Rural farm property surrounded by mountains

Buying Rural Property: A Complete Guide Before You Buy

8-Minute ReadMarch 31, 2021

Buying a piece of rural property is a dream for many people. For some, it’s the prospect of starting a hobby farm or growing one into a full-fledged working farm. Others envision themselves with a cabin on the lake where they can bring their family on the weekends.

But there’s a lot to know about buying rural property. Before you start the search for your dream piece of land, it’s important you understand exactly what to expect and what hurdles you might encounter.

Decide What Type Of Rural Property You Want To Own

When it comes to buying a rural property, there are many options to choose from. Some properties serve as someone’s primary home, while others are a business. It’s important to know ahead of time what you’ll use your rural property for since there are different types of financing required for different uses.

Hobby Farm

A hobby farm is a small-scale farm that’s run as a hobby or source of entertainment rather than for pleasure. While someone might make some money from their hobby farm, it’s not their primary source of income. And for many people, their hobby farm costs more than it brings in. And according to the IRS, activities that you do as a hobby — including farming — can’t be counted as a business activity for purposes of tax deductions.

In general, a hobby farm is considered anything on 50 or fewer acres but is often closer to just a few acres. But it’s really not about the acreage. You could have a hobby farm on far more than 50 acres, and you could have a profitable farming business on fewer. The important distinction is whether or not it’s profitable.

Weekender Property

A weekend property is typically a home that someone buys as a vacation home. They use it for weekend getaways. Those who live in the city might purchase a weekender property to have a space for outdoor activities they can’t do at home, such as hiking, swimming or gardening.

Weekender properties can cost anywhere from just a modest amount for a small cottage to millions of dollars for a beach vacation home.

Working Farm

A hobby farm isn’t the only type of rural property you might consider. Many people finance and purchase working farms. Whether your farm is used for growing produce or raising livestock, working farms are considerably larger than hobby farms. According to USDA data, the average working farm size is 444 acres.

A more important distinction between a hobby farm and a working farm is profit. While hobby farms might bring in some income, they aren’t profitable revenue sources and certainly don’t suffice as someone’s full-time job. But a working farm is profitable and is classified as a business by the IRS.

Keep in mind that given the business status, there might be a special kind of financing required to purchase a working farm.

Self-Sufficient Property

A self-sufficient property is one that isn’t reliant on any outside sources to operate. Self-sufficient properties are able to generate green energy — often through solar or wind — to power their homes.

Many self-sufficient property owners take things one step further and grow their own animals and vegetables to sustain themselves rather than grocery shop as others would. This type of living is often called homesteading.

It’s important to know that running a self-sufficient property isn’t easy. There’s a lot of work and expense to get started.

Affordable Rural Home

When people picture rural life, they often picture a hobby farm or homestead, but that’s not always the case. In fact, most rural homeowners have normal homes that just happen to be in a rural area.

The government makes it easier for low-to-moderate-income families to buy rural homes with USDA loans. These loans can come either directly from the USDA or from a USDA-approved lender. To be eligible for this type of financing, a home must be used as a primary residence, be in an approved area, and meet certain structural requirements.

Raw Land

Rather than buying an existing home, some buyers look for raw land that they can do what they want with. Common reasons to buy land would be to build a home to live in, build a home to sell, or to simply keep empty. For example, someone might be a piece of land to use for hunting during certain parts of the year.

Someone might also buy raw land as an investment, especially in an up-and-coming area. This type of real estate investment — known as buy-and-hold flipping — is when someone buys a property and then holds onto it until the value increases and they can sell for a profit.

Rental/Investment Property

The final type of rural property someone might buy is a rental or investment property. The two most common examples of this would be either short-term or long-term rentals.

A short-term rental is a home that someone rents out for short-term and vacation visitors. A beach home or cabin in the woods might be a popular destination spot, and the owner might rent it out to tourists and visitors.

A long-term rental is one the owner rents out to a particular tenant for longer periods of time. These rental properties typically require a lease of about 1 year, though it could be slightly shorter or longer.

In the case of both short-term and long-term rental properties, it serves as a source of recurring income for the owner.

Need a real estate agent?

Match with a local expert.

Learn How To Find Rural Properties

One of the most challenging parts of buying a rural property is finding the right one. Especially if you’re either new to the area or new to real estate buying, you might have no idea the best way to find properties for sale.

One of the best things you can do is to start by talking to a local expert. For example, local real estate agents are likely to have some good insight on finding the perfect property. You can also search for land online using the Rocket Homes® home search.

