This episode analyzes a borderline major subdivide opportunity involving nearly 200 acres divided into 37 child parcels ranging from 3 to 8 acres each, requiring gravel road installation and facing significant adverse selection from terrain and creek proximity. The broker claimed easy 2 month sellout based on another subdivision but provided no supporting comparable sales data, only CMAs for large acreage properties with improvements, creating immediate red flags for the seven figure purchase price and anticipated 2x return in under 12 months.
Key Takeaways:
- Adverse Selection Depresses Blended Returns Roughly one third of child parcels had questionable buildability and septic installation issues, meaning inferior parcels drive down overall price per acre regardless of superior parcel performance.
- Broker Claims Require Direct Comp Verification The broker referenced a comparable subdivision but provided zero links to actual child parcel sales, and independent research found no evidence supporting the claimed 2x price per acre premium from views alone.
- 30 Plus Parcels Need 50K Plus in Closing Costs At minimum $1,500 per transaction for title, moving 37 similar acreage parcels requires nearly $60,000 in closing costs before commissions or road installation expenses.
- Comp Analysis Trumps Market Narrative Extensive diligence reports about macro economy, nearby attractions, and infrastructure matter far less than trailing 12 month comparable sales with characteristic adjustments for pricing accuracy.
Listen to the full episode for the complete framework on evaluating complex subdivide opportunities and avoiding broker driven mispricing.
(Podcast transcript below)
Hi, Chris Duff over at Serious Land Capital Vacant Land Funding Partner. Today wanted to go over some additional insights on subdivides. I know that’s a topic we’ve commented on and provided lessons on routinely here. There’s always new individual insights.
with particular deals. So I wanted to focus on one that was kind of borderline major subdivide. It might still have, I think would still fall within a minor subdivide case. was just, you know, they were trying to do a lot of child parcels. So this was a, you know, almost 200 acre piece.
in a rural area with a decent amount of terrain to definitely not fully flat and you’re going to run into some potential buildability issues. There’s kind of creek running through some potential adverse selection and adverse selection is what I always tend to mention routinely is that when you carve up
parent parcels into various child parcels. It’s very rare that all child parcels are going to be created equal. So the ones that are more superior versus inferior, you have to account for potentially longer time on market for the riskier child parcels and potentially lower price per acre. So then you’re blended price per acre for the total project.
To move all child parcels within the subdivide may end up being lower Than what you initially suppose You know based on what the anticipated exits are for the superior child parcels Which you know most people tend to bias themselves toward and and focus on So this particular project again was you know roughly 200 acres
supposedly was already surveyed and platted into 37 child parcels. I did not get that report. But interestingly, it was a live deal that the seller did not seem to include any materials that it was already subdivided in and platted. So that was
kind of an interesting element to me, but you know, we’re just taking that at face value. So anytime we see some of these that, yeah, are probably, you know, 10 plus child parcels, especially of, of similar sizing. in this case, you know, it’s between like three to eight acre child parcels was going to be the goal. There’s always also going to have to be a, anticipated gravel road installed.
for the property to fit all of the various child parcels in. And like I mentioned, you know, there was probably a third of them were going to run into, you know, some adverse selection risk with trickier terrain and closer to like where creeks are and so forth. You know, maybe even questionable septic installation issues or maybe needing alternative systems. So
you know, can depress the exit price from possible buyers as well. And, you know, when this deal was sent over to us, it was indicated, hey, you know, broker, of course, brokers saying, yep, I can sell all 37 of these, no problem. There was another subdivision that seemed to be in a more inferior spot.
that they moved most of their parcels within like two months or so. But there were no links for any of those child parcels that had been sold in these other subdivisions. And the only CMA that was provided was for other like large acreage, know, 100 plus acre properties that were intended to be sold a single acreage. Plus they had significant improvements on it. So I’m like,
this doesn’t line up. Okay, the broker is saying one thing they can sell all these child parcels and then the only CMA they put together is for large acreage like that was not that was a bit of a red flag for me. And then just looking at Redfin for wherever these other child parcels were, I just wasn’t able to locate them. You know, I only had the date sold back to
you know, lagging 12 months, which generally we’re not going to consider. Parcels beyond 12 months, except in unique circumstances, there’s really kind of a lack of comps, but there, that wasn’t the case in this market. There was a lot of movement, a lot of other child parcels being sold, you know, some inferior, some like roughly the same. And pretty much all of them were,
basically selling for the same price per acre that the parent tract was supposedly under contract for. So that was not lining up. And yes, the parent tract did have some advantageous views for a good chunk, maybe two thirds of the properties. But, you know, to expect a 2X increase on price per acre just from views alone.
