This episode dissects a proposed 70-acre minor subdivide east of Waco using Texas’s 10-acre exception to create seven child parcels with projected exits of $12K per acre. Detailed comp analysis revealed fatal pricing optimism: 20 acres sat in 100-year floodplain with dense vegetation and power line encroachment, active market showed 20+ competing subdivides listing at $8,500-$9,000 per acre, and sold comps in the $12-15K range had superior characteristics including fencing, power, water taps, and flood-free status.
Key Takeaways:
- Floodplain Acreage Strategy Shift Instead of creating two compromised 10-acre parcels in the flood zone, consolidating to one 25-30 acre parcel with mixed characteristics attracts rec buyers while avoiding septic system limitations.
- Active Inventory Undercut Requirement With 20+ competing subdivides already on market (some closer to Waco with better characteristics), exit pricing must undercut active listings by 15-20% minimum to generate movement.
- Comp Analysis Weight in Underwriting Even sophisticated institutional deals allocating just 2 pages of 40-page reports to comps miss the forest—comp analysis should dominate due diligence as the primary pricing determinant.
Listen to understand why comp analysis depth separates successful subdivide operators from those who wash out in their first major project.
(Podcast transcript below)
Welcome to Get Serious. So today I wanted to rehash some minor subdivision, ⁓ guidelines, key lessons. I know throughout the course of this podcast, probably touched on this topic many times before, or at least a few times before, but it pairs worth mentioning just because I see.
see some of these things so routinely and, ⁓ it both serves as a reminder for myself as well as, ⁓ the audience and, ⁓ land investor community overall on what to look out for. So, I was doing the live land daily diligence review earlier today, and there was a, ⁓ minor subdivision, roughly 70 acre parcel. was a bit east of Waco.
Texas and it had nice road frontage. The game plan was just to use the 10 acre exception criteria state exception criteria within Texas to chop up into seven child parcels and then ⁓ move them on the market. Pretty cheap survey expense. No rigmarole to get through from a regulation perspective. And the on paper exit was going to be like
roughly 2X the purchase price, is always what we like to see. However, when you’re looking at the actual market, you know, land investors who sent us over the deal was thinking they could probably exit ⁓ these properties for roughly 12K per acre. ⁓ I came in at let me see what that ending.
Yeah, so my final expectation was closer to seven and a half K per acre. ⁓ So why would I get to such a significantly discounted price there? ⁓ Few things. So within the parent parcel itself, ⁓
Roughly 20 acres or so was within a hundred year floodplain with much denser vegetation and large vegetation too, know, trees and stuff that’s just going to be more difficult to remove. There were a couple of creeks going through as well, and there was a power line going through that area. So, you know, pretty significant.
Um, inferior characteristics compared to the remainder of the property. And the remainder was, you know, nicer cleared land outside of flood zone. Um, a couple areas actually had a small pond unclear if it was stocked or not. Uh, one lucky child parcel would have had a existing storage, um, building that was a leftover from a previously existing, um, mobile home.
that was on the property that no longer seemed to be available there. Plus there was an existing water tap probably in the area that had the mobile home. ⁓ But no other utilities were in place. I guess water seemingly was available, though again, if you’re always doing if you’re doing a minor subdivide, you always want to check in on available ⁓ water for. ⁓ For the area to actually support several additional
possible homesteads to come onto the market. ⁓ So, you know, it’s pretty raw land from that perspective. And, you know, the game plan was just to do those 10 acre chops. But, you know, two of those were going to be severely compromised given they were sitting within the hundred year floodplain with some of the wetlands going through plus the ⁓
uh, power line going through it and, know, at least one of those child parcels, there was only going to be maybe a sliver that would support a septic system, a conventional septic system based on the soil map. So it’s going to be pretty risky to do a, uh, child parcel play in that part of the property. So my suggestion was probably like, okay, be a bit more conservative here. We know that’s a weaker part of the property. Just do.
know, a 30 acre, maybe even a 25 acre chop. And so you know, you account for some of that flood zone acreage, but you give a potential buyer a little bit more of the cleared area that is outside of the floodplain, you know, less dense vegetation a bit further away from the power line. So then, you know, you’re getting this potential buyer a little extra land, plus it could be pretty interesting from a rec perspective.
