Stage 1: Land development and entitlement
A real estate development project often involves multiple activities, including the acquisition of land in its natural and unimproved “raw” state for the purpose of increasing its value. The desired outcome of this stage is a land improvement plan with all the regulatory and governmental body approvals and legal rights (entitlements) to improve the land for a particular use.
Investing in the path of progress
Owners of raw land may have had possession of the land for many decades, received it as an inheritance, or may be institutions or agencies that have had long-term ownership. A real estate developer looks to acquire and invest in a piece of land that is in the “path of progress.” In other words, land that may have a higher future value because it is near a growing city, or in a gap between centers of expanding economic activity.
When choosing land, it is important to research the local zoning laws and general plan to make sure that the property is appropriate for the type of structure or structures that the purchaser intends to build on it.
The financial terms for acquiring land for development are then negotiated. Due to the possibly lengthy process to research any potential issues and obtain final approvals, developers may seek to obtain an “option-to-buy agreement” in which the developer secures the right to purchase the land for an agreed upon amount, at a specified date, in exchange for a non-refundable deposit. The deposit is often a small percentage of the current value of the land.
After improvement plans are drawn up and submitted to all governments and agencies that have jurisdiction over the property, the developer must perform different assessments, tests, and mitigation plans to obtain approvals for the development to move forward. It is with the approval of these improvement plans and assessments that the raw land becomes ready for immediate buildout, increasing its value to construction companies. The project management skills, relationships, and previous track record of a land developer are most often the main reason behind a successful land development effort.
Higher risk with potentially higher reward
The land development stage can potentially have the biggest return potential of all stages in real estate development but can also carry a higher risk potential, including investment periods possibly ranging from 2½ to 10 years, or longer.
Infobrij stands out as one of the few crowdfunding real estate companies that offers investments in the land development and entitlement stage. Members of our executive team have decades of experience working on projects from the ground up. We have the connections and know-how required to perform this piece of the puzzle, and help bring real estate development projects to potentially successful outcomes.