It's wild to think that just under half (47%) of the United States is uninhabited land. While buying a raw plot can be a fantastic investment, the real work begins when you decide to develop land. It’s a complicated process that requires serious due diligence, and honestly, it's not for the faint of heart. But if you’re willing to put in the effort, it can be an incredibly lucrative venture. This guide breaks down the essential steps you need to take from start to finish.
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What is raw land?
Raw land is a property in its natural state with no improvements or utilities, including sewers, water, power, roads, or buildings. This is in contrast to vacant land which may have utilities and underground infrastructure in place, and had buildings on it in the past that have since been torn down. In short, raw land is undeveloped so you can think of it as a blank canvas for your development project.
Is raw land a good investment?
Raw land is a secure investment when adequately vetted. Even if you don’t see the return on it immediately after development, there are many benefits to owning land:
Costs less to purchase and hold than a developed lot because it has minimal carrying costs, lower property taxes, and low maintenance costs.
Less competitive than residential real estate because it is not immediately set up to earn income.
Sellers often offer seller financing for raw land because banks are hesitant to loan money for vacant land.
Appreciates well even in marginal market conditions because it is a hard asset that is a scarce resource that can always be held as a long-term investment.
Offers lots of opportunities for how the land will be developed depending on zoning codes.
Raw land is a limited resource and will always be valuable. Although location does play a significant factor in how well it will appreciate. To determine its value or future value, you’ll need to research and evaluate the land.
Alternative Investment Strategies
Once you have a piece of land, you don't have to follow the traditional path of building and selling a single-family home. Depending on your goals, capital, and risk tolerance, there are several ways to approach your investment. You can take a hands-off approach by selling to a professional, collaborate with others, or plan for a long-term income stream. Let's look at a few common strategies you can use after you've acquired your raw land.
Selling to a Developer
One of the most direct ways to capitalize on your investment is to sell your raw land to a real estate development firm. This is a great option if you prefer a quicker return without getting into the complexities of the building process yourself. To make your property more appealing and potentially increase its value, you can do some of the initial prep work. This includes obtaining the necessary approvals and installing basic infrastructure. Having a professional site plan ready can show developers the land's potential, making your offer much more attractive. Once you’ve added these improvements, you can sell the finished lots to homebuilders or even directly to individual buyers.
Partnering on a Project
If you want to be more involved in the development but don't have all the resources or experience, consider a partnership. Teaming up with seasoned developers or investors can be a smart move. This collaborative approach allows you to learn the ropes while mitigating some of the financial risks. An experienced partner brings valuable expertise, industry connections, and capital to the table, which can be essential for a successful project. By sharing the responsibilities, you can develop raw land into a profitable venture that you might not have been able to handle on your own.
Comparing Sell vs. Rent Strategies
If you decide to develop the property yourself, you’ll eventually face a big decision: should you sell it or rent it out? Selling the finished property provides a lump sum of cash right away and frees you from the duties of being a landlord. However, you’ll miss out on the property’s potential for long-term appreciation. On the other hand, renting offers a steady income stream and allows you to benefit as the property value grows over time. Before you commit, it's important to weigh the pros and cons, as renting comes with the ongoing challenges of managing tenants and property maintenance.
How to buy raw land
If you're ready to purchase raw land and take on a land development project, here's how to get started:
Set a budget so you know what you can afford to spend
Choose your desired location based on that budget, as well as the climate and local zoning laws
Use real estate websites or hire an agent to help with your search
Inspect the land before buying it, checking things like topography, soil quality, and utility availability
Have the land surveyed for any issues
Submit your offer - don't forget to include contingencies for financing and inspections
You're ready to close the deal
With your raw land now bought, it’s time to learn how to develop land!
What is land development?
Raw land development refers to your plan to develop, build, or hold onto raw land for long-term appreciation or to make improvements to the piece of land.
Raw land can be used to:
Sell as property
Build a structure on and charge rent
Sit on the land to let it appreciate
How Much Does A Land Survey Cost?
The Do's and Don'ts of Buying Vacant Land
The Key Players: Developer vs. Builder
Before you start your project, it’s helpful to understand the key roles involved. While people often use the terms “developer” and “builder” interchangeably, they handle different parts of the process. Think of the developer as the one who sets the stage. A developer buys the land, gets all the necessary approvals, and puts in the infrastructure like roads and utilities. Once the land is prepped, they sell the individual lots. The builder then comes in to handle the vertical construction—building the actual houses or commercial structures on those prepared lots. Getting those initial approvals is a major step, and it often involves submitting detailed drawings, like a site plan, to your local building department.
Understanding Key Terminology
Land development comes with its own vocabulary. Getting familiar with a few key terms will make the process much clearer as you talk with contractors, city officials, and other professionals.
