Subdividing Land: Tips for Landowners from a Developer

(Part 1 Evaluate)
Learn to evaluate the risks and rewards of subdividing land into residential lots. In
this first of three articles on the subject, a developer and real estate lawyer provides
landowners specific items to evaluate when considering whether or not to subdivide
land. Come back for the next articles in this series that provide insights for
landowners based on the authors real world experiences with the subdivision
process, as well as a hands-on description of the steps landowners should take
when subdividing land.
Why Subdivide My Land?
Subdivide (v.): to divide into several parts; especially: to divide (a tract of land)
into building lots.
Successfully subdividing your land into residential lots can have many benefits,
including providing a landowner both increased profits and flexibility. If you are
buying or already have a large parcel of land for sale, or even a home lot that has
extra land area, you may wish to consider whether subdividing your land can help
you maximize your real estate resources, something that many landowners are
evaluating in the current market conditions.
More Lots May Mean More Money
Depending on the situation and the local market conditions, you often can increase
the total value of a parcel of land by subdividing it into smaller pieces lots that
are then sold to one or more buyers. In essence, through subdivision the parts can
be more valuable than the whole.
Save Some Land for Yourself
Another benefit of subdividing for homeowners who would like to liquidate some of
their real estate without having to sell the farm (literally), is that they may be able
to both cash in on a portion of vacant land and stay put on the rest. Holding onto
some of their land can give that property time to increase in value as the
surrounding subdivided land becomes developed.
Increase Marketability
In addition, landowners may more readily find buyers for smaller subdivided parcels
that are more affordable than one larger piece of land. Try to understand the
markets needs. Completing the lot subdivision up front saves the purchaser the
time, effort and risk of doing it themselves, increasing the salability and often the
value of the overall property.
Evaluate the Feasibility of Subdividing Your Land

Subdivision concepts are common knowledge and practice among experienced

professionals like home builders, land developers and real estate agents. In fact,
subdividing land really is a fundamental part of all real estate development, but it is
only one part of the overall development process.
Subdividing land also can be risky and costly if you are not thorough with your due
diligence. Whether you own the land or are just evaluating a potential new
purchase, the risk that a subdivision is not able to be done or at least done in a
way that makes financial sense can often cost you money and valuable time.
There are a number of preliminary items that help you decide whether a subdivision
is feasible. If you are a landowner or homeowner considering subdividing land into
vacant lots, read on to learn more, and as always plan to seek the guidance of
experts.
Smaller may be Simpler
So you think your land is a candidate for subdividing? You need to consider the size
and scope of your plans, because there can be different degrees of difficulty when
subdividing land and, to put it simply, these can align with the projects size the
bigger the project in acreage and number of lots, often the greater the complexity.
If you are dealing with a single lot being subdivided into two or three residential
lots, you may be able to handle this by working with a few real estate professionals
that will help you in the process. Be thorough during your due diligence and
planning so you can evaluate whether subdividing is feasible and makes financial
sense. (More on this in a minute.)
Larger may be Complex
Once you get over about an acre in size and two or three lots, the complexity of the
subdivision process can rise dramatically. The level of difficulty and expertise
needed can be compounded if you have a site where lots will not front on an
existing public road or where utilities and infrastructure must be built. This likely will
require you to undergo municipal oversight (possibly even state or federal, for some
situations) for the subdivisions site design and layout, as well as construction of
roads, utilities and other infrastructure. In this scenario, you basically are stretching
the activity from simply subdividing a parcel tofull-scale community and land
development.
In short, the bigger projects are best left for the pros.
Guidelines for the Fearless Subdivider
If you are interested in subdividing a parcel to increase the value or use of your
property, we wish you luck and provide you the following recommendations:

Check for Restrictions!

One of the most important first steps before subdividing your land or land you wish
to buy is to make sure there are no restrictions that will block your plans. Everything
from ordinances, neighborhood covenants to deed restrictions may prohibit or
fatally complicate your plans. Review these items carefully, plus order a
professional title review (typically through a real estate attorney) so that you can
understand whether there are any deal killing issues that apply to the property and
prevent subdividing.
If you find items during your review that may be problematic, you and your attorney
should evaluate them carefully to find a solution, or see if you are able to get title
insurance that provides specific coverage to protect you and ultimately your buyers.
But never ignore a tricky restriction or convince yourself that it wont be a problem.
Beware, even the pros can get into trouble if they become too wedded to their
grand plans. You may get away with bypassing restrictions for a while, but doing so
can cost you down the road especially when trying to sell or finance the property.
Well describe more of these real-world risks in the second article.

Understand Lot Layout, Sizing, Servicesand the Market

When subdividing a parcel, make sure your proposed lot layouts and lot sizes are
appropriate and will work not only legally, but for the market.
Selling lots is not like Field of Dreams, where if you build it they will come. You
need to make sure there is a market for lots in your area and at
a price that makes sense. Determine the size, layout and other
requirements that are expected for new lots to be marketable. A good real
estate agent with expertise in land can help you with this. You also may be able to
get some advice from builders reach out to the ones who are active in your
geographic area and in the price range for new homes that would likely be built on
your lots. Getting their input could be the key to successfully subdividing
marketable lots.
Even if youve confirmed that there are no restrictions that forbid subdividing the
land (or make it unfeasible), you and your experts also should research the local
zoning, subdivision and development laws so that you can understand the layout
and size limitations for your planned lots. Each county, city or other authority will
have its own regulations that describe important items like current zoning
requirements, minimum lot widths, setbacks (front, rear and side), buffers, building
heights, required open space and other significant details that affect the size and
layout of your lots.

