How to Finance Building a New Subdivision

Written by Posted On Monday, 21 October 2019 16:50


Developing residential property has long been a lucrative and satisfying enterprise. Many entrepreneurs and landowners see the opportunities available with development, and they may pursue the process of turning an open area of land into a subdivision. Their vision is often accurate and practical, but they simply lack the funds to get started.

So how can you finance building a new subdivision? Taking out a loan from a bank is obviously the first idea most people have, but these four other routes can be a better option for some people.

Leverage with Other Assets

Often the best way to create new wealth is to work off of existing wealth. When you already have other projects in place--commercial property, other residential holdings, or just open land--you may have equity that you can tap into to get the subdivision kick-started.

This may provide your cash faster and in a more manageable way than simply borrowing directly for the project. Talk to your loan officer about how you might be able to use this option.

Develop in Stages

Sometimes the best way to complete a big project is to convert it into a series of small projects. If your subdivision will feature 120 lots, it may be very difficult to get the entire property ready at the same time beyond the essentials of surveying, drilling, and planning.

A better option could be to break it down into phases, with the first including 20 lots, then 30, and so on until all the spaces are sold. Another advantage of this route is that it develops the subdivision contiguously, with homes built on adjacent lots instead of with empty properties in between.

Take on Capital Partners

Many people have money to invest but no ideas on how to invest it. Others have great ideas without the financial footing it takes to develop them. Getting these two groups together is the idea of venture capital efforts.

These ventures create a mutually beneficial situation in which an investor gets a return while a project developer gets the money needed to bring an idea to reality.

Bring in the Buyers

Some subdivisions develop as lots presented for sale. Others include homes that are partially or entirely complete. Reaching either of these levels could require more cash than the developer has.

In this situation, it can be beneficial to offer the property earlier. This gives potential buyers more input in how the lot and home are developed, which makes it more appealing. By discounting the sale price to cover the buyer’s extra expenses, you can get the subdivision going sooner.

Developing property requires land and money. Often the land is easier to get than the development funds, so these tools can be a good way to bridge that gap.

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Anita Ginsburg

Anita is a freelance writer from Denver, CO. She studied at Colorado State University, and now writes articles about health, business, family and finance. A mother of two, she enjoys traveling with her family whenever she isn't writing. You can follow her on Twitter @anitaginsburg.
 

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