A land division is a way developers create new allotments. When a developer or landowner creates a new allotment, they increase the value of their landholding by utilising the development potential of their property. This is often referred to as a subdivision, cutting an allotment into two or creating an additional allotment or a new title.
One of the misconceptions surrounding subdivision is that the development of land always requires the construction of a house on the land and that this creates the profit of the development. This is most often not the case. For many projects, the underlying value of property development is most often the land, not the building. You can create a new allotment by undertaking a land division and then sell the allotment without having to build. This process is much less risky, more profitable and less time-consuming.
By our very nature, real estate investors are creative. We’re always looking for ways to create and add value—whether we’re rehabbing a rundown house or beefing up apartment complex rents. One lesser-known creative technique to add value is subdividing land. This creates “new” land—that you can then sell, build on, or rent.
When you say the word subdivision to most people, it will most likely conjure up images of large tracts of suburban-style housing. Yes, huge housing developments are indeed one type of subdivision—but there are much simpler forms easily managed by even the most novice real estate investor with some caveats. At MJS Construction Group, we have the best home builders selection to make your house a dream come true.
First: While profitable, subdividing land is not always easy. It can also be expensive, with a lot of upfront costs. Despite these issues, every investor needs to understand what subdivision is and how it works so it can become a part of their real estate toolbox. Just make sure to check out your local jurisdiction’s rules and laws—every state and city is different.
What Is Subdividing Land?
The subdivision is rather simple. It involves taking one tract or piece of land and dividing it into two or more tracts of land.
A subdivision may involve tracts of land that range in size from hundreds of square feet to hundreds of acres. A subdivision may involve only one new track—or hundreds. However, the United States lacks a standard legal “subdivision” definition. If you are thinking of subdividing land, you are going to have to look into your local rules.
For example, in Tennessee, any division of land over five acres is not considered a subdivision unless you’re in Shelby County, where the standard drops to four acres. And if you’re installing roads or utilities, size doesn’t matter.
See how things can get tricky? Yes, dividing land can be done very easily—but a simple subdivision isn’t always legal. Generally, writing a legal description of the two tracts and recording a deed at the local courthouse divides the land. But pay attention to your jurisdiction’s subdivision regulations. Skip the necessary steps, and the building department will give you the boot when you apply for a permit.
People typically subdivide their land so they can sell off a portion. You may want to subdivide land for the family so that they can live close by. Or perhaps you want more lots for housing or commercial development.
Whatever the reason, subdivisions create new tracts of land. That is why people subdivide.
Developers are setting out to create a more successful residential subdivision — one that excites everyone involved, including residents and city staff, commissions and councils. How are they doing it?
Start With A High Standard
Residential development is a long-term investment for any community. For most developers, this involves taking a step back and rethinking the goal of the finished product. With this in mind, many developers are rethinking what their consumers desire. Rather than stick with development patterns of the past, developers are redesigning the layouts of the past to fit the higher standards and expectations of today’s residents and communities.
Maximise Potential With The Right Subdivision Layout Design
Every development must meet a wide range of objectives in order to be successful. For residential development, the key lies in a subdivision layout that maximises the number of lots. While smaller lots are good for the city and the developer, they end up creating lots that make residents feel cramped. With new design techniques and philosophies, developers are finding that on a typical site, they are able to serve the same density as a conventional design with significantly fewer streets and infrastructure.
Identify Wastes Of Space
Corner lots are the most expensive to build, are typically the last to sell and usually sell at a lower price point. Eliminating corner lots by reducing unneeded intersections is step one. Step two is to stretch the setback line along the proposed streets to increase the number of lots—with less street. Step three is simple. Why build local and residential streets if no houses front the street or only front it on one side? An efficient design will have lots on both sides of every street.
Reap The Benefits
In a time of budgetary constraints, successful land development is measured by how efficient the design is in its infrastructure requirements and how quickly the tax assessment stream can begin. Developers benefit from this shift in design because it creates a market advantage and reduces upfront costs, which lowers risk. For communities, the advantages are a decrease in life cycle maintenance costs, including street cleaning and snow removal, while increasing the lot numbers and valuation for a greater tax base.
