If you are just getting into real estate, you are going to want to be fully aware of what the land development process is before you start investing.
The land development process is selecting the right location, analyzing the property, and understanding its zoning laws and specs. Next, you will need to create a budget before beginning to design and construct the development, which should be monitored for quality assurance.
Land developments are great for aspiring home/business owners and they offer a lot of incredible investment opportunities that can be very profitable, which is why so many real estate investors capitalize on this industry. With that being said, it is easy to feel like you are in over your head when you start researching the process of land development. The reason for this is that there are a lot of crucial steps to successful developments and depending on how well you follow the process, they can either make or break your building project. The best way to ensure that your development goes smoothly is to be thorough and calculated when it comes to approaching the logistics of your build. To help you understand this further, we are going to take you through the entire process of land development.
After years of working as a real estate investor and developer, I have had an extensive amount of first-hand experience designing and building development projects. My experience has taught me that by properly going through the land development process, you can avoid complications with your build.
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Land Development Process
Before you begin hunting down the perfect place for your land development, you should always try to have some vision for what you want to achieve through your project. This can vary depending on how you are planning to handle your investment, as you may be working solo on this project or you may be involved with business partners such as a real estate group - or even individuals from your private network.
If you are pursuing your development alone, then your pre-planning should be more straightforward, given that you do not need to cooperate with a collective. As you sit down to plan the long-term vision for your development, you should consider the direction that your build is going to take. You should be asking yourselves questions such as, ‘am I building a residential development or do I want to pursue a commercial business?’, or perhaps you may be interested in any type of development so long as it is profitable in the long run.
However, if you are working with a group of investors on this project, you will need to be sure that everyone involved is on board with the ultimate goals of the development. Since you will be working with other investors to achieve a communal goal, you want to ensure that the rest of the party is in total agreement with how the project will be handled, as a failure to do this may result in complications and even legal issues down the line.
With that being said, establishing the goals of the development before you begin reviewing properties will help you narrow down your search, which will prevent you from wasting your time on land parcels that are not worthy of your time. In addition, you will know exactly what key features to look for to ensure that the initial specs of the property are in line with your development project. Let’s dive right into the land development process.
If you ask any real estate tycoon, they will tell you that the golden mantra of any development project is location, location, location. This is hands down the most important aspect of any real estate project as it will dictate the terms and conditions of your build.
During your initial pre-planning for your development, you should have been able to determine what kind of project you want to pursue. It goes without saying, that some developments are much better suited for some locations than others. If you have got an idea of what you want to develop, you should be able to pinpoint an area of focus for your search, as you will know some key features to keep your eye out for.
If you plan on pursuing a private residence or a commercial business, you will likely be looking within urbanized areas that are suitable for these kinds of projects. However, even urban environments tend to have areas that are designed for specific types of developments - homes are generally located in neighborhoods with similar surrounding properties -whereas commercial businesses tend to be located in busier districts that are more central.
With that being said, you should disregard rural areas for developments, as these regions tend to have a lot more options available with much less competition and less government oversight. Ultimately, whether you want to develop in a rural or urban area should be determined by the location qualities that you want your development to have.
To avoid a lot of unnecessary footwork, a great place to start is to check online listings for real estate properties in regions that are favorable for the long-term goals of your development. There are dozens of great real estate websites that you can rely on to get an idea of land parcels that meet your standards. As you browse potential properties, you should take note of land parcels that you are interested in and shortlist them to compare and review them to one another once you have compiled your top contenders.
After you have determined an ideal location and have found some properties that caught your eye, you should begin reaching out to the landowners for a formal evaluation of the parcels. Alternatively, if the property is located near you and is not inconvenient to reach, you can always take the initiative to have a rough viewing of the property from a vantage point that is open to the public - to conduct a less formal evaluation before scheduling an assessment.
Once you feel confident about a location that has met all of your initial standards and qualities, you can begin formally reaching out to landowners over the phone. If you have got a long list of potential properties that you are considering, you may want to try to get as many details as you can from the owner over the phone before physically inspecting the property.
As you begin calling the various landowners, have a list of your essential specs handy so that you can ask the owner(s) questions about their land. If the property meets the essential requirements for your development, you can begin ticking off the boxes for each parcel that you are considering. It is often the case that a landowner leaves out some important information in their online listing, which could be a dealbreaker for your development. Asking these questions can be a huge help in helping you weed out some of the properties on your list to ensure that you are not wasting time when it comes to formally inspecting parcels.
