Forming LLC with friends to purchase land and subdivide

[mrWinter]

3 other families and mine are in the early stages of trying to pool our resources to buy a lot of land that is subdividable, doing the subdivision, and then building houses on the subsequent lots. Ultimately this will let us all live right next to each other, and the pooling of resources should offer some economy of scale. We have spoken with a custom home builder who has experience in this arrangement.



We understand we will need to form an LLC to buy the land and subdivide it, then sell the resultant lots from the LLC to the individual families.



I'm wondering if anyone has done similar and has any advice or tips.

 

[MBAustin]

I don't have any experience with this, but it would seem that a good real estate attorney is in order to make sure there are no issues with the titles, etc.

 

[pb4uski]

Not sure why you "need' an LLC. Why couldn't the people just buy the land jointly and agree to subdivide it?

In any event, you need a good attorney.

 

[Ronstar]

Our firm consulted land developers. And I did a lot of the work for my partners who developed properties of their own. Yes - get a good real estate lawyer and form an LLC. Then you’ll need a civil engineering firm with single family lot subdivision experience to provide you with a lot of assistance. Lots of things to consider. Without getting into details, there are hundreds of issues involved in land development. We had a spreadsheet to keep track of it all. You’ll want to get the engineer on board before choosing a piece of land. You should get a due diligence report from the engineer to determine the feasibility of developing a specific piece of property.

 

[ExFlyBoy5]

This is very, VERY dependent on the laws of where you live. Some rules are very archaic in nature and can be difficult to understand. It would be VERY wise to talk to an attorney that is well versed in zoning and residential development.

There sure seems like there are a lot of legal questions today...very odd.

 

[Sunset]

It would be pretty terrible to buy the lot of land and then find out you cannot build on it for some hidden reason that is unknown to you at the time...
Find the experts before you buy.

Obviously the land should be REALLY REALLY cheap compared to buying an existing building lot that is ready to build.

 

[bmcgonig]

!

 

[Bir48die]

My sister did this with about ten partners. I was one. Put in $50k. Received half back. Final decision made never to go into business with family or friends.

 

[folivier]

We owned a large piece of property (180 acres) with a farmhouse in front. The rest was wooded we used for recreation. We decided to sell just the farmhouse with 16 acres and keep the rest. We put a trailer for our use in the back.
I called the parish (don't remember his title- engineer?). He told me that to sub-divide the property I would have to jump through all of these hoops, filings, surveys, etc. After about 15 minutes of this he then told me "or you could pay the $100 fine". Since it was only to separate the front 16 acres we took a chance. Had the front surveyed & marked and sold the farmhouse. Never had a problem.
Not exactly the same but you may be able to do something similar. IOW not to buy or register it as a subdivision. Depends on what the local laws are and how rural it is.

 

[mrWinter]

Thanks much for all the replies. Yes we know we need to get a lawyer to review the LLC filings. And yes we know we need the engineer, early on, and any offers on the property will be contingent on a positive result of the engineering study. We may end up just buying separately but want to be ready to purchase as a group if the opportunity arises.


Hopefully this doesn't turn into a 'never do business with family or friends' lesson. I've shared money with these families many times before, though of course not on this scale, and am not too worried about fallout. We have some other friends that we've gone on vacations with that I have learned I never want to get financially involved with again, they are not invited to participate here.

 

[COcheesehead]

I formed a corporation and an LLC with friends. So far everything has worked out, but a big reason was we put a lot of the details (how to get out and at what price, being the biggest) of the partnership together when we were all smiling at each other. Any bump in the road over time was taken care of by the letter of the agreement. Think now about what you could encounter and put it in writing under terms you all can live with, while you're still smiling at each other.

 

[OldShooter]

I formed a corporation and an LLC with friends. So far everything has worked out, but a big reason was we put a lot of the details (how to get out and at what price, being the biggest) of the partnership together when we were all smiling at each other. Any bump in the road over time was taken care of by the letter of the agreement. Think now about what you could encounter and put it in writing under terms you all can live with, while you're still smiling at each other.

+1

I would never do this. Too many moving parts, too many possibilities for problems. Governance/someone has to be in charge. Aw-s#its and I-forgots. Death, incompetency, divorce, someone refusing to pay, someone deciding to sell his/her interest to a party unknown to you, intestate death, ...

If I did want to do it, I would set it up so each family contracted individually with the developer for a house and, when all are signed and down payments made, have the developer buy the land and build the houses. This will reduce complexity but still has many possible unforeseen events that must be dealt with in the purchase contracts. For example, what if one buyer backs out or is unable to perform for some reason?

It makes my head ache to think about this.