This episode analyzes a 20-acre actively farmed property south of Minneapolis being offered at 10% of its $1M mortgage value from 20 years ago, with the seller living directly across the street—triggering multiple red flags requiring investigation before acquisition despite seemingly correct pricing.
Key Takeaways:
- Massive Discounts from Historical Values Signal Problems Properties selling at 10% of previous purchase prices (even accounting for 2000s bubble pricing) demand explanation of seller motivation and potential hidden issues.
- Adjacent Seller Residences Indicate Adverse Selection Owners living next to land they’re selling at significant discounts suggests the property has characteristics making it unsuitable for their own use.
- Active Farm Leases Require Termination Analysis Multi-year farming agreements without favorable exit clauses restrict buyer flexibility and reduce property value, especially for properties entirely under agricultural use.
The farming lease investigation must determine remaining term length, termination provisions, harvest timing considerations, and tenant contact information before finalizing any acquisition decision.
(Podcast transcript below)
Hey, Chris Duff, Serious Land Capital, Vacant Land Funding Partner. I wanted to go over a case study based on a deal that I reviewed just earlier on land daily diligence and zero cost review of your land deals Mondays and Thursdays, afternoons. So this one seemed like it was a really attractive parcel with
pretty correct pricing on it. So was almost a 20 acre piece south of Minneapolis, seemed to be actively farmed, had easement access. But there were definitely some open questions here. So I just want to go over some of the flags here. It’s a bit of a grab bag, more than one topic for this particular podcast, but it’s just, again, when…
You’re either looking at deals yourself or presenting them to others. Like really got to be thinking hard about some of these additional follow up questions, especially if you’re working, I don’t know, in States that you aren’t routinely going after again, the landmark, it is tough. A lot of folks are struggling out there at the moment, industry going through a lot of churn, like the time to be extra, extra diligent is, is now, I mean, that was always the case, right. To be really successful in this industry, but even more so.
when you have to fight tooth and nail to, to really get the right deals and make sure they succeed in a uncertain macro. And so this particular property, when I was looking at it, you know, within land ID, and oftentimes it’ll show the previous sales data. It’s not always accurate, you know, especially if there was a recent sale, but you know, previous sales, you know, within the last or
prior to the last, I don’t know, six months or so, most markets are usually gonna show up depending where you are in the country. And it was showing that this property was bought roughly 20 years ago, mid-2000s. There’s a huge bubble for real estate. I look at, I mean, some of these prices on land or houses, Becca, I don’t know if the market’s ever gonna get to where those numbers were. For some of these properties,
in the country here. We had a land bubble, real estate bubble during COVID and post-COVID. Obviously, it’s calmed down quite a bit. Some values have collapsed significantly since then, and even some of those boom values didn’t even remotely approach what some of those prices were 20 years ago. And that’s taken into account 20 years of inflation as well.
When you look at properties in the mid 2000s that were purchased, oftentimes those values are going to be inflated. But even with that in mind, I saw this property had, it was like a near million dollar mortgage that was placed on it, a 20 year mortgage for farmland piece. And also the owner lived across the street, not directly touching the property, it was kind of railroad tracks breaking up.
where the farmland was and then the owner’s house. So again, I’m always concerned if owner lives either right next door or right nearby, they’re generally going to be less motivated and you’re running an adverse selection for the other land that they have. Otherwise they would have built on it. I know this is farmland, but you understand my point here. and why they would be willing to sell at such a significant discount. And in this case, they’re selling at, you know, 10%.
of seemingly what they bought it at, assuming that market data is accurate. I don’t know why it wouldn’t be. but it’s possible I’m missing something there. Even if, they had attached the mortgage to the house. I think I clicked on that and it was not attached to the house. I think it was just related to the farmland. But again, even if the house was there and it wasn’t like a spectacular house, like the value attributed to the farmland was just,
Wildly high. why are they looking and their mortgage just ran out last year? Like why are they looking to sell it off for a pittance of what they previously bought it at again, even accounting or you know, not even accounting for inflation, how significant of a discount that is. Those types of scenarios should really throw throw up red flags.