Horizontal Development
Horizontal development is all about preparing the land for construction. This is the groundwork phase where you get the property ready for future buildings. It involves tasks like leveling the site, building access roads, and installing essential utilities such as water pipes, sewer lines, and power grids. Essentially, it’s everything needed to make a piece of raw land a functional, buildable lot. This phase lays the foundation for the vertical construction (the buildings) that will come later. It’s a critical step that turns an empty plot into a property ready for a home or business.
Land Use Planning
Land use planning is the process where landowners, developers, and local governments collaborate to decide how land can be used. It’s guided by zoning regulations and community goals to ensure development is organized, safe, and beneficial for everyone. The main goal is to use land wisely, balancing the needs of people with environmental considerations. Before you can even think about breaking ground, you need to understand the land use plan for your area. This will tell you whether your property is designated for residential, commercial, or industrial use, which dictates what you’re allowed to build. This step is fundamental to creating a project that will get approved by your city or county.
How to develop land
Whether you’re an experienced developer or taking on your first project, it’s important to understand that land development is a complicated and lengthy process. You will need to evaluate, plan, and engineer the process, while following construction codes and regulations. If you’re still eager to proceed, here’s how to develop land.
Step 1: Evaluate the land’s value
Before purchasing the land, you will want to determine the return on investment for the property. The first step is assessing the value of the property.
Factors that can influence the value of the land are:
Location
Shape and size of the property
Access to roads
Access to utilities, sewers, and drinking water
Contain trees and streams
Drainage, contour, and grading of the property
Climate and air quality
Proximity to toxic waste, old wells or septic systems, or cemeteries
Unknown moratoriums
Proximity to airports, landfills, power plants, or train tracks.
See the National Association of Home Builders for a more comprehensive checklist for land development.
It’s important to vet each of these factors because each can significantly impact the property’s value. Remember, the land you are looking at is vacant for a reason. And unless the seller has openly disclosed why, you’ll want to do your homework thoroughly.
Step 2: Calculate the total cost of the property
To determine the land’s profitability, you’ll need to get estimates of any costs the property may need for land development, how it can be used for revenue and when you’ll be able to get a return on your investment. The total cost of the property includes:
The sales price
Property surveys
Environmental impact studies
Fees
Permits
Engineering services
Soil tests
Tree removal
Grading and clearing
Building access roads
Utility installation
Wells and or septic tanks
You’ll want to add up all the costs to get your total investment cost for the property. Lenders generally won’t loan more than 50% of the land’s purchase price. Make sure you have financing to cover all the costs.
Not sure which type of lot you want to build? Talk to My Site Plan to get quotes on parking lot construction plan.
Research and Planning Costs
This is your homework phase, and it’s non-negotiable. Before you get too deep, you need to conduct due diligence to understand exactly what you’re working with. This involves investigating local zoning regulations, environmental factors, the shape and slope of the land, soil quality, and potential flood risks. You’ll also need to confirm how accessible utilities are. Think of this as the step that prevents costly surprises down the road. According to one land development cost breakdown, this research can range from $5,000 to $30,000, depending on the complexity of your property.
Permits, Approvals, and Impact Fees
Once your research is done, it’s time to get official permission to start your project. This means working with city, county, or state governments to secure all the necessary permits and approvals. This part of the process can sometimes involve public meetings or requests to change zoning, which adds time and complexity. The costs here can vary dramatically, from $3,000 to over $100,000, based on your project's scale. A clear, professionally drafted site plan for your permit application is essential to keep this stage moving smoothly and avoid unnecessary delays with the building department.
Site Design and Engineering
This is where your vision truly starts taking shape on paper. Site design and engineering involves creating the detailed blueprints for your project. Professionals will map out the layout of the site, plan for grading and drainage, design utility connections, and lay out any new streets or access roads. These plans are the technical instructions that contractors will follow during construction. The cost for this critical step typically falls between $20,000 and $150,000, largely dependent on the size and scope of your development. Having detailed plans is not just a suggestion; it's a requirement for getting approvals and building correctly.
Grading and Land Preparation
Now it’s time to get the earth moving. Land preparation involves physically transforming the raw land into a buildable lot. This includes clearing trees and debris, digging, leveling the ground (grading), and ensuring the soil is stable enough to support your new construction. The cost of this phase is heavily influenced by the land's current condition—a flat, clear lot will be far less expensive to prepare than a rocky, sloped, or heavily wooded one. Be prepared for a wide cost range, from $30,000 to $500,000 or even more for large or challenging sites.
Infrastructure and Utilities
A developed property isn't much use without access to modern conveniences. This phase covers the installation of essential infrastructure, including building roads and sidewalks, creating drainage systems, and connecting the property to public utilities like water, sewer, gas, and electricity. The biggest cost factor here is distance. If existing utility lines are far from your property line, the expense to extend them can be substantial. This is one of the most expensive parts of development, with costs ranging from $50,000 to over $1,000,000, depending on the project's scale and remoteness.
