We are finalizing due diligence on a rural East Texas property where comps ranged wildly from $4,000 to $7,500 per acre. This episode reveals our internal “weighted scoring” system for vetting comps to determine the true exit price before wiring funds.
Key Takeaways:
- Trigger the Trade: In non-disclosure states, you must use a realtor to confirm the actual sold price; listing prices are noise.
- Usable Acreage: We downgraded a low-priced comp because it had only 4 buildable acres on a 27-acre lot (mostly wetland/flood), proving it wasn’t a true competitor.
- Hidden CapEx: If a comp has public water and your subject property doesn’t, you must deduct the $25k+ cost of well installation from your offer immediately.
Check out the full episode to see why we settled on a $6k/acre exit despite a lower market average.
(Podcast transcript below)
Welcome to Get Serious. We’re at Serious Land Capital. We have funded over $6 million worth of land deals successfully and have industry-leading 41 % operating margins. Today, I just wanted to touch on some additional underwriting strategies and tactics, probably more tactics than strategies in this case.
because again, it’s really a game of infinite levels of nuance in order to do this well. And as soon as you kind of think you might’ve peeked out your skill in underwriting or gotten your team to a place where it’s like, okay, you’re so locked and loaded, there’s always additional levels that you can uncover.
which to me, I find one of most interesting parts of the business because humans, we thrive on variety in our lives in a lot of areas. I think we’d all love to continue to have solid ground under us, for instance, that’s a solid assumption, but in many other areas, including in business, a good amount of variety to keep things.
interesting and, know, keep your curiosity engaged is, you know, an advantage whenever, whenever you can get it. and, know, every single land deal has some extra level of nuance and difference, that can be incorporated. Even if you work in the same neighborhoods, I mean, every single day, the underlying market.
and assumptions can change. So inevitably there’s going to be something else for you to learn and pick up on in some form or fashion. And so we are finalizing DD on this property in East Texas, really rural area.
And, you know, always with non-disclosure states, right? Like you want to be able to check the true sold prices for sold comps. that’s, that’s one thing here, which I’ll get into. And I know I harp on this constantly. but, know, double checking your characteristics, you know, the property level characteristics, you know, at the road frontage or
utilities or elevation and so forth, topography and how that relates to the comps is so critical to consider here. And again, it’s something that most land investors wildly overestimate their own abilities into. Like, it’s so easy for me to say that, yeah, this is just, you know, basic stuff here. But
Again, the level of nuance involved with doing this well is a, again, it’s an area that we can constantly be challenged in. And, you know, even for our team has looked at, you know, literally thousands, tens of thousands of land deals here. Like it still requires careful consideration and
you know, double checking and triple checking your, your assumptions, because, again, what, what’s the number one rule in real estate is don’t lose money. Don’t lose your investors money. that, especially in, in down markets here, like before the wire goes out, you can always say no. you can always back out, but once it’s out, you’re, you’re, in it. So, do whatever it takes to ensure that, that you’re getting your underwriting dime.
properly here. And so, is often the case within land is, not going to have one-to-one comps. Even in infill areas, it’s very rare to have something that is precisely identical to the comps that are the subject property that you’re looking at. Like on our written due diligence worksheet, we have a scoring system of
You know, one to five that will wait the per acre pricing or just the raw pricing itself of the underlying comp. And, you know, one, you know, a rank one is like, okay, this is almost on the verge of not being considered a comp at all. It’s, know, it’s just a couple degrees of relevance here.
or maybe it’s in an area where there’s just so few comps, but it’s like super borderline. you know, again, this is kind of subjective, but I’m trying to give you an idea of how we handle it internally. And then you get up to a five or five is just, know, effectively an identical comp to, the subject property. And we’ve been using this system for a long time, you know, reviewed so many properties utilizing this. And I don’t think we’ve ever labeled a comp.
at a five here, like at best they get to a four where there’s still subtle differences in relation to, you know, the competent subject property, which again, just gives you an idea that the level of nuance and some of the assumptions that you have to make within assessing real estate and particularly land, like it really gets tricky. And to us, even if we’re, you know, considering ourselves and a lot of other folks will consider ourselves to be
You know, the, best underwriters in the industry here, you know, the standard that we set for ourselves, like, okay, well, how can we continue to get better and how can we beat our previous results and become more more accurate every single time? I mean, we’re trying to build software around it, right? Um, uh, so, you know, with, with all of that in mind, it’s like, you have to sit carefully with these comps. Um,
in order to determine, what is that true price per acre that we can reliably expect for a subject property? So, you know, for this East Texas property that we were looking at, you know, it’s north of 20 acres and, you know, the sold comps, you know, are
effectively ranging anywhere from roughly, you know, 4000 ish per acre to the mid sevens, 7500 per acre in exit value, which is like, it’s a really substantial delta, right? Like, you know, the from the low end to the high end, it’s almost like a two X difference, which
You know could dramatically impact your Purchase price For it and in in this case we have we have it for 3,000 per acre So, you know again to me it’s like always downsite protection downsite protection, you know worst-case scenario here Is there really any chance that we’re gonna lose money on this deal? It would be hard to imagine You know, it’s always possible but you know
were about as protected as possible. There was one comp that did sell for 1,200 an acre, but it really appears to be an outlier, had pretty terrible road frontage and a lot of wetland involvement, lack of buildability was significant. So we down-weighted that comp significantly, as you can imagine.
