MONEY 17 - LAND DEVELOPMENT #5

THIS IS MY 17^TH POST ON UNDERSTANDING MONEY TOOLS

Land Development Part 5

Let’s touch briefly upon some of the costs involved in land development. We have discussed work completed on Parcels 1 and 2.  Here are a few approximate costs involved. 

When the State Department of Transportation purchased land for the highway and interchange project a new survey needed to be completed.  Make sure you have a well-respected engineering firm complete this as errors cannot be afforded down the road.  The cost for a new survey was $10,000. Then, as previously mentioned, we brought in 130,000 cubic yards of clean dirt fill onto Parcel 1 and 10,000 cubic yards on Parcel 2.  This dirt delivered, graded out level after removing and storing topsoil and replacing at least 9-12” of topsoil ran about $15-20 per cubic yard.  That tallies up to about $2 million or more for Parcel 1 and about $175,000 for Parcel 2.

Let’s look at some figures to keep in mind when developing property. One acre is 43,560 sq. ft.  To raise one acre of land one foot higher to get the amount of fill you might need, divide 43,560 by 27 to convert square feet to cubic yards, and you get about 1,613 cubic yards. To bring in all utilities, pave site for parking, curbs, gutters, water, sewer (or an alternate to city sewer), fiber optics, etc. it is going to run about $200,000. for nice residential; this including soft and hard costs.  Then, add in original cost of land, financing charges and I hope you want to make a profit!

In Wisconsin it costs about $30 a linear foot to bring in sewer lines to the property.  The depth for sewer lines is about 8 feet. This will vary according to where your development is because of frost lines and other requirements. In this case we planned two scenarios for sewage.  One was to work with the City sewer and be accepted into a filing district, and work with the State and DNR to run lines under the highway. If permitted, running lines under the highway would run about $200 a linear foot.  Another solution is an alternative sewer system.   Siemans Corp. has a very good system, although not inexpensive.

As a back up plan we ran soil perc tests for septic and isolated certain areas on the project for this.  These ground sites cannot be compacted by heavy equipment.

Out West it is common to require archaeological studies to be completed.  If bones or artifacts are found from the land studies, these locations will be isolated and kept from development until removal of historical artifacts has been completed.

Also, in the Western states where you have dry conditions with “washes” these washes are natural and cannot normally be disturbed except with special permission by the Army Corp of Engineers and the Department of Natural Resources. Sometimes it can be of benefit to the development to re-contour the water flow and washes, but it may be quite expensive and is under the control of the government agencies to grant permission.

Check with the county or city/town you are working with to see if a “dust permit” is required.  Most places where it is dry like in the Western states a dust permit is required whether you are grading out a lot for a house or many acres for a development.  If it is a city lot it may be as easy as asking a neighbor if you could periodically use some water from a hose to keep the dust down.  On larger developments you will need to bring in water trucks.

To keep taxation to a minimum, what I like to do is form a Limited Liability Corporation that will give some legal protection for the acquisition of the land, the needed studies (soft costs) and the basic land improvement. The land would normally be in a lower real estate tax standing being designated agricultural 1 or 2.  Then, when it is time to build on the land another corporation will be formed and you can sell or transfer the land to that entity.  This enables a person or company to pay long term capital gains tax on the from the LLC you initially set up.  Current Federal Tax on long term capital gains with a hold over 12 months is 15%.  Once you start operating and building on the land normal corporate taxes will apply.

Also, leave the land as agriculture zoning or conditional zoning until everything is final with all parties as taxes will increase substantially once construction starts.

Studies, permit fees, etc. will vary depending on parts of the country and if you are only dealing with state and county regulations or have to meet town and city requirements.