Soft Costs (Legal, Marketing, Insurance)
Not every development cost is tied to a physical part of the construction. Soft costs are the administrative and professional expenses that support your project from behind the scenes. This category includes legal fees, title insurance, loan fees, marketing expenses if you plan to sell, and general office costs. These expenses are crucial for protecting your investment and ensuring the project runs smoothly. As a general rule, you can expect soft costs to account for about 15% to 25% of your total project budget, so be sure to factor them into your financial planning.
Understanding Performance Bonds
When you take on a large development project, the local government wants assurance that you’ll see it through to completion. This is where a performance bond comes in. Think of it as a financial guarantee that protects the municipality if you fail to finish the project as planned. As explained by industry resource Transect, these bonds prevent the public from being left with an unfinished and potentially unsafe site. It’s a standard requirement in many areas, showing that you are a serious developer with the resources to fulfill your obligations to the community.
Step 3: Learn what the land is zoned for
This is a vital step of due diligence when learning how to develop land. You’ll need to examine local zoning codes to find out what the land is zoned for development. It will determine what the land can be used for and what types of structures you can build on the land:
Single-Family
Multi-family
Condominium
Commercial
Agricultural
Depending on your plans for the land, zoning could ruin those plans.
Step 4: Secure financing
When buying raw land, you often have to have cash, or you’ll have to finance the property from the seller because banks usually won’t finance raw land purchases as they are seen as speculative investments. Because of this, the seller will often act as your lender and offer below-market rates.
Financing for the property will largely be influenced by how you plan to develop it. Investors will want the loan-to-cost (LTC) for the property. This is how much money the lender will need to provide to obtain the property. Lenders generally will loan a maximum of 80-85% of the overall costs.
Step 5: Build within zoning laws
Once you know how to develop land and what you want to do with it, you’ll need to pay for horizontal development. This includes grading roads, installing utilities, and even constructing a building. You’ll want to have a schematic drawn to determine the most cost-effective way to develop the property.
During this phase, contractors are paid incrementally as tasks are completed. Lenders will often hold back 10% of the loan until the project is complete.
Step 6: Address Environmental Regulations
Understanding Potential Environmental Impacts
Changing land for human use is the single biggest reason animals lose their homes, which can have a ripple effect on the local ecosystem. That's why a key part of your due diligence is to investigate the environmental conditions of your property early in the process. You’ll want to check for any potential red flags that could complicate your project or add significant costs later. This includes identifying any wetlands, floodplains, or protected habitats on or near the site. It’s also crucial to find out if any endangered or threatened species live in the area. Uncovering these details upfront helps you avoid expensive lawsuits, fines, and cleanup orders, ensuring your project can move forward smoothly and responsibly.
The Role of Environmental Impact Reports and Mitigation
Depending on the scale of your project and the land's characteristics, you might be required to prepare an environmental impact report. This report outlines the potential effects of your development and is often open to public review. Community members and groups can raise concerns that might change or even stop a project, especially if it threatens local habitats. However, an impact report isn't a dead end. Projects are often approved with the requirement that the developer mitigates the environmental damage. For example, if you must clear a small wooded area, you might be required to create a larger, protected habitat elsewhere. Any identified environmental features, like wetland boundaries or protected zones, must be included in your project drawings. A detailed site plan will show these areas clearly, which is essential for getting your permit approved.
Land development tips
Developing raw land can be a stable and lucrative investment, whether you plan to develop it right away or keep it for long-term appreciation. But for it to be a successful investment, you’ll need to research and evaluate the property’s earning potential.
My Site Plan has a team of experienced CAD designers who can create site plans for your land development project. Known for an excellent turnaround, My Site Plan can make a schematic that will work best for your property.
Do you need a site plan to obtain a construction permit? My Site Plan can create a plan for your land development project within 24 hours.
Start with Your Local Planning Office
Before you get too far down the road, your first call should be to the local planning and development office. Think of them as the rulebook holders for your project. They can provide the definitive answers on zoning regulations, permit requirements, and the specific steps needed for approvals in that jurisdiction. Going straight to the source saves you from making assumptions that could derail your project later. Ask them for a checklist of required documents, which will almost certainly include a detailed site plan. Knowing their exact requirements from the start ensures you can prepare your application package correctly the first time, avoiding costly delays and revisions.
Build a Strong Local Network
Land development is rarely a solo endeavor. Building a strong network of local professionals is one of the smartest moves you can make. Connect with real estate agents who specialize in land, reputable contractors, and attorneys familiar with local land use laws. These individuals have on-the-ground experience and can offer insights you simply can't find through online research. They understand the local market dynamics, know who to talk to at the municipal office, and can help you sidestep common pitfalls. A good network acts as your support system, providing valuable referrals and advice that can make the entire development process run more smoothly.
