Land investment is much more complex than it was a few years ago. Because of expanded regulation and environmental concerns, the development process is much longer and so more expensive. The time from the initial raw land purchase until final sale of completed homes may be as long as 10 years.
Despite this, the purchase of raw land or partially developed land has the prospect for big profits without the burden of active property management.
The term “subdivision” describes the legal and physical steps taken by a developer to convert raw land into developed land. The most common example is the residential subdivision, because new homes usually precede (and create the need for) retail, commercial, and industrial development.
The subdivision process has three stages:
- Land in its raw or natural state.
- Semi-developed land, usually divided into tracts of 20 to 100 acres, including roads and utilities.
- Developed or subdivided land, platted into individual sites for homes as well as commercial structures.
From the developer’s point of view, the subdivision process identifying the cost of the various elements that go into the development of the land can be helpful to the land investor in determining how to price the land when it is finally ready to sell.