Buying land can look like the ultimate property investment.
There is no tired kitchen to refurbish, no tenant to manage and in many cases, no building to maintain. More importantly, land can offer the potential to create something that did not previously exist — whether that is a single house, a small residential scheme, commercial development or a larger strategic opportunity.

But land is also one of the easiest areas of property investment in which to make an expensive mistake.

The problem is often not the price paid for the land itself. The real cost can come from buying a site based on assumptions that later prove to be wrong.

I have seen investors become attracted to a site because it appears inexpensive, because planning permission seems achievable, or because the numbers look excellent on a spreadsheet. The
difficulty is that land needs to be assessed from several different perspectives before those numbers can be trusted.

Here are five of the most expensive mistakes I see property investors make before buying land.

1. Assuming the land is developable because it looks suitable

One of the most common mistakes is confusing physical suitability with planning potential.

A piece of land may look ideal for development. It might sit behind an existing row of houses, have road frontage, appear relatively level and have neighbouring properties on either side. None of those things means that it can necessarily be developed.

Planning policy, settlement boundaries, Green Belt or other countryside designations, conservation areas, flood risk, ecology, landscape considerations, access and infrastructure can all affect whether development is acceptable.

The first question I ask is not: “What could I build here?”

It is: “What are the constraints that could prevent me from building anything here?”
That distinction is important.

A Practical Example

Imagine an investor finds a parcel of land advertised for £250,000 with “potential for residential development”.

A quick appraisal suggests that four houses could potentially be built. At first glance, the numbers appear attractive. But further investigation reveals that the site sits outside the settlement boundary and has significant ecological constraints. The surrounding properties may make development look logical, but planning policy does not necessarily follow the existing pattern of
development.

The investor has not necessarily bought a bad piece of land. They have, however, paid £250,000 for a proposition that is considerably more uncertain than they initially believed.

What to Check

Never become emotionally attached to a site.

I investigate:

• The local planning policy position
• Settlement boundaries
• Relevant planning designations
• Previous planning applications
• Planning history
• Flood risk
• Heritage constraints
• Ecology
• Landscape considerations
• Highways and access
• Nearby development patterns
• Local housing need and policy requirements
• The important point is that planning potential is not the same as planning permission.
  

2. Paying for hope rather than current evidence

Land sellers and agents understandably want to present the opportunity in its best possible light.

You may hear phrases such as:

• “Subject to planning”
• “Excellent development potential”
• “Ideal for residential”
• “Possible multiple units”
• “Could suit a developer”
• “Planning expected”
• “Previous interest from developers”
  

These statements may be perfectly genuine. But they are not evidence of value.

The mistake is allowing the possibility of future planning permission to become reflected in today’s purchase price without adequately assessing the probability of achieving it.

The Value of Planning Risk

Suppose two sites are both capable of producing six houses. Site A. already has an implementable planning permission. Site B. has no planning permission and sits in an area where obtaining permission will require overcoming several policy objections.

They should not necessarily be valued in the same way.
The investor buying Site B. is taking considerably more risk. That risk needs to be reflected in the price and importantly, in the investor’s required return. This is where disciplined appraisal becomes particularly important.

Rather than asking simply, “What will it be worth if I get planning?”, I prefer to consider several scenarios:

Best case: planning permission is achieved broadly as anticipated.

Base case: planning is achieved, but with fewer units or additional costs.

Downside case: planning is delayed, restricted or refused.

If the deal only works in the best-case scenario, that is a warning sign.

3. Underestimating abnormal development costs

This is one of the mistakes that can turn an apparently profitable land deal into a disappointing one.

Investors often start with the headline figures:

Gross Development Value – Land Cost – Build Cost = Profit

Unfortunately, development rarely works that neatly.

A site can carry substantial costs that are not obvious from a quick appraisal.

These might include:

• Ground conditions
• Contamination
• Demolition
• Retaining structures
• Drainage
• Flood mitigation
• Highways works
• Utility connections
• Ecological mitigation
• Archaeological investigations
• Tree protection or removal
• Site access improvements
• Section 106 obligations
• Community Infrastructure Levy
• Professional fees
• Finance costs
• Marketing and sales costs
• Landscaping and external works
  

A Simple Example

Suppose an investor identifies a site for £500,000 and estimates that the completed development will be worth £2 million. They estimate build costs at £900,000 and calculate an apparently healthy margin. During the due diligence process, however, it becomes apparent that the site requires substantial ground remediation, a new access arrangement and significant drainage infrastructure.

Suddenly another £250,000–£300,000 may be required. That does not necessarily make the development impossible. It changes what the investor should be prepared to pay for the land.

This is an important distinction.

A problem with the site does not automatically mean the site is bad. It may simply mean the price needs to reflect the problem.

4. Failing to establish exactly what you are buying

Land can be deceptively complicated.

The red line on an estate agent’s marketing particulars is not necessarily the same thing as the legal extent of the land. Before purchasing, investors need to establish exactly what is included and whether the land has the rights and access required to make the proposed development viable.
This means looking beyond the marketing particulars.

Questions can include:

• What is the registered title?
• Are there restrictive covenants?
• Is there legal access?
• Who owns the access road?
• Are rights of way properly documented?
• Are there rights benefiting neighbouring land?
• Are there ransom strips?
• Are services available?
• Are there easements?
• Are there overage provisions?
• Are there third-party rights?
• Are there boundary discrepancies?
• Is any part of the proposed development dependent on land outside the title?
• Access is particularly important
  

A site may appear to have access from a public highway. But that does not automatically mean that a development has the legal right to use the access in the way proposed.

