Episode 5: From Flips to Fortune - How Subdividing Land Can Add 7-Figures to Your Real Estate Business

Hello and welcome to another episode of the ground game podcast. This is your host, Clay Hepler,

and this is Justin Piche and we are here to show you how to win the ground game. You Hey, Clay, what's going on, man?

Dude, um, we were just talking about lead flow before this call. And you know, it's funny, you the biggest problem in the business is the lead flow, right when you don't have enough, and then when you have too much, you're stressing because you're not converting leads. And at this point, we are so far behind. We're trying to hire, like, two or three lead managers right now. And so one of my lead managers like messaging me today and telling me, do we like? We need more team members. We're dropping deals. And so that's a good problem to have, but it's also a stressful problem, because, as you know, we talked about this a couple episodes ago, speed Elite is everything. And if you have people that are getting pushed through that are not qualified leads, or that are qualified leads, and you cannot convert them, you lose that. And so it's like you're paying for leads, and you're not able to convert them, so you're losing a lot of money. So a little stress about that, but happy that we have the the problem of that.

Yeah, it's an, I mean, it's an interesting problem, right? It's like we've talked about, I've talked about this before, maybe on this podcast, but I feel like scaling is always like walking on that tightrope, holding that balance beam, where you're trying, you're really just trying to balance how much OPEX you spend, how many leads you're getting, how many deal you get, deals you're getting. But on the acquisition side, it's the same thing with how many leads you're sending to yourself or get are getting, I guess, and then how quickly you can convert them. Because again, it's like you just see your money going poof when you can't action leads quickly enough, right? You've spent the money to get those people engaged, and now you can't follow through, and you are losing leads because of it. And that's, yeah, man, that's stressful, but it forces you to grow, right? I mean, that's exciting.

It's definitely exciting. We're going to talk a little bit about sometimes those leads, when they come in, they have a little bit of extra oomph to them, and that's what we're going to talk about today, a little bit, right?

Yeah, So today we are diving into the topic of subdivides, and we have a couple questions kind of, we want to go through of, like, just why they're important, like, what impact have they had on our businesses? How do we find them? How do we manage them? What's the process look like? And then I think at the end, I'm going to talk through a deal review of a subdivided that is currently on my desk. That's pretty early in the process. But I think there's a lot of things in that deal that I can talk about that will help people understand where my head goes when I first look at a subdivide, especially one that's not just an easy, really simple, minor lot split.

Yeah, and I think it's very important to point out like there are different levels of subdividing, right? And what we're going to talk about today is we're not putting in roads, building out like water taps, sewer line taps. We're not the subdivides for the new listeners or people that are not very understand the rural recreational market or the rural sub divides. We're going after minor sub divides. Like, think about it as your as your triples. We're not trying to go after your home runs, because they're more consistent. So those types of, those types of sub divides, you know, we're really looking at local jurisdictions, and we're saying, hey, like, what are the rules, the sub dividing rules in this jurisdiction that enables us to get the best bang for for our buck. We don't want to really have to go through extensive zoning requirements in most cases, right? We don't want to have to build out a lot of roads if we don't have to or limit the amount of roads, because as soon as you start to put cap x in, right, big capital expenditures, it starts to not pencil. And it also extends the timeline, and we're going to talk about that a little bit today, but extends the timeline to when you put that money out and you buy that subdivision, to when you convert that in our business at this maturity is we want to move these things as quickly as possible. So Justin, I mean, I want to hear kind of what, when you think about sub divides, how does this play a role in your business, and why does it matter to you?