Once your list has been narrowed, schedule a formal viewing of the property with the landowner. As you arrive at your viewing, you should be thorough with your inspection so that you leave no stone unturned. It is easy to get carried away with all of the positive qualities of a vacant land parcel and overlook some hidden faults that could potentially interfere with your development.
As you assess the property, check to make sure that the specs of the property that were detailed in the initial listing legitimately match what the parcel looks like pin person. This should include crucial land features such as vegetation, surroundings, any structures that have been erected, as well as the overall size of the property (more on this later). You can do this by comparing the photos that were provided with the listing to what you can actually see during your evaluation.
If the land has been left vacant or unimproved for a long period of time, it is often the case that the property may look a bit different from when the listing of the property was put up. If you are seeing that the property looks different than what was detailed, you should make note of everything that stands out while you inspect the parcel.
While evaluating the land, be sure to assess the overall condition of the property. If it is in a poor state, you should take into account that this will likely require some additional work and costs from your end to get the property to a condition that is suitable for development. You should ask the landowner about the quality of the soil and when the last time the property received formal surveying.
If the specs meet your expectations and the land seems to be as good on paper as it is in real life, then you should have a decent parcel of land for your development project. However, if you are like a lot of land buyers, you may not have the real estate eye to confirm every land feature that you want the property to have. If that is the case, you may want to consider doing a more thorough inspection of the property by hiring some professionals to evaluate the land.
When it comes to land developments, it is always better to be safe than sorry, as overlooking some critical aspects of your personal evaluation can result in major complications for your project moving forward, which is why relying on the help of professionals is highly advisable to confirm the qualities of the property.
One of the first things that you always want to confirm when reviewing land for development is that the measurements of the property match what is listed by the landowner. For this, you can always ask to see the deed of the property during your personal evaluation. While the information on most modern age deeds is correct, you would be surprised by the errors that can sometimes be made on these documents when measured long ago.
In this situation, you may want to hire a professional surveyor to come to measure out the property for you. While this does require that you spend anywhere from $1,000 to $3,000 for most properties, it may result in much fewer complications when it comes to developing your land.
The last thing that you want to deal with during your build is to find out that the measurements of your property were not conducted correctly while the project is already on its way, which can result in development complications and even legal issues.
This is especially crucial if you are buying a large property that is more challenging to assess with the naked eye. The measurement mistakes found with most small properties are minor (especially in urban areas), but large properties that are located in rural environments are much more likely to have been mismanaged over the years, which increases the chances of surveying mistakes in the past.
Once the surveyor has finished their measurements they will give you a precise analysis of the property to confirm that the deed is accurate and that the property listing was legitimate. If not, you should ensure that the updated specs are still in line with your building goals. In addition, if the result of the survey is less attractive than the initial listing, you can use this as a bargaining chip when you begin negotiating the price of the land. More on this later.
Environmental Impact Report
If you want your property to meet certain environmental standards such as having fertile soil or healthy natural resources, then you will want to have a specialist come to the property to conduct an environmental impact report.
Unless you are experienced in this field, it is likely not something that you will be able to assess yourself without the help of a professional. To avoid any issues with environmental regulations later on with the property, it is always worth it to confirm the quality of land to its fullest before beginning any kind of building.
Depending on the location of your project and the type of development that you end up pursuing, you may find that your municipality has some kind of environmental standards in place. If that is the case, they will likely conduct an environmental impact report themselves on the land. To avoid any complications with this, it is always best to know what you are in for before you make any serious commitments to the property.
After discussing the property with the landowner, you should have been able to get an asking price out of them. However, negotiating the value of the parcel is always on the table and you should consider doing so to get the best possible price for the land. You should be able to get a relative figure for what the land is legitimately worth after you inspected the land, assessed its condition, and environmental qualities.
With that being said, finding the exact dollar figure in this situation can still be quite challenging for the untrained eye. To avoid miscalculations, you may want to get a precise figure for the land by hiring a professional appraiser to give the property a final assessment.
