Sequencing Real Estate Due Diligence & Land Entitlement Tasks
Once you put a property under contract what's the next step?
The short answer... it depends. It depends on the type of site and the type of proposed project.
That probably wasn't the answer you were looking for. In this video, we'll help demystify the process for you, and help you avoid expensive and time-intensive mistakes when sequencing your real estate due diligence and land entitlement tasks.
Guide to the video
- Before you put a property under contract, there are various free resources to help you with investigations and determining initial feasibility
- Structuring your contract to allow yourself enough time for due diligence is critical to reducing project risk
- The sequence of your due diligence activities is largely dependent on the type of land and proposed project for a site
- Once you've investigated critical real estate due diligence items, you can begin navigating the process to fully entitle a property
Video transcript follows
If you’re an investor buying land, or real estate developer, or a business owner looking to expand and in the process of site selection, there aren’t a ton of resources out there to help you.
You probably know you need to do some due diligence before buying the property, but you may not know where to start. And when you do start, how do you know you’re doing things in the right order?
Well, that’s a problem. A lack of experience and knowledge of the land buying and development process leaves you exposed to serious financial risks and time delays.
But we’re here to help demystify the process for you a little bit. Keep watching as we take a deep dive into sequencing your real estate due diligence and land entitlement tasks.
What’s up everyone – it’s Matt Marsh with Marsh & Partners.
Marsh & Partners is a development and national consulting firm that helps business owners and investors maximize their real estate and transform their businesses.
This whole concept of sequencing your due diligence activities when buying land is foreign to many.
When you buy a house, it’s pretty straightforward. You call your attorney to get some title work done, get an inspector to walk through the house, get a surveyor out to the property, and an appraisal if you’re working through a bank.
All your due diligence happens around the same time – you may want to wait for the inspection to come back before you spend money on a survey, but that’s about it.
Even a commercial investment property isn’t much more complicated. You’ll want to do some research into the existing leases, and will likely want to complete an environmental assessment - but there isn’t much by way of sequencing your activities.
But when it comes to land entitlement and land development, tasks compound on one another. And items you investigate often lead to more questions and require further investigations.
And I get a lot of questions from my consulting clients about how to best do it. And how to do it as inexpensively and efficiently as possible.
So, I wanted to put together a video to help answer some of those questions and hopefully help you avoid mistakes in the future.
Before you put a property under contract
One of the benefits of being in the real estate development industry full time is you begin to understand all the free resources that are available to you to help with investigating a property.
Before I put a property under contract, I can conduct my own feasibility study on a property. I’ll typically start with the local municipality’s GIS records.
The GIS tool offers a great place to begin assessing a property – I can research everything from a site’s ownership and legal information to its topography, access to utilities, zoning information, and much more.
It gives me a much better high-level understanding of the property.
From there I might use Google Earth to get a better view of the site’s physical characteristics and the property’s tax and deed records for an understanding of the property’s ownership and sales history.
If your plan is to develop the property you might consider investigating any applicable future land use maps for information on the municipality’s vision for the site. Wetlands and flood maps can help you better understand the composition of the soils and determine how much of a site is actually buildable.
You’ll likely need to formally examine all these items again before you purchase the property, but there is a lot you can understand about the feasibility of a land site early on without spending a ton of money.
Properly structuring the land contract
Here’s another thing to think about.
In order to give yourself enough time to sequence and complete your due diligence activities, you need to properly structure your contract.
Before you can break ground on a land development, there’re a series of milestones that must be met.
And if you have a copy of Marsh & Partners’ land acquisition and site selection due diligence checklist, you might be overwhelmed by the laundry list of things you need to take care of.
Not only do these tasks take time, but they also cost money.
And everyone in the development and construction industries is so busy right now, that just getting someone out to your property for a survey can take a couple of months.
So, to help with all that and reduce your risk during pre-development, allowing yourself enough time is critical to a successful land purchase.
We have a separate video on structuring real estate development land contracts that walks you through exactly what you need to know to set your project up for success. Check out the video description for more info.
During the due diligence / investigation period
Here’s where the rubber meets the road. In a perfect world, your due diligence period is when you get the bulk of your pre-development and land entitlement tasks complete.
That will ensure you a high level of confidence that your project will be approved before you’re actually forced to close on the property.
But where do you start and what’s your first step once you put a property under contract?
The short answer is it depends on what kind of land you’re buying and what kind of project you’re pursuing.
Let’s say I’m buying a large tract of rural land for single-family homes about 30 minutes outside of the nearest MSA. Based on my experience, there are a couple of things you’ll want to consider right away.
Many times, rural land has been passed down in the same family for generations – and this often poses challenges for obtaining a title commitment. You’ll want an attorney on board quickly to begin title work.
And depending on if the site has access to public utilities, a soil analysis to determine septic system suitability will be critical. And if the site does have access to utilities, do the utilities even have the capacity to support your proposed project?
And is the site encumbered by streams or wetlands? Often, they might not even appear on the maps or overlays you investigated before putting the property under contract. So, a stream and wetland determination would be critical to determine how much of the site is actually useable and buildable before putting a site sketch together.
All these items could be deal-breakers for a project. Critical feasibility items should be investigated early and expeditiously so you can get the answers you need before committing more capital towards land entitlement.
Let’s say instead you’re buying an infill property. It will most likely have access to public utilities, but the size and shape of the lot may be much more of a friction point.
And depending on your proposed use, zoning and land use regulations could also play an important factor.
Typically, I’d hire a civil engineer as quickly as possible to begin a site layout sketch and to discuss zoning, design, and stormwater concerns. Depending on the site layout, and following a municipal pre-submittal meeting, I’d be much more informed about key items would need to be investigated next and how to sequence my due diligence activities.
During pre-development & land entitlement
Now, the last phase of pre-development you need to consider sequencing are your land entitlement tasks.
Once a project has been greenlit, and all critical real estate due diligence items have been investigated for project feasibility, you’re ready to go jump full steam into the land entitlement process.
Land entitlement is a series of component steps required to achieve full legal development approval.
Depending on the type of property and the proposed use, the process to achieve full approvals will look vastly different.
For instance, if your property needs to be rezoned that will need to happen before you can get full site plan approval.
If you need a variance or conditional use permit, you’ll have to appear before the board of adjustment and receive approval before you can proceed with development.
In some cases, the site plan review process can go concurrently with the construction plan review, but this poses additional entitlement and cost risks.
The important thing is to understand that before you can break ground, you’ll need all required permits and municipal approvals for your land development project.
This video was meant to serve as a guide of sorts for your real estate due diligence and land entitlement tasks.
The key is to determine based on your intended use, what due diligence items are deal-breakers. You’ll want to investigate those items as early as possible to ensure you’re not needlessly spending money on examinations that end up proving useless anyway.
A grasp of the real estate development process is helpful in understanding the complexities of a project and how best to overlay those activities on a timeline.
We also have a variety of resources available for you to take a deep dive into the land entitlement process specifically, or what due diligence items you should consider before buying a piece of land.
You can reach out to me directly if you have questions or concerns about a current or future project of yours.
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You can also check out our site for more real estate insights at marsh-partners.com
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