when you’re considering purchasing a property, like what am I missing here? I know I talked within the last couple of weeks about that lemon of a property. We were planning on funding within Washington state where the seller was just some open questions there. So that’s why like whenever we’re getting set to fund a property we have within our diligence sheet, like what is the owner’s rationale for selling his property? Like you have to be able to answer that question because it can clue you in sometimes on.
possible things that you might be missing. I’d rather have the more standard case, say it’s an out of state owner, it’s old, airship situation. Those things are readily explicable to me, but one where owner lives right across the street and bought at like 10X with a mortgage, initially bought the land at compared to what they want to sell for now.
It should raise some questions in your mind. So that was a scenario that it’s like, okay, presenting this summit like, Hey, bring that up. Try to figure out what’s going on there to really ensure. Hey, what, what, what are we possibly missing? The next piece too is, you know, for farmland in general, and this probably deserves its own topic. Actually, I’m going to make it a more rigorous topic on precisely what, what you would want in farming lease. If you do come across one.
But whenever you’re looking at farmland, especially if it seems to be actively farmed or even if the aerial is showing, it doesn’t appear to be active, but it could be. You never know when these aerials are taken. So it could just been like off season. You need to be asking, okay, is there an active lease for farming on this property? And for how many years is it going to last? What’s the contact information of this?
person who is farming the property, is there a termination clause on it? know, also what time of the season are you buying it at? Because if they’re pre-harvest and already planted all their crops like that, can be way more expensive usually in farming laces to possibly terminate. With the general rule being that you want as easy a…
Potential determinate to farming lease and as short as possible. So it gives an end buyer the most flexibility For their own potential uses of the property whether they want to continue the lease or not Being locked into something From a lease perspective is just always, you know going to be more of a flag for possible buyer especially in this case where you
pretty much the whole 20 acres was only farmland. So if that is entirely leased out, even if the new owner wanted to build a house on some chunk of it, they’re either going to have to renegotiate the lease out or have to disrupt the land in some form or fashion. So that is another open question. Again, I’m going to run it because we’ve been in this situation before where we had a
rewrite an entire lease entirely, be more favorable legally and so forth. So I’ll go over all those clauses. I know I kind of briefly mentioned them here, but this was just a little bit more of a grab bag on some of these open questions that I was asking for this particular property that on paper seemed to be pretty aligned with, this, this should be pretty attractive for an end buyer here. But what is that seller situation?
throwing up huge red flags to me and also what’s going on with the farming lease situation. The seller side, especially too, I’ve been reading lot more like Ian McGillchrist who really posits, we’re like too left brain oriented, just overly rational and logical in deducing.
you know, reasons or next steps within life. I’ve probably tended toward that way most of my life too, training Western medicine, all that type of stuff. But for some of these decisions, especially when you’re dealing with people and like seller side stuff, like trusting more of that instinctual response and trying to incorporate the entire picture.
To arrive at an answer is very valuable and still is knowledge creation that your brain is engaging in. So you should be able to trust that. working in concert with your left brain. That’s an entire another podcast, but it’s just something I’ve been ruminating a bit more over.
try to ensure that I’m not overly biased in one direction or the other. especially the seller stuff or clients who come to us and everything where I’m like, I don’t know about this feeling here. You know, trust, trust, but verify your initial response to that and see where that kind of takes you. So that’s just an extra tidbit there. But thought this was a kind of helpful case study for you as you’re dealing with other properties that are coming up.
within your pipeline, again, can never be too careful in this market, especially higher price properties. Get stuck in nasty situations, dealt with plenty on my own end, still dealing with some now. they’re not fun to figure out, especially when you’re still dead centered on, dead set on, on, trying to grow. So all of that in mind, serious land.capital for any of your funding needs already mentioned land, daily diligence and then landpricer.ai.
Excellent meeting with my engineering team earlier today, really solidified the full scope of the new version of the product. are gunning for release here shortly. Subscribe and share. Take care everybody. See you next time. Bye.