Hiring an appraiser may cost you anywhere from several hundred to several thousand dollars - depending on the size and complexity of your land parcel. However, by having this professional assessment take place, you can rest assured that the value of the land is legitimate. This could potentially result in you saving thousands of dollars if the appraiser finds that the listing price of the land is considerably higher than what it is actually worth.
Once the appraiser has concluded their report, they will give you a final figure for the value of the land. Once you begin negotiating the value of the land with the owner, you can use your appraisal, survey, and environmental impact report as a leverage when making your offer.
If there is one thing that tends to drive land developers crazy it is the zoning restrictions that can often be attached to some properties. Zoning restrictions vary across the board but they generally dictate the guidelines for a building project.
If the area that you are going to develop in is located in a rural environment, you probably will not be faced with too many zoning restrictions - or maybe even any at all. However, urban areas - especially those in large cities - will tend to have much stricter zoning restrictions that could greatly hinder some of your development goals. Some common zoning restrictions that you may have to deal with could include:
- Land Classification - It is often the case that local governments will have designated certain land parcels for specific types of developments that cannot be changed. This would include properties that are designated for either residential, commercial, industrial, or agricultural use. Make sure that the official land classification for the property is in line with the type of development that you plan on pursuing.
- Dimension & Structures - Urban areas in particular usually have strict zoning laws that dictate the dimensions of your development. You should not be surprised to find that your development cannot exceed a certain height or width. In addition, it is very common to have restrictions that prevent you from developing multiple buildings or certain types of structures.
- Environmental Standards - If you are developing somewhere that has strict environmental standards, you should expect to have to adhere to all guidelines that pertaining to sustaining the ecology of the area. As mentioned above, it is always best to have your own environmental inspection to avoid issues with this zoning restriction.
- Materials Used - Some urban areas have zoning restrictions in place that regulate the type of materials that you can use to develop or improve a property. This is generally done to preserve some form of intrinsic value and aesthetic within a community but it can ultimately be a hindrance to your development.
You can always ask the current landowner about the zoning restrictions attached to the property, as they will likely be able to give you adequate information - especially if the land is rural. However, zoning restrictions can change in some areas quite regularly, which is why it is best to get the most accurate and up-to-date information about the regulations in place.
To find this information, you will need to contact the local building authority of the area. Each municipality or county will have its own zoning restrictions - so, you won’t be able to bunch up zoning laws across different regions.
More often than not, you should be able to get a lot of the zoning restrictions of your area over the phone. However, if the zoning restrictions are complicated and your development project is quite large, then you may want to have a more formal sit down with your building authority. To do this schedule an appointment and meet the official with your project specs in hand.
As you discuss the zoning restrictions, you should be able to conclude whether the restrictions are going to interfere with your project. However, if you have a complicated development, you should always have the zoning authority review your project plans so that they can give you the assurance that your development is in order and that it does not violate any regulations.
Logistics & Design
If the property has met all of your initial desired specs and you are feeling confident about pursuing your development on the land, then you can begin going through the logistics and design of your project.
Ideally, you should have had at least a rough design and idea for your development long before this stage but, regardless, you will want to formally confirm that the property is suitable for your final design of the project.
If you have a relatively simple development project, then designing your build should not be overly intimidating. With that being said, you may still want to hire someone to give you some professional help with this part of the land development process. It is easy to make miscalculations and over or underestimate design aspects of your project.
For this, you should hire an architect to help you sketch out your development ideas, to ensure that they are realistic and logical. In addition, if your architect is solely focused on aesthetic design, you may want to hire a building planner that can help you with the engineering and technical designs of your development. The designers that you end up working with should have as many resources available to them as possible, which should include things such as:
- Property Specs
- Development Features/Characteristics
- Project Materials
- Interior/Exterior Aesthetic
Once your designers have all of the information they need, they will begin sketching out the final planning and logistics for your development. As you go through this process with your designers, you should work with them to confirm that the designs are in line with your project goals.
To help your building designers create realistic planning for your development, you should make sure that they are well aware of your budget so that they know what you can afford and where to cut corners. Having a well-established project budget is going to be key for this, as your finances are not something that you want to overlook when pursuing land development.
The best way to approach this is to create a budget based on what your absolute maximum price for the total project will be in relation to what your ideal price would be for the development. Having more funds than what you need is highly advisable, as hidden costs tend to be a common trend when developments get underway.
