By Janeen J. Detrick
This article will attempt to de-mystify the land development process, so a novice in real estate development can get started as a Land Developer! Any time, even right now, begin building relationships with other real estate investors, or anybody that might have a 401 K or IRA that they would like to make more money on, or anyone that might have money or financial resources.
Consider using a Joint Venture Agreement, rather than establishing an LLC with that other partner, or have the two separate LLC’s do the joint venture together. Start looking for a financial partner right away!
I. First, let me plant the seed thought that one way to begin, even if you have very little money, is to identify a parcel of vacant land in the pathway of future development, and offer the owner a small option fee in exchange for giving you a long term option to purchase the land. Be sure you legally record a “Notice of Interest!”
To find land in the pathway of future development, you can go to your state’s Department of Transportation website , and see their long term plan. Also consider looking on your county’s planning and development website. It’s a great trick for knowing well in advance where new infrastructure, and therefore development, is headed! There is a saying in real estate, “Where infrastructure goes, property value grows!”
II. Second, it is important to keep in mind that you can approach your project in two different ways:
A. Find some great land, then decide what the highest and best use for that land would be, based on current zoning and potential zoning, then develop an idea of what to put on that parcel.
B. Have an idea of what you would like to develop, then proceed to find a piece of land on which that idea would work. (This is usually a more expensive, time consuming method!)
III. After you’ve found a site, investigate the possibilities!
A. Go to your local planning and development office at your city/county, and find out what the maximum density is for that piece of land.
B. What is it zoned? Can the zoning be changed? What is that process for changing zooming?
C. Site constraints? Keep the wetlands? Septic required? Engineered foundations required? Basements allowed? What are the street improvements required? What are off site requirements, like new streetlights? A new intersection near by? A turn lane? Landscape requirements? Open space requirements? Drainage requirements? In short, go there, and ask questions! NOTE: You will be consulting with this department throughout the process! Be friends with these people! They are in charge of helping you get the regulatory approvals you need!
D. At this point, tie the land up with a contract! You don’t want to spend a lot of time doing investigations, only to find that someone else came along first and made an offer! Leave the contract “open”, meaning that you can still get out of it and get your money back, during your investigatory time period. You will need a minimum of 30 days, but 60 to 90 is better!
IV. After you’ve matched the development idea with the land, do a preliminary market feasibility study, to see if you could sell the product in that location for a profit!
A. What will be compatible with the surrounding neighborhoods? For the density you desire (Highest density possible isn’t always the best option, If market conditions won’t support it!)
B. Consult a real estate professional, and find out what the vacancy rates are in the area, and the absorbsion rate, so you can project how quickly a project like this would sell out.
C. Project how much you think the project will sell for, at retail, and subtract the marketing costs for hiring an excellent real estate agent to market the project!
V. At this point, before you get too far in the project, visit a commercial banker and discuss the feasibility of getting financed!
A. Get a list of project subcontractors that the financial institution recommends!
B. Who are the project subcontractors that you will need? Land Designer/Planner, Urban Planner, Architect, Landscape Architect, Civil Engineering Firm, and that real estate professional! The banker may be able to recommend one company that does it all, called a “Land Development Engineering Firm”.
VI. Begin collecting estimates from each entity regarding projected development costs. This insures that the project will be profitable, before you even put money down! Be aware, however, that these development contractors rarely give free estimates, so you will have to prepare to pay them for their time.
VII. If the project makes financial and market feasibility sense, secure financing!
A. With that commercial banker
B. And then secure the contract, according to the price that you need to buy it at in order for the project to make sense.
VIII. Complete the site analysis, environmental impact, master plan design, engineering plans, and specifications.
IX. Obtain final regulatory approvals! This will involve attendance at local planning and development meetings, and will also have previously involved neighborhood notices, meetings and approvals. Be friendly! Care what the neighbors want, so you don’t get a lot of resistance! There will always be some people who we refer to as “NIMBYS”; Not In My Back Yard!
X. Start Marketing! Your state may require that the subdivision be registered with the local real estate division; Find out! Because if you start marketing before it is registered, and your state does require that it be registered, they will SHUT YOU DOWN! Also, remember; You can sell the project at any point during this process!
Isn’t this FUN?????????
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