When you hear the phrase “subdivide land,” you likely think of suburban-style subdivisions.
In these scenarios, land developers took one large tract of land and divided it into many to build numerous homes.
These large-scale subdivision projects can be an effective way to add value to the land; although, they are expensive, especially if not done correctly.
However, not all subdivisions need to be so extensive.
If you’re a land investor looking for a creative way to add value, subdividing a smaller parcel of land may be the next best step.
There are just a few things you should know about the process before you begin.
Here’s how to subdivide land that you can sell, build on, or rent.
1. Subdivision is the process of dividing a tract of land into two or more pieces of land
You may be asking, “Why subdivide land at all?”
The reason that most people move forward with a subdivision is because it’s profitable for the landowner and allows them to have greater flexibility with their investment.
If you’ve purchased a large parcel of land, you may consider this option to maximize your real estate resources.
Ultimately, more lots mean more money.
By dividing a parcel of land into smaller pieces, you can sell land to multiple buyers.
You’ll liquidate portions of your land while also retaining the ability to keep some for yourself.
Whether you choose to build and live on this land, or you just hang onto it and watch the value increase, you’re increasing your flexibility and marketability.
In many cases, it’s much easier to find buyers for smaller subdivided parcels.
Smaller parcels are more affordable for buyers and save the purchaser time, effort, and risk.
It’s everything they need in a smaller package.
So here’s the general process for subdividing land…
Check for restrictions
It is best to consult with a title company before starting the subdivision process.
They can verify that you own the lot free and clear, but also that there are no deed restrictions or covenants in place that would prevent subdivision.
Evaluate the market
Before putting any money into the subdivision, you first want to make sure there is a market for the lots you are creating.
After all, if you can’t sell the lots you’ll just be throwing money away.
Call your local planning, zoning, and/or development office.
They can tell you the subdivision process for your area and give you information on any existing zoning restrictions.
You can also check online to see what information exists.
This will help you understand whether or not your property qualifies.
Do not skip this step.
If your property does not qualify, you do not want to waste your time or money.
Talk to a town planner, property lawyer, or subdivision specialist.
In general, cities and towns have increased their restrictions and fees in the past few years.
A professional in the field can help you decide whether it’s worth committing to subdividing your land.
Understand whether new infrastructure will be needed
Depending on the size of your subdivision and the local regulations, you may need to install utilities or even a new road.
You will want to keep this in mind when evaluating whether the subdivision makes sense.
Hire a surveying and/or engineering firm.
They’ll help you survey the property and draw up a plat.
They will also provide feedback on whether your property is eligible for subdivision.
If there are issues, you can still consult an attorney and evaluate whether it’s smart to move forward.
However, having this information is useful.
Even if your property doesn’t qualify for subdivision, you may be able to get approval by filing a planning or zoning variance/waiver.
Sometimes planning and/or development offices make exceptions where reasonable.
Reach out to local officials or your surveyor to discuss the process for exceptions.
Design the subdivision
You will likely need to complete a plat map or set of drawings that show the exact boundaries of each of the new lots.
Typically, these drawings are done by an engineer.
Just make sure the drawings show all the elements that the county planning officials will want to see.
Submit your application and await a response.
In most cases, the application must be submitted with a plat map, certificate of title, and an application fee.
You’ll want to double-check this with local officials first.
Receive your response.
The process will differ slightly depending on your location.
In some places, a planning board or council will decide to approve the subdivision during a routine meeting.
Other areas will have subdivision issues go to a public hearing.
Make improvements to your land.
If you have any improvements that need to be made before your subdivision can be approved, you’ll make them at this point.
This may include building a road or installation of new utilities.
Your surveying company will also place the new boundary pegs.
Request certification after approval from the planning board.
Once all the necessary changes and improvements have been made, you can request approval from the planning board, which certifies that all conditions have been met.
Your property has officially been subdivided.
You should obtain new titles.
2. There are a number of reasons why you may want to subdivide your lot
People subdivide land for a number of different reasons.
They may want to create housing for loved ones, or they want to want to make a profit from the land that they purchased.
Here are a few of the reasons you may choose to subdivide land.
Increase your property’s marketability
In some areas, smaller lots are easier to sell than larger lots.
So, if you have a larger lot of land that you are looking to sell, you may find it easier to sell your real estate after it is subdivided.
If you’re a land developer, chances are you’re looking to make some money off of your investment.
Dividing up your parcel of land and selling each piece to a different buyer is one way to make a profit!
Downsize your land while remaining flexible
Perhaps you find that you no longer want to maintain a large parcel of land.
By subdividing it, you can still retain part of your land while selling the rest to another buyer.
In general, this allows you to make some money while downsizing or increasing your flexibility.
Build an extra home for family
In many areas, you are only allowed to build one home on a lot.
By subdividing a larger lot, you can create several building lots that will allow you to build a few homes near yours for your children or parents.
3. You must comply with zoning (make sure you check!)
Local zoning and subdivision ordinances can often inhibit the subdivision of land, which means you need to check your local regulations before you move forward with your plans.
Here’s what the process looks like.
Contact the municipal planning and building township of the township or municipality to learn the property’s zoning category.
Determine how your property’s zoning category will affect your planned subdivision.
Many counties and towns have regulations around minimum lots sizes, setbacks and open space requirements, which may make your project infeasible.
They may also have regulations dictating that you provide certain services to the new lots that could become very expensive.
So this is not a step you can skip!
Illegal subdivisions do sometimes happen and when they do, they can end up destroying your property’s value.
4. A subdivision may or may not be the right call for you
Deciding whether or not to subdivide land can be a difficult step.
While a subdivision typically increases the value of the land, there are financial risks and hardships involved.
You’ll want to do due diligence on the process before taking action.