As you develop your budget, it may make sense to have your designer(s) present for part of your planning. This can help you prioritize with your team the types of materials that you want to be used, the characteristics of the structure, and the overall aesthetic of the project. If your designers can confirm that your specs and standards are in line with your preferred budget, then you can give them the green light for the project to commence.
However, it is often the case that once all of the final designs are laid out and the total cost is concluded that the price of the project exceeds the budget. In this scenario, you should go back to the drawing board and begin making adjustments to the development.
More often than not, you should be able to reach your ideal budget by making minor adjustments to the project such as changing certain types of materials. If that is not the case, you may need to dig deeper and rethink some of the actual design features of the project. Once the final design is within your budget range, you can approve the development and begin construction.
Construction & Contracts
The construction phase of development is really the point of no return for a project. The reason for this is that up to this point, you can always make adjustments to your planning, re-negotiate terms, or scrap the project altogether.
However, once you begin construction, your development will essentially be written in stone and it will be much more challenging to make any kind of alterations. With that being said, you want to approach the construction phase of your development with extreme caution and precision. Miscalculations at this stage can cause major complications for development, many of which not easily be undone. Mistakes at this point can be costly, time-consuming, and can potentially jeopardize the goal of the project.
The best way to avoid any issues with your construction is to work with individuals that are professionals, trustworthy, and highly regarded within the industry, which is why hiring the right construction company to entrust your development with is going to be mandatory.
As you begin looking for the right construction company for your build, try to find organizations that specialize specifically in your type of development. More often than not, contractors will be more proficient in certain types of builds such as residential developments vs commercial ones. Once you have narrowed down your search to a few options, be thorough when assessing the professional history of these organizations by looking at specific projects that they have done and by reading online feedback from their customers.
After meeting with your shortlisted candidates, you should present your development plans to your potential construction companies. As you sit down with their lead representatives, try to gauge their level of confidence and competence in understanding your specs and standards. If you feel like you have found a match for your build, you can hire them to commence working on the development.
Before this can happen, however, contracts will need to be signed by the construction company to hold them accountable for the successful completion of your project. Given that you are the person in charge of the development, the power to dictate the terms of the build is in your hands. If you have specific guidelines that you want to be followed and standards that you expect to be met, you should be sure to detail all of this in your contract.
If legal documents are not your forte, you will likely need to hire a lawyer to help you create a contract that is catered to your expectations. In this contract, you should also include things like the timeframe that you expect the project to be finished, as well as the cost estimate of the final development. This will ensure that you do not run into discrepancies or legal troubles with your project, in case there are complications down the line. Once the contract has been finalized, you can present it to a lead representative of the construction company for their signature and approval. After all formal documentation has been concluded, your construction company will begin building.
Building & Quality Control
As your project gets on its way, your construction company should be able to take care of the rest of the development from this point on. At this stage, your lead contractor may reach out to you to confirm certain details of the build or get approval for necessary minor alterations, but ultimately, the finalization of the development is in their hands.
With that being said, mistakes can still easily occur once a project has been approved and construction begins, which is why you should play an active role in the conclusion of the development. To do this, you will need to observe the development process to assure quality control throughout the build.
If your project is not large or overly complex, you should be able to do this on your own by simply touching base with your lead contractor and getting regular updates on the progress of your development. We would advise physically checking up on the project routinely to confirm that the speed at which the project is being carried out is efficient and that the specs are in line with your design.
However, not all of us have the time or the expertise to guarantee the quality assurance of a development. In this case, it would make sense to hire a project manager to assist you with this final and critical stage of your project. This is especially advisable if your project is large and has complicated features and dynamics to it, as mistakes can be very costly.
By hiring a project manager to assist you with your development, you can take comfort in knowing that you have a professional by your side to guarantee the successful conclusion of the development. Your project manager should be well aware of all of the project specs that you have in place and they should be able to confidently assure you that development will be successful. After your build has been monitored for quality assurance and the project is completed, you can finalize the land development process.
About THE AUTHOR
Cameron Scott has been in the land development industry for over 20 years. During that time, he has worked on hundreds of development deals ranging from 5 acres to over 100 acres. Most of his work has been in Utah and Texas, where he has worked for large, national home builders as well as local companies. He has worked as Land Entitlement Manager, Land Development Manager, and most currently as Land Acquisition Manager.Read more about Cameron Scott