Land Development Costs
Member since 2026 · 1 post · 2 votes
Land Development Costs
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Joseph ScoreseBusiness Member
Banker · Philadelphia · Member since 2009 · 2k+ posts · 631 votesStephen, great strategy. The biggest challenge with land development is that costs can vary significantly based on the municipality, site conditions, utilities, engineering, entitlement requirements, and the number of lots being created.
From a lending standpoint, I’d recommend working backward from the completed project: land acquisition + site/development costs + vertical construction + soft costs + contingency, then compare the total project cost against the projected stabilized value and rents.
If you find a parcel you’re considering, I’d be happy to help you pre-underwrite the scenario from the financing side before you get too far into due diligence. That can help establish realistic leverage, liquidity requirements, and the amount of equity you may need going into the project.
8 Replies
- Lender · CA · Member since 2018 · 637 posts · 393 votes1d
Biggest factors are going to be:
1) experience (do you have any ground up construction experience, rental property experience, etc)?2) location of the lots (city/state/population). More rural makes it far more difficult if not impossible or will drastically change down payment requirements from 15-20% to nearly 30-40% down.
3) credit profile: FICO score, assets/liquidity, any other compensating factors
4) what you are building. If these are standard residential units it's much easier, as people try to get more creative (barndominiums, log cabins, domes, etc) the lending options go wayyyyyyy down
5) local government recording fees (Pennsylvania and a lot of East Coast states have super high transfer taxes whereas states like California might cost a couple hundred bucks for the same thing). Also, local permitting and zoning costs vary drastically by municipality.
6) Exit strategy (refinance and keep vs selling)
These are just a few things to consider when underwriting costs for a deal
- 1dMichael K GallagherBusiness MemberReal Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
you are looking to basically build to rent your own portfolio? interesting idea. - you can generally just buy an entire new build community and not have any of the overhead or construction costs and issues that go into it. But to address your question every project has its own costs and it varries by area, parcel and use case. working on a .6 acre plot in NC that will get a free standing single tenant retail building on it, client (developer and end user) will likely have $20K-$30K(maybe more) in due diligence studies and escrow deposits by the time we go to close. DD is 6months plus potential extensions. there's no like standard cost per acre development is way more nuanced than that.
- 1dJoseph ScoreseBusiness MemberBanker · Philadelphia · Member since 2009 · 2k+ posts · 631 votes
Stephen, great strategy. The biggest challenge with land development is that costs can vary significantly based on the municipality, site conditions, utilities, engineering, entitlement requirements, and the number of lots being created.
From a lending standpoint, I’d recommend working backward from the completed project: land acquisition + site/development costs + vertical construction + soft costs + contingency, then compare the total project cost against the projected stabilized value and rents.
If you find a parcel you’re considering, I’d be happy to help you pre-underwrite the scenario from the financing side before you get too far into due diligence. That can help establish realistic leverage, liquidity requirements, and the amount of equity you may need going into the project.
- Niles, MI · Member since 2017 · 6 posts · 1 vote1d
Everyone's talking money, but the part that kills these deals happens before the money: the parcel itself. For a subdivide-and-hold play, the first document you pull isn't a loan quote, it's the zoning map. Minimum lot size, setbacks, and whether a replat is by-right or needs a planning commission vote decides whether your four lots are real or fantasy. In a coastal market like Biloxi, layer on the FEMA flood maps - flood zone changes what you can build, what insurance costs, and sometimes whether a lender touches it at all.
Second: read the vesting deed for easements and deed restrictions before you make the offer, not during inspection. Shared driveways, utility easements running through the middle of your 'second lot,' restrictions on rentals - all of that lives in the deed, not the listing.
And comp land on price per acre or per buildable lot against sales with the same zoning, not on total price. Two same-size parcels are completely different animals if one allows four lots and the other allows one.
Zoning, flood, deed, comps. In that order. The financing is the easy part once the dirt actually works.
- 23hHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
OP don’t do this. Start small and develop experience. Unless you’re doing all cash, no banker will loan to you.
Read my posts on Silver Springs or Journey Ends subdivision. Or our self storage subdivision.
Zoning
Storm pond
Sewage lift
Setbacks
Fire hydrants
Fencing
Landscaping
Entrances
Sidewalks
Carrying costs
Weather
Soil compaction
External utility access
Internal utility
Market analysis
Interest rate at beginning versus end
Etc
Etc
- 8hJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
good like Henry.. Much of the deep south.. pretty hard to make sense of new builds for rentals when existing homes cost less than replacement cost even if the land was free.. have to start there
- 15hDivin KanyamaBusiness MemberAccountant · Seattle, WA · Member since 2025 · 188 posts · 57 votes
@Stephen DeFazio This can be a good way to build a rental portfolio, but land development costs are highly site-specific and often exceed the initial estimates. Beyond the purchase price and vertical construction, the budget may need to cover surveys, engineering, environmental review, entitlement and subdivision fees, utility extensions, roads or driveways, grading, drainage, permits, impact fees, legal work, and financing costs. Conditions such as unsuitable soil, wetlands, limited utility capacity, or required off-site improvements can change the economics quickly.
For early underwriting, I would start with a local civil engineer or land-use consultant and ask for a preliminary feasibility review before relying on broad cost-per-lot figures. Build a line-item development budget, obtain local estimates where possible, include both hard and soft costs, and add a meaningful contingency for unknowns and delays. It is also worth speaking with the planning department and utility providers to confirm density, access, water, sewer, power, and approval timelines. For financing conversations, lenders will usually respond more seriously when the plan includes site control, preliminary drawings, a realistic sources-and-uses schedule, reserves, and evidence that the completed rents support the project. The key is to underwrite the parcel from the ground up rather than assuming inexpensive land will produce inexpensive finished lots.
- Attorney · 10451 Mill Run Cir #755 Owings Mills, MD 21117 · Member since 2024 · 340 posts · 124 votes8h
Quote from @Stephen DeFazio:
I'm hoping to find a parcel, subdivide, and build to hold to build my rental portfolio. I'm trying to find what land development costs people are experiencing to help me underwrite a hypothetical deal to move toward pre-approval on lending. Anyone with any experience who could speak to this? TIA!
@Stephen DeFazio, one thing I’ve seen with development deals is that the land can look affordable until you start finding out what has to happen before you can actually build what you planned.
I would pay close attention to the purchase contract and make sure you have enough time to confirm the subdivision plan, access, utilities, title issues, easements, and any approvals you may need before your deposit becomes hard to get back. I’ve worked with buyers where the biggest problem was not the construction cost. It was finding out too late that the parcel could not be used the way they expected.
I’d be glad to stay connected, @Stephen DeFazio. I like the build-to-hold idea, and getting the legal and due diligence side clear before committing to the land can make the rest of the underwriting much easier.
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