This episode analyzes a 93-acre Tennessee subdivide opportunity with aggressive minor subdivide plans for 10+ two-acre parcels that initially appeared viable at $20K per acre based on blended comps. Critical examination revealed fatal flaws: a 20-acre lake consuming usable land calculation, blended price-per-acre methodology incorrectly mixing sub-2-acre and larger parcels, COVID boom market deterioration with declining builder activity, and only two comparable sales in the past year indicating weak market depth.
Key Takeaways:
- Subtract Unusable Acreage First The 20-acre lake reduced usable land from 93 to 73 acres, immediately inflating required exit from $20K to $26K per acre—a 30% pricing gap that destroys deal viability.
- Price Per Acre Breaks Below 2 Acres Blending one-acre parcels with 15-acre comps distorts true pricing—properties under two acres require separate valuation methodology that ignores PPA entirely.
- COVID Boom Market Reversal Risk Bringing residential-focused subdivides to markets experiencing 5-7% YoY housing downturns with spiking inventory and struggling builders multiplies execution risk dramatically.
Tune in to understand the detailed comp analysis required to avoid getting trapped in subdivide deals with insufficient margin for market reality.
(Podcast transcript below)
Welcome to get serious, have another episode covering strategies on subdivides. I’m that this is, I could probably podcast about this topic every single day, or at least most days of the week, frankly, from just the variety that we see and potential issues. know I did a pod earlier this week about how to avoid adverse selection. And again, checking out, you know, the various.
parcels that might be in the area and how much you need to undercut in order to price appropriately. So we had another ⁓ property we were assessing in a very rural area of Tennessee. ⁓ Actually, it’s in the same county as probably the most problematic remaining parcel in our portfolio, this small infill lot that has just taken literally forever to
find any movement on, we’ve already cut price by 50 percent ⁓ and still barely have any activity. This was a key lesson about price per acre not being applicable when you are looking at parcels below two acres and has really turned us off from infill lots. Because if you get them wrong, even slightly like there is almost no recourse on them. ⁓
But that is something we’ve touched on a number of times. Either way, this was like a kind of ⁓ immediate ⁓ revulsion toward looking at this county just because we’ve struggled in it for so long. And this particular investor ⁓ had a 93 acre parcel that really wanted to do an aggressive minor subdivide.
with the majority of the child parcels being two acres, ⁓ think like 10 plus of them, and then a few five acres and a couple of 10 acres as well for some variety. But again, given that we have not sold this infill lot that is well positioned, Lakeview, it’s just a really rural area of Tennessee. It’s just like not that much market activity. You’re like, yeah, this is…
going to have to be an incredible deal for us to even consider working in this county again after we’ve gotten burned so badly here. Critically about this one, so I’m going to run down some of the features and the issues. So it’s an on market property. Again, 93 acres, pretty well marketed to really nice photos. It has a 20 acre lake on the property and so it was marketed at almost a million dollars. It’s been listed for almost
⁓ two months. And again, I’m always skeptical, know, okay, parent parcel, fine. If you’re considering doing a subdivide on it, there’s a real chance that you could force some appreciation, especially if you want to do some more significant value at work that you could look at ⁓ doing a minor subdivide from something that is active on market.
But one of the proposed solutions was just trying to do a per test and then clean up the property a bit. Yeah. You could get rid of some, maybe the algae on the lake. I think there was like an old decrepit house on it. I’m not sure how much that might’ve cost to clean the property. didn’t look too bad. Like the marketing photos seem pretty solid. Most of the property is clear. And the land investor was proposing that, you know, with a per test and cleaning up the property a bit that they’d be able to relist.
and sell for around 1.1 million, which to me just seemed pretty crazy. Like building in an additional 150 K of value from to me, something that wasn’t going to be too crazy. Like it would be one thing if like the property was just really poorly marketed, just had, I don’t know, like a survey as the marketing image, but it had really nice drone photos. ⁓
The property just looked already pretty nice. I don’t think you’re going to be able to do like too crazy of a cleanup, but you know, yeah, I haven’t been there. I might be missing some things here. This was an initial review, but still 150 K to be adding on to an already very extensive property that was not moving within two months of being listed and the seller is already willing to take a discount offer. And I’m not sure exactly what they, you they were open to seller finance, which can be intriguing. You can buy you more.
room to work with and more time. But the problem is if your pricing is still inappropriate, even for a longer timeline to sell child parcels, you’re only going to screw yourself over even worse if you’re paying additional interest and so forth, depending on the terms of the deal with the seller. And then if you still haven’t sold anything with what you’re projecting, you’re in for a world of hurt when
You know, you’re having to pay month after month or maybe a balloon payment at the end. ⁓ yeah, seller finance can be attractive to work for these high price properties, but, know, the underlying mechanics of the deal still need to make sense. And again, the fact that they’re willing to take a potentially lower offer and do a terms deal is just telling me, okay, they’re not immediately getting a lot of action. And I’m not surprised, ⁓ given,
how rural that area is. And there was only like two other larger comps that have moved within the last year. Like just not that active of a market, as I had mentioned.
With that in mind, ⁓ and actually there was another 30 acre piece that the seller was also actively listing and the land investor wanted to consider, but probably 12 of those acres were full wetlands. You’d have to discount that. ⁓ So land investor had suggested, okay, we could probably exit with the subdivide plan for like around $1.9 million over 12 to 18 months. And he gave a whole bunch of list of sold comps.