Yeah, and maybe just a quick, kind of little story, I started my business, how most of us in this industry started, which is flipping land, right? My only playbook was I market for off. I try to market find motivated sellers that don't have their properties listed. I find somebody who either needs to sell or desires to sell, or whatever, at a price I know I can pay because I have information, maybe, on what I can do to it, to improve it, to make it sell higher, or just. I can see the value in this local area is a little bit higher, and it makes sense for me to purchase it. And that was it. That was my only playbook. So I had all of these leads. I generated this lead machine. So I had all these leads that were coming across my desk that where people wanted market value or slightly above market value, or prices that I just couldn't pay for the risk of actually acquiring the property and make enough money to make the risk worth taking. And that was frustrating, because I could see money being left on the table. And so back in 2022 I started looking into sub divides, and I actually joined the casual Fridays. Justin Sliva, Adam Southey and Trevor Probant, well, Trevor isn't part of casual Fridays, but he was one of their their partners and joined their subdivide master class. And honestly, it was incredible, because these things aren't particularly hard, and if you say like, they're not all particularly hard, a lot of the lot of cases, they're quite easy to do, but having the confidence to do something that you haven't done before, and have somebody having someone looking over your shoulder and giving you just like their advice of what they would do, have you considered that, getting a second opinion on the underwriting or the pricing of these sub divides. So you're making sure you're not buying a tract for $700,000 expecting to make another$700,000 on it, and it's a flop because you missed something. You missed some critical piece, because you just didn't have the experience to experience to know to ask the right question at the right time. And so for me, that was kind of the big benefit. Was I had these guys who have done much larger deals, and many of them helping me, looking over my shoulder, and then just joining a really awesome network of guys who are my friends now that are all doing deals similar to that. So that was kind of how I got into it. And I really just see it as a tool in my tool belt. It is a tool that I can now take advantage of more opportunity than I could before and it has, it's been exceptional. I mean, the first year of subdividing added a million dollars to my gross profit, seven figures from just adding sub divides. And I wasn't, I mean, I'm much better at it now. We're finding more deals now, but it was incredible like to see that growth like you reach a point. And I was actually having this conversation with my team today. We do a weekly team meeting on Tuesdays, and we talked about one of the early episodes, our goals. And so I was like, guys, like, my goal is $5 million in gross profit next year, and I don't want to turn off the kind of flip machine, because that is running. It's going we look at a lot of good opportunities, but I don't see myself scaling flips up to 5 million. I see the scaling coming with taking down larger deals and taking advantage of more of the opportunities that come across our desk at our current pace,

and, and so that was the whole conversation. Right, Right. You know? And I had a meeting on Monday this week. We usually do our meetings on Monday. And I said, guys, I have this podcast with with my friend, and he says he wants to make $5 million we have to beat him this year, right?

Yeah, There's nothing that would make me happier than seeing you beat my $5 million role play.

Yeah. So, you know, I love that, that a million dollars, man and profit. It's kind of hard to wrap our head around right. Like, before we get into the mechanics of this, we're taught the flipping mentality, right, which is volume, volume, volume, it's quantity versus quality. And so even down to the level of our lead managers, our intake people, when they see a lead, they think, you know, with someone with a hammer, everything looks like a nail, right? And so they think, is this a flip deal, or is this not a flip deal? And so my question for you is, how did you transfer that creative thinking to your frontline teams? I'm going to talk a little bit about how I do it. But that's that's really important, because this nuance is, you can add this as a as an extra tool in your tool belt without breaking your machine. Because a lot of people are going to say, oh my gosh, I'm listening to these guys. You know, Justin, he did a million dollars in, you know, his first year subdividing. And you know what I'm going to do, like, I'm going to completely change my business. I'm going to be this subdivide guy. I'm going to start posting on social media about being the subdivided guy and, like, that's not a good idea.

Yeah, no. I mean, this happens all the time, right? We talk about it. I like to think of it as, like, shiny object syndrome, right? You get this, you see this new shiny object, and you put all your focus and attention to this new thing. But I would challenge anybody and say, Look, if you have something that's working currently, why would you kill that? Why not find a way to integrate other opportunities, other options, other tools in your tool belt, and so, yeah, so to come back to your question of like, how did I train my frontline team to see these opportunities, to make sure we didn't just discard the. Needs for wanting too much money or something like that. It's just a lot of training, really. It's just like we sit down, we have weekly acquisitions training for the whole the cold outreach team. And in that meeting, I talk to them every, every, every week about, hey, this is how we take down this type of deal. This is a way to overcome this objection. And this was just another part of it. Hey, here's what a good subdivide opportunity looks like. So when you have a lead that comes across, and you're looking at the property and land ID, and you see a lot of road frontage, and you see good topography, and you see other parcels around that are smaller, so there's a market for smaller properties in this specific area that's a good subdivided candidate. They don't need to know a ton. They just need to know enough to be able to identify something that looks like it could be a good opportunity. And what I tell them is, hey, I don't care about price. Like price as a qualification is not nearly as important to me when it's this type of deal, this type of property, because we want to underwrite it and we want to make an offer. And I can often offer full market. I can often offer maybe more than what market would indicate the property is worth because of the forced appreciation opportunity that that deal presents.

