This episode examines a million-dollar-plus subdivide opportunity with 10 to 25 potential child parcels where half the parent property contained attractive features like small ponds and clear pasture, while the other half suffered from active oil wells, pipeline crossings, major power line easements, rolling terrain, and energy infrastructure. The critical error most operators make is averaging exit prices across all child parcels rather than conservatively pricing based on the weakest, least desirable lots that will sit longest and establish the floor value.
Key Takeaways:
- Always Assess the Weak Link Child Parcels Parent parcels rarely divide into uniform child lots, attractive parcels with ponds and pasture land command higher prices but you must underwrite exit strategy based on the worst lots with pipeline easements and energy infrastructure.
- Compare Against Completed Subdivisions Not Individual Lots Nearby minor subdivisions with superior features took over a year to sell all child parcels, if your parent parcel is inferior you must discount exit prices even further and expect longer hold times.
- Review Parcel Characteristics Before Studying Comps Identify oil wells, pipeline easements, power lines, rolling terrain, and access issues first, then determine if sold comps reflect these features or if additional discounting is required for realistic exit pricing.
- 90% of Subdivide Operators Overestimate Exit Prices Most land investors underestimate hold times and overestimate achievable price per acre on child parcels, leading to capital traps where weak lots sit for 12-plus months while carrying costs accumulate.
Listen to the full episode for detailed methodology on evaluating parent parcel characteristics, analyzing comparable subdivision performance, and building conservative exit strategies that account for adverse selection in buyer pools.
(Podcast transcript below)
Hi, Chris Duff, a vacant land funding partner over at Serious Land Capital. So today I wanted to discuss subdivides and properly assessing child parcels. This is a routine issue that we see again and again, and I’ve definitely commented on before.
but because it’s so common, just bears worth, reminding and reiterating upon, constantly just given, you know, how much capital can be at stake going after subdivides and, you know, potentially getting caught into, very risky deals by not assessing these types of opportunities properly here. So, yeah, we were just reviewing.
a much larger deal, north of a million dollar purchase price earlier today and had the option for maybe doing between 10 to 25 ish child parcels, for the property, you know, kind of depending on, on how you might split it up, but, roughly that’s
what it was going to look like. The issue is when we’re trying to divide out the various, you know, child parcel mapping process, when we’re looking at a potential subdivide, you’re very rarely going to have just a, you know, a similar
Featured parent parcel where you know, the terrain is exactly the same road access is precisely the same You know foliage Etc is all identical. Yeah, there are some areas, especially if you’re out further and you know desert land for for instance, but you know that Engenders its own Complexities
to that market anyway. But if you’re assessing anywhere else, usually there’s going to be more unique characteristics associated with each potential child parcel that you’re looking to divide off from the parent. And most of the time, there’s going to be some that are gonna be potentially higher value for an end buyer and more attractive versus others.
So for instance, the one that we were looking at today, there were some very attractive possible child parcels, some with smaller ponds on it. It’s unclear whether they were stocked or anything, much more clear pasture land. There might’ve even been some existing fencing on the parcel. It was a little unclear from the aerial. So those.
I would be willing to attribute a higher price per acre for the actual exit. But when you’re stuck purchasing an entire parent parcel, you always have to be considering the weak link exit potential for the worst quality child parcels.
And in this case, there was, you know, upwards of half of the parent parcel property that were going to be affected by active oil wells, pipeline crossing, much of the property, significant power line easement, little bit more rolling terrain as well as.
deeper foliage, plus there was existing energy infrastructure. It was a little unclear what type precisely. And this wasn’t an area of the country where energy infrastructure is very common, even for residential usage, like out in West Texas near Odessa or Midland, what have you, where people are used to it. So this was an area where it wasn’t as routine to
have residential or even recreational properties that had all that infrastructure. So when you see things like that, then you’re to have to understand, okay, are there, you know, what, what, are the access rights for the property? Is there some existing mineral lease? assuming mineral rights don’t convey, you want to figure that out as well. you know, are there any.
building restrictions or insurance requirements to build over a pipeline easement. We’ve run into that issue before. I’ll have to do another episode going into that in more depth. But those are all issues that you need to sort out prior to really engaging in deeper diligence for a possible subdivide. So whenever I see that, like, okay, that’s a possible issue.
that we’re going to have to examine and see if it’s backed up by any existing sold or even active comps on the market. You know, are those typical features that can be overcome by an end buyer pool with enough underlying demand within that particular market. So that’s always something that I’m going to be having in mind even before I start to assess the existing comps on market. So it’s always…
You know, reviewing the underlying parcel first and all of its characteristics, and then moving into comps, which you’ll see me return to again and again and again, because it’s so often forgotten by a lot of people within the land industry. And plenty of times I’ve made that mistake and paid dearly for it. So, you know, it serves as a reminder for myself too.
But when it comes time to actually review those comps, yes, you want to be assessing, okay, are those characteristics incorporated within those comps? And if not, then how much do I need to discount the exit price per acre to account for those negative features? And what’s even more concerning is that, all right, if I’m looking to do a full subdivide here, are there any existing
subdivision projects within the area that were successfully completed within the last year or two. And if so, how did their child parcels compared to the possible ones we might add onto the market and how long did it take for all of them to sell with, you know, price per acres associated with them, whether that’s in a disclosure state or properly discounting the price per acre.
in a non-disclosure state. So, you know, the situation that we saw today was there were a couple of other possible subdivides, well, not possible, there were minor subdivisions done in the area that were overall more superior in terms of features than the possible subdivide that we were looking at. And it took…
you know, close to a year or more to, dispo all of those child parcels. So if I see that, then I’m already going to be more conservative because I have an inferior parent parcel to move from. but even if I had an equally, kind of attributed parent parcel in terms of characteristics as the,
that I’m looking at, I’m gonna wanna be undercutting the exit price per acre anyway to try to move a bit faster. I wanna get in and out even for these larger subdivides with a target of a cap of six months with the understanding that it might be double than that just for unforeseen issues or the underlying adverse selection that may come up with my buyer pool. But I wanna be…
preventing that as much as possible by more conservatively pricing my potential parcels on the market. with all that in mind, that’s what I’m initially looking for and seeing, are there existing child parcels on the market? Did they sell? How long did they take to sell? What was the price per acre that they actually sold for?
And in association with that, are there any remaining active parcels that are from other existing minor subdivisions or just similarly featured one-off parcels that are sitting on the market for any given time? What are their price per acres? How much do I need to undercut in order to beat out what’s still on the market as well as what’s sold in the past?
recently. And usually when I’m looking at all of those various features, most minor subdivisions from a parent parcel perspective do not pass the sniff test because many, would say probably 90 % of land operators overestimate or rather underestimate how long it’s going to take to sell all the various child parcels.
and overestimate the amount that they can get from them in terms of an exit PPA or price per acre. So that’s just a recurring lesson over and over and over again. see this. You’ll probably hear me comment on this again in the future because of how common it is, but it bears reiteration here.
constantly. Hope you all enjoyed this episode. Again, if you’re ever looking for land funding, check out SiriusLand.Capital. We are the largest equity funding partner on the market, preferred 50 to 500K purchase price deals. Check out landpricer.ai for software solution that prices land across the US. And if you want zero cost due diligence, I host the land daily diligence.
Thursdays. With that, take care. See you the next day.
