14 Steps to Take Before You Purchase Land For Development

DUE DILIGENCE can make the difference between failure and reaching success when it comes to any purchase, but especially when buying property for development. I know you wouldn't do it, but I am often amazed that some people will purchase acreage with the intention of splitting and making some money without at least checking on whether the proposed split is feasible or even legal. Never rely on anyone's say so, even your real estate agent's, that you can easily split land and turn a profit. Even if the proposed split is legal, a developer must still determine whether a state public report will be required prior to lot sales and what getting one issued will involve. Always exercise due diligence before you make your offer; Failing that, certainly before you close your deal.

1. START by asking your agent if a state public disclosure report is available on the property in question. Among others, this is a good reason to use a licensed real estate agent. All licensed real estate professionals are required to receive training on real estate laws and are required to keep up on that training. In addition, an agent can be considered to have acted in concert when selling property if they knew or should have known that the sale they closed required a public disclosure report, so an agent has a high motivation to exercise their own due diligence. If you are not using an agent, most states have Department of Real Estate (DRE) websites with subdivision disclosure information available. For further information, contact your state DRE office.

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2. ASK your agent for a property profile. A good property profile will include current ownership and their mailing address, site address, parcel number, census tract, housing tract, lot number, legal description, plat map, property characteristics, including acreage and latitude and longitude, the last transfer date with document recording number, assessment and tax information, transaction history, detailed sales comparables, nearby properties, demographics, public schools, private schools, plat map, flood zone and crime statistics. If you are not using an agent, there are many free services found on the World Wide Web such as Zillow where you can look up property information yourself.

3. Ask your agent to give you a copy of the deed and any previously recorded Covenants, Conditions and Restrictions (CC&Rs). You don't have to wait for the contract to be written, the property is in escrow and a title search is done to check out these documents. If you are only buying a portion of an existing subdivision, the existing CC&Rs will be important for you to check out prior to purchasing. If you are developing your own subdivision, you will probably be declaring and recording your own CC&Rs.

4. AFTER you have received your property profile, go to the property and walk the entire site to determine its suitability for what you want to accomplish. While it is no substitute for being there, many counties now have public GIS mapping systems that will bring up the parcel in question in high resolution orthophotography and give you street names, whether roads are county maintained, show railroads and give recorded dimensions.

5. FIND OUT about the infrastructure--What is in place, are they adjacent or how many feet are they to your farthest proposed lot, can the facilities be extended and what the costs would be to extend to your proposed project. Take measurements from the farthest lot in question to each facility such as electric, telephone, cable, sewer and gas. Then contact the utility companies and find out what the process and fees are to extend service that distance. If you do not know the local utility companies for that area, pull out the local telephone book or contact the local Chamber of Commerce for a list.

6. NEXT, call the local City or County Planning & Zoning (P&Z) Department and check on zoning or rezoning potential. P&Z will have a Development Services Department as well, although it may be called another name. Ask to speak to the director about your proposal so they can tell you whether this fits in with the General Plan.

7. ASK for a copy of the General Plan and the Area Plan for your project locale. Besides a community history, a Master Plan tracks development trends and projects growth. It identifies county policies and priorities.

8. DETERMINE what is required by your local government entity for your land division. Many counties and cities have the regulations available on the internet. If they do not, call the P&Z that services the area in which you are interested and ask for a copy.

9. FIND more information on flood plains than is listed in your property profile by pulling up a FEMA map for your area at http://www.fema.gov. The FEMA website will even tell you whether flood insurance is required by lenders for the stated flood plain.

10. ALWAYS DETERMINE whether you will need a state public report or other disclosure reporting that may necessitate additional work and fees beyond your land division project. A general rule is that if your split results in more than 5 lots, you will need a special public report, but there are other variables such as common promotional plans and what you may already own within that common promotional plan area; Always determine the rules on this requirement prior to your purchase by calling your state DRE Development Department.

11. CONTACT an engineer to find out what the services may cost to accomplish your proposed land usage, along with the costs of delivering the items required for your public report, certifications from the Department of Environmental Quality, the Department of Water Resources and any local permitting.

12. FIND OUT what facilities you will be required to install based on the acreage of your proposed split. Many counties, especially rural areas, have lot split requirements for 1-acre parcels or less necessitating some or all of the following:

a. Private maintained roadway passable by a 2-wheel drive vehicle.
b. Public maintained roadway (Primary or Tertiary maintenance passable by 2-wd vehicle).
c. Access to electric service or agreement w/ utility company to extend service at your cost.
d. Within a fire district.
e. Direct access to water service pipelines operated by a water company.
f. Adjacent to a paved through road (collector, arterial) serving the area.
g. Direct access to paved road.
h. Direct access to public sewer.

13. FIND OUT ahead of time if your lender will offer partial release provisions for your deed of trust when you begin financing for your improvements. Once you begin your sales out of your new subdivision you must ensure that each new purchaser will receive his lot free and clear of any blanket encumbrance.

14. IDENTIFY the current builders involved in the surrounding areas and find out what the lots and dwellings are selling for and how fast they are moving. Check the re-sale value in the immediate area because this helps determine the sale prices of new construction in the neighborhood. After all, once you develop your property you want to sell it at a profit

These 14 steps should be the minimum of your due diligence investigation and merely represent the key issues that should be addressed prior to investing in development property. The principal reason for due diligence prior to buying and developing land is to determine if the land development would be economically sensible. You can go beyond the above-listed steps and search records for pending divorce, bankruptcy or other life changing events that could affect the amount you want to bid or offer on the property. A pending divorce could mean the principals might be willing to accept less.

Public disclosure reports are meant to protect the public. Among numerous disclosures in a state public report are facilities providers, potential hazards and problems in the area, schools, transportation, hospitals and stores. Property profiles used to only be available through real estate agents and title companies but much of this information is now freely available on the internet. Google "property profile" and you will get numerous hits on where to find this free information. If you cannot find a county website where you can find public recorded documents, call your county recorder and request copies. Once you have gathered all of your information and made the educated decision to purchase your property, make sure you call P&Z to make an appointment for you and your engineer to review your plans for developing. Each area has its own subdivision and development regulations and most are available online.

14 Steps to Take Before You Purchase Land For Development

Nancy Frye-Swope is a Virtual Assistant and owner of Nancy's Virtual Office, offering administrative support and subdivision assistance to entrepreneurs and land investors. Her office is based out of her home in the town of Yucca, Arizona. She specializes in helping real estate investors, subdividers, project engineers and builders. Nancy worked at Chicago Title Insurance Company as the Subdivision Guru, Trust Officer and Builder Services Manager for 6 years prior to founding her Virtual Assistance service. Contact Nancy today for information on how Nancy's Virtual Office can help you get your real estate land investment thoroughly researched before buying.

Nancy's Virtual Office, Nancy Frye-Swope, Virtual Assistant - Owner.

Email: nancy@nancysvirtualoffice.com

Telephone: 928-766-2810

Fax: 928-766-2420

Website: [http://nancysvirtualoffice.com]