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Subdividing land
Old 08-05-2005, 11:47 AM   #1
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Subdividing land

In reading through the forums it looks like some people on the board achieved FIRE partly through RE investing. I am new to this but have been giving it some thought over the last couple of years. Does anyone have experience buying land and subdividing it? What kind of costs exists? Can this be financed? What kind of rates? How much equity does one need to start?

The costs that I can think of are
Cost of land
Access road
grading and clearing property
Bringing in utilities
Taxes while owning property
Marketing property
Maintaining property
Survey
Interest on financing
Legal costs

My biggest concern would be how to finance project and how much equity upfront. Thanks
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Re: Subdividing land
Old 08-05-2005, 01:58 PM   #2
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Re: Subdividing land

I knew a guy that did something like this, but it sounds like a huge headache since you have to learn the zoning issues, etc, and he didnt know what he was doing and got caught cutting corners on cleanup of some old structures and paid fines. It seems like you have to gather a lot of info. to figure out your profit. Good luck.
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Re: Subdividing land
Old 08-05-2005, 11:22 PM   #3
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Re: Subdividing land

When I was living in Iowa, my neighbor decided to subdivide his 40 acres of land. He looked into it and figured out that he needed to get it surveyed, develop a subdivision plan, . . . After spending several thousand dollars, he was ready to go to the county zoning commision and get the land re-zoned. But two weeks before he submitted his application and was to appear before the group, they decided that the county roads in our area could not support more subdivision. They banned further subdivision for 5 years when road improvement would be scheduled.

A year prior to that, my neighbor on the other side of my property decided to subdivide his 6 acre parcel into two 3 acre parcels. He would sell off the parcel that did not contain his house. (He had been forced into early retirement and was not prepared to support it, so he thought he could make some money this way). After survey, he found that the 6 acre plot he had bought 7 years earlier was only 5.9 acres. The development he was living in prohibited houses located on less than 3 acres and they wouldn't bend. He ended up selling his house and moving to a smaller house in another town.

So I can't help you with the process, but I can warn you to make sure you know what you're doing before you spend much money. (I guess that's probably why you asked the question). Good luck.
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Re: Subdividing land
Old 08-06-2005, 06:43 AM   #4
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Re: Subdividing land

Since no one more experienced is responding here goes:

Did some of it in the late 80's with my brother in Westchester County north of NYC. 4 to 8 lot typical size, 2-4 acre each. Biggest thing for us was hiring a good civil engineering group to do the subdivision plan and who also knew the zoning-planning commission very well. They did the presentations and we went in with them (the plan is way more than just splitting up a plot; road layouts, driveways, access to main roads, utilities, amount of clearing, fill going in or out, wetlands, drainage, septics, adjacent property impacts, rock blasting, and a on and on). Even back then it was tricky, sometimes lengthy, and you always smiled and basically did what the zoning board asked. Just getting it approved was expensive and you haven't even gotten to the real work. Having a track record made it a lot easier. It's a vague memory now.

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Re: Subdividing land
Old 08-07-2005, 08:35 PM   #5
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Re: Subdividing land

Small example.* We bought 2 acres (2.0017, as I recall) in a bank foreclosure in 1991.* Another owner in the same subdivision owned five acres, and spent the money to have his attorney prepare doc's to change the CC&R's (covenants, conditions and restrictions) so that everyone in the subdivision could split their lots down to the town's 1 acre minimum (CC&R's originally required 2 acre minimums).

Only one landowner refused to sign, and we had enough other landowners voting "yes" to change the CC&R's.

Perhaps one year later, a friend convinced me to subdivide ... his suggestion included the warning that "if you can subdivide now, do it now ... they could change the law / reg's, and not allow lot splits later".* He explained he waited on a land deal, zoning changed, and he lost such an opportunity.* Took his advice shortly thereafter.

The lot split required a survey, and the services of a local engineer.* Obviously a small deal, and the cost was only around $2,500.*

The value of that extra acre when we bought it, according to appraisals at the time, was around $20K.

After splitting, the extra acre was immediately worth $200K alone.

We sold both parcels much later, for much more.

Less than one year after the lot split, the town changed the reg's and did indeed prohibit lot splits like ours ... but it was too late for our parcels ... they were already split, and approved by the town.

Only downside was that our real estate taxes increased, due to higher value, and the fact that one parcel was raw land.

Couple advantages in such a deal, besides the value creation ... we were able to reduce the gain on the acre with our home on it ... keeping the gain below the IRS max, and making the sale entirely nontaxable.* Second, we were able to do a like-kind / Section 1031 exchange on the second acre, into some rental property, deferring all of that gain.* Bottom line ... no tax on the sale of either parcel.

I worked for a homebuilder years ago ... he said it's simple ... more dwelling units per acre, more value in the land.

This is worth your time to explore.* However, don't limit yourself, or perhaps even start with a large parcel that takes huge hassle ... true real estate development is not easy.* Consider buying a home with acreage, after checking on rules / reg's / zoning in the area.* DON'T tell the sellers or neighbors you're considering subdivision ... some folks are emotional about that issue in a neighborhood.* Often the additional acreage doesn't add that much to the price of a home ... but can add huge value in a prosperous area, and / or an area lying in the direction of growth ... IF you subdivide.

If you truly become a "developer", you get into the realm of ordinary income, Vs capital gains and property qualifying for 1031 exchanges ... consult your tax advisor, as your personal circumstances blah blah blah ...

Good luck.* It can be a very interesting experience.
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Re: Subdividing land
Old 08-08-2005, 09:07 PM   #6
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Re: Subdividing land

nice post charles.
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