Buying land first before putting a building on it in the future
I'm a complete newbie at this so bear with me.

I am leasing a current space but it's too small so my long term plan is to get out of the leasing game and into the ownership game.

I have some cash saved that I can use to buy about 2 acres of land.  There's several good plots in the area that I am looking at.

My thought was to buy the land first while it's relatively lower value, hold onto it for a couple of years or so, then use that land as collateral for a commerical property mortgage from a bank to fund the building project later.

What are the disadvantages to this?  Obviously I would have to pay taxes on empty land for awhile, is that the only disadvantage?  Any better ways to approach this?

I figure that a bank is far more likely to approve me for a building loan if I already have land as collateral, so that's my main goal of buying the land early.
[{"id": "hi7l89y", "text": "Make sure you talk with the planning department to make sure that your building plan is viable. If you live in California, good luck. \n\nSource: I moved my business to Texas because it\u2019s damn near impossible to build on your own commercial property in any realistic length of time. I got permits to build two buildings in less than a month in Texas.", "replies": [{"id": "hi7lcia", "text": "You in Houston?", "replies": [{"id": "hi7lhf3", "text": "Just north, up in Conroe.", "replies": [{"id": "hi7naeg", "text": "I've heard fairy tales about the famous Houston zoning (or lack thereof). Always wondered how the market there is due to it.", "replies": [{"id": "hi8xmm9", "text": "While Houston technically doesn't have zoning, they still have a lot similar regulations.  This guy explains it pretty well: https://youtu.be/TaU1UH_3B5k", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hi7l8zr", "text": "You have enough to buy the land outright?\n\nDepending on where the land is located, there might be abatement laws: weeds and illegal dumping come to mind, which you are responsible for. Taxes sure...\n\nWhy not just buy an existing structure? Sounds like less headache.", "replies": [{"id": "hi9akdj", "text": "Yes I have enough to buy around 2 acres outright with no loan needed.\n\nFor the building however I would need a loan.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hi7l9a5", "text": "You need to figure out what the land is zoned for and what you can build on it as step one before buying a piece of land.", "replies": [], "depth": 1}, {"id": "hi7m26i", "text": "This is a lot to unpack, and it could be more affordable to buy a building and improve it versus a ground up development especially if you have no connections or experience.", "replies": [{"id": "hi9aciv", "text": "I thought about this too.  It just seems like if I bought a building I'd have to do so much work to it to make it usable for my purpose that I might as well build it from scratch.\n\nIf I buy an existing building and have to spend 300k for renovations that seems like a lot more expensive than buying land and building from scratch so I can put in everything the way I want it.", "replies": [{"id": "hiabn2j", "text": "Do you know what it will cost to build what you want? Do you know if the land is improved, and to what extent? Do you know what the zoning is, and the process of getting it changed? Do you know the building and city requirements are for your use? Do you know what it will cost in legal, and architecture fees to get these thing done? Do you have and idea of how long it will take? What are you going to do in the meantime because it will likely take longer than anticipated and if you go month to month on your current then your rate is likely going to go up. \nHave you looked at properties for sale? \n\nBut again I have no idea what the actual situation is", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hi7z8lb", "text": "You're not ready to buy commercial property.\n\nLease for another 10 years and in the interim, study everything there is to study on CRE.  Take some classes.\n\n(**Edit**: To the person who down voted me, read the OP's post history.  He's very good at being a doctor, loves the business, understands it quite well, but has *less* than a rudimentary concept of simple contracts, not even a base level understanding of investments he's *already* made, or even basic finance and tax law for his employees retirement accounts {about which, without fail, he is **100%** wrong}. *He's simply not ready for this investment type.  Dangerously so.*  He needs *foundational* understanding...not a few paragraphs on a specific subject, that, based on other reading of his past post history, he will ***very*** quickly misinterpret).", "replies": [{"id": "hi97ln2", "text": "Really I need a degree in real estate now?\n\nLook I realize that I'm new to this and I'm not jumping into anything yet, I'm just getting some ideas.\n\nI know 100 other doctors who bought land/building or built their own from scratch and none of them are experts in commercial real estate.\n\nI'm not doing this on my own.  I'm going to get a commercial real estate professional to help and obviously meet with a mortgage lender before I pull the trigger on anything.  This is just a basic exploration phase right now and just wanted to get other peoples experience.", "replies": [{"id": "hi9lj0x", "text": "&gt;\"*Really I need a degree in real estate now?\"*\n\nVibrantly clear evidence of precisely what I said in my comment: Nowhere (in *any* post) did I suggest any such thing.\n\nA little (foundational) education would be highly useful in your quest.\n\n*\"I know 100 other doctors who bought land/building or built their own from scratch and none of them are experts in commercial real estate.