by Jonathan Rawles, Survival Blog:
The current real estate market, economic situation, and high interest rates continue to limit options for buying real estate. While prices have come down from their peak in many areas, the recent increase in interest rates means that affordability has not improved for the average buyer. There is also very limited inventory on the market, as many would-be sellers are choosing to stay put. Many buyers have to look in more affordable regions, go even more remote, or consider homes or properties that are smaller or in poorer condition.
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With all these challenges, many would-be property buyers are turning to more creative strategies. One potentially feasible and cost-effective route is to team with friends or family to buy and develop a piece of land instead of purchasing property separately.
This path is also a natural fit for those hoping to relocate as a group or establish their own rural neighborhood. Being able to “pick your neighbors” like this can make it much easier to get settled and provide immediate mutual support.
Several routes can be taken, to develop land as a team effort. The simplest is to buy multiple parcels as a package from a single owner. This might an existing rural subdivision with multiple lots available. As another possibility, look for a piece of property that already has multiple legal parcels. This could be multiple undeveloped parcels or a farm or ranch property with one parcel for the homestead and multiple undeveloped parcels around it.
If you cannot find a large property already divided into multiple parcels as a pre-approved subvision, then look for a larger parcel (with or without an existing home) that meets the requirements for subdivision. This depends on the local ordinances. Many counties have no limitations on lot splits above 20 acres or more, and they are permitted by right. Check with your county what regulations govern lot splits and subdivisions, and consult a local zoning map to ensure that the candidate property is suitable.
If you cannot make a legal subdivision, then you may have to consider a shared ownership arrangement. This is least preferable because of the long-term complications if one party eventually ends up having to relocate or sell and the conflicts that can arise from holding property in common. This approach is also potentially problematic with local ordinances, which may limit you to one “single-family residence” per parcel. Many jurisdictions also allow the construction of an Accessory Dwelling Unit (ADU) along with a primary residence but with limitations on its size and occupancy.
As with many other things, land is often cheaper in quantity, while already subdivided and developed land sells at a premium. There are opportunities to be had by taking on the role of the developer if you’re up to the challenge.
THE PEOPLE
Your first challenge will be finding the right people to work with. This needs to be people that you can trust and rely on. Any property development is a large investment with very real risks. Stick with like-minded people with whom you have good references or ideally those that you have a solid personal or business experience with.
Working with family is common in these situations, but it’s important to ensure everybody (and their spouses) is fully on board and committed. It’s unfortunate but not uncommon to see a deal fall through because one party had second thoughts at the last moment.
Take the time to ensure you’re aligned on your vision, in full accord with the property requirements, and have a solid plan for future improvements to the property and the legal issues. Talk through the financial situation openly and in detail, and be upfront about any possible factors that could cause problems in the deal. Make sure you are all clear on the financial requirements and that the funds needed are actually available.
THE PROPERTY
When you look for property, it’s not just a matter of finding a location and property you all like but making sure it is practically and legally suitable to complete your plans. At a minimum, this will mean researching and reviewing several issues in detail:
- Parcel details and title report: Work with a title company or real estate attorney to ensure that you have a clear picture of the parcels being purchased and the title situation and that each subject parcel is distinct and buildable in the eyes of the local jurisdiction.
- Covenants and easements: A title search is intended to uncover any written easements, shared well agreements, or CC&Rs. Review them carefully with an attorney to ensure they do not obstruct your intended use.
- Local subdivision ordinances and process: Your project will be subject to the timelines and processes established by the local government. Educate yourself, and get advice from people who have been through the process before.
- Planning and zoning issues affecting property: Check not only current zoning but “planned use” or other future issues that might affect the property or influence whether you can get approval for your project. For example, if your development is in an area that is expected to be the site of a future highway bypass, you will likely encounter problems getting approved.
- Road access requirements (practical and regulatory): Local fire protection and highway districts typically have authority to make minimum requirements for private roads and driveways connecting to public right-of-ways, including access road slopes, bend radii, and widths. Make sure you account for these requirements in your plan and budget.
- Septic system requirements (practical and regulatory): The local jurisdiction that regulates septic systems will have an important say in whether your proposed lots are buildable. Check regulatory requirements and confirm that each potential homesite can pass a percolation (“perc”) test or septic evaluation.
- Water source requirements (practical and regulatory): Determine whether your water source will be separate for each parcel or shared, and any state or local requirements or permitting it will require.
- Site development requirements and costs: Develop a plan for the requisite site development, including power, internet, access, internal roads, and building sites. Ensure that they are feasible within the constraints of your budget and the property topography.
THE PROCESS
There are two phases to the how. First, how is the purchase handled? Second, how do you arrive at the desired end state?
The simplest situations are typically when one party makes the purchase, handles the subdivision, and then sells or transfers the resulting parcels to the other parties. This minimizes complications in the process but also means that sole authority and responsibility are vested in one individual.
In other situations, you may prefer to establish a trust or Limited Liability Corporation (LLC) to purchase and develop the property. In other cases, multiple parties may purchase a property in joint ownership (e.g., tenancy in common).
These arrangements become even more complicated if a bank is also financing the property purchase. For this reason, many groups pursuing a project like this opt to finance the project with cash, private financing, or through a home equity loan or home equity line of credit (HELOC) on their existing property.
