What are the 3 Stages of Land Development?
What are the 3 Stages of Land Development?
Land development is a multi-step process that can be challenging, complicated, and quite risky. It can take many years to bring a project from planning to construction and then to completion.
When you want to develop your land, there are lots of obstacles that can stand in your way. However, developing land can also be a pretty profitable opportunity. If the development process is thoroughly planned and well-executed, you can earn a good amount of money by selling it or renting it out.
It is risky but also quite rewarding when successful. However, to be successful, you need to educate yourself on stages of land development which also involves researching the market, arranging the capital, and marketing real estate projects.
The Stages of Land Development
While investing in undeveloped land is undoubtedly a complex strategy, first-time developers should not necessarily try to avoid it. Instead, all you need to do is, get yourself prepared and understand the crucial stages of land development.
To help you understand the process of land development, the important stages are:
To start with a pre-development phase, you need to do a thorough analysis of your property. While purchasing the property, you may or may not have been able to inspect. However, now you need to analyze your property with a critical eye to determine how you can add value to the land.
The pre-development phase will usually be the longest of all the stages of land development because you need to plan out all your moves. Therefore, it is better to raise and address every possible issue in this stage so you can handle it before you begin the construction work.
Some of the common steps of the pre-development stage are:
Researching the land
Before purchasing the land, it is better to understand the potential and problems of the land at the beginning of the project. For this purpose, you will consider not only the local community but also the state of the land. For example, suppose the land you have already purchased or want to purchase is not close to electricity or water lines. In that case, it will add a massive amount to the overall cost of the development.
Also, you need to consider the current state of the land, whether it is suitable for building or not. If the land is not in good condition, then an immense amount of work needs to be done before constructing any building. So, it is better to calculate all the costs before purchasing the land to reduce the overall cost of the development.
Once you have an understanding of all the costs that you are most likely to encounter, it will be easy for you to decide whether you want to invest in the land or not. For any property developer, it is essential to determine their desired return on the property before they start developing it.
Although the numbers will be an estimate, it will still help you understand how much you need to spend and how much profit you can make.
After deciding the location, you need to decide what type of property can be constructed on it by looking into local zoning codes. While deciding on the kind of property you will build, zoning will play an important role in how you proceed with it.
Zoning codes help you determine what types of properties such as single-family, multi-family, or commercial projects can be built on a particular piece of land. As a property developer or investor, you must understand the area’s zoning laws.
Arranging construction financing
Arranging capital for your development project is an important step of the pre-development stage. To develop the land, you will need to arrange capital for your project. You will find many finance-providing companies, banks, and private lenders in the market that will be interested in investing in your project.
However, as a property developer, one aspect you should care about is a loan-to-cost ratio, which is the amount of money the lender will provide you for the project depending on the type and use of the property. Most lenders will provide a percentage of the overall costs, generally between 80-90 %, but the borrowers will have to return the amount with a higher interest rate.
Site, development, and building plans
All these plans for the development project will need to be drafted as well so that the purpose of the project is clearly defined. These plans will show how the land will look after development. It is better to get a professional architect on board for designing building plans.
The last step of the pre-development stage is to obtain the development approval for your project. The process includes the following:
- Obtaining all the legal permits and approvals to develop the land
- Securing a permit to acquire water and other utilities as the land is now ready to get developed into a residential or commercial building to define the project’s purpose clearly.
Obtaining a development approval successfully can be a very lengthy process as it can take 3 to 12 months in some cases. So, the key to start developing your land on time is to get started with the development approval process as soon as possible. In addition, good building designs enable the development process to go much faster and smoother.
Once you have successfully acquired the development approval, you can give the go-ahead to your construction team to start developing the land. As a land developer, your job will only be monitoring them closely and keeping track of all the tasks to ensure the construction process goes smoothly.
Payment to the construction team will be based on achieving different milestones throughout the project. Therefore, each time the construction team achieves a milestone, you need to pay them.
However, the final payment happens only after you have inspected and approved the finished project. As a property developer, it will be your responsibility to keep a close eye on what is happening.
Once you are through with the construction process of your project, two options are open to you: open the building for business and manage it or sell it to make a profit. For both options, you need to have an efficient marketing plan. Whether you want to sell the property or put it on rent, you need to have a marketing plan in place to attract potential buyers to your property.
The process includes the following:
- Working with a realtor
- Preparing online listings
- Posting an advertisement on newspaper or social media platforms
What are the 3 Stages of Land Development? Conclusion:
Many people want to go into the land development business because it costs less to purchase than a developed piece of land and allows you to make a huge profit on it. Although there are many risks and rewards in the land development business, purchasing raw land is one of the most secure investments one can make. If you are new to the land development business, expanding your knowledge should be your first step. Learn more about the stages of land development and be well prepared for your first development project.