Beware of Unusually Cheap Land Deals
If a piece of raw land seems like an unbelievable bargain, it’s wise to approach it with a healthy dose of skepticism. Professional developers are constantly searching for profitable opportunities, so if a property has been sitting on the market at a rock-bottom price, there's usually a hidden reason. The low cost could be masking significant problems like lack of legal access, prohibitive development costs for utilities, severe topographical challenges, or restrictive environmental covenants. Before you get excited about a "steal," commit to an even deeper level of due diligence to uncover what other investors may have already discovered and walked away from, and avoid common mistakes.
Leverage Modern Land Development Software
The days of relying solely on paper maps and lengthy site visits for initial assessments are over. Modern technology offers a suite of tools that can make the land development process more efficient and informed. From initial property discovery to detailed site planning, software can help you analyze data, visualize concepts, and identify potential red flags from your desk. These tools empower you to make smarter decisions faster by layering critical information over a property map. Embracing this technology doesn’t replace the need for on-the-ground expertise, but it streamlines the research phase and helps you focus your resources on the most promising opportunities.
GIS Mapping and Property Information Tools
Geographic Information System (GIS) mapping tools are a game-changer for land evaluation. Think of them as digital maps on steroids. These platforms overlay multiple layers of data onto a property, showing you everything from property lines and topography to flood zones and soil types. This allows you to conduct a thorough preliminary analysis without leaving your office. At My Site Plan, we use GIS-based data and high-resolution satellite imagery to create our plot plans, demonstrating just how powerful this technology is for visualizing a property’s features. Using these tools, you can quickly assess a parcel's suitability for your project and identify key constraints early in the process.
Environmental Compliance Software
An unforeseen environmental issue can stop a project in its tracks. Specialized software can help you screen for these risks upfront. These tools aggregate data from various sources to flag potential environmental concerns, such as wetlands, floodplains, or habitats for endangered species. By running a report early on, you can get a clear picture of the environmental hurdles you might face and the types of permits that may be required. This proactive approach is invaluable for your due diligence, helping you understand the full scope of a project and avoid investing significant time and money into a property with insurmountable environmental regulations.
Land development FAQs
We’ve already explained how to develop land, but if you have further questions, explore our land development FAQ section below for more information.
What are the typical timelines for raw land development?
Timelines for raw land development can vary significantly based on factors like zoning, size of the project, and local regulations. Typically, it could take anywhere from a few months to several years. Initial phases such as planning and obtaining permits might take longer than the actual construction and development phases.
How does the presence of natural resources like water affect the value and development potential of raw land?
The presence of natural resources such as water bodies can enhance the value and development potential of raw land by making it more attractive for residential developments or recreational uses. However, it may also impose additional regulatory hurdles related to environmental protection and land use, potentially affecting the timeline and cost of development.
What are the risks involved in developing raw land?
Developing raw land involves several risks including unforeseen environmental issues, increased costs due to necessary improvements (like roads and utilities), zoning restrictions, and market fluctuations that may affect the land’s value post-development. Additionally, the initial lack of infrastructure can make such projects more speculative compared to developed land.
Can raw land development impact local wildlife and ecosystems, and how is this typically managed?
Yes, raw land development can significantly impact local wildlife and ecosystems. Developers usually need to conduct environmental impact assessments and develop mitigation strategies to minimize such impacts. This might include creating wildlife corridors, preserving certain areas within the development site untouched, or implementing sustainable development practices.
What strategies can investors use to mitigate financial risks when investing in raw land?
Investors can mitigate financial risks by conducting thorough due diligence, including comprehensive feasibility studies and market analysis. Leveraging seller financing, opting for phased development to manage cash flow, and diversifying the planned use of the land to adapt to market demands can also help manage financial exposure.
This post was originally published on 2020-10-29, by Ryan Crownholm. It was updated on 2024-05-29 to reflect the most recent data.
About the author
Ryan Crownholm
Ryan is a construction technology founder and former contractor with 15 years of hands on experience in residential and commercial construction. He has been creating site plans for more than 25 years, supporting tens of thousands of homeowners and contractors across the United States. As the founder of MySitePlan.com, his work is grounded in real world permitting requirements, plan review feedback, and practical compliance standards used by local building departments.
Key Takeaways
- Do your homework before buying: The success of a raw land project depends entirely on your initial research. Before making an offer, you must investigate local zoning laws, confirm utility access, check for environmental restrictions, and uncover any hidden costs.
- Plan for the total project cost: The price of the land is just your starting point. A realistic budget accounts for everything else, including permits, professional design services, land clearing, and installing essential infrastructure like roads and utilities.
- Get the right plan and people on your side: Your first stop should be the local planning office to learn the rules. From there, build a network of local experts and ensure you have clear, professional documents, like a site plan, ready to go for a smoother approval process.
