This episode documents the decision to reject a $900K cash offer (18K per acre) on the 50-acre DFW subdivide despite 2x+ gross margins because developer buyers bring 120-day feasibility periods, extensive contingencies, and five-month closing windows that don’t justify settling below the 20K per acre target when daily leads suggest stronger options exist.
Key Takeaways:
- Developer feasibility periods require 120+ days minimum. Boundary surveys, topo studies, geotechnical testing, water studies, Phase I ESAs, and engineering work consume 3-4 months before developers can even commit to closing.
- Demand all feasibility work transfers if deals fail. Contracts must require developers to provide completed surveys, studies, and engineering ($50K-$60K value) if they walk, protecting against wasted time with tangible collateral.
- Separate land financing from development financing entirely. Developers with cash or pre-approved land-specific financing (not contingent on construction loans) demonstrate lower risk than those scrambling to lever up post-feasibility.
Listen to the full episode for the complete negotiation framework on protecting against developer contingencies while preserving upside optionality.
(Podcast transcript below)
Hey, Chris Duff over at Serious Land Capital, vacant land funding partner, to give you an update on that large 50 acre subdivide property that we’ve been working on in the DFW area. Quick rehash for those who aren’t familiar, this might have been the best deal that we’ve ever seen, roughly 400k by 8200 per acre. Best.
know, terrain, just overall property features in the area was just, hey, we have to find a way to get this deal done. We listed at 25K an acre. Already got offers within the first couple weeks of listing, know, split between the parent parcel and then we divided up into three child parcels. So we haven’t been too quick to jump the gun on it just because we know we have, you know, really solid property here.
So we had an interesting offer this week for the parent parcel. It was a development company that initially made a 15k per acre offer, which is just low. It’s still roughly like a 2x. Normally you’d be pretty excited about that. It’s not a high priced property like this one, but we knew we could go higher. So we countered at 20. They came back with a final and best at 18k per acre.
So, you know, just to put those numbers in perspective here, you know, we bought at, you know, absolute dollar cost of like roughly $400K, almost exactly. And, you know, they’re making a $900,000 cash offer on it. And so normally you’d be like, wow, you know, over 2X exit, barely been on market. You know, rarely you’re going to see near million dollar cash offers on.
on almost any property. yeah, it’s exciting to see that. Nevertheless, there are a number of contingencies and we still push back. We’re like, hey, now if we can’t get 20K per acre on this, that extra 100K of profit, it’s not worth us jumping the gun so early. So I’m gonna run through our thought process behind this.
So yeah, you have kind of like the eye popping, have my number, right? But, you know, developer buyers, so there’s a lot of contingencies involved. First they need a 120 day feasibility period and then another 30 days to close. So you’re looking at a five month closing window and much of that is, you know, having to run through a ton of contingencies. And there’s no real way to shorten that up either. Like that’s gonna be typical for…
pretty much any developer and they’re beholden to county and city and so forth. A lot of other entities that won’t necessarily be able to speed up the decision making on behalf of the developer there. So you’re kind of stuck with a timeline if you’re going, or that type of timeline if you’re looking at a developer buyer. And honestly, it’s closer to…
faster turnaround time than even in some other jurisdictions which could take longer to a year, especially if you’re in a core metro area. when they initially proposed this, I always wanted to know, okay, what precisely would they be looking, what’s their scope of work and kind of precise timelines associated with that. And so for this particular property,
And you know, this is going to be relatively typical for a lot of developers who might be looking at these larger tracks I mean, I’m not sure exactly what they were planning to develop on on the property presumably some type of residential structural improvements Not positive though, but you know, they wanted to get a boundary and a topo survey done They wanted to get a geotech which is a soil test done which in their estimate would take at least three months water study
which they estimated roughly 90 to 120 days. So that, you know, runs right up to that four month feasibility period. asked for a phase one ESA studies. It’s just, yeah, very, very environmental checks. And then a preliminary grading slash just general engineering.
study for the actual terrain and land. I mean, there’s really not much to it. It’s as flat as can be. No real vegetation or anything like that. you you assume that wouldn’t be too crazy to look into, but nevertheless, they have all of their checkpoints they need to hit. And they estimated, you know, they’d have to spend roughly 50 to 60 K during that feasibility period out of pocket to even figure this out. So, you you do like to get
you developers pregnant on the deal get them more committed especially if you’re You know considering these longer closed timelines, so you know that that’s always going to be a key question whenever you You know possibly consider a developer buyer and An additional thing which was pretty standard for these type of purchases, but we always make sure hey we have to have a clause built within here, but you know
If a developer, potential purchaser is going through and through their full feasibility and they bail for whatever reason, we need to have the requirement built within our contract that we get all of the work that was done during that feasibility period up until that point that they backed out of the deal.
