How An Investor Can Prepare Raw Land For Development

Investing in land in strategic locations and holding it for a few years, maybe decades, is a strategy often referred to as land banking.

The land is expected to grow in value and development potential over time due to its strategic location, probably on the outskirts of a growing city or town.

When the timing is right, the landowner either sells for a profit or develops the land, greatly increasing its value.

Raw land investing is attractive because it is affordable, has low holding costs (e.g., maintenance and taxes), and offers flexibility for future projects.

However, successful investment in raw land requires a thorough understanding of location, zoning regulations, and market trends to mitigate risks and maximize returns.

In this article, we delve into why investors choose raw land and what’s required to develop it, i.e., add utilities and infrastructure so it’s vacant land ready for buildings.

Why Invest In Raw Land

Raw land is in its natural state, e.g., bush, grass, maybe a forest, with no improvements. There are no roads, utilities, or buildings. It’s probably not yet zoned for development. It is the most affordable type of land, giving real estate investors an entry point.

The land in its current condition should be low-maintenance. There are no tenants to manage, and it’s unlikely to be in a condition suitable for leasing.

Therefore, raw land is not an income source; however, owning raw land has plenty of upsides. It’s all about the potential capital gain in the years to come. This is called the appreciation value.

In addition to appreciation, there is future land-development potential, which could be converted to residential, commercial, or agricultural use, rewarding the landowner with high yields from leasing or profits from a sale.

Investors with real estate portfolios will use raw land purchases to hedge against inflation, as land typically appreciates above the inflation rate over time.

Plus, there are tax benefits for investors, too. Successful land banking requires thorough market research to identify areas with high growth potential and low risk.

Additionally, if the purchase is to be developed, investors must understand the area’s zoning laws and land-use regulations, which determine how the land can be developed and used.

Before embarking on land readiness for development, ensure you’ve secured adequate financing; to do that, you’ll need cost estimates for land preparation, infrastructure, development (if you’re going ahead with it yourself), and post-build marketing.

Steps for Land Development

An investor needs to take several important steps to prepare their raw land to attract real estate developers.

1. Land Development Potential

A feasibility study will determine the demand for land development in the area. Will it be ideal for industrial, commercial, or residential use?

What is the state of the land itself? Undertaking an environmental impact assessment will reveal if there are wetlands, endangered species, or contamination.

The feasibility and environmental reports will confirm what type of structure the land can support and where you should build it. They usually consider the location of driveways, wetlands, septic systems, and roads, to name a few.

2. Get Zoning and Permits

When you know what your land can be used for, you must ensure it is zoned for the activity. Once you’ve gotten the proper zoning, you’ll need permits for everything from building to environmental and local authority approvals.

3. Land Survey and Soil Testing

You may think the environmental impact assessment can give you the green light to proceed; however, you will need a land survey and soil test first.

The boundaries need to be pegged, and easements or encroachments identified. The soil test will confirm whether the land requires special foundations for the types of buildings permitted on it.

4. Site Plan

Develop the site plan, including the locations of the roads, the building, and green spaces. At this time, you’ll also want to consider where the utilities will go, i.e., water, sewage, electricity, gas, etc.

5. Infrastructure Development and Land Clearing

Build an access road so the land is easily accessible for utility connections, construction vehicles, and machinery.

As you consider the zoning details and site plan, hire experts to help you clear the land, excavate trees, and remove any existing structures.

Your land can be graded for proper drainage and foundation areas. You may also need to build an access road to ensure it is easily accessible to construction vehicles and machinery.

6. Engage Local Stakeholders and Neighbors

Addressing any discrepancies between actual land practices and municipal codes requires awareness of the local regulatory and political climate.

Be ready to engage with neighborhood associations, neighbors, and business owners about the area’s culture and history. This way, you will gain a valuable context about how rules are often enforced.

7. Legal Requirements

Your attorney needs to conduct the title search and ensure the title is clear of liens or legal issues, such as covenants or restrictions, that may affect the development.

Conclusion

Investors invest in land for many reasons, as mentioned here. Land banking raw land is a hedge against inflation and may provide tax benefits.

Developing land for real estate development is riskier but also offers greater upside. The steps involve land surveys, zoning, permitting, and legal and regulatory requirements.