When you're looking to prepare a piece of raw land for a housing developer, understanding how much it might cost to secure utility connections is an essential step. By estimating these costs, you can accurately bring developers a deal they can realistically take on and execute.
To help provide potential investors and VestRight students with the right expectations, here's a breakdown of the site development costs associated with getting utilities connected to raw land.
Utilities – What They Are & Why They’re Important for Developing Raw Land
Before your buyer can construct housing on your raw land parcel, there’s a lot for them to establish and set up before moving into development. One of the key things they’ll need to establish are utility connections. This process means connecting the land to water and sewer lines, the local power grid, natural gas, and telecommunications.
Utility connections are a crucial step before a developer can begin construction—along with the feasibility study, approval process, and much more—and provide essential services to residents. That’s what makes utilities such a critical part of the raw land acquisition process.
Impact on the Developer’s Costs
Utilities are a necessary part of any home development project and can add significantly to the overall cost of the deal.
Although these costs don't affect you directly as the acquisition specialist, they're important to know when pricing out your land deal and determining the total costs for the developer before selling them a piece of raw land.
Adding it All Up
Factors such as location, type of utility, and current infrastructure all play a role in determining how much money you must budget for these services.
Consider all these factors when estimating total development costs so that you can plan accordingly and help the developer avoid unexpected expenses down the line.
Feasibility Factors
To make sure your project remains feasible, within budget, and profitable, carefully consider how the potential costs associated with connecting utilities will impact the overall project budget and the expected return on investment (ROI).
When looking at ROI, it's important to note that if there are multiple homes in close proximity, built within the same development, then it could make more financial sense for them all to share the same utility connection instead of each having its own line.
It's also worth noting that some areas may offer incentives or discounts on certain types of utility connections depending on local regulations. Check with local governing bodies before beginning any project, as these programs can save money while still meeting city standards.
Ultimately, you and your developers need to take all related costs into consideration before making any decisions regarding raw land development projects. Projects with high upfront utility costs might not be feasible due to lower expected returns.
Budgeting for the Unknown
Budgeting for the unknown when connecting utilities to vacant land is essential. The primary costs of connecting utilities are only one part of the equation. You also need to consider other expenses like clearing land, obtaining permits and land entitlements, and purchasing materials to form an accurate project cost estimate.
To calculate a more precise estimate early in the development process, research local laws and connect with contractors who have experience completing similar projects. Additionally, obtain quotes from suppliers to factor in material costs.
Finally, factor in the potential for time delays. Severe weather, government red tape, and other unforeseeable circumstances are always risks for increasing project costs in land development.
Types of Utilities
When prospecting raw land for new housing development, there are several utility connections to consider:
- First and foremost, developers must connect electric and natural gas lines. Without these available energy sources, homes can't function properly.
- Next, water lines are required to provide access to fresh water.
- Additionally, the developer has to install a sewer system, such as a septic tank or the local sewer system, to safely redirect sewage away from buildings and bodies of water.
- Furthermore, connecting local telecom services such as telephone and internet/cable is essential for creating modernized convenience.
Costs and requirements for each utility vary depending on local legislation and the utility's function itself. Considering all the necessary utilities is vital when estimating a housing development on undeveloped land.
Electric
Starting electric service for a raw land parcel begins with determining whether power lines exist in the local area.
If power lines exist, the power company will often just need to run a splice from those existing lines to your property and switch on your electric meter.
Depending on local requirements, this may involve permits or inspections before the local power company can safely connect your land, but once it's approved, the developer should typically have electric service connected within 1-3 weeks.
The cost may be around $1,000 for this type of nearby hookup, which will be up to the land developer to consider when evaluating their project.
On the other hand, if no nearby power lines can reach your site, additional steps need to be taken, such as getting right-of-way agreements with neighboring property owners. Work crews will also need to construct underground cabling out to your property.
These long-distance installations generally take between six weeks to a year. They can cost anywhere from $10,000 to $30,000 – in rare extreme cases, that cost could go even higher. It largely depends on the nearest power source, including the exact distance and whether the utility lines are on public or private property.
If trenching is required, this will cost between $400 to $1,200 per 100 linear feet.
And if a new transformer has to be installed by the power company, you're looking at an additional few thousand dollars.
Water
Connecting municipal water service to a vacant land parcel generally requires approval by the local municipal authority responsible for utility services and an inspection of any existing infrastructure.
Once they get approval, land developers should plan to pay anywhere from $1,000 to multiple thousands per linear foot of pipe needed to connect existing infrastructure to the vacant property.
Any major changes or upgrades needed before getting started may add costs.
Finally, utility companies often charge a fee for the new connection and typically require the installation of a water meter on the property.
All in all, the cost of getting municipal water service connected can vary depending on the development size, but it tends to range from $2,000 to $20,000— but again, this will be something the land developer will take into consideration when evaluating their project.
Aside from municipal water service, a developer may need to connect your raw land parcel to water via a private well. Private wells don’t connect to the municipal water supply but allow landowners to access groundwater.
The cost of installing a private well can vary widely depending on how deep contractors need to dig and how much they'll need to disturb the surrounding soil.
Considering that wells must be drilled at least 50 to 200 feet deep and require pipe casing, the cost to drill a well can add up to anywhere between $1,800 and $24,500.
Several other factors come into installing a well. For example, if high water demand is expected, water storage tanks may need to be installed to store excess water. The property may also need a water pump for a well.
