Digging Deeper: Unexpected Costs in Land Development

Ron: If you’re buying to build or to put a residence there in a short amount of time, these are the costs that you need to know about them.

Dan: Welcome to the real estate investing podcast, where we help you unlock your potential freedom through land investing, real estate investing, and entrepreneurship. Hey everyone.

Welcome back to the real estate investing podcast. Today’s topic, we’re discussing the real cost of developing a piece of land. I’m your host, Andrew Apke, joined again by my brother and business partner, Ron Apke. Ron, I wanted to talk about this because I think a lot of people buy land, and they think that’s all they need to do to build a piece of, like, that’s just ready to be built on.

And that’s not the case. There are a lot of costs associated with building. Properties, building structures on a piece of land. There’s a lot of prep work that goes into it. There’s a lot of different things we’re going to talk about in this episode, but what’s your main takeaway, Ron, on this? But why, why do we choose this?

Ron: I want to protect people. Honestly, I think it’s going to be something that is a lot of people right now, Dan, we talked to like, we sell to people all the time who are like, I’m trying to buy my first piece of land. I’m trying to build a house on it. I want to get out in the country, whatever the situation is and they are thinking about two costs.

They’re thinking about the cost for the acres, which is whatever, five for 50, 000. So think about the cost of land and they’re thinking about the building cost or the mobile home cost. There’s a lot of stuff, a decent percentage of stuff that goes in between buying that land and having that finished structure in terms of just not building costs, like things other than that.

So I think. Understanding those costs, what you’re getting into before. It is a great investment, buying, building something on it, holding it. You’re going to build equity. You’re going to make money long term, but I want to make sure you guys are not in a pinch when you’re doing it. You need to have some good wiggle room because the costs add up fast.

Dan: They do. And also if your property, your property might always already contain these at times. Or it might have public services that go to these. We’re going to talk about well and septic and get into the cost behind those, but you want to check also and see if, make sure you don’t have public. Cause that’s only if you don’t have public water and public sewage, then you’ll need to go down these routes.

The other thing is you can always check if the property already has that. But like Ron said, you do not need to put. These, these, this infrastructure on the property, if you’re just buying and holding, I wouldn’t do that for the most part. I’d just let it sit. It will appreciate naturally. You do not need to do anything to a raw piece of land to make money on it from a long term appreciation standpoint.

Ron: Yeah. We were talking about those hitting costs. If you’re buying to develop, if you’re buying to put a house on it, put a mobile home on it, put a multifamily, whatever the situation is, if you’re buying. To build or to put a residence there in a short amount of time. These are the costs that you need to know about, Dan,

Dan: let’s get into it.

The first one that comes to mind, you buy wooded lot Ron five acres. It’s completely wooded. We got to clear the land. We got to prep the land to build. We’re going to need to put in. driveway and we’re going to need to clear a building spot. Let’s go into that.

Ron: Yeah. So like, let’s say you buy 10 acres, five acres, whatever situation is.

And we’re talking right now, Dan, like we’re talking about a flat piece of land. There’s a lot of this country that is really, really sloped where prep work can get hundreds of thousands of dollars. Um, so if you’re obviously buying a Colorado and a sloped area, Colorado, these costs are going to be. Uh, astronomical compared to what we’re talking about.

But yeah, let’s say you’re, I think if you buy 5, 10 acres, Dan, it’s your preference, but you’re going to at least need to clear a half acre or so for building. And you also need to clear that driveway, clearing, clearing an acre, clearing a half acre is going to cost around 3, 000 or so one to 3, 000. I think it’s closer to the high end of that.

All that’s going to depend is the thickness of what’s going on. Like if you’re thickly dense with thick trees, then it’s going to cost a little more money where if it’s just shrubs and brush, it’s going to be probably 1, 000, 1, 500. And then putting the driveways are not a cheap thing, Dan, from scratch. Um, if you’re putting a legitimate gravel driveway, you’re going to put 5, 000 into that.

Dan: Absolutely. And you also want to see like, consider these things when you’re going and walking your properties, consider these costs too. The further back you need your driveway. To put your house, the more money it’s going to be. So if you can save money by putting your, by putting your house closer to the road, so you need a shorter driveway, less excavation, less gravel, right?

