MONEY 14 - LAND DEVELOPMENT #2

THIS IS MY 14^TH POST ON UNDERSTANDING MONEY TOOLS

Land Development Part Two

Let’s take a simple subdivision of land.  Assume you have two acres zoned residential, the land has no water and sewer to site, but does have electrical, gas, and telephone.  The first step would be to meet with the city planning department if it is in a city, then the county planning office. From past experience my recommendation is to get all approvals in writing. As a case in point, a friend had a home in a town on over two acres with one acre minimum zoning.  In a meeting with the town planner they told him there was no problem dividing off one acre that would permit salability, and that also held true with the county.  After a division of the land, a new survey and the county approval, the town would not acknowledge the division and the lot became worthless. Get it in writing!

Continuing on, select and employ a civil engineer.  They can tell you the needed steps and assist.  You will need at a minimum a new survey that will be needed for the county and town or city. In addition, you may have to do soil studies, wetland studies and studies for the Environmental Protection Agency. Soil studies would be needed for approval of a septic system or alternative waste system.  You will also need to talk with any utility companies involved and perhaps the Department of Natural Resources when involving land in excess of one acre.

Some states have different regulatory laws.  In Arizona where I have developed land the Arizona Department of Real Estate requires a “Public Report” to be given to every buyer of a subdivision of 6 or more lots prior to contract with the buyer.  A potential buyer may “reserve” a lot, however he cannot go to contract without the Public Report.  Essentially, the Report presents all facts about the subdivision and has been filed with the Real Estate Commission.  Any change to a material fact requires the Report to be amended.

There are few large parcels of land being developed now because of the economy.  Even large developer/builders are looking for the bank owned developed lots and not developing land.  Builders also want to limit risk so they are buying small developments where they can get in and get out within a couple of years, unlike 7-10 years ago.

Let’s look at the basics of developing a larger amount of land. This can take 8-10 years and longer to get final approvals so you probably will have to work and budget through economic downturns or at least one recession. Another hurdle that you have no control over is politics, both from government sector and private sector.  A mayoral term is many times 4 years. You may be in favor with one mayor and set of commissioners, and then with a change in local government you run into new people to work with. They may be an obstacle to get final approvals for your subdivision, either halting it or slowing it down substantially.

For a large development procedures are the same to start as the small development except more people are going to be added to the “party”.  The subject property is contracted for sale with contingencies based upon what you want to accomplish and time frames. Most sellers will want additional non-refundable earnest money, or payments at certain periods as they are taking the property off the market.  A person starts with a market study and discussing the proposal with the city/town and county.  You, or a public relations firm, can start on the private sector feedback to see how welcome the project will be. To start, you will have a design/architectural firm who is familiar with this kind of project do a work up including layout, architectural design proposals and most likely a three dimensional plan that the layman can visually understand.  The better they can see the intent and the resultant taxes and benefits to the county/city the more likely you will get a nod toward approvals.

Typically, cities are more restrictive than counties.  If everything looks like a go you will need a good real estate law firm, accounting, civil engineering, public relations and real estate brokerage firms and more.  With good advice from these professional groups they should be guiding you as to what is needed to succeed in that particular environment.

With everything looking good, the property is purchased with financing in place.

Next, we will continue with the development of the land.