There is a major difference between being able to physically reach a piece of land and having the legal rights and highway arrangements necessary to develop it.

I would therefore want the legal position established before allowing an attractive development appraisal to drive the investment decision.

A £50,000 saving on the purchase price is meaningless if a legal or access problem ultimately costs £150,000 to resolve — or prevents the proposed development altogether.

5. Buying the land before understanding the exit

Perhaps the most fundamental mistake is starting with the land rather than the end product.

Investors sometimes become focused on acquiring land because they believe that “land always goes up”. That can be a dangerous assumption.

The question should be:

Who is likely to buy the finished product, and what will they pay for it?

If the proposed development is residential, that means understanding the local market rather than simply relying on national property statistics. For example, six three-bedroom houses may look attractive on paper. But what if local demand is significantly stronger for four-bedroom family homes?

Or what if comparable properties are taking many months to sell?

Or perhaps the local market is dominated by downsizers and two-bedroom properties are actually more liquid?

The best planning scheme is not necessarily the scheme with the maximum number of units. It may be the scheme that produces the best combination of value, demand, cost and risk.

Work backwards

A useful approach is to start with the likely end value.

For example:

Expected GDV: £3,000,000

Less:

• Construction costs
• Abnormal costs
• Professional fees
• Planning costs
• Infrastructure contributions
• Finance
• Marketing and sales
• Contingency
• Required developer profit
  

What remains is the amount available for the land. This is essentially the residual land value approach. The important point is that the land is the residual. It should not simply be purchased because the seller has chosen a particular asking price.

The danger of spreadsheet confidence

Spreadsheets are extremely useful. They can also create a false sense of certainty.
A development appraisal can show a very precise projected profit of £487,250.

But that figure may be based on assumptions about build costs, sales values, planning, programme, finance and abnormal costs that are anything but precise. The more assumptions a deal contains, the more important it becomes to test those assumptions.

I would rather see an investor with a conservative appraisal and a realistic understanding of the risks than an impressive spreadsheet based on optimistic assumptions.

One useful exercise is to ask: “What would have to go wrong for this deal to stop working?”

Then test those assumptions.

What happens if the GDV falls by 5%?

What happens if build costs rise by 10%?

What happens if the programme takes six months longer?

What happens if the planning authority allows fewer units?

What happens if an abnormal cost appears?

A deal that remains viable under reasonable downside scenarios is considerably more interesting than one that produces a spectacular return only under perfect conditions.

Five questions I would ask before buying land

Before committing to a land purchase, I would want reasonably robust answers to five questions:

1. What can I realistically do with the land?

Not what would be ideal — what is realistically achievable within the planning and physical constraints of the site?

2. What could prevent me from doing it?

Identify the constraints before becoming committed to the opportunity.

3. What will the development actually cost?

Include the less obvious costs, not simply the headline construction figure.

4. What is the finished development likely to be worth?

Use relevant local evidence and realistic assumptions rather than aspirational asking prices.

5. What is the land worth to me?

This is perhaps the most important question.

The seller’s asking price is not the same thing as the land’s investment value to you.

If the numbers do not work at the current price, the answer may be to negotiate harder, restructure the deal, obtain an option or simply walk away. Walking away from the wrong site is often a better investment decision than forcing the numbers to work.

FAQs

Is buying land more risky than buying a property?

It can be, particularly where the investment depends on obtaining planning permission. With an existing property, there is usually an established use and a demonstrable market value. With land, much of the potential value may depend on what can legally and practically be done with it.

Should I always obtain planning permission before buying land?

Not necessarily. There are circumstances where buying land without planning permission can create an attractive opportunity, particularly if the price properly reflects the planning risk. However, the higher the planning uncertainty, the more important it becomes to understand the risk before committing to an unconditional purchase.

What is the biggest mistake investors make when valuing development land?

In my experience, it is often paying too much based on the anticipated end value without properly accounting for planning risk, development costs and the return required for taking that risk.

Can a cheap piece of land be a bad investment?

Absolutely.
Land is not necessarily cheap simply because the purchase price is low.

A £100,000 parcel that cannot be developed maybe considerably more expensive than a £300,000 parcel with a clear and achievable development strategy.

The price needs to be considered in relation to what the land can realistically deliver.

When should I walk away from a land deal?

Whenever the risk cannot be adequately understood, controlled or priced.

Not every problem is a reason to walk away. Some problems create opportunities to negotiate. But if the viability depends on too many optimistic assumptions, there may be no sensible price at which the deal works.

Conclusion

Successful land investment is rarely about spotting a piece of land that “looks like it could be developed”.

It is about understanding why it could be developed, what could prevent it, what it will cost, what the finished product will be worth and whether the purchase price properly compensates you for the
risks involved.

The most expensive mistakes are often made before the purchase contract is signed.

A site that appears straightforward from the outside can contain planning, legal, access, infrastructure, environmental and financial issues that materially change its value.

That is why I believe the most valuable part of land acquisition is often the work carried out before making the offer.

Good due diligence does not necessarily mean finding a reason not to buy.

Sometimes it confirms that the opportunity is sound. Sometimes it identifies a problem that gives you leverage to renegotiate the price and sometimes it tells you to walk away. All three can be successful outcomes.

The objective is not to buy more land. It is to buy the right land, at the right price, with a clear understanding of what you are taking on.