Instead of investing in existing houses, you might opt to buy a tract of land and develop it into a neighborhood for one or more of the housing options we just discussed. Going from bare land to a residential subdivision takes a great deal of research and planning. There are roads to build, utilities to bring in, restrictions to put in place to ensure a consistent community, and many other considerations you must make before you can move forward with the project.

Accessibility of Utilities

To construct a residential complex, you'll need access to electricity, phone, water, and sewer systems. How far will you have to run electric and telephone lines to get to the property? How will those tasks affect your development costs? Are water and sewer connections available to the projected lots? If not, will you develop a community system for each utility, or will property owners be responsible for installing private wells and septic systems?

Is the land suitable for individual septic systems, and if it is, how far must each system be from a well or other water source in order to avoid contamination? A septic system works like this. Liquid waste from bathrooms, the kitchen, laundry, and other areas is carried to a large storage tank. The waste begins to decompose in the tank and turns into a sludge-like liquid. When it reaches a drain at the top of the tank, the liquid flows into pipes that stretch into a network of gravel-lined trenches, called a drain field. Holes along the length of the pipes release the liquid into the trenches. The liquid seeps into the soil beneath the drain field, where bacteria and oxygen in the soil complete the neutralization process.

Land filled with rocks or clay-like soil does not drain easily, so larger drain fields — and lots — will be necessary. The minimum size of the lot depends on the types of systems used in your area, the laws that control the placement of those systems, and the topography of the land. A thorough soil evaluation should be tops on your “to do” list for this type of housing development.

Road Work

Another important task is building roads to access the lots, and it's likely that ordinances will dictate the minimum road width and how roads are constructed. If you must cross another person's land to get to your development, more ordinances will kick in to cover the right-of-way that's required to allow permanent and legal access.

Is It Worth It?

You'll have funds invested in the land and the improvements. How many lots can you realistically get from the tract? How much are similar lots selling for in your area, and what's their average time on the market? Do the math to determine if you can recover your costs and make a profit.

If You Work with Builders

Many people who develop land for subdivisions never build a house themselves. They prefer to stick with lot sales and let the new owners build their own homes. However, sometimes it's easier to sell a new house on a lot than it is to sell a lot that's vacant. Talk with local builders to see if any of them have an interest in working with you to build spec houses — speculation houses that are built to market to the public rather than for a specific individual. Check each builder's references, and get legal advice before embarking on a spec house project.

Smaller Developments

Smaller developments might be subject to fewer guidelines. Talk to your local planning board to find out if a tract of land can be split into two or three parcels without forcing you to follow rigid subdivision guidelines. If so, you might be able to sell larger lots to buyers who wish to have more land for privacy or other reasons, while bypassing the formal approvals that are required for subdivision development.