What to consider when buying large land parcels for housing communities.
By Steve Peck
Many builders buy and build on single lots instead of developing an entire community themselves. But there is also great opportunity when you buy larger parcels, which allows you to develop an entire community. If you form a relationship with local real estate brokers, they can keep you apprised of large pieces of land that may be a good fit. Right now, we are seeing a lot of properties become available again after a project falls through, so there is a lot of opportunity for land.
Familiarize yourself with zoning codes and public utilities.
Developing land requires more knowledge than just building a house. It also requires knowing codes and regulations and every municipality is different. Before you start, make sure you know the zoning codes and comprehensive plans of the municipalities you are interested in, so you know what they allow in terms of density and where they are targeting growth. This will help you narrow your search for areas that are interested in the type of development you are planning.
You’ll also want to know where the public utilities are, particularly sanitary sewer and water. Make sure the infrastructure is there or could be added without too many upgrades. If you have to do a lot of off-site infrastructure work, whether it’s utilities or roadway improvements, it will quickly raise the price of the land, adding to your costs.
Do some initial analysis before paying consultants.
It’s best to do a market analysis looking at surrounding property values, population trends, distance to services, competition and demographics in the area, as well as a preliminary land plan, even before you bring in any consultants. You should look at the topography, wetlands, streams and utilities. Make sure the deal is feasible before you commit to a letter of intent (LOI) or contract. Your goal should be to get to a “no” as quickly as possible and before spending a lot of money on consultants like engineers or attorneys. This can save thousands of dollars if the site ends up not aligning with your needs.
Developing land is a way for builders to expand their business, and with the increase in available properties, now is a great time to start developing.
Talk to a zoning administrator and ask the right questions and provide the right information. Municipalities want a certain type of buyer in their community, and if you can show how your development will bring that type of buyer, you’ll have a better chance of achieving your goals. For example, Epcon has data that shows how our buyers positively impact school districts, bring higher net worth individuals to a community and reduce traffic because they travel at different times. Having this on hand is helpful during the zoning process.
If it is your first time developing, you’ll likely have to bring in consultants earlier in the process until you understand the local rules and regulations. This is why big builders or franchises like Epcon that have land acquisition specialists on staff are able to develop quicker and for less money. As you gain more experience, you’ll also be able to improve your process.
Be prepared for it to be a long process.
Developing land takes a lot of time. Zoning, for example, can take anywhere from four to 18 months depending on the municipality and their codes. Once you are through zoning, you’ll be able to start physically developing the land, but you’ll want to have things like an engineering checklist, grading plan and sanitary designs ready. If you review your plans with these items in advance, you’ll be able to build in the most cost-effective way.
Also, be prepared for the costs associated with developing land. Engineers obviously are not free and you will also have to pay the municipality for things such as permit and capacity fees. There is a big opportunity if you self-develop because you are eliminating the developer profit layer, but you should budget all of these costs from the beginning, so you are not surprised.
Developing land is a way for builders to expand their business, and with the increase in available properties, now is a great time to start developing. There are pitfalls to avoid, but if you are smart from the beginning of the process, there are great opportunities margins.
Steve Peck is land acquisition specialist at Epcon Franchising.