Land investment is a hot real estate topic right now, and with good cause. A
person with the vision and financial backing can take a piece of property
covered with nothing more than scrub brush and the occasional small critter and
make a fortune. And what’s more, land investment looks like an excellent return
on the dollar. After all, that vacant land and scrub brush will probably sell
for a song. Add a few upper scale houses and you’ve got an instant fortune!
Right? Maybe.
Before you decide that the land investment is going to become a subdivision,
take a look at some of the hurdles you’re going to have to clear.
Most cities have a long list of ordinances regarding development of
investment land, and a complex building code. This is usually the biggest
obstacle between the land investment and the sale of the first house. Rules
commonly govern the size of lots, amount of space between the houses and
property lines, and the actual construction. In some areas, all new houses have
to meet safety codes for withstanding wind. Wiring plumbing and many other
aspects of the division and construction will be overseen by city officials, and
all these requirements must be met before the land investment can turn a profit.
Another point to be considered in the land investment deal is how to get
utilities onto the property. Electric companies will often run the lines
themselves, figuring that the deposits and service payments from those future
customers will pay for their investment. Make sure that’s the case in your land
investment situation. There are times when the power company will require larger
deposits or additional fees be paid by the home owners to recoup the
installation costs. That could impact your ability to sell the property.
Water and sewer lines may very well be the responsibility of the person
making the land investment or the developer. Cities will sometimes help with the
installation, or will finance the cost, but you – as the person doing the land
investment – need to be sure as it will impact the total cost of land
investment.
Streets are another issue for developers. If you think that someone makes a
land investment and starts construction on houses, prompting the city or
governing entity to build roads, you’re wrong. In most cases, the governing
entity not only requires that the person making that land investment build the
roads, they also regulate the construction. Sidewalks, gutters and storm drains
may also be part of the cost of land investment.
If you encounter a problem while developing your land investment, don’t
immediately give up. If it’s a case of building codes, the governing body may
have the power to grant a variance – a new rule that allows you to break this
particular rule, but only in this particular instance.
If you have looked at every potential cost associated with the land
investment opportunity and still feel it’s going to be a good deal, be prepared
for the unexpected. Take time to meet your building inspector and attend a
meeting or two of the governing body, whether that’s the city board, zone
enforcement board or some other group. If you know the people who have the power
to offer leniency, it can help you if the time comes when you need that help.
