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Brandywine Homes developed Renaissance Plaza in Stanton, Calif., from a blighted commercial area (below) into a moderately priced mix of much-needed new housing.

The goal of developing residential projects in infill markets is to help revitalize established neighborhoods and convert underutilized and often run-down space—including strip malls, parking lots, and empty warehouses—into much-needed housing. Infill is gaining in popularity as suburban locations become more attractive to prospective home buyers. Municipalities encourage infill development as it is more efficient to use existing infrastructure and services than to extend infrastructure and services farther away. Infill development can help a community achieve or sustain thresholds of population density necessary for amenities such as park space, community services, retail/shopping destinations and affordable housing.

A successful infill developer needs to be able to work closely with cities and community development agencies to help rebuild neighborhoods. Strong relationships with financial partners and local government agencies can only help a developer succeed. As more home buyers—including baby boomers, millennials, and single people—seek out urban amenities, we’ve found infill development to be quite lucrative. Still, urban infill presents challenges not found in traditional residential development, including fragmented ownership, longer regulatory approval processes, higher capital costs, and the possibility of environmental contaminants or brownfields. The following tips can help urban infill developers become successful:

1. Know your market. Before investing money and time in a property, investigate it thoroughly to understand who the end buyer will be. Look at existing supply, how market behavior is driving absorption and pricing, who the competitors will (or might) be, population growth, households, jobs and foreclosures in the area among other things.

2. Constantly survey the market and the competition. This is the only way to know what type of product to deliver, whether high-end detached single-family homes or townhouses. Developers should conduct quarterly market surveys and always look at demographics and the type of resale products people in the submarket are buying.

4. Find areas of need. Look for market segments where no new product has been built in a long time. These submarkets will have pent-up demand.

3. Investigate the schools. Schools nearly always dictate pricing and product. The better the schools in an area, the better your price point will be. According to a 2013 Realtor.com survey, 91% of 1,000 prospective home buyers said school boundaries were important in their buying decisions. PSK12.com provides public school rankings for most states.

5. Understand submarkets. The difference between being on the “right side” or “wrong side” of the tracks is crucial in any market. This can vary street by street and dictates what type of product you should build.

6. Avoid areas that have been overbuilt. This probably goes without saying, but too much existing product means too much competition. This includes current as well as future stock. When the rate of construction is faster than the market can absorb, prices will likely be pushed down throughout the area.

7. Study the existing infrastructure. Due diligence on any piece of property means checking out the existing infrastructure, including water and sewer systems. In many older communities, these are real problems that can sink a project.

8. Know how to work with entitlements. Developers often find it tough to deliver enough product to meet demand because entitlements are so difficult to obtain in existing markets—and that process gets more complicated each day. This puts constant pressure on pricing over the long term and causes many developers to shy away from urban infill and downtown development products.