This episode challenges the common assumption that higher absolute dollar deals justify compressed margins, arguing that properties above $120-150K purchase prices require more conservative relative margins (closer to 50% of market value rather than 60%) due to longer market times, higher capital risk, and greater opportunity costs that compound with deal size.
Key Takeaways:
- Higher Price Deals Require More Conservative Margins Properties above $120K should target 50% of conservative market value or better, not compressed margins, because longer market times and higher capital risk increase exponentially with property value regardless of absolute dollar potential.
- Exit Costs Eliminate Tight Margins Quickly A $200K buy with $245K exit leaves almost no profit after $3-4K closing costs and 6-10% commission, demonstrating how seemingly adequate margins disappear under real transaction costs.
- Rural High-Price Properties Carry Maximum Risk Unlike cookie-cutter subdivisions or infill lots, expensive rural properties lack standardized comparables and attract sophisticated sellers who rarely accept deep discounts, making margin compression especially dangerous in this segment.
Listen to the full episode for real-world examples of deals that kept the team up at night and why downside protection matters more than absolute dollar potential in higher-value transactions.
(Podcast transcript below)
Hi, Chris Duff, Get Serious Land Capital, Vacant Land Funding Partner. Today, wanted to comment a bit on the issue of trying to compress margin for higher absolute value deals. Just assuming that you can make more significant
dollars in an absolute sense, upon the sale. Yes. In principle on paper, this is true. you know, we, we get a number of deals sent our way and usually, above a hundred K or so purchase price. A lot of folks be thinking, okay, we can keep a more compressed margin to work with.
just because, okay, you I’m going to make the same amount of dollars, if not more, for lower relative margin compared to doing a lower absolute value deal. So, yeah, we see that all the time in practice. It’s a risky proposition at best. Again, we can speak from experience.
and mistakes we have made along the way by following that principle in the past here. just to jump ahead, based on our experience, if anything, we’re even more conservative when it comes to higher absolute value deals north of 120-ish to 150,000 by price.
in terms of relative margin that we’ll look for on the deal, regardless of that possible absolute value that we could potentially work with there. So that’s just something to keep in mind. And I know a lot of folks, you might think,
could set up a novation contract for a property, wholesale a deal, which great, that’s fine, because then you can just have obviously less relative margin on a deal and still earn your absolute dollars that you’re looking for with smaller margin, but I know.
Again, a lot of folks will come to us as an equity funder and expect okay, you know, I even saw one earlier that was a 200k buy and maybe sell for I think it was 245 250 like extremely tight margin and that that’s yeah Even if even if you did exit for that amount and you know in a quick fashion, you know take into account closing costs
Um, you know, the buying sell side, uh, you know, conservatively estimate it’s going to cost like three to 4,000. Um, and you know, between a six to at the high end, 10 % of commission for a deal like that. And all of a sudden you, have almost no margin on, on, on a deal, um, compared to the, uh,
inherent opportunity cost as well as capital risk and market risk associated with the property. again, generally in our experience, the higher value the deal, the longer the time on market and obviously just higher capital risk. So, you know, less opportunity to potentially turn over the same dollar.
that goes into that deal if the larger deal is not as fast moving. So those are always going into our calculations when considering these properties. So, you know, we rarely go beyond roughly 60 % conservative market value in terms of the purchase price that we might consider for a property.
For those higher value deals, again, north of like 120K buys, usually it’s going to have to be quite conservative at that roughly 50 % of conservative market value. Just given our experience getting caught on the bad side of deals and watching margin quickly diminish. Those are the ones that will keep you up at night. Whenever there’s there’s dispo issues in a…
in the business. Those are always the ones that make me stress out more than anything else going on. So that is just something that we’ve learned in our experience. And I’m just sharing this to anybody who would consider funding from us or from other equity funders. I know every other funder will have their own criteria, but roughly going to be thinking similarly about that.
And even if you weren’t looking to utilize outside funding again, just I’d be extremely cautious about that opportunity risk and Possible High risk play of trying to squeeze out more absolute dollars with a tight a tight relative margin deal it’s
Unless the market is like very obvious which oftentimes for those higher price properties it’s not you’re have less cookie-cutter situations like a lot of Subdivisions or you know infill lots might be I mean occasionally you’ll have like some super high value infill lots or
you know, pretty standardized property characteristics, more cookie cutter, but those are few and far between. Very, very rarely, because, you know, oftentimes those sellers are going to be more sophisticated, like to get an oceanfront or really nice lakefront property, super nice HOA neighborhood, gated community. It’s very rare that you’re going to just have a seller.
except a much lower price in relation to conservative market value that is rarely come up. So more often than not, those higher price properties tend to be in more rural areas where there can be just higher risk on assuming the true price breaker, just the overall price of
parcel that you’re going to be able to exit at. Again, we speak from experience both from Manfil lot side as well as rural and can certainly share more about those. yeah, bottom line to summarize, whenever you’re looking for high priced properties, especially if you’re looking for equity funding, be more conservative on the margin than you would expect.
And that’s regardless of whether you’re searching for funding or not, just be extra cautious about those higher price properties, trying to build in more margin, even more so than properties that are below 100K. Like it sounds counterintuitive. You think, oh, you know, have a 200K buy, 280, 300 exit, you know, even net of exit costs. Great. But you know, you’re only looking at, um,
Yeah, the on paper value when in reality, when you get into the market, anything can happen and you just, you don’t want to be sitting on a downside case or actively losing money because something happened and or, you know, just, you just did not assess the market as conservatively as you should have. Or again, even if your work was perfect, things can happen and you always want to bake in.
the downside risk scenario to account for those unknown unknowns. So keep all that in mind. And if you’re looking for funding seriousland.capital, zero cost review of your land deals at land daily diligence Facebook group and landpricer.ai for the most simple and accurate way to price. land. Looking forward to the next one. Take care everybody. Bye.
