Minimizing Risk Before Purchasing for a Spec Build

4 Replies

Here's a question for you guys:

What are ways that you gain reasonable assurance that you'll be able to build on a plot of land before purchasing the land?

I'm looking at several properties, some of which are bare land, others of which have a single house on a larger plot that I'd like to subdivide and build on the new plot.

Because development will be contingent on multiple permits and/or subdivisions being approved by the local jurisdiction, how can you make sure you don't buy the land and then end up with land you can't build on?

With good contracts!

You want to work with someone (broker, attorney, or someone else) that has been there and done that and can structure the contract so that you can design out entitlement risk. Developers generally like to close with permits to make sure this happens.

A skillful negotiator can add a ton of value here. Stepping up earnest funds or buying more time past set dates are common. Ask around and try to find some local folks with experience here. For larger projects a quality civil engineer is a great place to start.

@Matt Vaughn Are you saying that all of the properties are adjoining and you want to merge them to create a larger parcel which you would then subdivide? or are they completely unrelated to one another?

Every area of the country is different. However; the basics are:

  1. What is the current zoning, and the zoning shown in the General Plan for the area?
  2. Is what you are proposing consistent with that zoning?
  3. Are there utilities available to service the property?
  4. Are there roads to service the property?
  5. What is the physical terrain of the property?
  6. Are there any environmental issues in the area that may affect the development of the property?
  7. What is the process for subdividing property in your State, and how long does it take?

As Bryan mentioned, consulting with a civil engineer is probably a good first move. They will know the local issues, process, etc. and can give you guidance. In addition, his advice on contracts etc. is right on. Good luck.

Originally posted by @Bryan Hancock :
Stepping up earnest funds or buying more time past set dates are common.

@Bryan Hancock , could you explain this a little bit more? I'm not sure if I'm understanding.

If you give us a real world scenario it may help. Stepping up earnest funds means you place more money at risk as certain hurdles or time gates are cleared in the entitlement process.

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