you know, not doing any other value add and so forth. and not being waterfront property, like waterfront tends to maybe drive premiums like that. if not even more, but you know, for views alone, it’s rare that you’re going to find, that much of an increase, for the, underlying properties. And there were some, some other child parcels on, that had sold on the market that
Might not have had exact same views, but you know, decent enough. Plus they even had improved terrain. So I was just very skeptical about, you know, I’m not really seeing the evidence for, okay, this is going to be a seven figure plus purchase anticipated trying to two X the total exit in sub 12 months, meaning we’re an appetite undercut the market and move.
You have 30 plus properties that are all roughly the same acreage. You’re going to a lot of buyers even in a relatively active market and combat adverse selection. I just wasn’t seeing it. So, you know, I was following up trying to ask those additional questions. Can you provide me those, those other child parcels that seem to have sold for much more? Cause that, was not, that was not apparent to me.
based on my review there. So, you know, very skeptical about the possible outcome for that project. So just wanted to share this again because, you know, again, we get sent subdivide opportunities routinely and, you know, they are very tricky to figure out how to do well and not that many people have significant experience in them. You know, oftentimes they’re not that cheap, so.
You might look at a lot of them, actually closing and moving on them is and moving on them successfully with a real track record. can show, okay, bought at X price and this was the total Y return and managing multiple child parcels, 10 plus. There’s not that many people with that level of experience.
in the industry that they can kind of point to that so You know just to kind of indicate like hey if you’re gonna send stuff like this over or even if you’re just You know looking at potentially exploring subdivides on your own Just wanted to rehash again some of these warning signs and you know especially when you’re dealing again with 10 plus child parcels of similar acreage like you have to be even
that much more careful because you’re even slightly off, you can just be sitting on inventory for ages and you have to also account for separate closing costs for each of these parcels. Maybe you get some repeat buyers, people buying multiple child parcels at once, you can reduce some child parcels or you can reduce some closing costs in and of itself. nowadays,
title costs, even for pretty simple deals. mean, it’s rarely below 1500 bucks, one sided transaction. So if you’re doing like 30 plus parcels and like in this case, you know, you’re looking at probably 50, almost 60 grand that might just be devoted to closing costs outside of commission on the backend just to move the parcels. So you have to account for that. Plus the road wasn’t included as far as costs there too. So I wasn’t even sure what
purchase price per acre was either. So again, bottom line here, the more info and research you can provide, the better and really, really understanding the market. Like sometimes I see people send over these super lengthy diligence reports, utilities and underlying kind of macro economy of the
Locality or how close it is to certain cities and you know interstates coming by like none of that is as important as the underlying comps and the market and some people you know, Shove in, know, here’s three or four comps that got all got sold over like the last 18 months like that that should be the primary that that is what I’m looking at as as really the number one factor, especially when it comes to a subdivide opportunity here
So spend more time on that. That’s kind of the 80-20 rule when it comes to subdivides. Like really figure out your child personal market and especially accounting for characteristics. The remainder, sure, new casinos, et cetera, coming to the area, new attractions, fine. I’ve never seen that really drive deals forward, especially on an exit outcome like that is.
into the realm of speculative investing. Some of those larger projects can get delayed or, you know, just get. Canceled or, don’t actually have an impact on the buyer economy that, that you might expect there. we are not spec buyers. are data driven, buyers in relation to the trailing 12 months, especially. So just keep that in mind. That is the way to succeed.
in an overall difficult economy. With that, Serious Land Capital for any of your funding needs, Lend Daily Diligence, Facebook Group for zero cost review of your land deals, going live in about 30 minutes here, and LandPricer.ai beta invites are going out later today. Most simple and accurate way to price land. Subscribe and share. Thanks for tuning in. Talk to you next time. Bye.