Attract Residents By Creating A Sense Of Place
If you design with the end-users in mind, the development will automatically attract home buyers. Today’s successful developers recognise this trend. In addition, these developers are bringing with them a strong desire to create not just a community, but a sense of place for their future residents. A place that attracts residents who want and expect more.
Land Subdivision 101
Step 1. Conduct due diligence
Before you buy a property for development, the first step is to undertake due diligence. This is the process of gathering all the relevant information that affects the property. This information is mostly contained in the council searches that the agent obtains when selling a property.
The search contains a list of all the information that relates to your property such as the zoning, the council rates, if the site is known to be contaminated – that is if any outstanding issues are affecting the property and any previous permits for development on the property. The other important piece of information you will also need to check is the certificate of title. This document contains all the relevant information that applies to the property such as the owner’s details, if a mortgage is registered on the property and whether there are any easements for services and utilities such as stormwater, water, gas electricity.
The most important factor which affects the development potential of your property is the planning and the zoning. You need to verify what the zoning for your property is and then confirm this with your local council. You should then go to the local council and obtain any information they have regarding development within the zone. Councils generally have guidelines which they provide the public which often summarise the key points that need to be considered when you subdivide your property.
It would help if you also undertook market research: gathering information about previous sales in the area, looking at what is on the market now, analysing how much similar development sites are selling for. You also need to analyse how much your proposed development will sell for, and this is also done by looking at other comparable sales and what is currently on the market.
Finally, before you start developing land, you should always have a feasibility study or development strategy plan. This is a document that details your goals and objectives for your development and the risks and potential development profit from your project. It also shows the time required to complete the project.
This plan is really important because it provides you with a guideline for your entire project, and it helps you keep track of your goals. Often in development projects, we get caught up in too much detail and lose our way. This is very dangerous because it can lead to the erosion of all the development profit and an overall bad return on the property investment. For example, sometimes people forget about interest on their borrowings when they undertake a small project. They say I made a profit, but often it takes them two years to complete the project and during this time they have paid a significant amount of interest which can often mean their profit is halved.
Step 2. Appoint your team
One of the mistakes people make when developing their land is that they try to do everything by themselves to save money. This often results in severe, which can be very costly. This also leads to a big loss of time which inevitably ends in more interest costs and a loss of development profit. To avoid this problem, it is important that from the beginning of the project, you identify which professionals you need to help you develop your land.
A typical team will include the following people:
- Property Lawyer
- Building Designer
- Urban Planner
Real Estate Agent.
You should identify your team before you start your project. These people will charge you fees, but they help you through the process and save you considerable time and money. Professional developers always have a team of support consultants to help them. No-one knows everything and sometimes as individuals we forget things, and this can lead to costly mistakes.
Step 3. Meet with your team before lodging your application
Before you commence your development proposal, you will need to appoint your team. This will include a building designer, surveyor and possibly an urban planner if you have a complicated land division proposal. As previously stated, it is better to create a team of professionals, so you don’t make mistakes and potentially lose all your profit.
You don’t have to spend a fortune to get good advice. You may only need the urban planner for a couple of hours to provide you with some preliminary advice. This can be worth a lot more to your project than the small amount (less than $1,000) it will cost you.
I suggest you have a start-up meeting with your team. At this meeting, the team raises any issues regarding the development of the site. This way you can get everything out before it’s too late.
Step 4. Council pre-lodgement
Once you have put together your development proposal with your building designer, surveyor and or architect, you should go to your local council with your preliminary plans and have a pre-lodgement meeting. It is also a good idea to take you, urban planner, to this meeting. Looking for dual occupancy? Look no further! MJS Construction Group has you covered.
You will need the following documents to bring to the meeting:
- A copy of the certificate of title
- A plan of the existing property including any houses or sheds located on the property and any other significant features such as large trees
- Some councils require you to show how a new dwelling will be sited or positioned on the proposed allotment. (You can verify this when you make you initial inquiry before you purchase the property.)
The following information is generally required for most land division applications:
- A plan is showing what you propose to do. Show the proposed allotment you are going to create and how big it will be. It would help if you also showed how big the existing allotment would be once you divide the property.
- Show the open space areas for the existing house and any proposed house on the new allotment.