\"*\n\nFascinating.  Each of whom has, in your *specific* industry, no doubt made every mistake in the book as well as have success stories, yet, instead of asking them (people he knows and trusts), you're asking nebulous (and barely rookie 101) questions of complete strangers on the internet.\n\nNope, not buying it.\n\nGet some basics first grasshopper. They will serve you well.\n\nClass will still be in session when you do.", "replies": [{"id": "hidubta", "text": "You misread me completely.  Did you really think I was just going to rely on this forum and then go out tomorrow and buy land/building?  I have appointments set up with some CRE people tomorrow.  I probably won't buy for at least another 6 months after many more meetings with CRE pros.  I just wanted to see what others peoples experience had been.\n\nAnd no, I'm not going to take CRE classes or lease for another 10 years.  I'm done throwing away money on rent.  \n\nI'm going to rely on the consultations with people that have done this before.", "replies": [{"id": "hifjad8", "text": "I didn't misread you at all, in fact, your most recent response only confirms what I very accurately read.\n\nNo one has suggested you take classes for 10 years. (It's fascinating that you think I did).\n\nConsidering your current proposal (according to your own statement) is to buy some dirt and sit on it for a few years, then get a loan to build a building (another few years...thus, we're at something along the lines of 4 - 5 years, minimum), I think we can safely presume you are in fact *not at all* done throwing your money away on rent.\n\nIndeed, according to *your own* proposal herein, you have at least 4 years of continual leasing in front of you.\n\nYou need some additional skill sets my friend, and a far better, more informed....plan\n\n(Whether you know it or not...and...you clearly...do not).\n\nYou are not currently tall enough for this ride.  You're going to hurt yourself if you attempt to do so.", "replies": [{"id": "hifpnwh", "text": "Since you seem to be so concerned about my well being, I'll be sure to keep you updated with my progress, but with all due respect I think you're full of shit.\n\nI will meet with the CRE professionals and will come up with a plan that suits my needs.", "replies": [{"id": "hifxyk1", "text": "I would have expected nothing less.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hi8z1ww", "text": "From my experience, unless the land is high value it won't provide you much benefit as collateral for a loan. Collateral is kind of a thing of the past, lenders today seem to look at the whole package. The value of the land will be considered in your total net worth, but having it as cash in a bank account is probably worth more to underwriting.  For commercial lending you really want to focus on coverage- maybe  a lender can chime in with actual amounts- but they are going to look at your current cashflow and decide whether or not you have enough coverage to service the loan. \n\n&amp;#x200B;\n\nCall some local banks and talk to them, most are super happy to chat about lending requirements and give advice.  They will be your best bet for a loan anyway if you do move forward. \n\n&amp;#x200B;\n\nAs to whether or not you should buy a piece of land? Who knows? It's bit like asking whether or not I should buy these tires for a car I haven't bought yet. I'm not sure the tires will even fit or be the right type because I don't know what the car is, heck, we don't even know that much about the tires, other than they are 2acres. \n\n&amp;#x200B;\n\nI sound like a negative nellie, I'm really not, we just need more info.", "replies": [{"id": "hi974su", "text": "OK sounds reasonable, I always assumed they would want collateral but I guess a down payment is just as good if not better.\n\nMy current lease location is right off a major road.  There's no way I'd buy a building on this road because the prices are inflated 2-3X compared to surrounding land.\n\nI have a solid patient base so I would be looking at a building on a minor road because I don't need to have good roadside visibility now that I've been established for awhile.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hi9fyad", "text": "Do it and trust your gut. People don\u2019t act because of analysis paralysis. You\u2019re smart enough to figure it out but make sure you allow enough time to do your DD.", "replies": [], "depth": 1}, {"id": "hi9uttd", "text": "Most of the commercial purchases are contingent on approvals. Depending on your jurisdiction you may require certain board approvals. \n\nIf you\u2019re in an area that\u2019s simple, get legal advice and engineering advice that you are as to right for the zoning and that the size of the land can confirm to what\u2019s needed design criteria wise for the property. If you can build bigger snd lease, try to maximize the deal. Lease out and let someone else pay off your debt service.", "replies": [], "depth": 1}, {"id": "hia0j7x", "text": "If you are looking to make a purchase for your business your best bet is going to be an SBA 7a or SBA 504 loan.\n\nEither way you would be able to roll in acquisition costs, closing costs, improvements, and equipment into a single loan with a max down payment of 10%.\n\nYou can use the same loans to do ground up construction as well but there are more steps to get it done. Shoot me a DM if you want to know more, government guaranteed lending is my day job.", "replies": [], "depth": 1}, {"id": "hiaahm0", "text": "Is the land zoned for commercial and what are the restrictions (flood, fire) from able to get it built? It is a monumental work.", "replies": [], "depth": 1}]