Residential Land for Sale vs. Industrial Land for Sale
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Whether you're a business owner or commercial real estate investor, understanding the different types of land and their uses goes a long way in making sound investments. Land use is dictated by regional zoning laws that clarify what can and cannot happen on qualifying acreage.
Residential and industrial land are two of the most common zoning designations, and each comes with its own advantages and disadvantages depending on how the owner intends to use it.
Here, we'll cover the main differences between residential land and industrial land, including their uses, the buying process, and average costs.
Let's get started.
What Is Residential Land Used For?
Residential land, as the name implies, is land that a city or municipality zones specifically for residential properties. Residential land itself might be further zoned for specific types of residential properties. Types of residential properties that can exist on residential land include:
- Single-family homes;
- Multi-family homes (e.g., apartments);
- Duplexes;
- Condominiums; and
- Townhouses.
Note that residential land can have commercial property standing on it. For example, large apartment complexes exist on residential land, but the complex itself would be considered a commercial property.
In rare cases, owners might be able to use residential land for specific-yet-limited commercial purposes. For example, some cities have mixed zoning that allows owners to use residential land for multiple purposes.
What Is Industrial Land Used For?
Industrial land is a type of commercial land that cities and municipalities zone for industrial uses, like manufacturing, storage, or distribution. Industrial land is usually further divided into land for “light” and “heavy” industrial use that differs based on energy and material requirements.
Examples of properties that exist on industrial land include:
- Warehousing;
- Manufacturing;
- Cold Storage;
- Flex Industrial Space;
- Laboratories;
- Showrooms; and
- Data Centers/Server Farms.
Industrial zoning exists because industrial land, when it houses industrial buildings, tends to produce noise and waste that would be undesirable near residential properties.
When purchasing industrial land for sale, it's crucial that buyers understand exactly which industrial uses local zoning ordinances allow. Violating zoning laws can result in large fines and, in serious cases, imprisonment.
How Do You Buy Residential Land for Sale?
Buying a plot of residential land for sale is different than buying a residential property. In addition to basic financing, land buyers must assess land for utilities and access conditions, like water, sewage, gas, and road access.
Most land buyers will rely on a land loan to finance their purchase. Land loans are higher risk for lenders because it takes more time and capital for buyers to develop the plot. As such, most lenders will require higher down payments (>20%) and a great-to-excellent credit score.
In most cases, we recommend working with a real estate broker to find a suitable plot of residential land for sale. For example, experienced agents can analyze commercial property financials, establish key terms and clauses in sales agreements, negotiate concessions when renting or leasing, and perform day-to-day property management.
Things to Consider When Buying Residential Land for Sale
Make sure you think about the following considerations when buying residential land.
#1 – Allowed Housing Type
Most residential zones have further zoning that determines what kinds of housing landowners can build. For example, California districts have an R1 designation for single-family homes and R2, R3, and R4 designations for low, medium, and high-density multifamily homes. Many zones for single-family homes won't allow construction for multifamily homes and vice versa.
#2 – Sewer Access
Residential lots have two options for sewage treatment: municipal sewers and septic tanks. Construction on rural land usually will require a septic system as it's not close enough to hook up to the city's sewer system. Both single-family homes and multifamily homes can use sewer or septic systems.
#3 – Electrical Connection
Similarly, electrical access will be more straightforward for single-family homes and multifamily homes that are closer to power grids and lines. It can be expensive to run electricity to a piece of land that's far away from local grids.
How Do You Buy Industrial Land for Sale?
Similarly, buying industrial land for sale is different from buying industrial real estate. Just like with residential land, industrial land buyers must assess the property for utilities and access considerations.
Businesses that want to buy industrial land for sale can apply for an SBA 7(a) loan. Businesses can use 7(a) loans to finance real estate and land purchases. SBA loans tend to have lower interest rates than private loans, as well.
Things to Know When Buying Industrial Land for Sale
Buying industrial land is a big commitment: Be sure to consider the following factors when browsing the market.
#1 – Light vs. Heavy Zoning
Many districts distinguish between light and heavy industrial land uses. Light zoning typically includes low-energy uses, like:
- Warehouses;
- Small-scale construction;
- Packaging; and
- Distribution.
Heavy industrial zoning is for more energy-intensive production, such as:
- Electrical power production;
- Chemical manufacturing;
- Mining;
- Airports; and
- Large-scale construction.
It may not always be clear whether a certain property use counts as light or heavy. For instance, a warehouse that uses robotics and heavy machinery may require heavy industrial zoning.
#2 – Land Contamination
One of the most important factors when buying industrial land for sale is contamination. Industrial land might be contaminated by pollution from land use.
Contaminated land can quickly turn into a liability as the buyer will be responsible for cleaning it up. It's crucial to ensure your industrial land has the appropriate waste management systems for any business activity.
#3 – Existing Structures
It can be helpful to buy industrial land that already has some kind of construction on it. If you're buying land as an investor, you skip construction and rent or lease the structure that's already there.
If you're a business owner, you can find existing structures that fit your activity requirements, like sheds, storage units, warehouses, and more.
What's the Average Cost per Acre of Residential Land in the US?
The average cost of an acre of land in the US is about $12,000. However, land costs can dramatically differ depending on the city and state.
For example, the average cost of an acre of land in Arizona is only about $4,000, while the average cost to buy an acre of land in New Jersey is about $243,000.
What's the Average Cost per Acre of Industrial Land in the US?
According to market data, the average cost of industrial land in the US is about $62,852 per acre. However, like residential land, prices for industrial land can vary significantly across the country.
Prices for industrial land in the US have skyrocketed over the past decade, rising more than 50% between 2017 and 2018.
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