4 key factors for investors

Few things are as exciting as cutting the ribbon on a new property or development you’ve nurtured from the ground up, from vacant land to a viable and profitable real estate business. But land development is not only exciting and lucrative; it can also be frightening and exhausting.

On the one hand, as a developer, you are free to consider what your budget allows, from an extensive single-family home to a cohesive residential community or more. On the other hand, land development requires a lot of time, access to large amounts of capital and often presents many unexpected challenges.

To become a successful builder-developer, you need to be focused, prepared and guts. (Maybe a double dose of that last ingredient!) Not everyone is cut out for this job in the construction world.

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Imagine being friends with hundreds of real estate investors and entrepreneurs. Now imagine grabbing a beer with each of them and casually talking about failures, successes, motivations, and lessons learned. That’s what we’re aiming for with The Pyjama People Podcast.

How do you choose the right plot of land?

Mastering land development requires years of practical training. In addition to learning about the different geographic differences in soil composition and building materials, it also takes time to understand the market requirements that shift from location to location. These relate not only to customer interests, but also to laws and regulations. As you hone your skills, hopefully you can minimize the common challenges encountered by many non-experienced builders.

I have learned many of those precious lessons the hard way over many years in the industry. I want to unravel industry secrets, clarify necessary processes, highlight essential documents and advise on the thinking behind the most successful building methods and approaches. As you read on, you can make the land development process more enjoyable and make your builder’s dreams a reality.

Each developer starts their project by choosing a plot of land to build on. But like everything in life, it’s never that simple. To be successful, there are some key points to consider when deciding which piece of land to buy and develop for your new project.

What are the destination ratings?

Plots are plotted on zoning plans created and administered by local municipalities (city, county, or state) that oversee the construction of development projects. The purpose of these maps is to ensure that community growth and building development are consistent with the needs and vision of the community. For example, an area intended for schools is usually not placed adjacent to a business park. Zoning classifications help you determine the type of construction project that is allowed according to your plot designation.

These are the most common destination classifications:

  • single-family home
  • Multi-family homes
  • Advertisement
  • Light industrial
  • industrial
  • agricultural
  • School/church

Please note that zoning classifications are not uniform across municipalities, so it is critical to contact the zoning agency for any plot you wish to develop.

The details you’ll want to know for sure (usually available on the local Building and Planning Department’s website) include:

  • Building size and use
  • Minimum and maximum party sizes
  • Building coverage (permeable surface)
  • setbacks
  • Density Limitations
  • Parking Requirements
  • Allowed business

Have a zoning plan to ensure that your project lot is not directly adjacent to a zoning district classification that could adversely affect your project.

Should the current zoning conflict with your intended project, a phone call to the local Building and Zoning Department can help you determine whether a zoning classification change is possible. Unfortunately, zoning plan changes are often lengthy processes.

To protect your cash flow and vision for what you want to develop, make sure your attorney structures your deal to make the purchase conditional on proper zoning and licensing. This is a common approach that should not cause any problems.

Is the soil suitable for septic?

Before a problem arises, make sure you start a landscaping project with a thorough understanding of the plot’s soil composition. Understanding the condition of your soil will help you build with the right materials in the right location, delivering long-term value and benefits.

To determine if you have strong soil suitable for building, most local municipalities require the use of a soil engineer. The results of their many tests are usually required to some degree before obtaining a building permit, as well as a certificate defining the source of clean drinking water (potable).

Start with a percolation test (also known as a PERC test) if you need a septic system. You want to be sure that the soil on your land can properly support a septic system. This means determining whether the field is permeable enough to absorb liquid flowing into it. You don’t want garbage or sewage seeping back up and accumulating on the surface.

A ground engineer will use a much deeper hole, often 7 to 10 feet or deeper, because they are looking for a high water table and the presence of rock ledges or impenetrable soil that could block water uptake. Note that a failed PERC test means you may not be allowed to build. Make sure your purchase is conditional on passing this test.

Is water drainage a problem?

Once your plot is deemed suitable to support a septic/waste system, the soil scientist can prepare a topographic survey (known in the biz as a “topo”) to determine the natural flow of water and the potential risk of pollution. The construction department is especially concerned about this test, as it will provide valuable information about the possibility of water drainage for neighbors.

Should your new development cause negative water distribution problems, a solution can usually be achieved with newly installed retaining walls, drainage gutters and a variety of other natural and man-made structures. Keep in mind that that solution will add unexpected costs to your project.

A contamination test may be necessary, especially if you are in an area known for several toxins. The soil scientist can also check that there are no toxins or contaminants (such as lead, arsenic or cadmium) in the soil. The local Department of Health and Environment can usually advise on what contaminants, if any, are present in your project area.

Ultimately, once safety is considered, a good soil composition test will help you determine if you can properly support the weight of the planned buildings. Unsuitable land areas are usually quite obvious, such as swamps, swamps, or plots near nuclear power plants or chemical storage ponds.

A good construction site has soil that does not shift, expand or contract drastically. Usually this is a mix of gravel and sand, which offers great stability and copes well with the presence of water. These tests are important pieces of information that affect how you build your foundation.

Quick DIY Soil Test

Here’s a DIY soil test that can give you an early indication of your soil’s suitability for building before doing professional testing. Just take a ball of moist earth in your hands from your proposed plot and watch it crumble.

Soil that is heavy with clay will most likely hold its shape in your hand, indicating a high concentration of water that is bad for the foundation because of its tendency to shift as it dries or moistens. If there is too much sand, the soil will struggle to hold its shape, foreshadowing the kinds of problems your foundation is likely to encounter. Soil that crumbles into larger chunks usually indicates the right mix of materials.

While land development takes a lot of money, time and risk, the payoffs are usually hugely satisfying. Happy building!

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