This episode examines a $40K industrial land acquisition with a conservative exit value between $175K and $260K, where the seller handles the rezone process before closing. The deal falls below the typical $50K minimum threshold but offers potential 4X+ returns, contingent on resolving utility access questions that could either add $120K in sewer extension costs or force creative restructuring with a gravel parking lot buyer who needs to avoid city annexation requirements.
Key Takeaways:
- Break Your Own Rules When Margin Justifies It A $40K purchase (below the $50K minimum) became viable when conservative exit values hit $175K-$260K, delivering potential 4X+ returns.
- Sewer Extension Costs Can Obliterate Industrial Margins At $220 per foot over 500 feet, a $120K sewer extension would have eliminated the deal’s viability for standard commercial buyers.
- De-Risk Rezoning by Letting Sellers Own the Process The seller completed the industrial rezone while holding title, removing timeline and annexation uncertainty in exchange for a modest price increase.
- Verify Recapture Fees on Existing Utility Lines Previous developers who paid for sewer or water extensions may be entitled to recapture fees from subsequent property users along those lines.
- Annexation Requirements Create Regulatory Catch-22s City annexation enabled the industrial rezone but forced paved parking standards, eliminating the gravel lot buyer and collapsing the primary exit strategy.
Listen to the full episode for the complete breakdown of how utility mapping, contractor quotes, and local expert relationships determine whether complex industrial deals pencil out or fall apart.
(Podcast transcript below)
Welcome to Get Serious. We’re at Serious Land Capital. We have funded over $6 million worth of vacant land deals with industry-leading 41 % operating margins. So today I wanted to go over a case study of a recent deal that we’ve been underwriting that has some very attractive aspects to it, but there’s certain levels of complexity that really, really needed to be
go further into before we would consider pulling the trigger on it. And I think serves as an example of just, again, how creative you may need to be as well as just how deep you need to dive in before any asset or before pulling the trigger on any particular asset. I was just on Jesse Kwong’s Land Investing Secrets podcast. I’m sure that’ll be out again soon. And that was kind of a through line that I was mentioning.
during the pod is that in addition to going up market focusing on larger value deals is that, you especially in a market like this where there’s just inherently more competition, it’s harder to find the deals with true margin available for them that you often have to, you know, utilize some elbow grease and dig through some issues that you might not have ever seen before.
or not within the particular pattern that that specific deal has, even if you’ve done hundreds, know, looked at hundreds, maybe thousands of deals here. So again, and especially when you operate nationally, like we do, you have to pay even closer attention just because some small deal details can completely blow apart the underlying deal. You know, it’s rare to be able to find those deals that are just like a clear.
purchase no strings attached to them or possible hair and then sell for a quick double and have a clean dispo process. They are still out there and we’ve been fortunate to have some even within our portfolio over the past year, but I think the vast majority have been more complex. So with this one in mind, was with a team that we’ve worked together.
with before and it was actually a sub 50K purchase. So that’s already a rule that we were considering breaking like generally anything below 50K. it’s just, you know, even if the deal is a possible two X exit or roundabouts just given the opportunity cost and resources needed from our team to go after them, it’s not worth our time. And so this deal was for 40K specifically.
But to key caveat here is that it was actively being rezoned into a light industrial property with an anticipated conservative exit value between like roughly 175K to 260ish K according to very, very experienced commercial and industrial realtor who’s been in that market for 30 years.
And, know, even reviewing the commercial properties myself and the comps available in the area. Usually I get turned away pretty quickly there, but, you know, buying at 40 K, like there was virtually no chance that we’d lose money, but virtually no chance that we wouldn’t sell for at least a two X. you know, assuming we, we’re able to complete that, that rezone. And so with that level of margin in a deal or at least potential.
You know, it’s a below what our typical minimum might be. Um, but because of the possible, uh, again, margin for it, could be a longer hold, a little bit more of a unique asset, you know, industrial and commercial deals often oftentimes are, and they’ll play by different rules than, uh, residue or recreational lots. Um, we were willing to consider it. So.
just FYI from that perspective, like, you you gotta follow your own rules that you do set for yourself. But, know, any true connoisseur or virtuoso understands, there are some times that you might be able to break them. I mean, like some of this becomes like so obvious, right? Like if you had, you know, somebody brought us a deal for, you know, hypothetical example that, you know, it was a purchase for $10 and the conservative value was a million.
Like anybody would do that, right? Like those deals don’t exist. but, you know, it, it just goes to show like, that there’s, that there’s a line for everything. And we drew the line at, you know, 50 K for anticipating average, like two X margins on, on deals. but that’s not always going to be the possible spreads that we can go after. but you know,
Relevant to this one, why it was so interesting as well too, is that this whole rezone process is happening without having to take title in the first place. mean, plenty of times, yeah, if you’re trying to rezone a property, you might already have to get title and then you’re at, you know, incurring that risk of the rezone and maybe not understanding the process or the timeline. You can’t market the property for the value it’s worth.
but this seller was motivated enough to run through that process to get this property rezoned prior to selling it for a slight bump in the initial negotiated purchase price, which to me is easily worth it because then you just de-risk the property significantly. Critical for this area, which is…
You know, the, the, biggest remaining flag that we had is that the realtor had indicated, Hey, unclear whether this property has access to city utilities. And it hasn’t been annexed, as far as we’re aware into the actual city itself. and, know, oftentimes, especially for sewer.
