Red Flags To Keep In Mind When Buying Rural Property | Kehan Zhou

Many people are looking to purchase rural real estate. They want the country life while still being close to civilization. Buying rural property is a little different than buying urban property. There are some unique considerations to be made, and there are some cautions you need to keep in mind.

In this episode, learn about the most important things you should know before buying rural real estate!

Terrascope is the first AI real estate agent for finding and browsing rural properties online. Terrascope uses a cutting-edge machine learning algorithm and intelligent design to provide a brand-new online property search experience by reimagining the rural real estate search process. Our search algorithm learns each user’s unique preferences to recommend the best listings like an expert real estate agent.

Learn more about us at: www.terrascope.io.

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Red Flags To Keep In Mind When Buying Rural Property | Kehan Zhou

There are many reasons too, but there's also a note of caution here. It's easy to lose a lot of money. There's a bit of a joke in the industry when Silicon Valley or New York or one of these big wealthy community ZIP codes, the area cold calls are rural agents and the agents are like, "Here's another burnout tech worker or a Wall Street worker who wants to buy some land. Let's sell them the dream." It's very easy to be taken advantage of and if you don't know what you're doing, you can lose a lot of money. I know some people who have invested in land and it was an emotional decision. They lost a lot of money and didn't appreciate it. Can you tell us a bit about some active advice for someone that wants to buy some land, what to watch out for, and the best way to do it?

There is asymmetric information when it comes to the land market. What happens is mostly these tech workers or Wall Street workers are essentially away from home. They're going to Montana. They don't know the local regulation so they are very much at a disadvantage when they are working with a direct seller or an agent. Part of the reason for Terrascope and adding all this information is to enable the buyers to be savvier and to make better decisions. Many people rely upon their real estate agent as a single agent that can get all this authoritative information about the local demographic, the relative pricing of homes around, how many people are renting, and how many people are owning.

One of the processes where you can make better decisions is by collecting information. A cautionary tale. This is something that is happening to a lot that I know. People are trading land like stocks. I went to a land broker and I was interested in viewing a $200,000 land in Northern Ontario. I asked him to meet me there so we can look at the boundaries and the vegetation. He's like, "No, I never meet people.” In Russia or China, they just take a look at the picture because the land is in no way standardized or certified asset class. It's not like a stock that you just sell them.

If there will ever be institutionalization or automation in the trading of real estate, the land will be the last thing to be a tradable commodity. Do you agree with that?

Absolutely. It's basically what we call the exotic class that's very bespoke and requires a lot to deal with. It blew my mind that people were trading land like stocks, and they came by me. There are some who apply for 10 acres for $40,000. It’s 50% but because we're in the upmarket, we are in a market where there is less supply of the inventory so it's easier.

Real estate is all about location.

Are you saying that there are flippers coming into the market or the people trying to get rich quick, and they are causing unnecessary inflation in prices? The core value that land provides is not being bought. It's more the greater fool theory and this is happening in all asset classes. Bitcoin is an example or NFTs, stocks, real estate, you name it but in land specifically. Is that what you're saying?

The reason I said Northern Ontario is because it's not inhabitable. It's extremely cold and the land is not good for vegetation. This is tip number one. When you are searching in regions that are not traditionally used for residential or more frontier, be careful because there are a lot of people trying to flip those lands. They were cheap and very easy to buy mostly because of their low valuation. There is more of a margin for huge growth when someone who doesn't know what they're doing buys it. That's the first thing if you want to try to buy land that can appreciate. Real estate is all about location. Even when it comes to rural and we are not close to anything, location is still very important.

Buy something that's close to some basic infrastructure. The reason I wanted to buy a farm is because farms are amazing because they are proven to be fertile. They have the necessary infrastructure to sustain vegetation, and also the neighborhood is set up in that way. It's set up for people to live in and cultivate. If you are new to real estate, you don't want to buy a barren plot of land out of nowhere for $100,000 even though it may sound like a good deal.

I almost bought a plot of land myself with my cofounder, Jack. That land caught on fire when there were these great wildfires in California. Luckily, we didn't buy the land. We didn't put it under contract, but we're also negotiating through all these fires. You don't think of these things. There's a lot to think about when you buy land. You talked about one of the first things that you do is to survey the land. You see the boundaries. This is land, ultimately. You've got to understand every part of the land. You've got to know what you can do with the land. You're buying this land. Is it flat? Is it steep and rolling? Are there zoning restrictions? Are there things you can do?

Another thing I found quite irritating with land that I didn't appreciate is that often, there are rights of way easements or access you have to provide and parts you have to maintain. You think to yourself, “This is my land,” but you have to allow access either to the public or to the government inspections or whatever. This is a big one that people don't think about. Was the land formerly used to store old vehicles, farm chemicals, industrial chemicals or other toxins? In the real estate world, for example, in strip malls or retail, if there was previously a laundromat on the site, you're often dealing with some crazy amounts of cleanup that you're legally liable to do.

You buy this strip mall. You think you're going to make money. There used to be a laundromat there. You don't look into due diligence and then you realize, “Now that damage has been caused and regulations are changing, I'm on the hook to pay for that.” It could cost more than the building. You could go bankrupt if you're not very careful. I'm only here talking about basic things. We're not even talking about construction and design like the types of soil. Can you give access to construction equipment? How does rain going to affect your construction and development too?

