How To Develop Land: A Simple Guide

Did you know that just under half (47%) of the United States is uninhabited — and potentially suitable for land development? Purchasing raw land is always a good investment but developing land is no easy task. The process can be complicated and require due diligence. But if you’re willing to do the work, developing raw land can be a lucrative investment. Read our guide to walk through the necessary steps on how to develop land. 

Raw land is a property in its natural state with no improvements or utilities, including sewers, water, power, roads, or buildings. This is in contrast to vacant land which may have utilities and underground infrastructure in place, and had buildings on it in the past that have since been torn down. In short, raw land is undeveloped so you can think of it as a blank canvas for your development project.

Raw land is a secure investment when adequately vetted. Even if you don’t see the return on it immediately after development, there are many benefits to owning land:

• Costs less to purchase and hold than a developed lot because it has minimal carrying costs, lower property taxes, and low maintenance costs.

• Less competitive than residential real estate because it is not immediately set up to earn income.

• Sellers often offer seller financing for raw land because banks are hesitant to loan money for vacant land.

• Appreciates well even in marginal market conditions because it is a hard asset that is a scarce resource that can always be held as a long-term investment.

• Offers lots of opportunities for how the land will be developed depending on zoning codes.

Raw land is a limited resource and will always be valuable. Although location does play a significant factor in how well it will appreciate. To determine its value or future value, you’ll need to research and evaluate the land.

To determine the land’s profitability, you’ll need to get estimates of any costs the property may need for land development, how it can be used for revenue and when you’ll be able to get a return on your investment. The total cost of the property includes:

• The sales price

• Property surveys

• Environmental impact studies

• Fees

• Permits

• Engineering services

• Soil tests

• Tree removal

• Grading and clearing

• Building access roads

• Utility installation

• Wells and or septic tanks

You’ll want to add up all the costs to get your total investment cost for the property. Lenders generally won’t loan more than 50% of the land’s purchase price. Make sure you have financing to cover all the costs.

Not sure which type of lot you want to build? Talk to My Site Plan to get quotes on parking lot construction plan.

This is a vital step of due diligence when learning how to develop land. You’ll need to examine local zoning codes to find out what the land is zoned for development. It will determine what the land can be used for and what types of structures you can build on the land:

• Single-Family

• Multi-family

• Condominium

• Commercial

• Agricultural

Depending on your plans for the land, zoning could ruin those plans.

When buying raw land, you often have to have cash, or you’ll have to finance the property from the seller because banks usually won’t finance raw land purchases as they are seen as speculative investments. Because of this, the seller will often act as your lender and offer below-market rates.

Financing for the property will largely be influenced by how you plan to develop it. Investors will want the loan-to-cost (LTC) for the property. This is how much money the lender will need to provide to obtain the property. Lenders generally will loan a maximum of 80-85% of the overall costs. 

Once you know how to develop land and what you want to do with it, you’ll need to pay for horizontal development. This includes grading roads, installing utilities, and even constructing a building. You’ll want to have a schematic drawn to determine the most cost-effective way to develop the property.

During this phase, contractors are paid incrementally as tasks are completed. Lenders will often hold back 10% of the loan until the project is complete.

Developing raw land can be a stable and lucrative investment, whether you plan to develop it right away or keep it for long-term appreciation. But for it to be a successful investment, you’ll need to research and evaluate the property’s earning potential.

My Site Plan has a team of experienced CAD designers who can create site plans for your land development project. Known for an excellent turnaround, My Site Plan can make a schematic that will work best for your property.

Do you need a site plan to obtain a construction permit? My Site Plan can create a plan for your land development project within 24 hours.

We’ve already explained how to develop land, but if you have further questions, explore our land development FAQ section below for more information.