Is Infill Construction More Profitable? A Comparative Look at Urban vs. Greenfield Development

As a property developer, site selection is a crucial step in the building process, and one of the first decisions you make is between infill construction and greenfield development. Each strategy has its pros and cons, but with the right know-how, both strategies can be profitable.

One of the key partners you need to succeed in urban and greenfield development is a lender. They can finance the project so you can pay less out of pocket. For example, ABL helps fund infill and greenfield developments nationwide with fast, flexible new construction loans.

What Is Infill Construction?

Infill construction refers to building on vacant or underutilized land within existing, urban areas. This could mean building a new home on an empty lot or renovating a dilapidated structure. It’s all about “filling in” gaps in a neighborhood. 

What Is Greenfield Development?

Greenfield development is building new properties on previously undeveloped land, such as on rural land or in a new subdivision. As a result, the land acquisition costs can be lower than in dense urban neighborhoods. 

Pros and Cons of Urban vs. Greenfield Development

When choosing between infill construction and greenfield development, consider the following:

Pros of Urban Development

• Higher resale values and rents. Dense neighborhoods and city centers are desirable locations with high demand, pushing home prices and rents higher. 

• Existing infrastructure in place. Utilities and roads often already exist, saving you the cost of developing these on your own.

• Stable rental demand. Urban areas enjoy stable housing demand, enabling quick turnovers and fewer vacancy costs. 

Cons of Urban Development

• High land acquisition costs. Urban land sells at a premium, which can cut into your profit margins. 

• Complex entitlement processes. Cities may have stricter zoning and building regulations than rural areas. 

• Tighter working conditions. Urban construction often involves demolition, working in tight spaces, and coordinating with neighbors. 

Pros of Greenfield Development

• Lower land acquisition costs. Since non-urban land costs less, your cost basis and potential profit may improve.

• Economies of scale. Large parcels lend themselves better to building subdivisions and master-planned communities. 

• More design flexibility and control. Many non-urban areas have looser zoning and building regulations, allowing more flexibility and control.

Cons of Greenfield Development

• Infrastructure costs. You may need to install utilities, roads, and other infrastructure before building a greenfield property.

• Higher market risk. Since non-urban markets have less proven housing demand, you may take on more market risk.

• Longer lease-up periods. Compared to established neighborhoods, greenfield developments may take longer to rent out to tenants.

Which Strategy Is Right for You?

Choosing between infill construction and greenfield development ultimately depends on your unique circumstances and goals. 

Infill projects may be better if you have more capital and experience, since they tend to be more expensive and involve complex urban regulations. Meanwhile, greenfield developments may be better if you’re seeking lower upfront costs and more control, though you’ll need to pay attention to any infrastructure requirements. 

Finally, assess your risk tolerance. Greenfield developments tend to have more risk but higher potential rewards, while infill projects provide more predictable returns in proven markets.

5 Tips to Boost Your Infill Construction Profits

Assuming you go the infill construction route, here are some best practices for maximizing your profits despite high land acquisition costs:

Do your Due Diligence

Not every infill project is worth it. Before committing to a deal, thoroughly research zoning regulations, building codes, and permits necessary to avoid costly surprises and delays.

Build a Strong Network

Infill projects aren’t a one-person project. You need a team to succeed. Surround yourself with reliable contractors, lawyers, agents, and a lending partner like ABL. 

Focus on Property Types with the Highest ROI Potential

You may find that condos, duplexes, or other small multifamily properties can generate a higher return on investment (ROI) than single-family homes. ABL offers loans for all of the above.

Negotiation Land Costs

Just because urban land costs tend to be high doesn’t mean they aren’t negotiable. Try to lower the purchase price by buying multiple parcels or offering a quick close (e.g., via ABL funding).

Target Amenity-Rich Locations

Neighborhoods near parks, quality schools, and retail stores can entice tenants, pushing up rents and the property’s resale value.

Common Mistakes to Avoid

Whatever you do, avoid these common infill construction pitfalls: 

Underestimating Soft Costs

Permits, impact fees, architectural requirements, and entitlement costs can add up fast, eating away at your construction budget. Account for them upfront by reviewing similar past projects or consulting a more experienced investor.

Failing to Account for Site-Specific Challenges

Infill projects may come with demolition costs, utility upgrade requirements, difficult soil conditions, and other challenges. Make sure you know what you’re getting into.

Choosing the Wrong Property Type for the Market

You don’t want to build a great property in the wrong market. For example, a luxury home in a middle-income neighborhood can be a bad idea (and vice versa) because it targets the wrong type of tenant for the area.

Over-Leveraging on Land Acquisition and Construction Costs

If you spend too much on land acquisition and construction costs, you could deplete your cash reserves, leaving you in a precarious financial position. That’s why ABL carefully underwrites every deal to help ensure you can take on debt responsibly.

Finance Your Next Development Project with ABL

ABL specializes in new construction loans for both infill and greenfield development. With our help, you can get your next project off the ground in no time.

On top of flexible loan terms and competitive rates, we offer our constant support. Our local team can guide you through complex development projects to ensure everything runs smoothly. We’re always just a call away.

Ready to take the next step? Fill out our pre-qualification form for a new construction loan today! All it takes is sharing some basic details about you and your project, and we’ll let you know if we’re a good fit within 24 hours.