Business Structures for land development and new home construction

[Sophia Wang]

Do you use different business entities to buy/subdivide the land parcel and build new homes on the subdivided lots? 

[Bryan Hancock]

We don't, but it could be done.  A lot depends on what you're trying to accomplish and what you're trying to protect.  A lot also depends on where the contingent liabilities lie for the new home construction.  Are you using GCs or are you doing the GC work yourself?  Builder's risk insurance covers some liability, but warranty issues may drive you to divide entities and work differently if you're covering them in your company.  

We purposefully use third party GCs for our development business so they can warranty their work and we can focus on raising money and doing the development work.  Some may have a different business model that would drive them to set their entity structure up differently because they're hedging risk in a different fashion because of their business model.