because maybe there’s nothing wrong with their actual property, just, maybe they weren’t able to figure out their financing or it just didn’t work for their specific needs, but a lot of that work could still be very valuable for another possible buyer to and reduce that timeline significantly. if you get a water study done and another developer comes in, it’s like, okay, I don’t need to repeat that. it adds, they spend 50, 60K on it, you basically add that value.
to your own property by having that done. Yeah, you might’ve wasted a whole bunch of time not closing a sale, but you wanna make sure you’re de-risking both your time in the deal and ensuring that you’re getting basically some collateral back for engaging in a long closed process like this. Again, that’s pretty standard for going under contract with developers, but you always wanna.
get that up front. Another piece that I asked, because you never know with developers, it’s a very risky industry, big leverage involved, a of personal guarantees and so forth. So I always ask, what is their financing situation in regard to the underlying land? I don’t know what type of development project they’re doing. Are they gonna have to raise millions of dollars, lever up massively and you
possibly not have this arranged until the feasibility study is done, that to me is pretty high risk. So I always like to see, you for the land here, we’re, you know, they’re making a, $900K, maybe a million dollar offer on this property. Is that contingent on any other financing that they need to get? Or are they making a cash offer? Or are they having, you know, a pre-approval that they’ll have in place with a lender specific?
to the land purchase, but not related to any other horizontal or vertical development costs. You really want to be able to separate that land piece out from other construction loans or development loans and so forth, because then it can get pretty tricky where, okay, the feasibility comes back great, but now this developer’s scrambling to lever up and figure out.
all their financing and maybe a small portion of that is associated with the land, but they’re not able to sort that out and they actually can’t close on the deal. So that’s why I try to figure out what that financial health is, how much reserves does the developer have for underlying land purchases. And the solid developers, they’ll usually be able to close.
cash or separate out the land purchase compared to the development component. That’s the sign of a smarter and more savvy developer. In this case, it was. They were able to lay down 18k per acre, 900k of cash for the deal. And this is our decision making. we still push back at 20k. We could do it. We’ve had this only listed a short amount of time.
leads almost every day on this property. But still, you know, it can feel weird to turn down a $900,000 cash offer that’s over 2X our purchase price and, you know, something that we had just purchased. But when you have to consider all of those contingencies, the way the deal can fall apart.
You know, if the timeline was closer to like 90 days total, that would be a different story. You five months, you’re really tied up for a long time there without any room to maneuver. But yeah, 90 days would have made it much more attractive on our end to potentially take that deal. Or if we were struggling more with the property, you know, hey, if we’ve been sitting on it for two to three months without much activity or this has been more of a struggle than we anticipated.
then yeah, we could really consider, okay, that 18K per acre, even with that long possible turnaround time, or basically guaranteed closing timeline can’t bump that up any earlier, then it might have been a little bit more of attractive offer. you’re always taking a little bit of gamble, right? So, that’s what we’ve kind of indicated to our broker, hey, you know.
Maybe if these developers haven’t found anything else over these next couple of months, or if we’re still struggling on our side, potentially we could re-approach. We feel pretty confident that the absolute bottom value that we’d get for this property is $15k per acre blended. Exit price, which again is close to 2x, just below a 2x gross. So we feel like we’re in a pretty safe position.
in regard to this property just because it has so many superior features. Like yeah, maybe they can find another site, but they’re not going to find another site better than this one. Like we have the superior features and they certainly wouldn’t find one that would be cheaper on a per acre basis that somehow would even be more superior. So they’d either have to take a worse quality property for lower.
or have kind of like a direct, motivated seller type relationship, which most developers aren’t going to do there. So, yeah, that’s always part of the negotiation side, right? Like who’s willing to walk faster in this case, it’s both.
Just wanted to share kind of our decision-making there in case you ever run into situations like this and how to deal with developer buyers or more kind of savvy Buyers, especially for these higher-end properties and how you should look to protect yourself before you know Just looking at that headline number. my gosh, you know gonna make a million dollars cash on this deal net or you know, not none of my expenses But you know in this case if we took that and it all closed
you know, post-profit splits and all this, like we’d probably still walk away with a little over 200k net cash in our pocket here. Yes, you translate that out to an IRR perspective, multiple invested capital, like it’s an incredible return, but you have to consider all those other risks and can we potentially do a little bit better? Don’t sell the farm immediately.
So hopefully that helps. If you’re looking for funding on your deals, whole bunch of other people have been sending us subdivides and asking more questions about that. And actually some people commented, I somehow missed it on Spotify, asking for more content related to subdivides. I’m going to be producing more on that soon. But thought this one was pretty relevant to share here.
With that, again, seriousland.capital for any funding needs, land daily diligence for zero cost review of your land deals, landpricer.ai for the most simple and accurate way to price land. Just playing around with it more. Beta tests hopefully by next week. We’re expecting one more key fix for the actual pricing this coming Monday, so crossing fingers, we get that engineering piece done. Subscribe and share.
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