As mentioned above, many counties and towns have zoning or subdivision ordinances that may require you to install services to each of the new properties.
If you need to put in new roads, utilities, or other infrastructure, then your subdivision project can easily become a full-fledged community development project.
Even a simple subdivision project will require you to spend upfront money on a couple of different professionals (more on that below).
Depending on your financial situation, you may find that it doesn’t make sense to spend your limited resources in this way.
At the end of the day, you need to evaluate the costs of the subdivision and compare them to the potential benefits to see if the project makes sense for you.
Also keep in mind that you will be taking on some financial risk since certain restrictions, such as old deed restrictions, may not be easy to discover.
Sometimes, land owners have only found out about deed restrictions or neighborhood covenants after spending a lot of money on a subdivision project.
So do a title search to ensure that you don’t have any outstanding liens, issues, regulations or other claims on the land that may complicate or impede your project.
For more key mistakes made when buying land, check out our video below.
5. A subdivision should be done where there is a market for land
Speaking of risks, one of the biggest risks associated with a subdivision project is market risk.
So you will want to be fairly confident that there is a stable market for the new lots you are creating (remember you will likely be selling your lots a few months or years out from now).
Research the market and other properties in your area to determine the appropriate lot size, layout, and price that is marketable in your area.
Doing this can help you determine whether your project makes sense.
If you’re unsure throughout this process, consult a local professional who can provide their expertise on the land value and how it may appreciate.
Local information can help determine many of your next steps.
For example, if many of the local homes in your area are large and expensive homes on big lots, then you shouldn’t look to create smaller homes on smaller lots.
They simply won’t do as well because they won’t be appealing to the market that you’re in.
This is why it’s wise to research your area and begin only if you can provide a product that the market is interested in.
6. You will need to hire professionals
You will always need a survey in order to subdivide land.
If your state, city, or town offers surveying services, look into those before turning to a private firm.
In most cases, state or municipal surveying services are less expensive than a private service.
However, you won’t just stop with a survey.
As mentioned above, you will likely want to hire a title company to check for old deed restrictions and other potential issues that may complicate your project.
On top of this, if your local planning office, title company or surveyor says your property is ineligible for subdivision, you will want to consider consulting an attorney who specializes in zoning laws.
You may be a good candidate for a variance or appeal.
An attorney can help guide you through the process and let you know all of your options.
Finally, you may need to hire an engineer since….
7. Subdivisions require a plat
A plat is a map drawn by a land surveyor or engineer.
It depicts the subdivision (or lots) that you want to create.
Each jurisdiction will mandate what a plat needs to show, so you’ll need to know your local rules for what it must include.
This will likely be fixtures like streets, utilities, etc.
Also, keep in mind that you will likely need to pay for several iterations of the plat when you subdivide land, including:
a preliminary plat that you will initially file with the local governing council or body.
intermediary plats if the local planning office requests changes after their engineering review
a final plat that shows any required work completed (such as new roads or utilities)
8. A subdivision has no standard cost
Unfortunately, because there’s no standard process when you subdivide land, there’s no standard cost.
The cost will depend on surveying and platting costs as well as the local application and fees.
You may also have to make improvements to the property to boost its marketability.
Overall, you should plan to spend between $2,000 and $10,0001 to divide your property into more than two lots.
Have a little bit of sticker shock?
You’re not the only one.
This can catch people by surprise.
The price will depend on your location and the number of lots you’re creating.
There’s almost always an application fee regardless of where you are, and then you’ll also be responsible for dozens of other fees.
For example, you’ll have hearing fees, recording fees, review fees, tax map updating fees.
Surveyors typically charge by the hour, so when getting your property surveyed and platted, you’ll often spend about $500 to $2,500.
However, don’t underestimate this cost.
The price could reach tens of thousands if you have a large property.
As a general rule of thumb, you should have roughly $500 to $1,500 to subdivide one mid-sized property into two and more to divide one property into more than two lots.
Note that any required improvements to the property can quickly run up your bill as well ($10,000 to $30,000).
These improvements would be roads, sewers, or utilities (required for a subdivision approval).
So, long story short, make sure you’ve checked (and double-checked) that you meet all the requirements (zoning and otherwise) before you begin to make this investment.
It can quickly add up financially, and you don’t want to spend money on a subdivision project that won’t get approved.
9. A subdivision generally takes 9 months to 1 year
Just like the cost, the time that it takes to subdivide land ultimately depends on a variety of factors like the size of the lot, the improvements needed, and the location.
However, generally speaking, it takes 9 months to 1 year for a two-lot subdivision from the time you start to the point when you obtain a title.
10. Larger subdivision projects are likely to increase the value of your lot more than smaller ones
In general, larger subdivision projects create more value than smaller projects.
So, a three-lot subdivision is more valuable than a two-lot subdivision.
This is because you’ll have an additional buyer coming in and paying you for a piece of the pie.
Each person will see the value of the land that they’re getting and be willing to pay you something for it.
The further you divide up your land, the more you’ll profit from it.
That said, you should be careful not to make the lots too small.
You want to find the optimal size when you subdivide land that makes your lots attractive to buyers.
Half-acre and quarter-acre lots are often too small to be desirable for buyers.
You need to find a happy medium for your area to ensure that everyone gets what they want.
You maximize the number of buyers while also getting the maximum profit possible from the land you own.
Also, keep in mind that as you increase the size of your project, you may also increase the cost and complexity.
Thinking about subdividing your land?
The process of subdividing land can be long and expensive, but you’ll ultimately profit off of it if you do it correctly.
Do your research and don’t skimp on professional help.
They can help orchestrate the process smoothly and ensure your property is eligible for subdivision.
Any questions? Please leave a comment on this blog post.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.