So those are going to help bring down costs. Also make sure you don’t need to go over a Creek or put a goalie or anything. You’re going to need to build infrastructure to go over, build it up, or put some sort of bridge to go over it. That can get very, very costly as well, but clearing is definitely one of the most expensive costs when it comes to prepping the land.

I think Ron. And it’s also one of the most looked after. I mean, you need what? 75 by 100, 100 by 100 area to put a house. Like that’s going to be decently decent work. If it’s very wooded, very brushy, someone’s going to have to come in, clear it out and make it real nice for you. And then the driveway is probably even more than that, especially depending on how far you got to go back.

But the gravel is very expensive. You can keep a dirt. You do not need a gravel. You can keep a dirt.

Ron: You can keep a dirt driveway matters. How Rule your hour, bring your make sure you know about zoning regulations, everything like that. Um, 1 thing Daniel said guys, that’s really good. I think that he kind of not skipped over, but he said it.

I’m going to cut. My attention is. Like knowing if you, where you have to put driveway, knowing the situation, walk your land before you buy it. If you are buying a piece of property to develop, you need to be on the property before you buy it, so you can understand these things. You understand every little dip, everything that’s going on with the land, so you can predict these costs better, so you know what’s going on, so you can communicate with the builders, so you can communicate with these people who are putting a driveway in.

And, um, you, you’re going to understand better when you start getting those quotes. Um, but yeah, I, I think those are really good, Dan. I guess next, Dan, it’s probably utilities, correct?

Dan: Utilities. Yeah, we can get into it. So there’s two main utilities. going to not tip. It depends how far away it is from your house.

You can talk to a local electric company, but electric is a utility that’s also overlooked because they charge you by a hundred feet a lot of times. So they have to extend it thousands of feet because your next door neighbor is 10 acres away, you know, hundreds and hundreds of yards. They’re going to need a Duke energy or whoever the energy company is.

It’s going to need to plant poles and bring it all the way to your house. And that is not free. They charge for that. They do know. It’s not an outrageous amount of money because they do know. that’s going, they’re going to be servicing that forever and they keep that in mind, but it is still very expensive.

I don’t have the exact dollar amount on that. It depends the area. It depends, you know, if they have to go up and down mountains and things like that, they’re going to have to charge extra, but that’s one thing to look, but the main utilities we’re going to talk about in this round, we’re septic and well,

Ron: yeah, for sure.

And if your electric lines are like running. Uh, parallel with your road, you’re going to be fine, but if you like look around and like, there’s no electric lines anywhere that you can see, you want to call the electric company, you want to get a quote for how many, a lot of times they’ll give you a thousand free feet or something like that.

Then after that, it is very, very expensive. Um, that can add up. Um, so keep that in mind for sure. And then well and septic well can be anywhere, Dan, 5, 10, even 15, 000. I think like five to seven is a very good norm. And then you’re going to have septic. That is about 5, 000 as well. So you’re going anywhere just with well and septic.

Most places in rural America, if you’re getting out of city limits, you’re going to need well and septic opposed to, um. Public water. You want to find that out before public water, public sewer, but well, and septic are going to add another 10 to 15, 000.

Dan: And you need a perk desk before getting that septic a lot of times.

So they’ll add on another 500 to a thousand dollars, depending on your area as well. But yeah, those are two that is, I mean, if you’re going to have a house, you’re going to need a well and a septic. Always, like I said at the beginning of this, I’ll always check public utilities. There are a lot of counties and areas that you, if you’re developing land, they will have public sewage or they will have public water.

You need to check with that first. And then if you do, you can just ignore those expenses. They go away. So you don’t need to worry about that. There are other things hidden. Ron, when. Getting ready to prepare to build, I think. And let’s talk about just getting the site ready. I mean, you have permits, you have other things that you’re going to need.

What are some other hidden things, Ron?

Ron: Yeah. I mean, you’re going to need permits for all this stuff. Um, the more urban you are, the more close to the city, like it’s going to take longer. It’s going to cost more, more times than not. If you’re rural, the permits get a little easier. Um, one thing also, Dan, you’re going to most likely need a survey as well.