availability, like there has to be some type of annexation for properties. This is common around much of the country prior to getting access to those particular utilities. So it was a rezone plus annexation process. And our understanding was that the annexation was required in order to get the rezone anyway. And the realtor was estimating that
it might not have water running to it nor sewer. And she was initially estimating like it could be like 50 ish K roughly to extend those lines to the actual property. And so like just discounted 50 K for an anticipated buyer who can take care of it on the backend. So even that, know, if we assume an exit between 175 to 60 minus 50 K,
like still makes a ton of sense as far as a potential deal. However, you know, always have to double check these assumptions, right? So, you know, we always work with the operators who bring us the deals and, but like, I’ll always want to speak personally with the realtor. Like if they’re going to be our main, you know, point of contact in the main person running Dispo, like they’re effectively a consultant, you know, almost an employee, temporary employee within our
company. So really, really want to make sure that we’re aligned and understanding the most critical details. And in this case, like the utility piece was the major one, like that was the possible biggest wrench, especially when sewers involved, can can totally throw off different deals. So when I was talking with this particular realtor, yeah, they’re
It was still unclear. It didn’t seem that there were online utility maps. And so we’d have to call and get estimates from some local, uh, know, plumbing contractors effectively, uh, to see back a napkin and what it might take to extend. Um, but when I was running the math on the aerial map on like from what the realtor was estimating where the sewer line was to drag it, um, you know, 500 feet, 550 feet.
to just the border of the property. And then she was referencing like, Hey, that’s going to be 220 a foot. And like, $2.20 a foot or $220. And it was the latter. So all of a sudden to extend over 500 feet, if that was the case, it was still unclear to us where the sewer line actually was in relation to the property line. You’re looking at $120,000 extension that,
completely blows up the potential exit of the deal here. And this property really only made sense from a commercial play just where it was located, like the current zoning for Rezzy just was not attractive and the realtor was adamant like, you’re not going to be able to get a solid return from a residential perspective. Like it only makes sense really from the industrial here. And
pretty much all of her buyer pool is going to require sewer plus water access. And oftentimes that’s gonna be related to regulations for various building permits and so forth. What the city requires for that end usage, is that the case for all of them? No, she did have this particular buyer that just wanted to do kind of a truck.
parking lot, would not require a sewer going toward it. He was more of a bargain buyer, so we would offer a lower price, but it would probably still be enough for us. However, the caveat is that he didn’t want to to pave the lot that he was going to use as a truck parking lot. He just wanted to do gravel. And the issue is that the city
If the city annex the property, they were going to require a paved a lot, which was going to add too much cost to the particular buyer. And so that opens up like another can of worms here. It’s like, okay, we have a possible buyer who’s very interested in this deal, not totally set on it. He’s sniffing around other ones. So, you know, nothing in writing. you know, are we willing to take a discount on the deal? If you know,
that eliminates the chance of having to figure out this utility extension process, knowing that’s probably not gonna work out unless we really get lucky and the lines are closer than what we expect. But it’s also a, I mean, would you consider this a catch-22 where,
The only way to get this thing zoned for the parking lot that he needs is forces and annexation into the city. So then now we’re kind of going back and seeing, okay, what would the cost be to just pave this lot? I think it’s like four acres roughly. I’m not sure what that cost might be. And seeing if we could potentially get enough margin, get this guy under contract and almost turn it into a transactional deal. So we could just turn around and move it upon the rezone and closing on the particular deal.
But if this guy bails on it, could really, you that would be high risk because now all of a sudden you did all this work for the particular property for, again, a pretty limited buyer pool that the vast majority of other industrial buyers really would want the full utility access. So all that’s to say, Oh, and one other point to here is that, you know, again, which pays to have local experts is that.
If there were already utility lines, know, sewer and water and so forth that had already passed the property line, you always have to check again in certain jurisdictions, whether there might be any recapture fees. and to me that kind of, it, like, it makes sense. It’s a bit fair. Cause like, if somebody is much further down the street and they basically pay to extend the utility lines for themselves, but it also serves anyone else who builds along that street might be closer.
that if somebody develops on a closer lot, they would effectively pay the owner of that improved property that had initially installed the utilities. so who knows what those recapture fees might be, but that’s something also to check in on that we wanted to confirm there. So.
there was a lot of stuff going on behind the scenes, trying to figure out again, who the contractors are that could get us, you know, quotes and, you know, leveraging the brokers, local experts. Hey, do you have people that you’ve worked with before that can do fair quotes, timely manner, et cetera? Like, again, if you’re operating nationally in different geographies, you really, really got to find the right folks to, answer the questions that you have, as well as come up with additional questions that you hadn’t thought of, prior to avoid.
getting stuck in kind of nasty situations when, you the highlights of this deal are like, yeah, 40K purchase, rezone while the seller still owns it and then exit for almost $200,000. But as you see, not, not that simple and unclear whether we’ll be able to figure this one out. But hopefully this one helps subscribe and share everybody’s serious land capital for any of your funding needs. Again, 50K plus almost all the time. And talk to you later. Bye.