Yeah, I think that's important. A lot of things that are lost on, particularly new land investors. Is the time in the trenches with the team. People want to, I talk about this all the time, but people want to scale out of their business. They want to scale about the out of the responsibilities. Oh, my team should know how to do this, right? I read this great book recently, you know, in the process of reading it, and it's really changed a lot of the way I think about structuring positional responsibilities in a team. It's called output thinking, you know, you wouldn't have ever heard of it. It's like 34-35 reviews on on Amazon.

Oh no, no, I have heard of it. I have heard oh, what's the author's name? I think he the reader guy, yes, yeah. He came out. I'm part of a military this is just a quick aside. I'm part of a military mastermind, just a group of entrepreneurs that are ex military veterans, and we meet every other week. John came on to one of our calls, and actually we got to ask him questions about the book and talk to him. So yeah, I'm familiar

Dude, incredible book, right? And so one of the core tenets and themes of the book is, like your responsibility as a CEO is to dictate the outputs of the position, right, the outputs not like the responsibilities, but the outputs, right? And so sometimes we advocate the responsibilities of the position, and we don't follow up on the actual outputs. What's what? What that could actually look like is, you know, my lead managers are expected to look at our deals now in a way that they're looking for subdividable potential. They're looking for, you know, road frontage, whatever. And we'll be like, they're, they're responsible for that. And so that means that they should be bringing me three leads per week. But you never go in and look at the actual them, looking at the leads, you look at their leads, and you say, here's some here's some place where you could have seen a potential, subdivided opportunity and giving them feedback, but people just say you're responsible for this. I send you one loom video, and now it's your responsibility completely. No, that's not right. It's our responsibility as the CEO, to go in there and continue to like you, said, on a weekly basis or daily basis, or however you do it with their team, give them that feedback so they understand what it what a good output actually looks like.

Hey, this is your host. Justin. Sorry to interrupt your podcast, but if you're getting value from this right now, do me a favor. Stop click the Follow button. Leave us a comment. Leave us a review. We'd really appreciate it. Helps get our podcast rated up there and helps us reach more listeners and give away this value to as many people as possible. Thank you. Back to your regularly scheduled programming. So for you, Clay, how do you how? What? How are you primarily sourcing subdivided deals right now? And maybe, what are all the ways you kind of find subdivides?

Yeah. So at currently our, a lot of our sub divides have been just, we looked at a deal and we say, oh my gosh, like, I there's enough road frontage here that I could cut this thing up and do a lot of minor stuff. Like, a lot of the things we've done over the past five or six months have been, hey, I bought this 10 acres. I'm going to cut this into, you know, two, five acres or five, two acres that has ample road frontage. So we're just always looking, always tell my acquisition guy, Hey, I've taught him and my other, my lead managers, my other acquisition team members, is, if there's road frontage here, like that, that's a priority. And so we don't necessarily target subdivides specifically, but we look at every deal and say, what's the highest and best value of this? So if we can wholesale it, we wholesale it. If we can subdivide it, we subdivide it. If it's a flip, we flip it. And so there's not really a templatized way of us reaching out to subdivide owners, we just basically look at every lead and say, what's the highest and best use here?

Yeah, and that's, I mean, that's pretty much what we do as well. Most of my sub divides, which I have more than 20 now that are either some are, you know, as big as a 24 lot waterfront subdivision split, and some are as small as a three or three lot, 10 acre, you know, 10 acre into 3.3 acre. No, just a just a survey and get it done, type of a split. But it's exactly the same calculus as like, hey, our job is to maximize every opportunity. And if a split is the way to do that, then that is the path we're going to take. You know, we, I have done a few on market deals as well that I think there's a lot of opportunity. And I actually one of my friends name is Derek. He He's a land investor, and his entire business is, it's just him is finding on market opportunities, and he's got an exceptional team on the ground. So in the areas that he works in, he has a fantastic bank that funds all of the the purchases of of his properties. He's got realtors that he partners with. He's got contractors, and he can go out and do the work himself as well. And a lot of like the clearing and stuff. And so he finds these on market opportunities, makes the offer, gets a bank financed, gets the work done, and does a lot of hunting, like large acreage hunting splits. So he'll take like, 500 acres and split it into four large hunting tracks, puts game cameras out, and those are the types of properties that sell in his markets. And I mean, his overhead is zero, that his overhead is zero, and he's, he's got a seven figure business, and he's overhead is zero. It's, it's amazing how many different ways you can kind of skin this cat.

