The Land Development Process
Step-By-Step
There are few human creations that require nearly as much planning as land use and the business of raw land development. To meld with the environment and surrounding communities, raw land must be architected for form and purpose, landscaped and prototyped, reviewed and researched for potential issues, subjected to numerous tests to ensure engineering soundness and finally brought to consensus by a myriad of parties. And all of this must take place before the first shovel hits the ground!
It is through this process that professional land developers add value to and unlock the hidden wealth in raw land.
STEP ONE: Professional Land Developers spend a great deal of time seeking what is calledthe "Path of Growth". They research economic and population projections and key factors such as jobcreation trendsto identify geographic areas with favorable growth outlooks.Then, they drill down to the community and neighborhood levels to determine the directions of future growth and new construction. To do this expertly requires a seasoned research team and a network of external contact including local government officials, business leaders, real estate brokers, builders, etc. to conduct this "due diligence" process and help locate possible raw, undeveloped land acquisitions situated in the identified path of growth.
STEP TWO: Once raw, undeveloped land is identified in the path of growth, the Land Developer will negotiate favorable terms for acquiring the property. There are a number ofwaysthat land developersacquireproperty, the two most common are:
a) Purchasing the property upfront.
b) Obtaining an "Option To Purchase Agreement": the land developer obtains the rights to buy the raw land by a set date at a set price by offering a non-refundable deposit.
NOTE: Investors are typically sought at thisstageto help fund the acquisition of the property and cover costs associated with Steps 3-5. These are typically 'silent' partners in the raw land development project.
STEP THREE: Plansaredrafted for a proposed future economic use of the land. (e.g. Master-planned communities, shopping centers, business parks, industrial complexes, etc.)
STEP FOUR: The proposed plansare submitted to the city, county, state and federal governments for necessary approvals. This is known as "The Entitlement Process" and involves all of the critical sign-offs and approvals required forthenewly proposed use of the property.
NOTE: In this step, the Land Developer literally 'creates' value and this is why raw land development can be so profitable. It is this entitlement process that creates an average 300-500% increase in the value of raw land - often with limited associated costs for even higher profits!
The increased value of the newly "entitled land" results from several important factors:
a) Obtaining the necessary government approvals to build on raw land requires time, experience, relationships and the ability to manage against competing intentions for the property.
b) The land developer makes formerly raw, undeveloped land available to builders and construction contractors in "ready-and-approved-to-build condition" -- often with turn-key access to utilities, municipal water and sewer, roadways, etc.
c) Fully approved or 'entitled' land is ready for immediate construction, giving builders and contractors the benefits of accelerated cash flow and returns.
Each of these factors helps make land development projects among the safest high yield money investments available today.
NOTE: A typical raw land development project will take anywhere from one to several years to complete. This all depends upon the size and complexity of the project, plus government approval time-lines.
Here are examples of local government approval processes (click on links below):
* Part One
* Part Two - Residential
* Part Two - Commercial
STEP FIVE: After the raw land's value has been increased by the completion of the entitlement process and other improvements such as access to utilities, municipal water and sewer, roadways, etc., the newly'entitled' property is sold by the lot or parcel to Building & Construction Contractors.
Result = average of 300-500%+ increase in land value!
Once the newly entitled land is sold, the
Land Development Process is completed.
Profits are realized and Investors arepaid.
Next, theBuilding Contractorstake over:
After purchasing the entitled land from the raw land developer,Building Contractors will begin to install the structures (e.g. homes, golf courses, retail shops, office buildings, industrial complexes, etc.) They will go on to sell the finished homes, offices, etc. to their customers - theend users (homeowners, businesses, etc.).
Population Projections Predict Land Development