How to Develop Raw Land For Investment

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By johnhanlin
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Surveying the raw land for development

This article will explain the raw land development process step-by-step, starting with raw undeveloped land and ending with land approved and zoned, ready to start building upon.

Difficulty: Challenging

Instructions

Things You'll Need:

A research team to identify raw undeveloped land in the "path of future community growth".
Money to acquire or control the land under contract.
Plans for the expected future use of the land.
Ability to work with governmental agencies to obtain necessary approvals for the planned use of the land.
Money and local contacts to install "infrastructures" on the land: surveys, curbs and gutters, utilities, etc.
Customers to purchase the completed project.

Step 1

Searching for the

Professional Land Developers spend a great deal of time seeking what is called the "Path of Growth". They 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 possible raw, undeveloped land acquisitions situated in the identified path of growth.
Step 2

Raw undeveloped land

Once raw, undeveloped land is identified in the path of growth, the Land Developer will negotiate favorable terms for acquiring the property. There are a number of ways that land developers acquire property, the two most common are:

a) Purchasing the property upfront.

b) Obtaining an 'Option To Purchase' agreement: 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 typically sought at this stage to help fund the acquisition of the property and cover costs associated with Steps Three - Five. These are typically 'silent' investors in the land development project.
Step 3

Future use plans are drafted

Plans are drafted for a proposed future economic use of the land. (e.g. Master-planned communities, shopping centers, business parks, industrial complexes, etc.)
Step 4

Plans are submitted for approval

The proposed plans are submitted to the city, county, state and federal governments for necessary approvals. 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 property.

NOTE: In this step, the Land Developer literally 'creates' value and this is why raw land development can be so profitable. It is this entitlement process that creates an average 300-500% increase in the value of raw land - often with limited associated costs for even higher profits!

The increased value of the newly "entitled land" results from several important factors:
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.

B. The land developer makes formerly raw, undeveloped land available to builders and construction contractors in "ready and approved to build condition" -- often with turn-key access to utilities, municipal water and sewer, roadways, etc.

C. Fully approved or 'entitled' land is ready for immediate construction, giving builders and contractors the benefits of accelerated cash flow and returns.

All of these factors help make raw land development projects among the safest high yield money investments available today.
Step 5

Finished lots ready for sale to builders

After the raw land's value has been increased by the completion of the entitlement process and other improvements such as access to utilities, municipal water and sewer, roadways, etc., the newly 'entitled' property is sold to Building & Construction Contractors.

NOTE: A typical raw land development project will take anywhere from one to several years to complete. This all depends upon the size and complexity of the project, plus government approval time-lines.
Step 6

Builders install the structures on the newly approved land

Once the newly entitled land is sold,the Raw Land Development Process ends.
Profits are realized and Investors are paid.

Finally, the builders take over.

After purchasing the land from the raw land developer, Building Contractors will begin to install the structures (e.g. homes, golf courses, retail shops, office buildings, industrial complexes, etc.) on the newly 'entitled' land. They will go on to sell the finished homes, offices, etc. to their customers - the end users (homeowners, businesses, etc.)

If you have further questions, visit my website at: www.JohnHanlin.com or click on any one of the links in the Resource Section below for additional information.

Comments

johnhanlin said

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on 7/5/2009 johnf85: You are wrong about my copying from someone else's webinar. I've never heard of the person you mentioned. I work with a national land developer and this was written entirely by ME and noone else!

johnhanlin