Scope Out Land Options And Consider Locations

When you start shopping around for the perfect rural property, it’s important to explore your options. Just as it isn’t wise to buy the first home you look at without learning more about the particular house and the market in general, you shouldn’t buy the first piece of land you find without doing your homework.

First, shopping around can give you an idea of locations and features you especially like. You can also find out if certain areas fit within your lifestyle more, or if there are neighborhoods you should avoid.

It’s also important to consider what you plan to do with the land. For example, if you’re buying land to build a house, it’s important to make sure the lot is actually well-suited for a home and that it won’t be too expensive to clear and grade. If you’re buying land to farm on, you have to make sure the soil can actually be farmed.

Research Lenders And Loan Options

Most people can’t afford to buy a piece of property in cash. As a result, you’ll have to shop around for a loan.

First, it’s important to know ahead of time what you’ll use the land for. Financing a primary residence, rental property, and business property might be three entirely different processes. It’s important to consult a lender to find out what type of loan you’ll need and the requirements to get it.

The federal government has loan programs available for individuals who want to buy a rural property to use both as a primary residence or as a farm. Research your options to find out which loan program, if any, you may qualify for.

Be Aware Of Codes And Restrictions

Before buying a piece of property, it’s important to understand local codes and zoning and any restrictions you may be subject to.

In some areas, rural zoning limits how much you can develop a piece of land. These laws are intended to preserve open land but could be a nasty surprise for someone who bought the land intending to build on it.

Certain categories of zoning that restrict what you can do with a plot of land include:

  • Residential
  • Commercial
  • Industrial
  • Agricultural
  • Historic

Even one zoning category can have more specific restrictions. For example, residential zones could be classified as either single-family, suburban, or multifamily, and you could be prohibited from using the property for other purposes.

Another thing to look out for is the local codes for a particular type of building. Whether you’re buying or building a residential, multifamily, or commercial building, there will be certain code requirements you must meet. Check with your local government to learn more.

Finally, make sure you understand the land boundaries. In rural areas especially, it’s difficult to know where one property ends and another begins. Before you close on any property, request the property boundaries from the county assessor’s office. You may learn that a piece of land isn’t as large as you thought. Similarly, you might learn that some of what you thought would be your property is actually a part of a local park or right of way (aka land that is maintained by a homeowner but technically owned by the city).

Know Which Grants And Specialized Loans You May Be Eligible For

There are many types of grants and financing specifically designed for people purchasing rural land. Before you buy rural property, be sure to research your options.

The USDA has grants available for certain types of land. For example, there are grants available for people who plan to grow a particular specialty crop, including fruits, vegetables, and tree nuts. There are also grants for those building community facilities or growing rural small businesses.

Other financing assistance includes farm loans to family-size farmers not eligible for a commercial loan, and loans for beginning farmers and ranchers just getting started. For more information, see the USDA’s full list of grants and loans.

Know What Tax Breaks To Expect

Depending on where you live and what you use your rural property for, you might be eligible for some tax breaks.

First, the IRS allows business owners to deduct expenses associated with running their business. According to IRS guidelines, you can deduct expenses that are both ordinary and necessary for your business.

There are also some property tax exemptions that can help reduce your tax bill. These agricultural property tax breaks are usually available to farmers. But depending on your state, you may also be eligible for exemptions for having green energy equipment or agreeing not to develop the land.

Set A Purchase And Maintenance Budget

Whether you’re saving for your next home or starting a business, there’s no doubt that real estate is expensive. And unfortunately, many people underestimate the cost. Here are a few expenses to budget for when you’re planning your purchase:

  • Down payment
  • Closing costs
  • Moving costs
  • Taxes
  • Insurance
  • Maintenance

If you’re buying rural land to use as a business, you’ll have even more expenses, including equipment, marketing and more. Before you make such a big investment, make sure you have plenty of room in your budget.

Reflect On Your Goals

One of the best things you can do before buying a rural property is to get really clear on your goals. Make sure you know upfront what you plan to do with your new property so you can plan your budget and financing ahead of time.

There’s no doubt that buying real estate can be a stressful process, and there are sure to be bumps in the road. The better you’ve planned ahead, the more prepared you’ll be to address them.

Look For An Experienced Realtor

Having an experienced and knowledgeable real estate agent can make or break your property purchase. Rocket Homes® can connect you with Verified Partner Agents who have been fully vetted and specialize in a particular area. By connecting with an agent who is an expert in buying rural property, you’ll already have a head start.

Apply For A Mortgage Online