If you ask experts what investments should be made today, they might tell you to consider land development. In its simplest form, land development is the process of improving a piece of land—including, but not limited to, changing landforms for agricultural or housing development, subdividing real estates into lots for building homes, and converting land for factory or condominium use.
It’s a complex process—one that beginners should deeply understand before diving into. It involves evaluation, planning, engineering, construction, all the while following codes and regulations set by regulatory agencies.
If you’re looking into entering the land development industry, it’s best to understand the processes involved and how you could start.
Land Development Process
The core of any type of investment is its ability to deliver consistent cash flow. Fortunately for investors, land development offers the highest reward. Furthermore, land is a limited resource, which makes it extremely valuable today. If you purchase a piece of land in an area that’s headed toward development, your land’s worth can exponentially increase than your purchase price.
Of course, any investors should perform their due diligence thoroughly when entering this business. It’s critical to educate yourself on the market you plan to invest in, and understand when to buy and look at the growth in the surrounding area.
When buying a piece of land, there are a few things you should look into first, including the features of the land and factors that could limit the potential for development. Here’s a checklist of things to consider when buying a land:
- Identify manmade and natural features (wetlands, steep slopes, floodplains, historic structure, etc.)
- Obtain title report to know existing easements, restrictions, and covenants
- Understand the permitted use for the site
- Know the site regulations for your proposed use
- Obtain zoning approval
- Understand if the site serves utilities such as water and sewer
Now let’s dig deeper: we’re going to go through the process step by step. First, assess if the investment is economically feasible.
1. Land Development Assessment
Like any other investments, it’s critical to determine if your investment is economically viable. In land development, it’s important to first determine your desired return on the property. This can help you get a projection of the cost of the investment versus what you could be getting from it. It will also lessen the market’s uncertainty.
Land Development Evaluation
Of course, during the evaluation, the numbers would not be absolutely accurate, but it can help you determine if the investment is feasible. It would also allow you to forecast the estimated cost, revenue, and return. Considering these factors can help you succeed.
After determining the potential cost and return, the next step is to know the cost of accession a.k.a offer price. Extensive research could help you better check the market value or make an offer that the seller could not resist. At this stage of the process, you would need to have contractors to submit bids for the project. This can help you not only determine the cost for the project but also know the maximum offer price.
3. Zoning – Development Activities
The next step is to find out what zone your property is in and what you can do in it. This stage process deals with the design of your land.
Zoning codes play a critical role in land development as they basically determine what types of properties can be built in the lot. Technically, zones are set by the government to manage how different areas are used, developed, or protected. By checking the zoning code, you’d be able to know what you can build in your property (single-family, multifamily, condominiums or commercial structures), how high you are allowed to build, how you can use the land, and the sorts of activities you can use the building or land for (residential, business, offices, light or heavy industrial, etc.)
Land Development District Plan
In a district plan, there are zones set for certain development activities, such as rural, commercial, or residential zones. There can also be overlays over these zones.
True, the zoning code could hinder your investment approach. Hence, before buying any piece of land, you may want to consider checking the zoning code or regulations set by the local government.
4. Financing – Land Development Cost
In land development, the amount of money you will be able to borrow depends on the lending criteria you are required to meet. How you intend to use property will also determine the type of financing you can obtain.
One of the primary options to secure a development loan is through a bank lender. They offer lower interest rates. However, they will cap their funding, which means you will need to invest more of your own money to fund the development. Plus, most banks require a quantity surveyor report to justify the development cost.
Another option is to get financing from a second-tier lender. They can lend against the completed value of the property, which means you can borrow more to cover the development cost, including any unexpected costs. This also means you are going to spend less personal capital for the development. The downside is that most second-tier lenders have higher interest rates.
You may also consider getting Land Development Cost (LDC) financing. This type of financing provides property developers with funds to purchase and develop a property, including the soft costs of the development. Take note, however, that this type of financing is generally limited to 70 to 80 percent of the overall land development cost of the project.
Eligibility for Financing Land Development
As mentioned above, the amount of money you will be able to loan will depend on the criteria you’ll meet. Here are some factors that lenders will consider:
- Equity – The higher the deposit you can provide, the more likely you are to find a lender to finance your project. For lenders, greater equity means less risk of financing the development project.
- Location – Lenders are as just interested in your property’s potential return as you are. They will look at how economically feasible the site is for development or investment. They will also consider the surrounding area and its value—is it headed towards development?