⁓ and also buildable, ⁓ but then they don’t have to deal with as many of the negative characteristics as that floodplain and wetlands would imply. that ⁓ was my initial suggestion there. And then looking at the various comps in the region, again, you never want to be the most inferior property on the market because you’re never quite certain how
you could necessarily price yourself even at a discount to still move something that is just not getting, you know, true completed sales on the market. So a lot of what I was seeing from the sold comps of which there was decent activity, not crazy again, you know, as I talked about last week, there’s more of a correction within the housing market, especially outside of bigger cities. ⁓
And in some of these COVID ⁓ boom markets, you’re just going to get less ⁓ activity out there, a lot of negative pressure on the pricing. So I’m cautious about that. ⁓ And a lot of those parcels that were still moving, had ⁓ at least partially fenced or fully fenced properties. They already had power ⁓ and existing water taps on the
⁓ property itself. ⁓ So, know, naturally that was going to serve as an advantage. Some of them even had ⁓ small driveways, culverts, and memories not perfect from all the comps are viewed there, but in general, had more superior characteristics. Not in floodplain, cleared already. ⁓
So that was something to keep in mind. And those were moving maybe close again, because it’s non-disclosure state. If we’re ever gonna be pursuing properties deeply in non-disclosure states, we’re just gonna reach out to a realtor and see, okay, what was the true sold price here? But we roughly estimated some of those better comms were probably moving for between like 12 to maybe 15K per acre.
So then you think, okay, yeah, maybe a little bit inferior. I can be on the lower end there. 12 K per acre. Make this thing a possible two X with adding, you know, seven parcels, seven child parcels on even some that are inferior. But when you look at the active market, ⁓ there were a ton of minor subdivide, some like very large ones saying like 20 plus child parcel. ⁓
subdivisions that they had a decent amount of sales, but a lot had been active. Some were recent, some that had been on for a while. And variations of characteristics ⁓ kind of across the board here. So like if I’m seeing something like that and some of these were a bit closer to Waco and just the I-35. So they’re a little less rural than what the subject was showing anyway. Plus a lot of them were outside of floodplain. ⁓
Then I’m going to be thinking, you know, I need to be able to undercut all of these if I really want to move this parcel and some of these properties, you know, we’re only being listed at like eighty five hundred an acre, maybe nine thousand an acre. And they weren’t really inferior parcels either. Maybe they were roughly the same ⁓ as the subject again, blended because we have to count for the subject having.
Some flood zones and wetlands the power line going through but some parts were loaded better So, you you’d have to kind of blend all of the characteristics together to find your right price But that’s how I roughly ended up at like, okay I need to able to undercut all of these if I really want to move, you know, possibly seven child parcels I’d probably try to do five You know four smaller ones ⁓ and the larger one and try to move it at
you know, potentially 7,500 PPA, which, ⁓ you know, was almost half of what, the land investor was thinking could potentially be an exit there. Not saying they couldn’t achieve that. It’s just, wouldn’t bet on it. I wouldn’t fund it, especially in this market. ⁓ and all the harsher lessons that we’ve learned recently, which I’ve spoke about many. ⁓ so hopefully this helps again to, know, when you’re considering minor subdivide markets are.
Like I see some of these fancy pants, presentations sent our way and, nice photos, underlying markets and the utilities, but, you know, they’re so often like the focus on the comms. Maybe you’re sending me like a 15 page report and like one page is looking at comms and what, and I see this even in, you know, some institutional investing deals. ⁓ like even where my partner’s at a hedge fund, you know,
40 page report on a $40 million deal, like two pages of those are associated with comps. I like flat out disagreed on their approach to it. Even in the midst of the more ⁓ sophisticated ⁓ financial underwriting, but like you can see, you know, if you signed up for our Facebook group and you get access to our due diligence questionnaire, like the comps are really front and center on that. It’s like,
That’s our gold standard, how we determine pricing here within land price are ⁓ by far the largest weights toward pricing are associated. OK, what is this underlying market? You know, what are these comps that we can look at? Like if you’re not really looking at that full picture, like you can just get fooled so quickly and go out of business. So ⁓ like I was just poking so many holes through this.
particular project because you know, there’s just a ton of active properties. Like you gotta, you gotta keep that in mind before presenting anything or thinking, yeah, there might be, you know, more of a layup in terms of a possible exit there. So, you know, a routine topic here, something that will probably come up again, because it’s tough to do subdivides well. Know that from experience. And I know there’s a lot of folks trying to do those.
Um, but you know, they’re easy to get tripped up on and there you clearly like, there’s just a lot to pay attention to. So it bears worth. Rementioning and going over these topics again. Um, uh, as we all continue to learn together. So with that in mind, serious land dot capital for any of your funding needs, uh, I mentioned the land daily diligence, Facebook groups, your cost review of your land deals, Mondays and Thursdays 2pm central.
And landpricer, I mentioned that a couple of times as well today, the most reliable land pricing tool on the market. With that, subscribe and share and talk to you all tomorrow. Bye.