- Show the existing driveway and any proposed driveway for any proposed / existing dwellings.
- Show car parks for the existing house and any proposed carports or undercover car parks for the proposed dwelling.
In the pre-lodgement meeting, you discuss your proposal with the council’s urban planner to determine if your proposal meets the council’s planning policies and guidelines. This meeting should not be adversarial but should be about discussing ideas. You should seek their advice. If they see you want their help, often this breaks down the barriers, and they will then support you rather than fight you. Don’t be defensive; engage in a productive conversation and seek their ideas. You should also explain your proposal and ask if it would gain support from the council.
Step 5. Refine your development proposal and lodge the development application
Now you have identified any potential issues with your proposal you should meet your professional team again and instruct them on what needs to be done and what changes if any have to be made. The team will then make these changes. Now it is time to lodge your development application.
Step 6. Tracking your application
The time taken to approve a development application varies considerably between different states and different councils.
How Much Does It Cost to Subdivide Land?
At a minimum, you need a survey and a plat. Expect to pay application and recording fees, too. A very simple subdivision could be done for under $2,000—but that’s rare. Most subdivisions require some utility installation, and many also require road construction. Think about it: How will the new tract get water? And how will you access the plot? At MJS Construction Group, we offer a wide range of duplex build.
Besides, you may encounter impact fees, such as school impact fees. These can total tens of thousands of dollars per lot, depending on your jurisdiction. Unfortunately, you must pay for all of these costs before selling any lots and earning a return on your money.
Surprise Subdivision Headaches to Watch Out For
Smart real estate investors should familiarise themselves with common subdivision problems. Keep an eye out for these hiccups.
- Raw land: Developing raw land typically falls under subdivision regulations. Hire a local surveyor or engineer who is familiar with the local regulations to guide you.
- “Extra lot” properties: If you purchase property with an “extra lot” attached, don’t assume that “an extra lot” is legal or immediately buildable. Check to make sure it was adequately subdivided before constructing another property.
- Older parts of town: Here, you may encounter old, nonconforming lots. Find out when those lots were created—if that date is before subdivision regulations were enacted, then your lot is likely grandfathered. If they were created after enactment and there is no plat recorded you may have an illegal subdivision.
- Land swaps: Don’t think that a small land swap evades subdivision regulations. Swapping ownership of your 10-foot driveway for 100 square feet of your neighbour’s land for parking may be surprisingly complicated. Don’t just record deeds and think all is OK—check with your local codes office.
Subdividing Tricks of the Trade
Subdividing land can be a lucrative undertaking when done properly and in the right circumstances. Here are a few tips to consider from our experiences – subdividing tricks of the trade, if you will – that may help your subdividing efforts be a profitable tool for you. We’ve had great success using these strategies.
- Investors can look for houses on large lots that can be subdivided. First, subdivide the land to create additional vacant lots to sell, and then rent, sell or demolish the existing home that is now on a smaller lot. We have found that the market often values the home about the same, even though it may be on a smaller parcel. So the value of the newly subdivided lot(s) can be a nice bonus for your investment.
- If you find a lot or land that you want to buy, but don’t like the way the site is configured, consider purchasing all or part of adjacent parcels. You may be able to combine the parcels and subdivide the land with new lot lines. And, in some cases, combining the parcels may allow you to create three or more lots.
- When purchasing property to subdivide, your contract should list official subdivision approval as a required condition for closing – failure to get your approvals should allow you to terminate the purchase agreement. And, because you cannot control the timing of the local planning authorities, the inspection period and/or closing date generally should be extended automatically until you have the subdivision approvals you need to close.
Planning a subdivision is not an easy task to do. Looking at the previously discussed steps, you must have realised that you truly need to be involved and you need to hire the best professionals that you can. And now, you know that a land surveyor is among the experts that you need. Now, you know that land surveying is a crucial part of subdividing your land.
As you can see, subdividing land is rarely quick or easy. Approval can take anywhere from a few weeks for a relatively simple subdivision to years for rather complex ones in jurisdictions with a lot of development rules. However, despite the costs and time involved, the subdivision can be quite profitable, and thus it is often worth the money and time.