You’ve found the perfect piece of property. It’s in the general location you want. It’s the right size and is loaded with wildlife, making it ideal for hunting, or it has plenty of timber making it ideal for harvesting. But, there’s one big issue. The property is landlocked. For many prospective landowners, that piece of property would no longer be an option. For the potential landowner who’s willing to think outside the box and do a bit of legwork, that landlocked property could end up being a very wise investment.
What Does Landlocked Mean?
What constitutes landlocked property? It’s typically a piece of land that has no legal access road. The land is surrounded on all sides by property owned by others, and the only way to get to the property is by crossing through a neighboring property. In other words, it is inaccessible via public thoroughfare.
Ben Elliot, VP relationship manager at Alabama Ag Credit, says to think of landlocked property like an island, but without the ocean.
“You may have 40 acres that sits off the road and it’s surrounded on all sides by other landowners. It’s just a spot that does not have road frontage. And, even if it’s got a road to it, there’s not an easement or a firm legal way to get to it,” Elliot said.
Gaining Access To Landlocked Property
A lot of people think, “If I can’t get to it, I don’t want it.” Elliot said he’s seen landlocked property pay off for many people who are willing to take the steps and go through the process of gaining access to that property.
He pointed out that sometimes the owner will sell landlocked property at a discount. And if you can get it financed and figure out a way to gain access to it, you have the potential of making good money on that piece of property when you decide to sell it later. Or, you and your family can enjoy the recreation opportunities on the property for years to come.
“You go out and talk to or even make friends with that adjoining owner. Or you may find something that you can use to your advantage and end up working out something where you end up getting legal access. When you do that, you’ve got a success story. and if you’re looking to resell it, then you’ve created a lot of equity by making that now a very marketable property. So, if you’re willing to take the chance, and it is the property that you’re willing to put that time and effort into, then you may be able to really improve it with just making the right phone calls,” Elliot said.
When it comes to legwork, there’s a number of steps you can take when you’re considering purchasing landlocked property. First, he recommended doing your due diligence to determine who owns the property surrounding the landlocked property.
“You’ve got to do your research and find out who the other landowners are,” Elliot said.
You’ll want to meet and talk to the other landowners to make sure that everybody’s on the same page. You may be able to work out a deal to gain access to your land through another property owner’s land. There may also be a way that you can attain an easement to the landlocked property.
“There’s a lot of legal things to consider if that’s a piece of property you want,” he said.
Elliot advises speaking to an attorney to fully understand all of the legal aspects and what your options may be concerning the landlocked property.
If you’re willing to do that work on the back end, and figure out some of the nuances and intricacies, then you may just end up with your dream property at a discounted rate.
Financing Landlocked Property
Some prospective buyers don’t realize that landlocked properties can be financed. There are hurdles, but they’re not hard to overcome.
Elliot explained the factors to consider when attempting to finance landlocked property.
If a potential buyer is interested in a landlocked property and wants to finance it, he said that first the land’s use needs to be determined.
“Is it pasture land? Is it timber? If it’s timber, there are more options to get in there and log it. You also need to know who are your adjoining owners? What’s been the understood way to get back to the property? You’ve got to do some research there,” he said.
When it’s time to finance the property, Elliot says they’ll likely require the buyer to provide a larger downpayment than he or she would need for land that has legal access.
“We want to get some more equity in it, because it is a unique property. And along with that, you may have a special relationship with the owner, but somebody else might not. So, we’re going to require a little more equity in that and some more just understanding about what we’re dealing with,” Elliot said.
But, once you’ve provided that larger downpayment, you most likely will be able to receive a typical loan for the property without being penalized for its landlocked status.
“If the loan structure is outside of the downpayment, we’re gonna treat it like anything else. We’re not going to hit you with a big rate. Acknowledging the issue with the property with that additional requirement for downpayment, you’re not going to be penalized. If you qualify for the loan, you’re going to get market rates,” Elliot said.
Elliot said you also don’t necessarily have to obtain legal access before you get financing on the property.
“When we’re dealing with the landlocked property, we know going in that access is going to be something that comes up. We can often go ahead and start working on it.,” Elliot said.
He said, first they must determine if a loan can be provided knowing there’s an access issue.
“We’ve even gotten down to the point where we’ve sent the appraisers out to actually look at what it is. What does it look like? Is it really that bad or is there a road that goes back there that hasn’t been used forever?” Elliot said.
He said sometimes they’ll discover there is a road that goes to the property, but it’s not a legal access. And sometimes, they’ve discovered a dirt road that no one owns. The lenders will often research the property themselves before granting a loan.
“There are just a lot of factors to see where we may be and what we can offer on it,” Elliot said.
Don’t Overlook Landlocked Property
When searching for that perfect piece of property, look at every available plot of land, including landlocked properties. If you’re in the market in a certain area at a certain price range or acreage range, whatever it may be, look at all the opportunities and analyze them as they sit and try to determine if this property is going to be right for you. If you find the right property for you, it’s never a bad time to buy. You’ve just got to make the numbers make sense.
Remember that with landlocked properties, you may have a seller who understands their property is landlocked, and therefore less desirable to the market, so they’re willing to trade that land at lower-than-market prices. If you are willing to find these types of properties and are willing to do the legwork it takes to obtain that legal access, you can build immediate equity.
Take the opportunity that everyone else won’t take and go for it. If you do the work, you may be able to make that property into something that you can resell at a profit or valuable to your friends and family as the perfect recreation spot.
