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Land Development Process
Step-By-Step
Few human creations require as much planning as land development.To conform with both the natural environment and surrounding communities, raw land must be architected for a specific future purpose; researched for potential issues; subjected to numerous tests to ensure engineering soundness; and finally approved by governmental agencies and other interested parties. And all of this has to be performed before the first shovel breaks ground.
It is through this land development process that land developers add value to, and unlock the hidden wealth in raw land -- increasing its original value by 3-5 times on average!
Stages of Land Development
STAGE 1: In the first stages of land development, a professional land developer will spend a great deal of time seeking what is called the "path of growth". They will research economic and population projections and key factors such as job creation trends to identify geographic areas with favorable growth outlooks. Then, they drill down to the community and neighborhood levels to determine the directions of future growth and new construction. To do this expertly requires a seasoned research team and a network of external contact including local government officials, business leaders, real estate brokers, builders, etc. to conduct this due diligence process and help locate potential undeveloped raw land acquisitions situated in the identified path of growth.
STAGE 2: In the next stages of land development, once available raw land has been identified in the path of growth, the land developer will work to negotiate favorable terms for acquiring the raw land. There are a number of ways that a land developer can acquire raw land, but the two most common are:
a) Purchasing the raw land upfront with cash. (Not advised - because this ties up funds for what could be years - until the land development process is completed and sold.)
b) Negotiating an "option to purchase agreement" in which the land developer obtains the rights to buy the raw land by a set date at a set price by offering a non-refundable deposit.
NOTE: Investors are usually sought at this stage to help fund the acquisition of raw land and to pay for the costs associated with stages 3-5 below.
STAGE 3: In the next stages of the land development process, architectural plans are drafted for the proposed economic use of the raw land. (e.g. Master-planned communities, shopping centers, business parks, industrial complexes, etc.)
STAGE 4: The proposed plans are submitted to the city, county, state and federal governments for necessary approvals in the next stages of land development. This is known as "The Entitlement Process" and involves all of the critical sign-offs and approvals required for the newly proposed use of the raw land.
NOTE: It is this stage of land development that unlocks the hidden wealth in raw land -- increasing its original value by 3-5 times on average!
How The "Entitlement Process" Adds Value:
a) Obtaining the necessary government approvals to build on raw land requires time, experience, relationships and the ability to manage against competing intentions for the property.
c) Fully approved or 'entitled' land is ready for immediate construction, giving builders and contractors the benefits of accelerated cash flow and returns.
Each of these factors helps make land development projects among the most lucrative and secure high yield investments available today.
Entitlement Process Example: (click on links below to view)
* Part One
* Part Two - Residential
* Part Two - Commercial
STAGE 5: By the final stages of the land development process, following the entitlement process, the original value of the raw land has typically been increased by 3-5 times what the land developer paid for it. And in some cases, it can be even more, with the addition of "infrastructure" improvements such as: access to utilities, municipal water and sewer access, roadways, etc.
Finally, the newly "entitled land" is sold off by the lot or parcel to builders and profits are realized by the land developer and their investors.
STAGE 6: The builders take over.
After purchasing the newly entitled land from the land developer, building contractors and real estate developers will begin to install the structures on the land:
- Homes, golf courses, retail shops, office buildings, industrial complexes, etc.
Ultimately the builders will go on to sell the finished homes, offices, etc. to their customers - homeowners, business owners, government entities, etc.
- Homes, golf courses, retail shops, office buildings, industrial complexes, etc.
Ultimately the builders will go on to sell the finished homes, offices, etc. to their customers - homeowners, business owners, government entities, etc.
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Land Development Process
Step-By-Step