Consider all these installation factors before estimating the cost of providing water to a housing development.
Sewer
Setting up sewer service on a raw land parcel requires knowledge of septic systems and municipal sewers. The cost of connecting services varies greatly depending on the accessibility of the septic tank or existing sewer line, and the land's topography, as sewer systems must run downhill.
If you're connecting to existing municipal sewer lines, you'll need to estimate the cost to extend that sewer line onto your raw land. The cost ranges from $50 to $250 per linear foot, making the overall cost between $1,300 to $5,000 for the developer. You'll also need to review local ordinances to see if any permits are required.
The cost of installing a septic system will vary depending on the complexity of the terrain and topography of the property, with typical septic system prices ranging from $3,500 to $11,000. When setting up an independent septic system, the developer must install the septic tank at an appropriate distance from buildings and residential areas.
Gas
To estimate the cost of connecting gas service to a raw land parcel, you'll need to contact the gas utility provider to conduct a coverage review and determine the correct gas service size required for the build.
The connection cost of gas utilities typically ranges from a few hundred dollars to several thousand dollars, depending on local gas company rates or regulations. If further gas infrastructure installation is necessary, such as gas mains, it can result in additional charges for labor and materials. Also, consider any necessary permits and inspections.
Generally, connecting gas to a raw land parcel will cost between $500 and $1,000, depending on the terrain and distance away from existing infrastructure. You'll also need to install a new gas meter, costing around $300 to $600.
Telecommunications
To connect telecommunications services (phone, cable, internet) to a raw land parcel, the developer will likely need to invest in new equipment like splice closets and underground conduit piping, arrange for trenching services if necessary, and apply for any necessary permits or inspections.
Overall costs can range anywhere from a few thousand dollars to tens of thousands of dollars.
If you're running fiber optic cable to supply fiber internet, you're looking at the cost of $60,000 to $80,000 per route mile.
Additionally, the cost of running a traditional phone line and TV cable service may depend on the location of the nearest telephone pole and cable source. However, these outdated connection methods can likely be superseded by the fiber optic internet connection, which provides cable and phone service as well as internet service. That means as long as you're running fiber, that's the only telecom cost you need to worry about.
Utility Cost Factors
There are four major factors that affect the cost of connecting utilities to a vacant lot:
- Location
- Property Size
- Type of Utility
- Zoning Laws
Location
Location plays a huge role when considering the cost of connecting utilities to raw land. If the raw land parcel is close to existing utilities, such as the nearest power lines, the cost of getting connected should be relatively low.
However, if the vacant land is far from any existing utility infrastructure, then it may end up costing significantly more to build new infrastructure, such as laying new power lines and installing water mains or sewer lines.
New equipment (such as transformers) might also need to be installed on-site. For example, if there is no utility pole close enough for power lines to reach the property, the power company will likely need to install a transformer on-site.
The same could be said for natural gas lines where an additional pipeline would need to run underground.
These installations can add up to thousands of dollars.
Along with this, additional labor costs may also be involved if extra workers are needed for connecting utilities over long distances or over complicated terrain.
Property Size
When bringing utilities to raw land, the size of the property is important in determining the cost.
Generally, the bigger the property, the greater the distance between it and other sites that offer access to utilities. This means the developer might have to pay for more transmission lines and wiring before being able to connect.
Larger properties may also require more utilities and thus incur a higher overall cost for connection. The property may need extra equipment, such as additional tanks for energy storage, like natural gas so that services like heating and cooling systems run reliably.
In some cases, electrical generators might be needed depending on how remote the location is, since some homes may only receive solar power with no access to public electric grids.
All these circumstances can increase expenses when connecting utilities to large properties compared with smaller ones.
Type of Utility
Connection costs can vary significantly depending on the type of utility.
For example, getting underground fiber optic internet established is often more expensive than getting water or electric service, because the equipment and specialized knowledge required to lay fiber costs more. However, aerial fiber installed aboveground can be less expensive in contrast, because the labor is less intensive.
Zoning Laws
Zoning laws and regulations can significantly impact the cost of connecting utilities when developing raw land. Local regulations may require special permits or upgrades to existing infrastructure to connect utilities.
For instance, if the area has strict rules about how close infrastructure can be built near existing structures or property boundaries, this could mean having to pay for redrawing boundary lines or acquiring permits.
In some cases, special permits may be required to build a connection between an existing system and a new development, or even to construct an entirely new utility system if one doesn't exist near the area. These permits take time and money to acquire, so you'll need to take them into account when considering utility connection costs.
Local governments may also impose additional restrictions on developments, such as limiting the number of homes that can be built or requiring certain materials to be used during construction. These regulations affect building costs, utility connection costs, and additional fees incurred by having to bring in specialized equipment or local contractors to meet regulatory standards.
Maximize Your Raw Land Investment
Overall, it’s essential for you to understand how much it will cost a developer to get utilities connected for a housing project on vacant land. This will make sure the project remains within budget and provides an acceptable ROI, so that it’s feasible and attractive to developers.
To further help you succeed in raw land deals, we created a free E-Book that is packed with valuable information and expert advice. This downloadable guide can help you make informed decisions and ensure your housing development project on vacant land starts out the right way.
Discover how a single land deal can outperform 100 real estate transactions by addressing the housing shortage in the United States. To learn more about this innovative program, click here to speak with our team.
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