Raw land is the replacement category most likely to draw scrutiny over whether it was actually acquired for investment rather than personal use, since undeveloped parcels rarely produce current income and the case for investment intent has to rest on other evidence. A buyer identifying land should be building that record from day one, not reconstructing it later.
Unlike an income property, land carries carrying cost without offsetting rent: property tax, association dues where applicable, weed abatement or maintenance requirements, insurance, and financing cost all accrue while the parcel sits unentitled and unimproved. That cost needs to be underwritten as part of the return, not treated as a rounding error against an assumed future sale price.
The core diligence question for raw land is not condition, since there is little to inspect, but entitlement: what can legally be built, how long approval takes, and what could block it. Two adjacent parcels can have entirely different development timelines based on zoning, utility access, and environmental constraints alone.
Keep a written record of the intended holding purpose, whether that is long-term appreciation, future development for lease or sale, or a documented land-banking strategy tied to a specific business plan. This record matters more for raw land than for income-producing categories because the absence of rent removes one of the clearest indicators of investment use.
Avoid any personal use of the parcel, such as recreational access, family events, or informal use as a homesite, since these can undermine the investment-use position regardless of how the property is titled.
Discuss the specific facts of the acquisition, including any plan for improvement, holding period, or eventual disposition, with a tax professional before closing rather than after a return is filed.
Confirm current zoning, any pending rezoning applications on the parcel or adjacent parcels, and whether the land carries an agricultural, conservation, or other special-use designation that limits development rights or triggers rollback taxes upon a change of use.
Request any existing entitlement work: preliminary plats, engineering studies, environmental assessments, or traffic studies the seller has commissioned. Confirm whether these studies transfer to the buyer or expire with the sale, since redoing this work can add months or years to a development timeline.
Check for pending moratoriums, infrastructure capacity limits, or growth-management restrictions at the county or municipal level that could delay or block approval regardless of the parcel's underlying zoning designation.
Verify legal and physical access to a public road, including any easement documentation, since landlocked parcels or those relying on undocumented access can be difficult to finance or develop. Title work should confirm recorded access rights, not assumed historical use.
Confirm the distance to water, sewer, electric, and gas service, and obtain a will-serve letter or capacity confirmation from each utility provider where development is planned. Extending utilities to a remote parcel can cost more than the land itself.
Order a wetlands delineation, flood zone determination, and Phase I environmental assessment appropriate to the parcel's history and prior use. Prior agricultural, industrial, or unknown use can carry environmental liability that a vacant appearance does not reveal.
Budget property tax, any association or district assessments, liability insurance, and basic maintenance such as mowing or fencing for the expected holding period, since none of these costs are offset by current rent.
Confirm financing terms directly with lenders, since raw land loans typically carry higher rates, lower loan-to-value ratios, and shorter terms than income-producing property loans, and some conventional lenders will not finance unentitled land at all.
Build a realistic exit timeline based on comparable entitlement and absorption history in the area, rather than a broker's optimistic development pro forma, since a slower approval process directly increases the total carrying cost of the holding.
If the deadline pressure or entitlement uncertainty of a raw-land purchase does not fit the exchanger's situation, a Delaware statutory trust holding income-producing property can serve as a documented backup that avoids the non-income-producing carry period entirely, subject to current offering availability and investor eligibility.
This is a genuine trade-off rather than a direct substitute: raw land offers appreciation and development upside with carrying cost and entitlement risk, while a DST offers current income and passive ownership with sponsor, leverage, and offering-specific risk. Review both against the exchanger's actual timeline and risk tolerance rather than choosing by default.
