While the value of land in a land+residence situation has gone up recently, I don’t think that there quite the crazy price disparity, ie bubble pricing, on the values of existing bare lots as there has been in other properties. The value of 5000sq/ft of dirt, and the value of 5000sq/ft of dirt with a 600sq/ft falling down shack will never be the same. The lot with the shack will always fetch a large premium compared to the lot, and the value of the dirt under the shack will be far more valuable than the corresponding bare lot dirt because of the entitlement value of a house vs dirt. The only time buying land really makes sense is if you were going to knock down the house and start from scratch anyway.
If you are looking to build… there are quite a few factors that make buying a lot and building a house different from buying a house.
The first thing that you will run into is that it is very hard to get a bank to finance land with the intent of building a home. Most want to see a minimum investment of 25% out of your pocket before they will even offer you a cup of coffee and a seat at the table. Some want closer to 40% ltv on a land purchase. This will be your first stumbling block.
Once you have the lot, you need to secure a construction loan. In order to get a construction loan your bank will want to see 1) plans… you need get the plans drawn, various engineering done, plans submitted, approved and ready to permit. 2) A bid and schedule from a contractor with a portfolio of projects that gives the bank a warm fuzzy feeling about the contractor being able to do the job. And 3) a full financial prospectus showing that the value of the finished house will be worth at least as much as the outstanding debt on the Land + Permitting Fees + Building Costs + 10% reserve(shit happens fund) + 10% loan fees. And then if all goes well and things finish on time, your bank will roll your outstanding balance into permanent financing when you get your coe.
Add to this the 50-100K you spent on Arch/Eng/Plan Approval fees and you can see that building a house is not as easy as many people think it is.
Many of these things can be done cheaply if you know what you are doing, and can get the deals for the out of pocket expenses, but the bottom line is that the price of the land + all the rest of the crap listed above needs to result in a house that can appraise realistically and get financing in the area where it is built. That means that it can’t cost much more than what the neighbors house is worth. This severely handicaps the value of a raw lot. In most projects, the purchase of the land is one of the smallest expenses in a buy a lot/build a house project like this.
