Raw Land Development

[Bernard S.]

I may purchase about 6 acres of raw land from family within the next year or two.  The area around it has been developed (single family home communities) and it would seem that there may be an opportunity for me to develop the land (or sell to a 3rd party to develop).  I am in the process of "getting smart" on this topic and wanted to reach out to the BiggerPockets community to see if you all had any tips, advice, warning, resources, references, strategies, etc.  

[Greg Dickerson]

Originally posted by @Bernard S.:

I may purchase about 6 acres of raw land from family within the next year or two.  The area around it has been developed (single family home communities) and it would seem that there may be an opportunity for me to develop the land (or sell to a 3rd party to develop).  I am in the process of "getting smart" on this topic and wanted to reach out to the BiggerPockets community to see if you all had any tips, advice, warning, resources, references, strategies, etc.  

Bernard - A lot f this will depend on the price point of the houses around the property and the cost to develop it. For general infill, subdivisions and scattered lots builders can generally pay 20-25% of the value or sale price of the house for the land depending on demand and price point. This is for a finished lot ready to build. Not necessarily cleared but all roads, utilities etc ready to break ground. You can call some local production and spec builders and ask them what they can pay for lots. Usually They will tell you. After you determine the price point on the lots you work backwards form there and subtract all costs of the development and a profit margin you are happy with to determine the price you can pay for the raw land. I like a 30% margin for net profit just to be safe. 

First step is to determine if the project will even work from a financial standpoint. Start with the end value of the buildings or lots and work backwards.Next check with the city or county to determine if you can do what you want to do and what is required for all zoning approvals and the time frame, Ask if you have to install curb, gutter, sidewalks, street signs, street lighting or any other special requirements. Are there any specific street design requirements, DOT requirements, permits or traffic studies. DWQ, Army Corp or any other environmental requirements or permits. General permit fees, proffers, water/sewer tap fees and the process of setting taps and connecting. Do you need to install manholes or fire hydrants. What are the bonding requirements, inspections and CO process. You also need to check with the utility companies and get cost estimates from them for availability, fees, hookup charges, transformer and power line/power pole locations or relocation requirements, water, sewer,gas, cable etc You will need ball park cost estimates from site work contractors for site work, roads, installation of utility lines etc.

This is just a broad high level run down of the process but should give you some things to start with and think about.