Real Estate is one of the greatest (if not best) investments a person could make. If you are a land developer, residential developer, personal investor, or construction company, there could be benefits to building subdivision development projects in residential and other areas. Subdivision developments can be financially beneficial and pleasing to investors and potential homeowners. However, while a subdivision is profitable, it is not always easy to manage and can be expensive. Despite these issues, there are some caveats every investor needs to understand about subdividing and how it works so it can become part of their real estate investment portfolio.
Factors to consider when subdividing property:
What is a subdivision?
A subdivision development project is a legal process of dividing or splitting up a large parcel of land into multiple plots for development, purchase, or even transfer. This method usually increases the value of the land. When land is subdivided into multiple lots, each lot can be sold separately to one or more buyers. Likewise, developers can find this profitable and perhaps, even more, profitable than keeping the lot as one large parcel.
Once land has been subdivided, a “title” is created for each new plot which can be sold separately and transferred. Furthermore, as stated earlier, subdividing plots of land into many pieces can benefit land developers looking to maximize their profits. Smaller parcels of land are more straightforward to subdivide than larger ones that may involve complex procedures and methods to achieve your subdivision goals.
The process of subdividing property
Before you start subdividing a parcel of land, you typically begin with a preliminary plat. Plat is another way of saying --- map or a subdivision layout drawn by a land surveyor or engineer that identifies property boundaries, access right-of-ways, flood zones, easements, etc. This preliminary plat determines whether your property is eligible for subdivision and is approved by the local city council. To avoid substantial financial losses and unnecessary headaches, consider hiring an attorney to ensure that there are no restricting laws, regulations, or covenants that prohibit the subdivision of the property.
During the approval process, your plat plans may be referred to other government authorities for further assessments and proposals for services, like, infrastructure, water, sewer, and safety. The referral process ensures that each authority’s interests in the land or assessment are sufficiently considered in the proposed subdivision plan.
However, if your property is in a platted subdivision or has previously been split, you would not qualify for a parcel split. A parcel split is a preliminary process for subdividing in the future that may require platting or granting a split to an owner to create a parcel (or parcels) of land for convenience. A parcel split is meant to ease the planning and costs of platting (time and money) for an owner, investor, or developer.
Small parcels are more valuable than the whole
As stated earlier, small parcels of land are often more profitable than the whole, meaning that you can often increase the profitability of the land by subdividing it into multiple plots, then selling it to two or more buyers, developers, etc. Additionally, when a developer has a small parcel of land that they aren’t selling, that can increase the demand for the land and your profit. However, having smaller parcels that can be profitable depends largely on the location and the intended use. Furthermore, one large parcel of land could be more challenging to sell than multiple small lots at a lower price point. With the recent boom in the housing market, take into consideration the impact subdividing land may have on the land’s value.
Check Local Rules
Check out the local jurisdiction’s rules and laws or regulations and consult with one of our real estate attorneys to help manage this process easily. After the city council approves the subdivision, reviewing your proposed plan and infrastructure is the next step. With this step, an engineer will review the sewer plans, street designs, and utility construction; this is no small task as it requires a detailed plan drawn by a licensed engineer. Rules, regulations, and procedures on subdividing parcels changes depending on the local city council costumes. Hence, it’s best to have an attorney or a land surveyor and others available for guidance on how to proceed.
Overall, subdividing a parcel of land can increase the total value of the land while providing the owner with flexibility on whether to sell or keep the smaller parcels for other use. Subdividing parcels of land involves complex procedures and legal processes that may need to be revised to comply with relevant laws and regulations before work starts. A real estate lawyer can help by working with your surveyor in preparing the necessary property documents and explaining important legal concepts.
Contact our firm for more information and advice on subdividing property.