YouTubers created their content years ago, yet continue to earn money from it to this day…even while they sleep!
Land is also a great source of passive income. There are many ways you can go about it too. Traditionally, you can buy land and let it appreciate to earn money without having to do anything.
Alternatively, land could be used for something else that will generate you money. Whether you rent it to other businesses or create a tourist attraction on your land – the opportunities are plentiful. If you then go to sell the land at a later date, this in itself is passive income.
More Freedom With Your Investment
Some investment methods can be quite restrictive. For example, with the stock market you have the option to buy or sell. However, with land so long as you are following any local government policies – it’s yours to use as you wish.
If you are using it for one purpose but find another would generate more income, so long as you seek the relevant permission (if required) you can change its usage. Equally, if you want to sell some of it off and keep the rest it’s yours to do so.
It Diversifies Your Net Worth.
Investing in land is one of the best methods to diversify your net worth. You can build anything on the land you purchased. This can be a personal property or any commercial real estate. It can be owned or rented depending on your preference.
Having a diverse investment portfolio is better for your overall financial security. After all, we are only just over a decade out of the last financial crash. Having different sources of income is a great way to help secure your future, regardless of what the markets are doing.
Is There A Guarantee Of A Good Return On Investment?
On the whole, investing in land (especially if it’s in a desirable location) is a solid investment. However, it’s important to stress that no investment strategy can be completely guaranteed.
Timing plays a huge part in this. Right now, your land might not be worth a lot. But, in a few years if the area begins to pick up that could change. The opposite scenario could also happen, whereby your land isn’t as valuable as it once was.
The return on investment for real estate can be tricky, as with any investment, you must do your research and keep your eye on the changing variables.
Be Aware of All Tax Implications
As with any purchase, you must fully clue yourself up on any tax implications. Avoiding property taxes would lead to serious criminal and financial implications, so taking the time to research this in advance is essential.
For example, imagine that you have purchased a piece of land that has a house on it. You renovated it and sold it at a higher profit. The Canada Revenue Agency will then step in. Unless more than 90% of the house’s interiors were altered (such as walls, ceiling, and floors), then the profit will be taxed as business income.
Property flipping is not as easy as others make it look either. You must seek professional advice regarding the process.
In case your property is across the border, then it is recommended that you consult professional cross-border tax experts and advisors. They know the law of the land like the back of their hands. With this proper guidance, you can invest in any piece of land hassle-free.
Research is your friend when it comes to buying land if your buying to build or just to own. The key is to understand what information to research. One tip is to look at the zoning in the area of the land you’re looking to buy. If you’re planning on buying land to later sell, then you should think as the future investor of your property. Is the land for commercial/retail use, residential, industrial? Also, research transportation improvement projects. Ask yourself, what can investors expect? What are the amenities or roadway improvements that exist or are being added to the community/area it is located in? Find out if such amenities and improvements will impact, increase, or decrease the value of the property.
2. Anticipate Land Taking Several Years to Sell for a Profit
Typically, land will often take years to sell. In a situation where a parcel of land needs to be sold in a timely manner, one can expect to receive about half of the parcel’s full value. Exceptions exist in a hot real estate market that has a shortage of housing inventory. In this situation, land may sell quickly. Also, the value of land can often take 10 to 20 years to see positive appreciation value, as there must be an economic shift in the market to drive that change. Consider these things especially if you’re buying land as an investment.
3. Consult a Builder Before Choosing a Site if your going to build
It’s a good idea to bring a builder in before you choose a site. Your builder may have ideas about how a home can be designed to use the space, positioned to take advantage of views and light, and more tactical things like where to place the driveway. In addition, professional builders can point out potential problems, such as costly land prep challenges, that you may not want to take on.
4. Get Comprehensive Title Insurance Coverage
One of the most important tips for buying land is to ensure that you are protected with a comprehensive title insurance coverage. There are different levels of coverage for a title insurance policy: one is fairly basic and checks for liens and accuracy on the property recording, whereas the second option, which is also more expensive, will give additional coverage for other issues such as property line disputes. The second option could become very useful. Buying land is a significant investment, so it just makes sense to choose the better coverage for your own protection.
5. Be Prepared to Put at Least 25% Down Payment on Financing
There are two types of loans: long-term (20 or more years) and short-term (24 months or less). Either way, you should be prepared to put at least a 30 percent upfront down payment for your loan. If you also plan to build on the land, prepare for a 30 percent down payment of both the land cost and building plans combined. You will be able to take money out of your loan as you build.
Buying land is like acquiring your own piece of earth. Many people prefer to buy land than buying a brick-and-mortar property because they want to customize their own home or building according to their personal taste or you just may want to hold onto it until you are ready to cash out.