Last time I talked about an iLoveRealEstate.tv member who is shifting her investment strategy from “low-end cashies” to property development…
I explained why it’s not a bad idea to shift from one strategy to another…
Just don’t risk your entire portfolio and cash flow on a development project that hasn’t paid off yet.
That got me thinking about all the things that can go wrong on a development project…
From finding the construction financing, getting the right building contractor in place and getting all the necessary approvals from the local council…
Anyone or all of these can go wrong and derail a development project indefinitely…
And that’s before even one nail has been hammered!
Pitfalls in the subdivision process
But one of the details that is often overlooked…
Or at least not always thought out as much as it should be…
Is the subdivision process.
Should you apply for a full subdivision approval from the local council before the construction phase of the development project or after?
Some real estate developers will likely get full subdivision approval for the property before the construction phase…
And generally, the subdivision application process is pretty much the same in every state.
You go to the local council before you purchase the property…
And explain to them your intention of buying this parcel of land and building multiple dwellings on it.
When you take ownership of the property…
It’s still under the existing property title that encompasses the whole parcel of land and any existing buildings.
The developer then sets about getting final approval for the subdivision process…
Before beginning the building phase.
It’s not necessarily wrong to do it this way…
But there is another way that can save you a lot of headache down the track.
Begin with draft subdivision
You see, regardless of which state your development project is located…
You have the option of applying to the local council for a simultaneous subdivision approval…
Just include it along with your development approval application and planning permit at the beginning of the approval process.
But even then, you don’t have to include the final subdivision plan with your application…
At the very least, a draft plan of your subdivision is required and can be submitted in place of the final version.
This one little difference in the process can make a big difference in how quickly you can finish the project…
And how long it takes you to put the individual properties on the market for rent or for sale.
Such problems can come about simply if there are problems with the property itself…
Such as an unforeseen stability issues, easements, legal access limitations…
Or for many other unforeseen reasons.
The point is, you may well have to make changes to your original designs and locations of the dwellings…
Which means that you may have to make changes in your project’s subdivision plans.
You will then have to get new council approval for your subdivision plans…
Which may mean going through the approval process again.
Having to get another approval of the new subdivision plan will delay the construction and completion of the project…
All of this means more money coming out of your pocket!
How can you avoid such complications, delays and added costs to your development project?
One way is to separate the two application processes.
That is, get the planning permit approval at the very beginning of the process…
Leave the final subdivision process once you’re certain that no additional obstacle are between you and the building phase…
You will have identified which townhouse or block of apartments will go where…
And why the lot split(s) need to happen where you say they do, with all issues known and accounted for.
Make the development match the draft
So address the draft plan of the subdivision once you’ve got to the final drafting stage and are ready to start construction.
The council will, of course, want the draft plan of the subdivision supported by a survey of the building site…
This can be done as soon a there is actual construction done—a wall or whatever–which will allow the surveyor base his survey on and match the survey to the draft subdivision plan…
The council will want to be sure that the subdivision plans that they’re approving accurately reflects the development project.
Because if the plans don’t match the actual development…
You’ve got more problems to deal with.
Don’t get on the wrong side of the council
Simply put, if the local council is doubtful that what you’re building matches the plans you’ve given them…
The council will likely ask for further validation, add more conditions for approval and generally make your life difficult and your development project more expensive.
A delay project completion will not only eat into your profits in a big way…
But it can also push your buyers away…
As well as reduce the chances of the council wanting to approve any other development projects you may have.
A good strategy is to talk to both local developers who have gone through the process…
Then talk to the council and get an approval in the subdivision approval process itself…
It will save you time, money and headache!