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.
