INVESTMENT & DEVELOPMENT

INVESTMENT & DEVELOPMENT

REASON:

The land development process is often viewed as a complex investing strategy—one that only “experts” should consider taking on. While investing in undeveloped land is a complex strategy, beginners shouldn’t necessarily avoid it. In fact, I would argue that new investors can successfully invest in land if they mind due diligence and prepare for more work than what usually accompanies traditional exit strategies. If for nothing else, developing land simply comes with more steps.

There is no shortage of opportunity in the real estate industry as an investor. From investing in residential, multifamily and commercial properties, the real estate industry offers scores of options investors can pursue. One of the more under-utilized investment opportunities is land investing, and there is no reason to ignore it anymore.

PURPOSE: 

The land development is the process of purchasing a parcel of land with the intent of either developing and building on it, or holding onto it for long-term appreciation. The land investing has an array of configurations, but will essentially provide the multitude of advantages from other types of investments; whether it be from selling the property, renting it out for passive income, or simply earning appreciation while performing little to no work.

BENEFITS:

Land investments are typically less competitive than residential real estate

Sellers of land investments can be more likely to finance

Purchase price and holding costs are lower with raw land

The appreciation potential can remain high even with less than stellar market conditions

There are countless development opportunities for raw land

¿WHAT CAN WE DO FOR YOU?

Once you decide what´s the best investment for you, we’re going to go help you with the land development process step by step.

1. Evaluate it`s economic feasibility

The first step of land investing is to determine its economic feasibility. Like any real estate investment, it’s critical to determine your desired return on the property before getting started. This is important because it will not only lessen the uncertainty of the market, but it will also provide a model of the costs versus profit aspect to your investment. Although the numbers will simply be an estimate, understanding the feasibility of your project—including the estimated costs, revenue and overall return—will better assist investors to succeed.

2. Determine the offer price

Once you understand the costs you’re likely to encounter—including what you should receive in return—you can better determine the offer price. It’s important for investors at this stage of the process to have contractors submit actual bids for the project. This will not only provide estimated costs for the project, including the numbers of what you’re expected to spend, but also a max offer price.

3. Find out what the land is zoned for

This stage of land investing deals primarily with the design of the land. In essence, this pertains to what type of property should be constructed on the parcel, including taking a look into local zoning codes.

Depending on the type of property you’re looking to construct, or how you intend to present the property to buyers, zoning will play an important role in how you proceed. Zoning codes will essentially determine what types of properties—whether single-family, multifamily, condominium or commercial—can be built on the lot. As an investor, this could ultimately hinder your investment approach. When getting started in land investing, it’s vitally important to understand the zoning laws in the area.

4. Begin building within zoning laws

The next stage of the land development process is construction. In most cases, this will consist of horizontal development—like grading for roads, curbs and utilities—and eventually building the property from the ground up. One element investors also need to be aware of is the construction financing aspect of the project. Generally speaking, contractors will be paid in increments of duties performed, including phases of the project. In many cases, construction lenders will hold back approximately 10 percent of the construction loan until the project is completed.

5. Market the property to sell

The final step to the land development process is marketing. This is where stage-one is of critical importance. Researching the neighborhood, the market price, and demand for rentals will pay off when determining your marketing strategy. Investors should also have a marketing plan in place to attract buyers to the property. This may include working with a realtor, online listings, advertising in newspapers, and even social media.

Facts In Land Development

  • Permits: Permits are required for almost any type of construction, development or renovation. When developing land it is crucial to research not only the permits required for these projects but also the anticipated costs and timelines of obtaining said permits. Many investors underestimate the amount of time permitting can take and should be careful to account for it when searching for and financing land developments.
  • Zoning: Depending on where the land is located it will likely be in a designated zone, whether that is commercial or residential. In some cases, land can be rezoned but again it is important to add that into your potential timeline for a given deal. It is also important to note whether any potential land investments are located within a protected wildlife zone, flood plain, an area with building restrictions, etc.
  • Water: Water and sanitation are two of the most important aspects when planning a land development. Investors should determine if there are existing hookups or water and sewage lines on the property and go from there. It is crucial that you research local requirements during this part of the process, as there are a number of regulations around installing and operating water lines for a property.
  • Electrical: Last but not least, investors need to consider power not only for the future building but for the construction process as well. If there are not existing power lines to the land, you will need to contact local utility companies to start the process. Additionally, do not forget to consider cable, phone, and internet lines as these are also crucial aspects of land development.

Extra Steps Before Developing Land

The extra steps required of investors to successfully develop land extends beyond finding and purchasing it. There are several factors that investors will need to consider each and every time they evaluate a piece of land. While it may seem intimidating now, these elements will become second nature over time. Until then — review the following things to consider before developing land:

  1. Engineering: A crucial aspect to the land development process, particularly early on, is to have any plans reviewed by an engineer. Some real estate investors may have a background in this field, but if not it is important to find a qualified engineer to work with. These skilled professionals will be able to integrate all portions of a property development plan and determine it´s feasibility. This means considering soil study, utility hookups, infrastructure, and other amenities.
  2. Visit The Land: Anytime you are considering purchasing or developing a piece of land it is important to visit the site. Just like traditional investment properties, a walkthrough can reveal aspects of the land you may not have noticed. Walking the area could uncover hidden amenities, unique landscaping, accessibility issues, or even existing power hookups. These surprises could impact the purchase price, development process, and viability of the land. It is always a good idea to walk around the area to ensure you find any surprises, both good and bad, that can come with purchasing land.
  3. Spatial Awareness: One of the most important pillars of successful land developments is spatial awareness. When purchasing land you need to understand how to maximize it´s use and profitability.
  4. Project Management: You might be able to get away with a one-person team when working in residential real estate — but even under perfect scenarios that is not the case when developing land. Investors should expect to work with several other professionals throughout the development process. Take time to find the right people for your project, communication style, and business goals. Outline and divide responsibilities as necessary — OUR PROJECT MANAGER will help you keep your project on budget and on time.
  5. Looking From The Outside: When it comes to new developments, investors should quite literally plan from the outside in. This means designating lots and structures before planning the specifics of the buildings. By doing this, you can place your focus on reducing the amount of earthwork and grading required, and even take advantage of the natural layout of the area.
  6. Streets & Roads: While streets and transportation are a critical element of developing land, these elements can wait until much later in the process to be planned. The reason for this is because developers typically need to focus on maximizing land usage and livability (specifically in residential developments) first. Ideal street and road locations will likely arise as you plan the rest of the development — so try to avoid focusing on this task first.
  7. Surveyors Work: If there is anything to take away from the land development process let it be this: pay attention to the features of the land. Topography is crucial for understanding the characteristics of the land and strategizing its usability. There are great resources out there for mapping out property developments and working around the geographic elements of an area. Make use of those available to you and your team to ensure you fully consider the topography of an area before purchasing land for development.
  8. Imagine: Land development can be a great strategy for investors who love full creative freedom on a project. With developments, you are truly starting from scratch on a property. While there can be obvious constraints due to budget, timing or land availability, there is a lot of room to get creative when planning a new build. Don’t be afraid to explore new ideas or real estate technologies when planning a development — as unique features have the potential to really pay off when you finally start marketing the property.