By our very nature, us real estate investors are creative. We're always looking for ways to create and add value—whether we're rehabbing a run-down house or beefing up apartment complex rents. One lesser-known creative technique to add value is by subdividing land. Basically, this creates "new" land—that you can then sell, build on, or rent.

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When you say the word subdivision to most people, it will most likely conjure up images of large tracts of suburban style housing. Yes, huge housing developments are indeed one type of subdivision—but there are much simpler forms easily managed by even the most novice real estate investor… with some caveats.

First: While profitable, subdividing land is not always easy. It can also be expensive, with a lot of upfront costs. Despite these issues, every investor needs to understand what subdivision is and how it works so it can become a part of their real estate toolbox. Just make sure to check out your local jurisdiction’s rules and laws—every state and city is different.

Related: 5 Easy Steps to Value Land for Development (& Work in a Profit!)

What Is Subdividing Land?

Subdivisions are rather simple: It involves taking one tract or piece of land and dividing it into two or more tracts of land.

A subdivision may involve tracts of land that range in size from hundreds of square feet to hundreds of acres. A subdivision may involve only one new tract—or hundreds. However, the United States lacks a standard legal “subdivision” definition. If you are thinking of subdividing land, you are going to have to look into your local rules. For example, in Tennessee, any division of land over five acres is not considered a subdivision… unless you’re in Shelby County, where the standard drops to four acres. And if you’re installing roads or utilities, size doesn’t matter.

See how things can get tricky? Yes, dividing land can be done very easily—but an easy subdivision isn't always legal. Generally, writing a legal description of the two tracts and recording a deed at the local courthouse divides the land. But pay attention to your jurisdiction's subdivision regulations. Skip necessary steps and the building department will give you the boot when you apply for a permit.

Why Subdivide?

People typically subdivide their land so they can sell off a portion. You may want to subdivide land for family, so they can live close by. Or perhaps you want more lots for a housing or commercial development.

Whatever the reason, subdivisions create new tracts of land. That is why people subdivide.

Related: Setting Up a New Construction Development Pro Forma – Put in Time Up Front to Save Time Later On

How to Subdivide Land (Legally)

Before dreaming of subdividing, check your zoning. You’re looking for the minimum lot size. You can’t subdivide land zoned for one-acre-minimum lots into 10,000-square-foot lots. To do so necessitates a rezoning—a different game entirely.

Assuming you’re allowed to subdivide, the exact process depends on your local jurisdiction and your project’s complexity. For a relatively simple subdivision—say, splitting a two-acre lot into two one-acre lots—then most likely you only will need to have a plat drawn, approved, and recorded at the courthouse.

What is a plat, you ask? A plat is a fancy word for a map drawn by a surveyor or engineer. It depicts the subdivision (or lots) you want to create. Every jurisdiction mandates what a plat needs to show, such as streets or utilities—so, again, know your local rules.

What if your subdivision is not so simple? What about dividing 10 acres into 20 lots or constructing new streets and installing utilities?

Typically, you start with a preliminary plat. The local governing body or planning commission will review your design and either grant approval to ask for changes.

After approval, you’ll proceed to an engineering review of your proposed subdivision’s construction plans, covering everything from drainage patterns to street design and utility construction. This step requires detailed plans designed and drawn by a licensed engineer—no task for the average real estate investor.

You then grade the land, construct the roads, and install the utilities. After construction, you submit a final plat depicting your lots for approval and recording at the courthouse. After recording, you can finally start selling lots or constructing~ houses or buildings.

How Much Does It Cost to Subdivide Land?

At a minimum, you need a survey and a plat. Expect to pay application and recording fees, too. A very simple subdivision could possibly be done for under $2,000—but that’s rare. Most subdivisions require some type of utility installation, and many also require road construction. Think about it: How will the new tract get water? And how will you access the plot?

In addition, you may encounter impact fees, such as school impact fees. These can total tens of thousands of dollars per lot, depending on your jurisdiction. Unfortunately, you must pay for all of these costs before selling any lots and earning a return on your money.

Related: 5 Reasons I Do NOT Invest in Real Estate Using An LLC

Surprise Subdivision Headaches to Watch Out For

Smart real estate investors should familiarize themselves with common subdivision problems. Keep an eye out for these hiccups.

• Raw land: Developing raw land typically falls under subdivision regulations. Hire a local surveyor or engineer who is familiar with the local regulations to guide you.
• “Extra lot” properties: If you purchase property with an “extra lot” attached, don’t assume that “extra lot” is legal or immediately buildable. Check to make sure it was properly subdivided before constructing another property.
• Older parts of town: Here, you may encounter old, noncomforming lots. Find out when those lots were created—if that date is before subdivision regulations were enacted, then your lot is likely grandfathered. If they were created after enactment and there is no plat recorded you may have an illegal subdivision.
• Land swaps: Don’t think that a small land swap evades subdivision regulations.  Swapping ownership of your 10-foot driveway for your 100 square feet of your neighbor’s land for parking may be surprisingly complicated. Don’t just record deeds and think all is okay—check with your local codes office.

As you can see, subdividing land is rarely quick or easy. Approval can take anywhere from a few weeks for a relatively simple subdivision to years for rather complex ones in jurisdictions with a lot of development rules. However, despite the costs and time involved, subdivision can be quite profitable, and thus it is often worth the money and time.

Do you have any experience with subdividing land?

Let me know your question and comments below!