Investment Property
Four Major Types of Real Estate You Should Consider To Invest IV - Single-Family Subdivision
By
Feb 12, 2006, 23:38

This category of real estate consists of site built conventional construction real estate single- family homes. They may be free standing or they may be attached. These subdivisions are created from a developer purchasing land, installing the infrastructure and then selling a lot to you. Sometimes the lot comes with a house on it, and sometimes you buy only the lot and then must go out and find a builder. The
developer might supply just the basic infrastructure of roads, sewer, water and electric, or he might build additional amenities including a guard house, perimeter fence, common recreational areas such as tennis courts, a clubhouse, or a golf course.

More and more subdivision developers, especially those trying to develop a "non-location" site, are starting to pay attention to the lesson learned by manufactured home developers: to provide amenities that are conducive to lifestyle such as a clubhouse and recreation areas. Overall, subdivisions can be the most attractive choice for purchasing out-of-state real estate  in that it has a lot of the advantages of general real estate in terms of privacy and proven appreciation on your investment, but at the same time, it has some of the advantages of the manufactured home or condominium development, in that there is low main tenance in terms of one's personal labor, not cost, and an implied sense of community.

The downside of subdivision housing is that you must be  prepared to pay more for your home and lot than you would in a comparable location and similar sized home in general real estate. One might argue that this would be expected since you are not only purchasing a home and a lot such as in general real estate, but you are also purchasing the whole community along with its roads and amenities. And, to some extent, this is true. 

However, someone else might successfully argue that this devel oper purchased this land at an undeveloped price of only a fraction of what he is turning around and selling it to you for. He is making a large profit, and all that is required is that he build the infrastructure to improve the land and make it more desirable. In the profit from the sale of the lot to you is his return on the cost of the infrastructure plus profit. However, even with the value  of the lot factored out, you are usually still paying more for a
subdivision house than comparable general real estate. Remember, the developer is not only trying for as much profit as possible, but is looking to be reimbursed for his business and selling costs above and beyond the actual cost to build the house. You are not just being charged for the improved lot and house, but a lot more.

Furthermore, you could also contend that in addition to the profit in the purchase price, that you are paying a monthly maintenance fee and in some cases a portion of that monthly maintenance fee is paying off the developer's debt he incurred to build the infrastructure in the first place. So there can be profit built in on all sides of the deal for the developer.

Having said all that, I just remind you that buying in a subdivision often costs more than established general real estate, but you generally get more in return. The key issue here is to go in knowing you are going to pay more, but make sure it's only a little more, and is within the value set by the area's market.