The word “subdivision” often conjures up images of housing developments with tightly-packed homes, but investors can subdivide property for profit in many ways. Subdividing property can be as simple as dividing a large lot in order to sell half of it or as complicated as portioning a 3,000-acre parcel of land into minimum-sized lots for homes.
Many types of property adjustments qualify as subdivisions and need to be approved by city planning departments. Investors will need to seek out county insight on subdivision regulations and requirements if they wish to divide a single property into multiple lots, combine one or more properties into a single lot or adjust an existing property line. Investors intending to sell subdivided land should also be aware of potential capital gains taxes. Even if an investor has lived on a property for the requisite two of the last five years, if he or she subdivides the property, the new lot will no longer qualify as a primary residence. If this investor were then to sell the half of the lot on which he or she did not live, the sale could be subject to capital gains that might not otherwise have come into play. One possible way to avoid these taxes is through a 1031 exchange.
The subdivision process varies from county to county. The examples in this article are from specific counties and can offer a general overview of the application process, but investors should refer to their local planning department for more specific information.
Before applying for subdivision permission, it is highly recommended that investors familiarize themselves with their county’s land use plans; proposals that fall within the local regulations and goals are much more likely to be approved than those that do not. Information about a county’s general plan can often be found via the planning department’s website, or investors could consult officials in person.
An important aspect of subdivision plans is that, when approved, they instigate a zoning freeze, according to Dennis Clarke, president and CEO of Cummings Properties in Woburn, Mass.
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A zoning freeze is when a property is made immune to zoning amendments for a certain period of time. “If the zoning is subsequently amended, whatever property was part of that subdivision plan is grandfathered under the initial zoning or whatever was in place with your initial filing,” Clarke said. “If you were proposing a residential development on a parcel of land and it was going to be a long permitting process and…you didn’t have zoning protection somebody could come along and change the zoning in that district and the plans you had wouldn’t apply anymore. Maybe they’d make it commercial and you couldn’t build a residential development anymore. Having a zoning plan allows some certainty.”
The zoning on a property will specify a minimum lot size and any other requirements for new lots. If the newly subdivided lots meet these requirements, the property owner can proceed with the application process. If they do not, investors may want to look into the possibility of rezoning.
When submitting an application to subdivide property in San Luis Obispo County, Calif., applicants must submit application forms along with tentative maps and information such as title reports, an environmental health letter and a statement of road improvements to be made or public utilities to be installed. Depending on the individual application, additional information such as soil reports and noise studies may be required as well. The application is then evaluated for consistency in relation to the county’s general plan, ordinance standards, minimum parcel sizes and environmental impact. San Luis Obispo County estimates that most subdivision petitions requiring a public hearing will take between nine and 12 months to complete.
In Charlotte-Mecklenburg County, N.C., the overall length of the process can vary widely depending on the individual petition, but each stage has designated maximum processing times set by a county ordinance. The initial review of the application must be completed within 30 days while subsequent reviews must each be completed within 20 days, according to Linda Beverly, subdivision administrator for the Charlotte-Mecklenburg Planning Department. She said that a typical petition will likely go through the review process three or four times before being approved, though some may go through 10 times or more. While in many counties the petition ultimately goes to a public hearing for a decision, in Charlotte-Mecklenburg the process is entirely administrative.
The subdivision application for Charlotte-Mecklenburg requires full construction drawings with a site plan, erosion control plan, grading plan, storm drainage plan, flood studies and more.
“Depending on what’s being proposed, the application goes to different departments,” Beverly said. “They mark up the plans with corrections and send them back to the developer or engineer. The developer makes changes and resubmits. Applications go through this process until the plans meet all standards and ordinances.”
It is highly recommended that investors hire a professional who knows the local legal system to help speed their petition along. “If someone’s never done it we recommend they get with a professional that does this for a living, works in the area, that’s submitted plans. They’ll know what the ordinances and standards are [and] will get their plans through faster than someone that has to go through a learning curve,” Beverly said.
Investors interested in pursuing a subdivision of their property should get in contact with their local planning department to receive information on their county’s subdividing requirements as well as the application process.