You also need to confirm that each of your planned lots will be properly serviced.
Most homeowners expect to face a public road (with adequate frontage) and have
water, sewer, power and other utilities available. So be sure to confirm both that
typical utilities are available for your lots and that they will have the capacity to
handle the load from any new homes that would be built on the subdivided lots. Do
your research and have your surveyor locate water, sewer, gas, electricity and other
utility lines and infrastructure on your plan.
Many of these lot size, layout and service matters will be driven by the local
requirements, but others will be driven by the market.

If builders and new homeowners only want to buy 70 foot minimum lot widths
in your area, you may not want to create a subdivision that results in
narrower 45 foot wide lots even if you can.

Likewise, consider the negative effect of providing any infrastructure, utilities

or other services that are less than normal for the market so even if it is
allowed by law, using a dirt road as your lots access will not compare well to
a nearby lot on a paved road with sidewalks.

Evaluate these items carefully in advance and include the related costs in your
financial analysis and budget.
Understand Impacts & Other Requirements
Another surprise to landowners attempting to subdivide their land is that the act of
subdividing can raise any number of additional requirements and costs on your
land. While your existing parcel may have been grandfathered so that it does not
have to comply with some newer laws and regulations, undertaking a subdivision
can trigger a new set of impacts and requirements.
These can include a requirement that you dedicate part of your land that is in the
road right-of-way to the local government, causing you now to be working with a
smaller parcel. Other rules may require you to build or improve roads, sidewalks,
curb and gutter and even to plant trees. In addition, you also may be required to
install water and sewer connections and meters for the lots, or to pay capacity fees,
impact fees and other assessments when adding the new homesites.
You will need to keep items like these in your budget too, including contingencies for
some which may not be known upfront.
We hope this helps provide valuable insight for landowners about the pros, cons and
items to evaluate when considering subdividing your land. Check back soon for
our second article in this series aboutSubdividing Land: Tips for Landowners
from a Developer, where we will describe some real world issues that we have
seen in subdivision attempts. Plus, the third article in the series will provide handson details about the steps to take if you decide to subdivide your land into lots.

Are you a landowner who is thinking about subdividing your land into residential
lots? In this second of three articles on the topic, you can learn about subdividing
land from the real world experiences of a real estate lawyer and developer.
Be sure to check out the first article in this series that describes the common
benefits and risks of subdividing your land. As noted in that article, some of the
benefits may include:

Increasing the total value of your land,

Providing you the flexibility to keep your home, but still get income from
selling your extra land, or

Boosting the marketability of your land.

Sometimes a small-scale subdivision can be done by a landowner easily and

successfully with the help of a just a few experts. But, as we described in the first
article, not every opportunity should be pursued by landowners and sometimes
even the pros learn lessons the hard way.
Here are just a few anecdotes from some of our real world subdivision experiences:
1) Deed Restrictions Cost Professional Developer: We considered
purchasing a large parcel of very desirable property to build a high-end infill housing
development, but after some due diligence we discovered an 80-year-old deed
restriction that would prohibit subdividing the land. We evaluated it thoroughly, but
there was no way to get around it. So we walked away. Six months later, a large sign
was installed on the property offering multiple lots for new homes. In a phone call
with the new owner/developer, it came to light that he was not aware of the deed
restrictions against subdividing and had already purchased the site. The sign came
down a few weeks later. That same developer still owns the undeveloped parcel
after more than 4 years.
2) Homeowner Violates Covenants: In a planned community with large
homesites, a homeowner decided he wanted to subdivide their 2-acre lot to keep
their existing house on a smaller lot and to sell the second vacant lot to someone
for another home to be built. The homeowner failed to carefully review (or ignored)
the Covenants, Conditions and Restrictions (CCRs) that were in the land records,
and that applied to their property and prohibited subdividing lots in the community.
The other homeowners on this cul-de-sac, also situated on 2-acre
lots, werent happy with their neighbors plan. They and the HOA used the
covenants (and a lawyer) to put a stop to it. Even though the subdividing
homeowner had already paid to formally have the subdivision done through the
municipality, thanks to the CCRs the subdivided building lot was illegal and would

never be able to be sold separately. The homeowner lost all their expenses related
to the subdivision.
3) Subdividing May Require Additional Infrastructure: One of our team
members was considering a large suburban homesite for subdivision and
development. Homes on larger lots in some areas can be serviced by their own well
and septic system (as was the case here), but the smaller lots that would have been
created by this subdivision would require new municipal water and sewer service.
Unfortunately, after much time, effort, due diligence costs and negotiations with a
downhill neighbor, the issue of a right of way for the sewer to service the new
subdivided parcel(s) was not able to be resolved. The deal fell through.
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. Weve 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 new subdivided lot(s) can be a
nice bonus for your investment.

If you find a lot or land that you want to buy, but dont 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.

We hope these lessons from the field have been helpful, as these real world
scenarios can highlight some things to consider when subdividing your land.
Do you have any interesting subdivision-related stories to share?
Come back soon for the final article in this series on subdividing land that will walk
you through the typical steps of how to do a small-scale subdivision.