- Profit – Lenders will want to know the profit potential of the development project. This will help them evaluate if you are able to repay the loan and if the project is actually profitable. Typically, banks require higher profitability than second-tier lenders.
- Experience – Being an expert in the development industry can be a bonus, as lenders gain confidence in your experience. This doesn’t necessarily mean that beginners won’t be able to secure a loan. However, if you’re a newbie, you may need to raise higher capital to better secure financing.
5. Construction – Development Projects
After securing financing for your development project, the next stage is construction. The construction stage is a complex one, and it can be daunting. It will consist of horizontal development, including grading of curbs, utilities, and roads. And then building the property from the ground up.
You should also consider the construction financing aspect of the project. In most cases, contractors are paid in increments depending on the milestones or duties performed. Take note that some construction lenders hold 10 percent of the construction loan until the completion of the project.
6. Marketing For Developed Land
Marketing your developed land is one of the most critical aspects of this process. If you have constructed rental properties, researching the neighborhood, determining the fair market price, and understanding the demand for rentals should be part of your marketing strategy. Create a marketing plan to attract buyers or investors to the property.
Marketing Strategy for Land Development
Your marketing strategy may include publishing press releases, connecting with realtors or mortgage brokers, creating online listings, and advertising on newspapers or social media.
How to Get Started with Land Development
If you are just starting out in land development, you may want to consider assembling a team of experts to ensure success in your business.
Consult a civil engineer and a land planner to help you identify the best use of your land. They can also help you understand all the opportunities your property offers and any constraints for the purpose you envision.
licensed land surveyors
Hire licensed land surveyors to determine, mark, and map your land’s property boundaries. A surveyor can also help identify your land’s geographical features that could impact land use.
You may also want to get a land use attorney to advocate on your behalf. Obtain permis and outline the land development project. Working with a team to get documents and planning sorted out can help with the success of your project.
Land Development Projects in Auckland By LANDEV Consulting
LANDEV Consulting Office Location in Auckland for Land Development Services
Final Takeaway on Land Development Auckland
Land development is a hefty business. Beginners looking into entering this industry should acquire all the expert help they would need to evaluate the land, follow regulations and zoning requirements, acquire financing, and start with the construction. You will also need to market your developed land.
Perform due diligence to ensure you are investing in the right land. Perform extensive research, follow market trends, and understand the market needs. Like any real estate investments, consider how the area could change and develop.
What is the meaning of development of land?
Speaking of development of a piece of land, it involves the creation of structures on it, as well as the use of the area for residential and commercial purposes. It includes the conversion of open space to a more usable area, which can be done through constructing buildings.
What are the three stages of land development?
There are three main phases of a typical real estate transaction. They are the pre-development stage, the construction stage, and the post-development stage. The first two are often lumped together as the building process
What is Land Development?
Lan Development is the process of planning and executing the construction of buildings, infrastructure, and other improvements on a piece of land. The goal of land development is to make the land ready for its intended use, whether that be for residential, commercial, or industrial purposes. There are several key steps involved in the land development process, including acquiring the land, obtaining necessary approvals and permits, and carrying out any necessary modifications to the land.
One important aspect of land development is the need for plan modification. In many cases, the original plans for a piece of land may need to be altered in order to accommodate changes in the intended use or to address issues that are discovered during the development process. This can involve modifying the design of buildings or other structures, changing the layout of the land, or making other changes to the plans.
Another key aspect of land development is the acquisition of additional land. In some cases, a developer may need to acquire additional land in order to complete a project or to address changes in the scope of the project. This can involve purchasing land from private owners, negotiating with local authorities to acquire public land, or using other methods to acquire the necessary land.
The acquisition of Unitec land is one example of the importance of acquiring additional land in the land development process. Unitec is a large educational institution in New Zealand that is undergoing significant expansion. In order to accommodate this expansion, the institution has been acquiring additional land and carrying out extensive development work. This has involved purchasing land from private owners, negotiating with local authorities, and carrying out a range of development activities to make the land ready for its intended use.
One of the key aims of land development is to remove restrictive covenants and other legal barriers that can limit the use of a piece of land. In some cases, a piece of land may be subject to covenants or other legal restrictions that prevent it from being used for certain purposes. Land developers work to remove these restrictions in order to make the land more flexible and usable for a wider range of purposes.