What is land development?
Land development is the process of making improvements to a piece of land.
Getting into land development can be a lucrative path for building wealth in real estate. With land development, you are executing a business plan to create forced appreciation.
There are risks to land development, but by working through a step-by-step process and enlisting the help of experts, it is possible to get it done.
Types of Land Development
There are many different types of land development. Each one has its own set of challenges and opportunities.
- Residential Development
- Urban Residential
- Rural Residential
- Multifamily Residential
- Commercial Development
- Industrial Development
- Flex Space
Questions to Answer About a Property
When considering a land development project, you will have a set of questions that need to be answered to determine the project's feasibility.
- What can I build on this property?
- What are potential uses?
- What are the zoning requirements?
- What are the zoning constraints and setbacks?
- Are there any geotechnical concerns?
- What government entities have jurisdiction over this property?
- What is the zoning and land use of the surrounding properties?
- Are utilities avalable at the site or do they need to be extended?
How to Research Land Use and Zoning
I have some good and bad news about researching property zoning and use laws. First, there is no standardized way to research properties nationwide. Each municipality, county, and governing authority has different ways to publish land use laws, zoning maps, and details about what uses are not allowed in which area.
This is bad news because it is extremely frustrating as a new land developer. However, it can be a blessing in disguise because you can start to acquire subject matter expertise about your markets. Allowing you to pick up on nuances in the law that may allow you to derive more value from the land development process than your competitors.
Knowing that researching land use will be different in every jurisdiction, there are still the same basic resources you can tap into in each area. I have found the best research involves a mixture of doing my own research, involving professionals, and asking questions to the zoning officials. These resources you can tap into are:
- Zoning Maps – Most jurisdictions have a map available online and in the zoning office showing the deliniations of zoning districts
- GIS – Some jurisdictions have Geographic Information Systems (GIS)
- Zoning Code – You can access the zoning code online for a jurisdiction and familiarize yourself with it by reading through the regulations
- Surveyor – Surveyors have a deep knowledge of the zoning codes in the areas they work in. They are also familiar with reading, researching, and applying zoning code to your application.
- Real Estate Attorney – A real estate attorney that focuses on land use will be able to help you navigate the zoning laws for conforming use. They are also essential for navigating what may be approved through public hearings as a nonconforming use.
- Zoning Office – Asking questions to the zoning officials at the zoning office in your jurisdiction can be a wealth of knowledge.
Potential Uses of Land
You might think of land development as turning agricultural land into a subdivision as that is a prevalent form of land development near population centers. While this is true, there are many different types of land use that you can develop.
Sometimes parts of the land are developed to be leased, such as cell phone towers, billboards, and ranching.
As part of your due diligence on land, you will want to have environmental studies completed before you purchase it. You will do this during the due diligence period of your contract to purchase.
The landowner may have already contracted an engineering firm to do an environmental study in some cases. In which case, you may be able to lean on that engineering firm with questions, and it may fit your needs for lending requirements.
Almost every bank will require you to do a Phase I Environmental Site Assessment as a requirement to close the loan.
If you are not purchasing a property with a bank loan, you may not be required to get a Phase I ESA. before purchasing a property you intend to develop. However, there is one major reason why it is good to get an ESA. A Phase I ESA can reduce your liability. There is a clause in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) that gives owners “safe harbor” from the environmental damage of previous owners if they meet all the requirements of the CERCLA’s innocent landlord defense.
Steps to Land Development
The process of land development can take several years. However, you can break it down into three major phases: Pre-Development, Development, and post-development.
Pre-development is composed of all the activities done before groundbreaking in land development. His is the foundational work, and mistakes made in this phase can mark the difference between a successful and a failed land development project.
The first step is to figure out what you are even looking for. In this phase, you will be developing your search criteria. Then, sit down with your team members and determine what would mark the success and failure of this development project.
This is the time to consider how much capital you or your development team can access. First, determine what your abilities, strengths, and weaknesses are. That way, you can narrow down what type of property you are what scale will be within reach.
An example of a set of criteria if you are in the business or entering the business of developing a subdivision:
- 50 acres or more
- Sufficient frontage to a major road to build transportation ingress/egress
- Priced under $100,000/acre
- Within 2 miles of community shopping center
- Relatively flat overall grade
- Nearby availability to sewer for at least 100 homes
Once you have a set of criteria developed, it is time to move on to the next phase.
