Developing land is a way for home builders to expand their business. Land demand is at an all-time high and with the effect that has on future production for all builders, it’s critical to be able to analyze deals quickly. There are some pitfalls to avoid, but if you’re smart from the beginning of the process, there are land opportunities out there.
Real Estate Brokers
Many home builders buy and then build on single lots. But there is also great opportunity when you buy larger parcels, which allows you to develop an entire community. If you form a relationship with local real estate brokers, they can help keep you apprised of infill parcels or larger pieces of land that may be a good fit. A lot of properties become available again after a project falls through, so looking for land should be an ongoing priority.
Developing land for construction requires more knowledge than just building a house, and every municipality has different regulations. Before you start, make sure you know the zoning codes and comprehensive plans of the municipalities you’re interested in, so you know what they allow in terms of density and where they are targeting growth. This will help you narrow your search to areas that are interested in the type of development you’re planning.
You’ll also want to know where the public utilities are, particularly sanitary sewer and water. Make sure the infrastructure is there or can be added without too many upgrades. If you have to do a lot of off-site infrastructure work, whether that be utilities or roadway improvements, it will quickly raise the cost of the project.
It’s best to perform a market analysis by looking at surrounding property values, population trends, distance to services, competition and demographics in the area, as well as a preliminary land plan. You should look at the topography, wetlands, streams and utilities. Make sure the deal is feasible before you commit to a letter of intent (LOI) or contract. Your goal should be to get to a “no” as quickly as possible, and definitely before spending a lot of money on consultants such as engineers or attorneys. This can save thousands of dollars if the site ends up not aligning with your needs.
If it’s your first time developing, you’ll likely have to bring in consultants earlier in the process until you understand the local rules and regulations. This is why big builders or franchise systems like Epcon that have land acquisition specialists on staff are able to help develop quicker and for less money. As you gain more experience, you’ll also be able to improve your process.
Zoning can take anywhere from four to 18 months depending on the municipality and their codes. Once you’re through zoning, you’ll be able to start physically developing the land, but you’ll want to have things like an engineering checklist, grading plan and sanitary designs ready. If you review your plans with these items in advance, you’ll be able to build in the most cost-effective manner.
Be prepared for the various costs associated with developing land. Engineers can be costly, and you will also have to pay the municipality for things such as permit and capacity fees. There’s a big opportunity if you self-develop because you’re eliminating the developer profit layer, but you should budget all of these costs from the beginning so you’re not surprised at the end.
Developing land for construction takes a lot of time. Be sure to ask the right questions along the way. Municipalities want a certain type of buyer in their community, and if you can show how your development will bring or retain that type of buyer, you’ll have a better chance of achieving your goals. For example, Epcon has data that shows how our 55+ buyers positively impact school districts, bring higher net worth individuals to a community and reduce traffic because they travel at different times. Have a land plan in place and you’ll be well on your way to bringing your vision to life.