4 Key Factors for Investors

There are few things as exciting as cutting the ribbon on a new property or development that you have nurtured from the ground up, from raw land into a viable and profitable real estate venture. But land development is not only exciting and lucrative; it can also be frightening and draining.

On the one hand, as a developer, you are free to imagine whatever your budget will allow, from an elaborate single-family home to a cohesive residential community or more. On the other hand, land development requires extensive time, access to large amounts of capital, and often includes many unexpected challenges.

Becoming a successful builder-developer requires you to be equal parts focused, prepared, and gutsy. (Maybe a double dose of that last ingredient!) Not everyone is cut out for this track in the world of construction.

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How to choose the right parcel of land

Mastering land development requires years of hands-on training. In addition to learning about the various geographic differences in soil composition and building materials, it also takes time to understand market requirements that shift from location to location. These aren’t only related to client interest, but also laws and ordinances. As you fine-tune your skills, hopefully, you can minimize the common challenges that many non-experienced builders encounter.

I’ve learned many of those costly lessons the hard way across many years in the industry. I want to demystify industry secrets, clarify necessary processes, highlight essential documents, and provide guidance on the thinking behind the most successful building methods and approaches. As you read along, you will be able to make the land development process more enjoyable and your builder dreams a reality.

Every developer starts their project by choosing a parcel of land to build on. But like everything in life, it’s never that simple. To be successful, there are some key areas you should consider as you determine which piece of land to purchase and develop for your new project.

What are the zoning classifications?

Land parcels are plotted on zoning maps which are created and managed by local municipalities (city, county, or state) that oversee the construction of development projects. The purpose of these maps is to ensure the municipality’s growth and building development are in alignment with the needs and vision of the community. For example, an area zoned for schools is usually not placed adjacent to an industrial zone. Zoning classifications will help you determine the type of building project that is allowed according to your parcel’s designation.

These are the most common zoning classifications:

  • Single-family residential
  • Multi-family residential
  • Commercial
  • Light industrial
  • Industrial
  • Agricultural
  • School/church

Be aware that zoning classifications are not uniform between municipalities, therefore it is critical to contact the zoning office for every parcel you want to develop.

The details you want to make sure you obtain (usually available on the website of the local building and zoning department) include:

  • Size and use of buildings
  • Minimum and maximum lot sizes
  • Building coverage (permeable surface)
  • Setbacks
  • Density limitations
  • Parking requirements
  • Allowable business

Obtain a zoning map to ensure your project parcel does not sit directly adjacent to a zoning district classification that could adversely affect your project.

Should the current zoning conflict with your intended project, a call to the local Department of Building and Zoning can help you determine if a zoning classification change is possible. Unfortunately, zoning changes are often lengthy processes.

To protect your cash flow and vision for what you want to develop, make sure your attorney structures your deal to make the purchase contingent upon proper zoning and issuance of permits. This is a common approach that shouldn’t cause any issues.

Is the land suitable for septic?

Before a problem takes root, make sure to start any land development project with a thorough understanding of the soil composition of the parcel. Understanding the state of your soil will enable you to construct with the right materials in the right location, providing long-term value and benefit.

To determine if you have strong soil that’s suitable for building, most local municipalities require the use of a soil engineer. The results of their many tests are usually required to some degree before getting a building permit as well as a certificate defining the source of clean drinking water (potable).

Start with a percolation test (aka PERC test) if you need a septic system. You want to make sure that the soil on your land can properly support a septic system. This means determining if the field is sufficiently permeable to absorb liquid flowing into it. You don’t want waste or sewage seeping back up and pooling on the surface.

A soil engineer will use a much deeper hole, often 7-10 feet or deeper, as they look for a high water table and the presence of rock ledges or impermeable soil that could block water absorption. Keep in mind that a failed PERC test means you may not be afforded the right to build. Make sure your purchase is contingent on passing this test.

Is water runoff a concern?

Once your parcel is deemed suitable to support a septic/waste system, the soil engineer can proceed by preparing a topographical survey (known in the biz as a “topo”) to determine the natural flow of water and the potential risk of pollution. The building department is especially concerned with this test, as it will provide valuable information regarding the possibility of water runoff to neighbors.

Should your new development create negative water distribution issues, a solution can usually be achieved with newly placed retaining walls, drainage swales, and a variety of other natural and human-made structures. Keep in mind, that solution will add unexpected expenses to your project.

A contaminant test may be required, especially if you are in an area known for various toxins. The soil engineer can also verify that there are no toxins or contaminants (like lead, arsenic, or cadmium) in the ground. The local Department of Health and Environmental Control can usually provide guidance relative to which contaminants, if any, are prevalent in your project area.

Ultimately, once safety is accounted for, a good soil composition test will help you determine if you will be able to properly support the weight of the buildings being planned. Unsuitable land areas are usually pretty obvious, like swamps, bogs, or parcels that are near nuclear power plants or chemical retention ponds.

A good building site has soil that doesn’t shift, expand or shrink drastically. Typically, this tends to be a mix of gravel and sand, which offers great stability and handles the presence of water very well. These tests are important pieces of information that will impact how you build your foundation.

Quick DIY soil test

Here’s a do-it-yourself soil test that can give you an early indication of your soil’s suitability for building before you do any professional testing. Simply take a ball of damp soil in your hands from your proposed parcel and see how it crumbles.

Soil heavy with clay will most likely retain its shape in your hand, indicating high water concentration which is bad for foundations due to its tendency to shift around as it dries or moistens. If there is too much sand, the soil will have trouble retaining its shape, foreshadowing the kinds of problems your foundation is likely to face. Soil that crumbles in bigger chunks tends to indicate the right mix of materials.

While land development takes a lot of money, time, and risk, the payoffs are usually massively satisfying. Happy building!

More on development from BiggerPockets

Every developer starts by choosing a parcel of land. But like everything in life, it’s never that simple. To be successful, there are some key things to consider as you determine which piece of land to purchase and develop for your new project.

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