2. Location Scouting
Once you have established criteria, it is time to pound the pavement and start looking for properties. Again, there are many sources of leads on available property.
3. Acquiring Land
Now that you have determined potential purchasing locations, it is time to acquire the parcel.
Once you find a property that meets your development needs, it is time to put in an offer and hopefully get it under contract. What will make a compelling offer to the seller? It will make a big difference if the seller actively sells the land.
Things to consider:
- How soon you can close
- How much equity you are bringing to the table
- Contingencies to include
- Who you will need to involve on your team
Getting Under Contract
Once you have a plan together on what you can offer and how you will purchase the property, it is time to submit an offer. Once you submit an offer on the land, there will usually be negotiations about the terms of the offer.
You will likely make your purchase conditional on results from due diligence.
The due diligence period is when you set in your contract to research the property condition, zoning, and environmental concerns. It is when you assure that the property actually meets the criteria you set and is viable for development.
You will want to confirm local zoning regulations. Next, you will identify if you need to receive any variances on this property to execute your business plan and the odds of being awarded the variance. Next, you should research to find any easements on the property for utilities or transportation access. Finally, you should also check with code enforcement to determine any current violations with the property.
The due diligence period is the time to involve the experts. Traditionally, developers wait until they have the property under contract to start incurring costs on research and planning. For example, getting the environmental reports, a survey, and civil engineering work done. Then, as this work is completed, you can start getting bids on the development's construction portion.
Once you have completed due diligence, it is time to prepare and execute the acquisition. In this phase, you will finalize funding, continue working on plans, and get ready for application for permits.
Since everything in real estate is negotiable, you may have negotiated that purchasing the land is contingent on applying for and receiving permits before closing. If that is the case, then you would actually place the next step of receiving permits before this step.
4. Zoning Permits
Getting approvals from zoning can be a tricky process depending on the complexity of your development.
Entitlement is the process of getting permission from the local governing entity to build your proposed development. If your proposed use conforms to existing zoning, then getting permission is a matter of applying for a permit with all the required documentation. If it is non-conforming, you still have options.
One option is to get a variance from the current zoning regulations. This is more likely to be the route if you develop a single parcel for a single-use. However, it will involve a public hearing with the zoning board of appeals.
Another option is to get the property rezoned.
The third option to entitlement is working with the city planning department. The planning commission in your jurisdiction can create a Planned Unit Development (PUD). This is a tool they can use that allows development outside of the traditional conforming zoning rules. In addition, of course, it helps to know what their long-range planning goals are because the jurisdiction is unlikely to grant a PUD unless they see it as furthering their overall community planning objectives.
Stage 2: Development
If stage 1 of development is all about planning, stage 2 is about executing. So now that the property is purchased and permitting is completed, it is time to get shovels in the ground and get the project rolling.
1. Site Work
In a nutshell, the site work is getting the land's topography to look like the site plan. This will likely involve either bringing infill or removing fill to get the property graded to the levels in the plan.
If the plan calls for demolition, the best time is usually at the beginning of the site work phase.
As part of the site work, erosion control measures will be required to be installed. This prevents erosion from leaving the site and entering neighboring properties.
Bringing utilities to the site and getting them to where they need to be is done in this phase. The typical utilities that need to be planned are sewer, water, and electric. You may also install cable or phone utilities depending on your plan.
The sewer hookup often is one of the most involved utilities to connect to. If it is available on the property already, it can be quite deep and require major excavation to connect to. Depending on the municipality, wastewater and stormwater could be separated or combined. The sanitary sewer usually will be a smaller diameter pipe than the storm-water.
If the property does not have sewer access, you will prepare for septic.
If you are building subdivisions, you will need to build the roads and any transportation items required for accessibility.
Depending on what you are developing, the construction phase could be very involved, for, say, a shopping center or nonexistent for agriculture.
There will be regular inspections to ensure that the property meets the building code conforms with the approved development plans and city codes when building a property.
5. Final Grading
As the construction is nearing completion, it is time to finish the exterior. In this phase, you will handle landscaping installing the driveways and sidewalks.
Once everything is completed, it is time to get the certificate of occupancy and move to the post-development stage.
Stage 3: Post-Development
Once you finish construction, you move to the post-development stage of land development. If you are the end-user, that basically means moving in and using the property.
There is a lot involved with land development. Getting zoning approval for what you are trying to achieve can be a challenging step. However, once you break the process down into manageable steps, land development can seem much less daunting to approach.