And a number of those other comps that were closer to that 4,000 per acre range, one was like a quarter pointed sale, which we only found out from having our realtor review these. Because again, non-disclosure state, trigger the trade is assuming you work with realtors. Once we find all those sold comps that
we want to take a deeper look at, we’ll send that over to our realtor and like, okay, can you get us the true exit pricing on this? Because you can make reasonable assumptions to what an exit is for non-disclosure properties here, but it’s obviously always better to have the exact data to make your determination. And then they can also provide some of that insight. Okay, maybe there was something.
something else unusual about that comp that might not be apparent just from the listing itself. like understanding that or, you know, something we could determine, you know, a property that, or a comp that took over 500 days to sell around the 4K per acre number. You know, when you take a closer look at it,
You know, it was a 27 acre property, but only four-ish acres of the property. mean, admittedly, at the road frontage were actually buildable, like the rest was just wetlands. You know, some of that could be advantageous for hunting, which they did advertise. But, you know, the vast majority of these properties, including the subject that we were looking at, is more buildable throughout the entire property.
So like you have to be able to account for those features and you know, what’s the proper discount that you might include on some of these comps that, you know, have some of these negative features associated with them. You know, plus some of these comps had been timbered over the past five or six years. And so they’re going through more of a vegetation regeneration process.
Whereas our subject property has more beautiful, mature timber, even just from a visual perspective, let alone just the timber value inherent to the property. And based on our realtor suggestion, they’re like, they already priced out full kind of mulching and home clearing. you also want to understand, okay, what does that exactly look like? We posed, here’s a couple of these comps.
that sold in the 7,500 per acre range that had clearing done. Okay, is this what your contractor team would be able to do? And kind of get confirmation on that. So you never make any assumptions like what does clearing actually mean here and try to align that so then you can better come back to the comms and determine, okay, what’s more realistic from an exit perspective?
Some of these have different utility setups. Most of them have public water, but you also want to understand, if they don’t have public water, what’s the cost of a well? In this case, it’s like 25 grand plus. It’s a really significant surcharge for an buyer here if there’s not water available. So these are all the extra questions that have to be asked.
in grueling detail here. And we have a whole team that does take a look and preps these comps. And then I will be reviewing each and every one of those prior to approving a purchase. Because again, before the wire goes out, you better be double checking and ensuring that nothing is missing there. And also, again, just for the sake of our track record,
You know, it’s, it’s a competition internally, you know, both just for like myself individually and also within the team of, okay, who’s actually going to estimate the correct exit price. you know, based on all the information, you have to put that number out there, prior to purchasing the property. So, you know, we’re, not kind of Willy nilly, throwing, throwing things out there.
because there’s a lot riding on it. So it’s like, okay, there’s an inherent process that enforces being as accurate as possible. And I can get into that and again, in a different podcast and how we go into that in a bit more detail, but that provides you a little bit more behind the scenes. So, with all of this in mind, again, huge range here, like roughly 4K to 7.5K.
you know, also being mindful, yeah, we’re trying to move this property and sub, you know, three to four months. So is that generally going to be undercutting the market? How are we positioning ourselves in relation to the on market properties as well or anything that’s pending? that, that has to be, accounted for as well. and so, you know, the, punchline in, in this one, is that, given that we’re going to be adding the, the clearing, we just have.
so many more positive features about the particular property that we have in relation to a lot of the comps, I felt more confident, okay, probably a 6K per acre is more realistic, even if, you know, most of the properties, if you look at just the total mean price per acre, you know, is closer to 5,200 per acre here. You know, there’s
extra superior features related to our property that I think will bump that exit price up comparably. again, you can’t just rush through that process or just take, know, like again, just the average of all your properties that are part of your comp set. It really takes…
a diligent look at every single comp and where it’s located in relation to major roads, et cetera, et cetera. Compared to the subject property in order to determine and, you know, especially like how long these properties were on date, you know, on the market, when do they sell, et cetera, you know, what’s on the market now. That’s not an easy thing to just grasp.
and come to a conclusion on without like doing these reps day in and day out constantly. Again, we’re learning every single day on this job as well, too. There were new things I learned from this property, especially from the, you know, value of just the visual value of just the trees on the property itself was not something that was as routinely.
apparent to me for, you know, at least this particular market here. you know, something else to add in. So I will keep you all updated on where we end up on this one. Plus figuring out the actual access to the water was like really tricky. And we had to go into like reaching out to the volunteer fire department and so forth. Some of these rural areas like you really, really have to do your digging.
And you just don’t want to make too many assumptions, even though there were three other comps within a few miles of the same highway that this particular property was on. And they said they had water. You have to still take that with a grain of salt because ultimately you have to do your own research. And before the wire is out, make sure that you aren’t making.
making a key mistake there. So, word to the wise here, hopefully this helps you on your own underwriting journey. This was a fun one to review. I think it’s definitely going to be profitable for us. I’ll keep you in the loop and looking forward to next time. Serious Land Capital for any of your land funding needs, 50K minimum purchase price, got a lot in the pipeline already to start the year.
Looking forward to next time. Subscribe and share everybody. Take care now.