Like for a builder, you’re going to need a survey, which on 10 acres, a survey is going to be three to 4, 000. Um, like that is a cost that you are, unless the seller recently got a survey, you are going to have to pay for that. It’s going to be another 3, 000, 4, 000 for 10 acres, 5 acres, maybe 2, for a survey.

Um, but like Dan was talking about, I would, I don’t know, Dan, like, what would you budget? You would definitely look it up in the county, but for permits and stuff, permits, site prep, um, like I would budget another 3, at least I would think, right?

Dan: Yeah, there’s going to be things that come up more times than not.

You don’t know what those are always going to be for sure. But, um, you know, if the inspector comes through, you need different things. You’re going to have to make adjustments. So I would definitely have, I think 20 to 40 percent of your budget overall, just ready for that to happen. And then once you have all these things together, so maybe about five acres for 25, 000, you put a well in septic in now you’re in 35, 000.

You cleared the land, you’re in 45, 000. You got some sites, other things that came up, you’re in 50, 000. You just doubled the amount. The amount you need to actually build your house. But I want to talk about the pros there because your land is now worth a lot more than when you bought it. That is for sure.

So that, that work you just put in, especially since you have a permit, because a lot of people will call us and they want to sell their land. They sell it. They say they have an old septic on it. They say they have a well that hasn’t been inspected in 28 years. It’s not even recorded with the County. They build it themselves.

That’s not valuable. Once you have your septic in your well and it’s all permitted and it’s working and it’s functional, you have your site ready, it’s cleared, it’s a beautiful lot with the driveway going there, you might have a 80, 000, 100, 000 property on your hands.

Ron: Yeah, I mean, I think before you build anything, if you do things correctly, you’re going to have instant equity if for whatever reason you wanted to back out.

Um, but, uh. Yeah, you have a value add already if you did things correctly, without a doubt. Um, I think what the numbers you said, Dan, buy for, you said buy for 35, the land? 25, 000. So buy for 25, 000, expect 25, 000 in those improvements, prep work, everything like that. I would think you have a 75, 000 to 80, 000 piece of land after that.

Dan: And it’s going to be very desirable as long as you do it right. There are people who put money into land in the wrong direction and they get a negative ROI just because you’re putting money in an asset does not mean you’re putting it in the right direction. You got to put the money in the capital in the right direction to get that appreciation.

So for example, if you’re building a house and you put a concrete pad down for a 4, 000 square foot, very specific house, and it got the permits for that to the average person, no one’s going to, they’re not going to build a 4, 000 house. So, but if you got it ready for, you know, a mobile home or 2000 square foot house or 1500 square foot house and you prepped it, it’s nice and cleared.

You’re going to have a very desirable property. You get good pictures of it. You want to relist it and make a little money and flip your property. That’s a really like, this is a way you can add value to the average person. Now think of it, Ron, you can go to this five acre property. Instead of just seeing all wood lines and trees on the road, you now have a driveway.

You put it on the driveway. There’s a hundred by, you go a hundred feet back. Beautiful. There’s a hundred by a hundred. foot cleared out area for a house. So now you can vision your house there. There’s a Creek behind it. You have your septic and well, you have the electricity ready. That’s stamped from the County.

It’s all approved. Everything’s good to go. So the average person, the average mom, the average family goes there and now they see their dream home and now they see their future home instead of going to. Just trees and walking back there and trying to picture what’s going on. It’s just like the, now they can buy it, not need to do any work besides hire the builder and get going like that, or just put the mobile home there and it’s ready to go, whatever their situation is.

So you got to think of it from that perspective. It just makes it. So much more valuable to so many people in the country. And, and we’re starting to do these value as more because we flip land, we buy and sell land, and this is a value add we can do to them. One to sell it quicker and two to get our money back.

Ron: Yeah, no, that’s really well put. Like the, the, the end buyer, it can picture you give that picture for an end buyer for their dream home, if you are trying to improve and then sell. But we’re kind of talking by land improve and then build. Um, but yeah, like the, the. The value add that you do even before you build is incredible.

