Subdividing land, or the process of splitting a single lot into two or more smaller parcels, can be a profitable pursuit for investors. To that end, we've brought you a guide featuring everything that real estate investors need to know about this process. In this piece we'll cover the benefits of subdividing land, the steps you need to follow to make it happen, and tips for getting the best results.
The benefits of subdividing land
In truth, there are many benefits to using an investing strategy that involves subdivided land. With that in mind, we've laid them out below for your consideration. Read them over to get a better idea of whether property division may be a path you'd like to take.
Smaller lots are often more marketable
First and foremost, smaller plots of land are often more marketable than big, unwieldy lots. For one thing, they have lower price points, which will make them affordable for a larger percentage of buyers. Selling a large plot of land often involves marketing to a specialty buyer who wants to have a lot of acreage at their disposal. On the other hand, smaller, more average size lots are more likely to appeal to the masses, which increases your pool of interested buyers and your overall chances of getting an offer.
The potential for profit
Depending on market conditions, land division can be an efficient way to increase the value of a property. In some cases, two or more smaller lots may sell for more money than one big parcel. That said, if this is your goal, it may be a good idea to talk to an appraiser before you start the subdivision process. He or she will be able to estimate the value of the subdivided land versus the value of keeping the lot as-is.
How to subdivide land
Now that you know more about the benefits of separating land, it's a good idea to take a look at the step-by-step process of how to make subdivision happen. Before we get started, however, it's important to note that the specifics of this process are often decided on the municipal level. With that in mind, while this will serve as a general guide, it's crucial to do your own research on any local laws or requirements that may be in place.
Do your research
Whenever you're dealing with land development, there's usually a strict legal process that needs to be followed. As stated above, these processes are usually regulated on a county or municipal level. to that end, before you get started dividing up land, you're going to want to have a meeting with someone in your local planning and zoning office to discuss the subdivision potential of your lot.
Typically, there are subdivision regulations that specify the allowable size of each lot, the type of street access required for each one, and requirements for necessary access to utilities like water and electricity. in addition, you may want to read over your own deed to find out if there are any restrictions on the number of times your particular lot can be subdivided.
Hire a licensed surveyor
After you've gathered all your information on the process of land subdivision in your area, the next step is to hire a licensed surveyor to do a land survey. To start, the surveyor will take accurate measurements of your current lot and the lots you want to contain within it. they will also flag the area to show the boundaries.
However, most importantly, the surveyor will work up a document known as a preliminary plat. A preliminary plat is a fancy name for a map that depicts details like land boundaries, access routes, flood zones, and any required easements.
Receive governmental approval
Once your land surveyor has finished their preliminary plat to your satisfaction, you will hand the document in to your local municipality for approval. They may request or dictate changes that need to be made to the document before approval is given.
Undergo the necessary engineering planning
After your preliminary plat has been approved, it's time to start working with an engineer. This time, the engineer will need to draw plans for any construction work that you intend to do on the lots. This could include anything from changing up drainage patterns to adding utilities to the new lots.
Your engineer will also have to draw up a set of plans to be approved by the planning board. Again, they may request changes to the plans before they give their subdivision consent and final approval. All told, the approval process can take months to complete, so you want to be sure that you leave plenty of time to undergo this process.
Prepare and record the new deeds
However, after you receive final approval, the last step in this process is to bring all of the plans for the proposed subdivision to a real estate attorney. Your real estate attorney will help you through the process of dividing up the title for the new lots as well as the back-end aspects of dealing with an existing mortgage, if applicable, and undergoing appraisals.
Once all that is done, along with any necessary construction, you can work with your land surveyor to submit a final plat to your local courthouse. They will record the new deeds for the new plots of land, and once you have those in hand, you can go about selling your parcels.
Tips for subdividing land as an investor
Now that you have a better understanding of how the subdivision process works, odds are that you could use some advice on how to choose the right lots for subdivision. In light of that, we've brought you our best tips for tackling this process as a new investor. Read them over so that you have a better idea of how to get the most bang for your buck.
Look for houses with large lots
If you're new to the process of subdivision, it can often be easiest to look for existing homes on large lots. It's likely that these lots will already have the necessary infrastructure in place for subdivision in terms of utilities, which can lower your overall costs. Additionally, the value of the house will usually remain close to the same even if the house eventually sits on a smaller lot, which means that any additional lots that you create from the parcel will be a nice bonus to your income.
Consider buying adjacent parcels
If you have your heart set on buying a particular parcel, but it is small or oddly shaped and you don't think it will divide easily into separate lots, you can always consider buying adjacent parcels. In this case, you can combine the parcels and create new lot lines however you see fit. Depending on the size, you may also be able to create more lots than you were originally intending, which will also add to your overall income.
Do your due diligence before buying
Lastly, if you're investing in an unfamiliar area, you're going to want to do your due diligence on subdivision ordinances before you put an offer in on a property. In this case, the last thing you'll want to have happen is to invest your money into a property only to find out that you're unable to subdivide. While this may create more work for you at the outset, it's more than worth it.
The bottom line
When done right, subdividing land can be a profitable investment option. However, this process requires a lot of hard work and due diligence. If you're thinking of undertaking subdivision as an investment strategy, you'll want to make sure you have a firm knowledge base in the process before getting started. With that in mind, use this article as your guide for the process. Armed with this knowledge, you should be able to start thinking about whether subdivision could be the right investment strategy for you.