For this plot of land that I wanted to buy, they stopped the construction halfway through it because there was a lot of rain for a while and it meant that you would have had to redo a lot of the construction. All these roads needed to be paved and it was too costly so they killed the project. There was this period of extreme drought, which caused fire eventually. There's a lot to think about. How does one go in with their guard up here? Do they need a buyer's agent? Is there any way that people can avoid mistakes? There is a lot you don't know and you're chasing a dream. When you're emotional, you don't think about all these things. Especially if it's your first time, you're doing it as an emotional decision.

The first thing is that people need to be more rational. A lot of times when they see, “$300,000 for a large farm. Let's put money into it.”

Don't be too charmed by the price tag yet. Don't lose your rational mind.

This is exactly how it starts. “The price per square foot in the neighborhood that we're in now is so expensive. We're using our life savings here to barely make rent or pay mortgages and we live in a tiny two-bedroom, 800-square foot apartment. We can buy acres and acres for the same price and we can build a 5,000 square-foot dream home.” It starts with the dream and the vision.

I would say the information is very important. As I said, you are basically at a disadvantage in terms of information. The important thing to overcome that disadvantage first off is to have a framework of things that you should think about. The local regulation, how far apart the houses should be, the easement that goes across your property, and even localized climate change impact. In California, it is drier. In Florida, you need to think about the water. First of all, have a more systematic way to think about these issues. As you said, check the previous owner. You can check that very easily with the land registry.

All of the information is out there and you can do it. The important thing is, first of all, to slow down. Don't be too charmed by the price tag yet. Don't lose your rational mind. Also, going to authoritative data sources to check all of these things. That's the benefit of having a specific search for rural properties. Urban property searches cannot give you all this information. That's not what they're focused on. That's why rural property needs to be handled very differently.

A lot of people say, “Terrascope is in the rural spaceCan they go to urban?” Yeah, we can go to urban but it's very difficult for urban searches to go to the rural space because of the variables that get involved. Rural buyers on average need to consider three times more variables than other buyers. It is much more complex.

PTVC 148 | Buying Rural Property

I'm glad to hear you say that. It's also your responsibility as a buyer to verify everything. You can't trust what the agents say especially if it's the seller's agent. One way to get around it is to make your offer contingent. If there's something you want to do with the land, make an offer contingent on being allowed to do that. If the seller isn't willing to agree, that's usually a red flag. This asset class is getting hyped up a lot. There was a time people were buying land on eBay and now it seems like people are buying land abroad without even visiting. People are trading it as a commodity when I don't think it's an appropriate commodity to trade. There are too many variables involved. It's difficult.

You’ve got to be careful and also when you're dealing with any size transaction, something like this is difficult to litigate and very expensive to litigate so you're left holding the bag. Do you agree with this? If something, it’s too good to be true. It usually is and if it's too cheap, there must be a reason. There must be something wrong with it. Is that a fair way of looking at it? Do you think there are bargains to be had if there is a price arbitrage? Do you feel like if something is very cheap, be very careful?

This is exactly what you guys do or the problem you're solving. I'm so cheap. I'm an Indian. My 23andMe DNA is I'm 100% Indian. We're cheap people. We like bargains. I always sought everything by the cheapest first. I always get obsessed with metrics like price per square feet or per acre. I look and I'm like, “This is so cheap. This is great.” Is it worth paying more sometimes? Should you focus on price per acreage? Going back to my other question too, if it's very cheap, is there something wrong with it?

This is a spectrum for rural property. If you want a potential upside and you can do a lot of your homework, buy vacant land and build your own home. You potentially can save a lot of money. I want to first address that there are homes that are very cheap and previously owned by people who live there who made a happy life and they're selling for one reason or another. Those are often a good signal.

First of all, rural properties are much cheaper on average. You can still get good value in the rural space. What you need to be careful with is venturing into areas that you don't know anything about. If you've never built a home or if you have always lived in an apartment before, it's probably too much of a first step to buy vacant land and build everything that doesn’t have utility or water access, and maybe not even the internet and to start everything from the ground up. That is not something we suggest for first-time buyers. That being said, there are plenty of good properties that are residential that have been in the family's residential space for decades that offer great value too.

Kehan, how can people reach you if they want to work with you or contact you as we round up here?

You can use our product. Our product is live in California and Montana. We're going to be going to Texas and a couple of other states. Very quickly, we're going to cover all 50 states. You can use our product at Terrascope.io. You can also contact us anytime at Hello@Terrascope.io. What's exciting is that we're also starting a TikTok channel, teaching people all of the things we talked about in this episode. The tips in buying land, things you need to watch out for, how to check the water quality, and how to think about the septic system. People don't think about that often enough. We're going to launch that very quickly. Once we do, the link will be posted on our website. Stay tuned and thank you very much for having me here.

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Using AI to Invest in Land? How Terrascope Is Making Investing Easier and Smarter - https://www.youtube.com/watch?v=YklTRJiz0OA

Is It Really That Simple to Find Rural Properties? How Terrascope Is Making Rural Real Estate Easier - https://www.youtube.com/watch?v=iBTnuVBHq7o

The Secrets to a Good Tenant Experience with Lydia Winkler - https://www.youtube.com/watch?v=isgt3rpy4AY

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About Zain Jaffer

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780M.

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as "Forbes 30 Under 30," "Inc. Magazine's 35 Under 35," and the "SF Business Times Tech & Innovation Award." He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.