Many people may not know this, but one of the cool things about land development is there are multiple LOT CONDITIONS you can purchase/sell it as. Thus allowing you multiple strategies to choose from that best match your game plan. Because everyone is different.
For example, some developers’ expertise is the underground construction improvements. But they don’t want anything to do with showing/selling houses to home buyers at the end. Others’ strong suits may just be obtaining approvals from local jurisdictions, but not actually doing any construction. And some want to quickly start building homes and not waste time with the underground infrastructure.
So when it comes to purchasing land for development there are a few different lot conditions you can buy/sell it as:
- Raw
- Entitled
- Blue-top
- Finished-lot
- Broken
1. RAW LAND
To purchase a property in “raw” condition basically means that it has been untouched (as far as construction improvements go). You will be starting at the very beginning. If you are going to purchase a raw piece of property, then count on doing EVERYTHING in the land development construction arena.
A raw piece of property will most likely contain all of its natural topography. It may be flat or it may have a lot of slopes and hills. So take that into account when analyzing how much rough grading you think you’ll might have to do.
One other thing you’ll have to analyze is drainage. Does storm water run through the site? If so, can you see where it leads out to? Or does it stay on the property and pool? These questions are important, because as discussed in previous posts, any storm drainage that runs through the site will have to be addressed properly. And as discussed in the DUE DILIGENCE post, if water pools, it may subsequently become a natural habitat for animals. This could also be problematic for you.
2. “ENTITLED” PROPERTY
With entitled property, the seller may not have actually installed anything yet as far as construction improvements go. But typically the seller has completed everything in the planning stage beforehand. This means that the city has approved and signed all the construction plans. Additionally, the seller has finished all the bureaucratic work with all local jurisdictions (including city, county, municipalities, and any others). So whoever buys this will have a green light to just hit the ground running with their construction.
Now, you might wonder to yourself how valuable this can be if ALL this person is doing is pushing plans through and talking with a bunch of people in different jurisdictions. Well, as mentioned earlier, developers/home buildings want to make a return on their money…and fast! So with an entitled property, you just shaved off time AND risk from their bottom line (which essentially ALWAYS equates to money savings in the end!). So yes, one can argue that this is, in fact, extremely valuable! And especially in very bureaucratic states (such as California) where there is a lot of red tape to get through. For example, it isn’t uncommon to spend a few years to get all your approvals before construction. So if you don’t think a developer or home-builder won’t pay good money for an entitled property, think again!
3. “BLUE-TOP” LOT CONDITION
These “Blue-top” lots mean that you’re purchasing some property with the lots already graded. The term comes from the blue whiskers in the ground (or ribbon), which tells graders where the finish grade elevation is.
In this condition, the seller has already rough graded all the pads. This usually includes the street gut section as well. But the buyer will need to install the underground improvements and pave the streets afterwards.
4. “FINISHED-LOT” CONDITION
This term means that the seller has not only graded the property, but they have installed all of the underground utilities. This includes both the wet and dry utilities. And normally the streets are already in, too. (TIP: A paved street usually serves as a quick, at-a-glance indicator that the underground utilities have been installed.)
Finished-lot properties can be considered a real hot commodity for many of the big home-builders (and for some of the smaller ones, too). One of the most important things for many of the big home-builders (in addition to making a good return on their investment), is how QUICK they can get that return. That’s why these types of properties are very desirable. When they purchase a finished-lot property they can almost immediately hit the ground running with building houses (specifically the MODELS!). And when models are complete, that means SALES CAN BEGIN!
5. “BROKEN” LOT CONDITION
With this one, there is no misinterpreting the meaning of the term “broken”. The site is in bad shape and the infrastructure is in disrepair, which literally makes it broken. A lot of times, these projects become “broken” because either the economy tanks, the owner’s financing goes under, etc. Basically, the funding dries up. So construction crews literally just pack up and leave. No point in putting work into something that won’t give you a paycheck. And naturally the earth just buries away the unfinished infrastructure for years and years and it becomes dilapidated over time.
The housing industry was making a huge comeback about ten years after the market crash of 2008. So naturally, a lot of broken projects that died during that time were now coming back from their graves years later. It was interesting to notice that many of those old projects all had engineering plans dated around that 2006-2007 time frame.
Looking into one of these will take a lot of research and investigation. You will have to really get in and roll your sleeves up in order to explore underground and find out what has or has not been installed already. Because remember, subcontractors literally just picked up and left mid-job. So much of the work never made it to the finish line, meaning the city or the municipality never bought off on it. So most of the time there will not be any record of what’s actually in the ground.