But Dan, let’s get into, um. Real fast before we end this, I want to get into like, I think it’s a nerve wracking thing. Like, I think like we’re in land. I’ve never, we’ve never built ground up in terms of buying a raw piece of land and built building an entire residence, something like that. Um, and we, our full time job is in land.

Um, Like it’s definitely I can see it being nerve wracking thing for a normal person, but it’s something like they want five acres. Like you can’t find five acres with houses on it in many areas in the country, I feel, um, but they want that five acres so they can find the raw land. But like, is this for anyone in terms of like, what would be your advice for someone who’s trying to like that this is what they want to do in the next three years is.

Build a bill, buy a piece of land, maybe in the next eight, 10 months, and then build over the next year after that.

Dan: Well, once you have a good piece of land, you got a good foundation. I mean, the dirt’s where everything’s going to sit. So I’d put a lot, everything else after that can really come as long as the land and you did your due diligence and it’s a good piece of land.

I’d focus a lot of your effort on educating yourself or getting a broker or educating yourself on how to analyze land. Because there are a lot of tools we use online to analyze land. And if I was buying a piece of land and we, we did, we bought one last year. I would analyze it the way we did from satellite first.

You got to walk it, get a good feel for it. But if you guys have a good piece of dirt, good piece of land that you buy and you’re planning in the future to put a house on it, the lands, everything, right? If you buy, like Ron said earlier, if you buy a very sloped property in Colorado, it might cost you 200, 000, you know, to put the foundation, everything on there and all the footers and all the work they’re going to need to do.

But if you’re in Colorado and have a nice flat, nice piece of land, easy to build. It’s going to cost you 20, 000. You’re good to go. I would really focus on the land acquisition rather than everything after that. As long as you know, You know, you can get septic. You can get well, you talk to the utility company.

They said they can put electric there. No reason you did your basic due diligence. There’s no restrictions. That’s the other thing you want to check. Make sure there’s no restrictions on your land in terms of what you want to do. If you want to put a house, make sure you can put a house. If you want to put a mobile home, make sure you can put a mobile home.

So you want to make sure that as well, always check HOAs, all the restrictions, make sure you’re not in a HOA. There’s restrictions with those a lot of times. And if you are just be okay with those restrictions. And the first thing we do with that run, what do we do? We look at 80%. We look at the properties around it and if 80 percent of them are more filled up, typically it’s desirable.

So you always want to check that stuff too. But my advice for them to go back to your question is just focus on the land acquisition. Make sure you’re getting a solid piece of land. You change your mind in two years, whatever. You can always sell that and make, make some good money. If you want to build on it, you have a good foundation.

The land’s good to build.

Ron: Yep. And then once you do buy the land, you’re starting the building process, like get the right people in your corner. Like you want, you need people in your corner. You’re not getting a lot of quotes. Yeah. Get quotes. You’re not laying the brick down yourself or anything like that.

So get a lot of quotes. Don’t rush the process. Get people you trust. Like usually that gut feeling Dan with people like contractors, those types of people, like it’s usually your right feeling. Um, so just don’t rush it, I think. Um, but, uh, Yeah. I mean, you’re going to make mistakes, Dan, like you, I mean, we’re going to eventually do a little ground up, going to make a ton of mistakes, but the value and being able to develop, like, think about that, the value in that education of developing a piece of land, even if you lose 10, 20, 000, um, on wasted expenses, the value in that is so scalable.

Dan: Absolutely. And you’ll learn a lot. So you can take that knowledge and then bring it back and do it repeated. If you want to make some extra money, if not, you’ll learn a lot and have a beautiful house, planned it out and just live at your dream home. And that’s who we’re selling to. A lot of times when we sell these properties, it’s someone who just goes there and they’re like, I love the land.

I want to build a house on it. And if that’s you guys, if you’re looking for that land, Now, you know where to start. And I think just buying a good piece of land that you can do what you want to do with it. You can make sure you want to sell it. If you like it, if everything’s set up well, you can always turn around and resell it.

You just want to make sure you’re safe behind you. I don’t have much more to add around. No, I think that was really good. As always. Thank you for joining. Please do us a huge favor and like, and subscribe our YouTube channel and share this with a friend. It really means the world to Ron and I, but more importantly, it could help change the life of someone else.

Thanks for joining and we’ll see you next episode.