Yeah, that's, that's important, especially when we're thinking about subdividing or building that type of business, like, you hear someone say, Hey, I have a seven figure business, or I'm crushing it, you know, I'm gonna make $5 million in the next year, or $4 million or whatever. And the question is, how much you actually keeping? And sub divides are our way of forcing for the smallest amount of market outlay in most case, most cases like, the cost to buy a subdivide is pretty similar to the cost to buy a unless you're targeting specifically with specific marketing, but if you're doing what Justin and I do, which is, hey, what's the highest and best use here, it's a similar type of cost per lead that we have if we're buying a two acre, five acre flip, but the amount of value that I can force in my margins are so much bigger, right? And so that flows directly to your bottom line, which is why we're big proponents of sub divides,

yeah. And you know, we there's a couple of kind of additional, like benefits there to what you just said. One, you can use leverage. So let's maybe just talk a little bit about like, how we fund or some of these larger deals. Because I think a lot of people who get into this business, their strategy starts out as double double close assignment or wholesaling, because they may not have a huge pile of cash that they can dump into a deal. Large development plays often and even small ones. I mean, I've gotten bank loans that are$60,000 like borrow on an$80,000 purchase price, 80% loan to value, and done a subdivide from that. And some of them have been $800,000 borrow $550,000 and and run the deal using leverage. Can turn can really get your cash on cash return up to a level that makes some of these, these deals, Justin incredible. Private lenders, banks, my favorite banks, honestly, like, I love using bank loans and bank money on them because it's very it's very clear, it's a very well understood process. Banks are generally, especially local small banks are very flexible, and you can negotiate specific loan terms that you desire, like interest only or quarterly or annual interest payments. You can negotiate your partial releases. So like when you take a parent track and you split into 10 right when you if you have a bank loan on it, and you sell one of those tracks, how does the bank release that from the loan so that you can actually sell it and it doesn't have a lien on it? How much money do you have to pay them. And oftentimes banks are somewhere in like the 110% or 120% of what the cost basis is on per acre basis. And so you have the opportunity then to either pocket some of your profit on each deal, or what I like to do is just pay the bank loan off with all the first proceeds from the this 100% of the purchase price goes right to the bank, then capital comes out, then profit is received, just so I don't have to incur additional interest charges. But you know kind of work the deal, however you want. You can and that all comes on the front end with your negotiation. If you have private lenders, which we just closed on an 84 acre track that we're subdividing into a couple of larger hunting tracks. And that's the same exact thing. You know, we had a private lender that was interested in funding, you know, no appraisal, right? No no credit check, just hey, I know you guys. You execute your your reputation is great. And so, you know, we, we said, hey, you know, as we pay this thing off, we're going to pay you off first, so that the interest is paid off faster. And the way that we do it with a lot of our lenders, and you can do this, like Justin said, you can negotiate annualized accrued interest. And so if your interest rate is 8% you pay it on a on a yearly basis, or you pay it as you pay your subdivision off. And so basically, you have no monthly payment for a standard bank loan, which is incredibly attractive, which is a similar type of you can think about it as, like, less expensive equity, right? Because equity, of course, is an accrued basis, right? Because you pay the equity off as you pay your basis off, plus your profit. And so that's the same exact thing that happens if you can negotiate properly with banks. And the way you find banks is, Dude, get on the phone, right? A lot of these banks are, they're good old boys, depending on where you are, depending on where you market, and, you know, getting, getting on the phone, talking with them for 2030, minutes about trucks and what's going on with their life and things like that. Like this is a relationship based banks. You're not going to, JP, Morgan Chase, you're going to local credit union. You're going to, AG, South credit. You're going to, you know, farmers, banks, and having those conversations with guys that maybe have two or three locations, they're commercial brokers who you're not looking for a mortgage broker. You're looking for a commercial broker that has flexible terms, right? And make sure that when you're on that call that you are careful about what you're talking about. Some of these banks are they want to lend, but they have certain guidelines, right? And so you need to make sure that you the way that you're describing this is exactly what we're doing. You're very transparent about that, but you understand the guidelines of how you can frame it, because these people want to get deals done, and you want to work within your guidelines. Obviously, you want to do everything legally and ethically. Yeah, and you may have to call, I've had to call five or six banks before finding somebody that would lend on this type of product. I'm in the middle of a subdivide right now. Now,

