Real Estate Investing Basics

Subdividing Land: What Real Estate Investors Should Know

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By our very nature, real estate investors are creative. We're always looking for ways to create and add value—whether we're rehabbing a rundown house or beefing up apartment complex rents. One lesser-known creative technique to add value is 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?

Subdivision is 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 a simple 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 Subdivision Platting?

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 or 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 100 square feet of your neighbor’s land for parking may be surprisingly complicated. Don’t just record deeds and think all is OK—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!

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in ...
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    Kevin Perk Rental Property Investor from Memphis, TN
    Replied almost 4 years ago
    Ronald, Families can be so much fun! 🙂 I would look around to determine if there is a market to develop the land you have. Are there other developments near you? Are you in a high growth area? If so, start to learn about your local development process by taking to your local planning department or by talking to some private planing consultants or surveyors/ Once you determine if there is a market for new development, then you can begin to look at what it will take to develop your land. Good luck and thanks for commenting, Kevin
    Russ Goodman Real Estate Agent from Cape coral, FL
    Replied almost 4 years ago
    Roland it is more involved than you think at this point. it sounds like joint tenants with the right of survivorship (JTWROS). Though At times like a tenants in common. Check into how your mother and aunt held title with any other siblings they had that may be involved. That would be the first step. once you are sure how title is held, then you can figure out how to gain control of your portion. It could be by straight buyout, or as something as strong as a partition action. Good luck and keep us informed.
    David Neese Developer from Bellevue, NE
    Replied almost 4 years ago
    I am starting to see issues where people subdivided land into too small of parcels to build a 3 bedroom home. This is rural land where septic tanks are required. Eventually I will buy one of these subdivisions and have to re-subdivide the whole thing from around 15 lots to 10 lots to make them build-able for 3 br homes. I used to wonder why rural homes always had an acre or more land and it turns out it was for septic requirements.
    Justin R. Developer from San Diego, CA
    Replied almost 4 years ago
    Just as a point of reference, sub-dividing an urban lot (say, a 7000sqft lot into two 3500sqft lots) will run at least $50k. Happy to share my experience with anyone who’d like to do this, or hear any tips from folks who have been doing this for a while!
    Replied over 2 years ago
    Hello there. I have seen a lot which is 2 acres I a residential area. Wanted to subdivide in to 6 lots with a road and stuff. So wondering where should I start with? Who are the people I should work with and how to approach the city whether it can be sub dividable?
    Javier Hinojo Flipper/Rehabber from Raleigh NC
    Replied about 3 years ago
    Justin, I just got a property 3 side by side lots (one is corner)under contract. this is 165W and 118 depth for all 3 lots. It’s urban zoning. I can split in 5 lots with all the back sets. No new road needed. I have all my set backs, min size width, and size. basically each lot needs to be 3500 sqft. 35W with 25 rear yard, 15 total side yard, 15 front yard, except for the corner lot i need 15 in the front,15 side, 25 back, and 6 for the other side. I got all spit up nicely. they all meet my set backs and size lot. Now I can build 20W/75D houses(2) 29wx40D (2) and one 22Wx55D. These homes will be craftsman style. selling price is 200-210 sq ft. i will do 2500-2600 size homes. I got the land for 375k. cost to build here will be at 95-105 depends on my finishes. I got the funds for the land i’ll have to get the other 1million on a loan to build. Did it cost you 50k with the site work? Im in NC i know the cost here is way less than CA. I figured 15-20k per lot for site work. This is my first try at new construction and building. I have been doing only flips. If i don’t do any more flips this years i would have done 14. So I’m good with my rehabs. I don’t know much about new construction. I also need to make sure the area can support 5 $500,000-$550,000 homes at once. there are plenty of new homes being built all over there. I just see builders doing 1-2 and lots of pre sales. I could do 2 per year i just don’t want my cash stuck there for 2 years. Im trying to figure out the best strategy. Build 2 sell them pay off the bank and get my money back for the land purchase. then finance the rest of the builds without really using much of my 375k cash that i get back. I don’t want a 3 year project. Thanks in advance.
    Javier Hinojo Flipper/Rehabber from Raleigh NC
    Replied about 3 years ago
    I can keep 20Wx78D (2 houses) and change the other 3 to 23x55D, 22Wx55D,22Wx55D. that would get me a better lay out. I’ll do 2 story if possible. I know i can get my architect to design just about anything i want. I don’t know how a 29Wx40D house would look.
    emily bennette
    Replied almost 4 years ago
    This is some really good information about land subdivisions. I didn\’t realize that doing this allows you to get multiple lots. That does seem like a good thing to know if you want to make income properties.
    Regena Byrd
    Replied almost 2 years ago
    ies and sell the homes. How do I go avout doing this I live in Harnett County in nNoth Carolina. TYI have a peice of property that has mobile homes on the. I want to subdivide the property