You know, it was trickier for me to review because there was no APNs, no addresses, anything like that. It was just, you know, days on market, an acreage price per acre. I mean, better than nothing, but you know, I usually need more like I’d rather check out the actual characteristics. How superior are some of these parcels? When precisely were they sold as well besides the days on market? Was it sold a year ago? Compared it within this post-trade war macro economy. ⁓ That’s what I want to know.
And there was also no real differentiation between the price per acre for one acre parcels all the way up to, don’t know, like 15 acres, something like that. ⁓ So it was a blended acreage. I know that was the game plan for the child parcels they were planning to do. ⁓ But that is gonna be trickier to assess because like I mentioned earlier, and a mistake that we have made is you can’t really consider price per acre below two acres. You pretty much have to throw that out. ⁓
You can get just a blended exit price for two acres or less and use that, but you really can’t, again, consider ⁓ the price per acre. It just doesn’t work for ⁓ properties of ⁓ that size, know, two acres or less. So that can disturb the overall average of price per acre too when you’re considering those properties.
even without taking into account that adjustment that I would have made is the total blended price per acre, again, with the data that was provided to us was like roughly 20,000 per acre. So.
You know, that could have worked if you were considering, you know, actually, I’m going to do the math right here as I’m doing this live because I’m just forgetting. ninety three point five. Yeah. So the thing is, is that projected one point nine million dollar exit for the 93 acres that pretty much works right at that twenty thousand dollar per acre price point. However, you can’t consider
You know ponds or lakes and ponds yes, you can because usually they’re not gonna be too large But if it’s lay and it’s pretty unusual property, right like the lake is 20 acres of the 93 acres like that’s not usable land you can’t You might get a bit of premium for the child parcels that are aligned against it and I didn’t see whatever the plan was for the subdivide process but using
a huge chunk of the acreage for your consideration of price per acre when it’s just a lake and not a particularly beautiful one at that either. It is not appropriate for assessing price per acre. So you have to remove that from your consideration for the actual usable land. So I just had to subtract that roughly 20 acres and all of a sudden I’m looking at just over 70 acres of
usable land ⁓ within the property, which all of a sudden bumps my price per acre that I need to hit closer to like 26k per acre ⁓ when I’m discounting what people aren’t going to be able to live on. So when we keep that in mind, all of sudden all those comps that were produced, like that doesn’t make sense for that exit. ⁓
you know, projected 1.9 million that they’re anticipating to exit over 12 to 18 months. ⁓ when you take into account that lake situation. And then when I did my own market review of seeing, you know, again, very limited market activity in the area, it was probably close for like 15 to 17 K exits. And a lot of those were sitting for like eight, eight months to 12 months. And again, no surprise. I’ve been struggling in this County for over six months of holding,
a certain parcel there as well. And the only area that we were seeing significant activity, again, if you’re going to do a minor subdivide project, like you’ve got to see a lot more activity and ideally some other minor subdivides that have succeeded in the past. And the only ones that were working in like that two to five acre range ⁓ had a lake view and they were right up against a golf course, like a more premium area.
but pretty much everywhere else was not nearly as active and moving. And even those ones in that premium area, there were a couple getting close, right at that 25, 26K price per acre level, but several were below that. And a lot of those were still sitting for like six, eight months plus to close. like just not that attractive of a subdivide to go after.
⁓ Again, in an area that’s already struggling. Plus again, the macro considerations and something that I’m routinely bringing up and it’s part of our assessment is these COVID boom markets, especially if you’re doing infill lots or bringing a lot more residential ⁓ opportunity to some of these COVID boom markets. Like we just know inventory has been skyrocketing. ⁓ Prices are falling. Builders, especially the smaller. ⁓
Yeah, even the large builders out there just struggling to move anything. ⁓ so you’re just not going to have the demand quite as much and bring like a whole, like I, I’d be very, very skeptical about bringing, ⁓ some of these larger, ⁓ projects that are pretty much only going to be usable for, you know, infill Rezzi building, in an area that, you know, areas of the country that are in the midst of a housing downturn and
some upwards of like, you 5-7 % year over year, like pretty big downturns. So if it’s outside of the Northeast or the Midwest, ⁓ I’d be pretty cautious about that. So that’s another consideration to keep in mind, plus, you know, trade war macro ⁓ on the back, in the background as well. So it’s just another consideration to keep in mind here.
Yeah, very, very tricky market. If you’re to be working on these much larger deals, you got to be extra extra certain or just have an exceptional deal to justify the risk going after it. This one just didn’t make sense to me when I looked at it from multiple different angles here. So again, hopefully this is helpful for you when you’re considering these types of projects. I would like to do a lot more of these. just they have
be the right opportunity. That’s why I pay a lot of attention to them. We get smarter about them every day. Hopefully this helps you as well. SeriousLand.Capital for any of your funding needs around the US. Land Daily Diligence Facebook group doing a live review later today, Mondays and Thursdays, zero cost. And LandPricer.AI, lot more progress was just done from my engineering team. We nearly have the comp scraping portion done.
that’s just passing all its tests and ready to go live. It’s the most sophisticated comp analysis in an automated sense that I’ve ever seen. Again, we have to have the most reliable tool for use in our own business. Nothing else is acceptable. So just know that is how we are building it. Can’t wait to get that out to both myself and you all as well.
Looking forward to next time subscribe and share if you wouldn’t mind leaving five star review if you think I deserve it That would help this podcast reach some more folks who might get some value out of it. Take care now. Bye
