I'm looking at a potential purchase in the suburbs of Philadelphia. It consists of 2 pieces of property: (1) a 2 acre lot with a 2,000 sq. ft. home and (2) a 6 acre lot of land (no buildings on it). Since I've never bought land to sub-divide it nor have I done any new construction (I've only done standard fix and flips), I have a few questions. I'm hoping to get the community's perspective.
- In talking to a number of contractors, new construction in the Philadelphia area ranges from $100-$150/sq. ft. What I don't know is what is typically included this price. The main things that I'm curious to know if they are included are (a) foundation work (digging a hole for the basement and the foundational concrete work) and (b) driveway/sidewalks.
- In terms of new construction in a sub-division situation, the costs that I am coming out with are as follows. Does this list look complete and/or accurate?
- Interior design professional (not sure about the cost yet, any feedback here would be appreciated)
- Architect (to draft up the house plan)
- New construction (cost/sq. ft.)
- Foundation (if not included in the new construction #)
- Driveway and sidewalks (if not included in the new construction #)
- Deck (if the neighborhood calls for it, but not sure yet)
- Permits (if not included in the new construction #)
- Sub-division cost
- Engineer plan write up (estimating $1,000 - $2,000)
- Township fees and costs (not sure how much this is yet)
- Lawyer fees (is this applicable?)
- When I buy properties, I always include a 10 business day due diligence period to bring out my contractors, get quotes etc. etc. not unlike most of us on Bigger Pockets. What I can't figure out is how do I get all my ducks in a row within 10 business days for this type of question. It is reasonable to expect to get all the individuals involved in question #2 to get me concrete numbers and deliverables in 2 weeks? I've never done this before so I'm not sure if professionals like architects and interior designers work that fast. Not to mention how long a township's procedures are to actually get a sub-division approved. If not, what are the core things I need to do during the due diligence period prior to purchasing this land?
- What else am I missing?
I'm hoping to given an update as this progresses. Thanks in advance for your opinion. I do appreciate it.
What's included in new construction should be easily answered by builders in the area.
It's almost impossible to answer your question without knowing more about what you're trying to accomplish. How many home sites? Roads / utilities? Etc etc.
You need to spend some time talking to the planning and zoning department in the area to see what is going to be required to turn dirt. If you're still interested at that point I would consider hiring a local land planner who has done this many times.
Definitely avoid a 10 day due diligence.
Don't know where to start... LOL
As to the home, you can buy that with 10 days due diligence, but not land for development really.
6 acres can hold about 12-14 homes in that price range and there will be a limit, if there is one, where you will need an approved sewer system and water supply, streets, curbs, gutters, water retention, utilities, at a different level of compliance.
Your contract to buy land can be done quickly when you are familiar with local requirements and have experience.
One issue is making application for a minor-subdivision, dividing the land into lots. Usually to make the application you need to own the property, so your contract could include the seller making application with you.
This is going to get into a book! There are certainly reasons you may not tip your hand to a seller that you're going to subdivide, the cost usually goes up, but if they don't care, you can work together in some ways.
Financing and building estimates, those numbers are to hard costs, from breaking dirt for a foundation to the roof ridge. It doesn't include the lot.
The lot costs will have hard and soft costs, engineering and support work, admin, financing are soft costs, hard costs are moving dirt, laying lines, setting poles, paving, improvement made. Often a lender only finances hard costs.
What you might be looking at is a street with cul-de-sacs off a main street, but whatever you need to talk to a developer/engineer as to an initial design, layout. If you have terrain features your design may be limited, flat pasture with a gradual slope will be ideal for cost savings.
You just need to get a developer out there and get a ball park estimate. Obviously the more accurate the estimate the better as that gives you the lot costs. From lot costs you'll know the price range of homes that can be supported or needed as lots are about 25-30% of the total home cost.
Your local regulations will dictate the options, here in order to have a septic you need 3 acres, that means two homes with 6 acres. So it's a big deal if sewer is available. Wells are also restricted, so water utilities are a big deal.
As to contracting, you could buy and close in 2 weeks and cross your fingers speculating or you might negotiate a closing 90 or 120 days out with contingences that your requirements be met along with seller's assistance.
Get with a developer and just have an initial meeting, that should be free. When engineers start drawing the money clock starts. :)
Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com
The first thing you would want to do is get answers to those questions. Next you will want to talk to a civil engineer about what it takes to do the survey, draw maps, and submit to the State or whatever agency has authority over subdivisions in your area. In California, anything over 4 lots is a subdivision that has to be approved by the state.
@Bill Gulley gave you some good guidelines. Every state is different on what they require in regard to subdivisions. In California we have very strict environmental standards that, depending on the location of the property, can add time to projects getting the necessary approvals, etc.
You should definitely talk to a developer that has experience. You might want to see if you can find one to partner with you. A subdivision is not for the faint of heart, or inexperienced. There's a lot of money that can be lost if you don't know what you are doing and miss something.
Talk to a local civil engineer , one who knows the area , he can tell you what you are up against . BUT I would first get an option on the property or something that gives you first right to purchase . Why , because the engineer already has builders and developers as clients and friends , and a misplaced word could send the deal somewhere else
Thanks everyone for your replies. Given the neighborhood, the 6 acre lot would be divided into three 2 acre lots and each lot would have a 2,000 single family home. I think what really hit home for me (from your replies) was the fact that a 10 day due diligence period doesn't fly for land development (which makes sense).
@Karen Margrave I really like the idea of partnering with someone that knows about sub-division and land development. Unfortunately, my network only includes other investors that have done traditional flips. Do you have any contacts in the Philadelphia that have this experience and might be interested?
@Matthew Paul What would an option on the property look like? I understand the concept but how would I right that up in a contract? Would it be a clause within a purchase agreement for the existing house or is it a separate agreement?
The estate is selling these 2 properties separately, so I'm looking at the house on the 2 acre lot this afternoon. I'll also have a better idea of what the 6 acre lot looks like.
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@Account Closed Having the properties be two seperate deals should make it easier for you to. Try to get a longer period of time on the 6 acre piece if you can. Splitting it into 3 lots should be an easy one, as long as everything else looks good (sewer/septic, utilities, etc.) and the costs to improve are reasonable.
In northern California to split a parcel that had septic it was necessary to do 'wet weather testing" to determine how much water the soil could hold before becoming saturated, etc. Test pits had to be drilled by December and in the spring they were tested. It required that a certain amount of rain fall for the test. If it was a drought year, like the past few years, you couldn't split the land!
I don't know of any developers in your area. However; do another post
"PENNSYLVANIA DEVELOPER?" and maybe you'll find one! @J Scott may know someone back there. My @mention doesn't work for him (never does for some reason) will you please @mention him for me, and he can chime in?
I have never done one , but I am sure someone on this site has access to one , It should be basically a contract with the seller , giving you exclusive right to purchase property after certain conditions have been met or explored
As a former city planner, I can give many examples of folks who thought they could subdivide into more lots than what was allowed. Drop in at your city planning office and get a copy of the zoning map, development regulations and learn about the subdivision process. A major subdivision like this could run $500+ in city fees, $2,000-$4,000+ from a surveyor, and take 2-3 months to approved if it needs review by a planning commission or city land use board. Totally doable, but this info will help manage your expectations. Good luck!
@Theresa Worsham Where were you the other day? LOL there was someone on here in your area asking questions too. We've split many a parcel of land, but we are in Calfornia, and most areas don't have the hurdles we do, so it's nice when there's someone on BP in a specific area where someone is looking at land.
BTW, welcome to BP! Hope you're enjoying the site, and thanks for your participation!
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