If you own raw undeveloped acreage, the land may be your route to financial security. Subdividing residential lots or owning commercial buildings can put you on the path to prosperity. Land development, however, is a complex venture. Take a look.
Details count. You may already own the land, but to develop it you will need to convince other people that you have a reasonable plan and chance of success. Do a feasibility study describing what you propose to do with the land, the supply and demand for your offering, and why you think you can be successful. Among the people you will need to persuade:
- Potential investors, if outside financing is needed. This includes bankers if you are borrowing money.
- Lawyers, who will help form a legal entity under which you will operate the development, help you with construction contracts, steer you through the maze of governmental authorities that have a say-so on your land use.
- Engineers and architects, who will design and blueprint every aspect of the construction.
- Utility commissioners, who must approve plans for water, gas, electric and wastewater lines.
- Builders and construction companies that will survey, grade and pave the land, and construct the buildings.
- Real estate brokers, who will bring you buyers.
- Marketing people to tell the world about your new development.
- Environmental analysts, if the state in which you are doing business has concerns about how your development will affect the environment.
- Traffic engineers, if the size of your development will lead to increased traffic.
- Considerable financial resources are required to navigate all of these aspects of the development process, since you will be spending considerable amounts of money long before the lots begin to sell in your residential development or the business spaces lease in your shopping center.
One fundamental rule of real estate investing: Don’t accept a negative cash flow situation. In the case of owning raw land, if it is not producing income in some way, it is a drain, even if it ultimately appreciates in value. Developing the land will generate cash flow and leverage the increase in value, because you’ve made the land more useful and valuable.
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