When it comes to purchasing land, the sum of the parts can genuinely add up to something greater than the whole. Whether you own a parcel of land or are considering investing in a vacant property, a multitude of benefits can spawn from successfully subdividing your land into residential lots, including providing a landowner both increased profits and flexibility. As prospective home builders show interest in subdivided, available lots, the original land investor can monetize and maximize their acquired land’s value.
When most people think of subdividing, they think of real estate developers purchasing large plots of land and breaking it down into small-scale, individual facets to turn a profit. However, in today’s current market condition, many investors have considered the opportunities of selling extra land to maximize their real estate resources.
Here, we will address both the benefits and drawbacks of subdividing, as well as crucial considerations for potential land investors.
The Benefits of Subdividing Your Land
First, when you subdivide your land, you have multiple opportunities to sell and create a substantial return on your investment. Most landowners divide a property because of the promising ROI spawned from selling individual plots that surpass the original funding for the greater whole.
Often, the land itself is more valuable once subdivided. Instead of being a 10-acre plot of land for one, it could be 15 to20 half-acre plots of land for up to 20 homes. This allows more people to live on the land, making it more useful.
Speaking of more useful, subdividing up your land into multiple parcels allows for more flexibility. Because a landowner does have to liquidate all properties at once, they can sell and save lots at your discretion, and ultimately control a facet of the real estate market. The land itself is also more marketable; once subdivided, it is easier to sell to a range of buyers over time.
The Drawbacks of Selling Plots Of Land
There are a few drawbacks to selling lots of land, of course. If you bought land for your own custom home and are selling parts of the original plot, you’ll have new neighbors and everything that comes with them, including potential appeasements.
Once you sell an asset, the title is no longer yours. If the value of land should increase sharply in the future, this means you may have lost out on a considerable amount of money if you sold your plots before the increase.
Is it Feasible to Subdivide Your Land Plot?
First, you need to consider the size of your plot of land. If you own a quarter acre plot of land, subdividing it into smaller parcels will not be feasible. However, if you own 25 acres of land, subdividing the land opens doors to tremendous opportunities. You’ll also need to consider the demand for the parcels of land, the demographic economy, and whether it makes financial sense to subdivide in the current market setting.
Local demand and preferences must be considered closely. If you own 120 acres of land in a rural area of Montana, potential buyers may not be looking for acre size plots of land. You won’t necessarily be able to sell 120 one-acre plots of land. However, you may be able to sell (12) 10 acre plots.
Infrastructure Should Be Considered Early
Larger lots of land do come with greater complexity. The subdivision process can get a bit trickier as there is simply more land to consider. You may also have to plan for the construction of roads, utilities, and other infrastructure. The larger the property, the more resource intensive it is to build such infrastructure and to develop the plot.
Know The Lay of the Land When Subdividing
Anyone looking to subdivide their land needs to know the market risks in their local market. They also need to know the local zoning, subdivision, and development laws. There may be requirements concerning layout and size limitations for planned lots.
There may be other limitations and requirements. It’s wise to understand all of the potential requirements, such as budgeting, documentation, and legal review. Deed restrictions can also increase costs. Further, there may be covenant violations and CCRs that prevent landowners from subdividing land.
Tricks of the Trade For Subdividing Land
Any contract should list the official subdivision approval, issue it as a condition for closing. This will help protect you legally. Further, the land itself should be divided with new lot lines to create a formal visual of property lines for prospective buyers.
If you invest in houses on large plots of land, first subdivide the land to create additional vacant lots to sell, and then rent, sell or demolish the existing home that is now on a smaller lot. Because the market often values homes the same, regardless of if it lies on a smaller parcel. You do not necessarily have to buy vacant land to earn a solid bonus on your property investment.
Conclusion: There Are a Lot of Things To Consider With Land Plots
As you can see, there are a lot of factors to consider if you are considering dividing your plot of land into subplots. Home building and lot management can be tricky as there are many laws, regulations, and preferences to consider. It’s smart to research and plan. When it comes to home building and lot management, any decision could have a major and lasting impact on your life.
Belman Homes specialize in lot and home building consultation. We can help families and businesses mitigate regulatory and geographic risks of purchasing, dividing, or otherwise managing plots of land, regardless of the size or function of the land.