Land development costs/difficulties

[David Kenny]

Hi everyone,

I am currently looking into developing small plots of land and putting starter homes on them. Im seeing very little homes available in this price range (150ish) and the big builders aren't competing here since it doesn't make sense for their business models. My plan is to purchase the land cash, and then take a construction loan to finance the land dev and construction costs. 

My concern is this is very new for me, and development is particularly scary. I am comfortable with $80 a ft construction costs, but is there a general way to budget land dev per foot? I know it will vary wildly depending on the lot, but for initial valuation, purposes a rough per foot cost would be very useful. 

Also if anyone has any nightmare stories or tips for developing land, they would be greatly appreciated!!

[Kyle H.]

@David Kenny

Either partner with someone or start off with a very small scale project (you can do this), and do your homework with zoning and development rules and regs that your area has in place.  On the land side of the purchase we don't want to have any more than $7500 a door into the land cost.  We have started small and both projects have had utilities already on site or adjacent to property.  I would try to find a project where you were not having to deal with road construction if you are just starting out and find something where you are just dealing with driveways and parking areas, this will greatly limit the properties development cost.  Not necessarily a nightmare story but a example of an issue with our properties, on our second project which which was literally a hundred feet from our first we ran into soil issues and had to have an engineered footing which ended up doubling our foundation cost on our first duplex on the property.  Needless to say we will have to have the same footings on the other duplex and quadplex on the property and was an expensive lesson in due diligence.   We have been building in this area for over 10 years and have never come across this soil issue before, but I think we might think twice next time about getting a soil test.