Right, right. And don't be like, if you get rejected, hey, actually, in Texas, some partners brought that I'm I don't lend to people out of state. Hey, that happened to me partnering with them on, and we've, I've already been turned a lot, right? I'm not lending to people that are from out of down by multiple banks, so I just have more work to do to county or this side of the state or out of state, yeah, find a bank that is interested in lending on the type of especially in the south, like that's just the reality. And so if you get five or 10 rejections, don't stop there, project. You know, a lot of banks want to balance their right? There are plenty of banks that are interested in doing risk, and generally, they have certain categories of lending this, and it's just like looking through a bunch of leads, right? that they have, like a lending portfolio, and they can only go It's everything in this business is have enough conversations and up to a certain percentage of certain types of loans in that you can make it happen. So I kind of want to walk through, starting from the beginning to the to maybe the end to closing. portfolio. And so if they get overweighted on land or I'm just going to little bit walk through about, like, what development or whatever guidance comes down from, you know, the the actual conveyor about the process of something like this executives at the bank, then they won't be able to lend. But looks like, right? So, first things first, you know, you get like a small local branch or small local bank, one or two the deal, you find the deal. It's something that's interesting, like, you got it. You got to go and look at the branches, those are the type of people that you want to work subdivision regulations on in the county, right? You got to with. So I'm like, my first go to is like, hey, put a put a pin conform to what the county says you can do. And at that point, in Google Maps on where the subdivided is, and then call maybe 50, 60, 70, Justin percent of deals are dead right, right there, because you can't do what you want to do with the parcel. every local bank into like, an expanding radius around the bank And so calling the county these and looking up subdivision until you find somebody that that is willing to work with you. regulations is really where you want to do this.

Yeah. And one of the things that I when I'm talking to new banks, I like to tell them is, hey, this is the way I normally run these deals. I bring all the capital, I open up an account at the bank, and I deposit the money at the bank. That's like the first thing. So like you're gonna get depending on the size of the deal, 100,000 200,000 300,000 $400,000 in deposits. And then we'll close the transaction, pull the down payment from there, and all of the all of the advanced raised interest, all of the capital development costs, everything that we've estimated we're gonna have to pay for this deal to run it through its life cycle, is gonna sit at your bank and you're gonna take draws directly from that, and in that really does help, especially smaller banks, local banks, that helps them pitch it, because most of the time you're talking to a VP of lending, a VP of commercial lending, or something like that, and he's got to bring that loan to the board, and the board has to agree that this is something the bank wants to fund. I mean, banks have charters, right? They have a mission that generally, is to serve the local area that they're working in, which is why it's so important to go to smaller local banks. But if you can give them some guarantees like that, hey, I'm going to bring you these deposits that you are then going to be able to work and lend on yourself. It's like you're actually giving them additional business and additional opportunity, as well as you're going to be paying them interest, and they're giving you this opportunity. So it's kind of just another way of maybe helping to convince them based on what you're going to give as well. It's like they're you're not, they're not just giving you something. You're actually giving them something to that they want and need,

Right, And you know, to bring that back to the comment earlier about the broker, like the local touch is important, right? And so you get this local broker, they go and see the properties. You get the presentation. You have the photos of the property. They're seeing everything. These are people, right? So they make decisions with local charters, with local orientations. But if you have a pretty presentation, man, it looks better than a crappy one, right? And so making sure you do your homework on the front end to present to the bank in such a way that is making it easy for them to make a decision is important. So that's why you have the broker go out there. That's why you have all your costs, your survey costs, your soft costs, everything that you're going to need to improve this land as a part of the conversation, not, hey, I think it's going to cost this much, really bringing that all to the the conversation, right? And so the bank knows this is exactly what it's going to cost. This is what it's going to look like. This is what it currently looks like. And I can see how I'm going to get my money back. And that's what we're trying to show them at all points. So you know, you get the you get the realtor out there and the broker out there, you get your surveyor out there, you get the perk test guys, and whatever additional things you're going to be putting into the property to make it sellable. And then that's, I mean, you get the financing, you get the funding, you get it all lined up, and you you listen on the market and and, you know, you hope that thing sells. Well, what's an average time that you don't hope I'm just kidding. Uh, what's an average time of a subdivision, a larger subdivision selling? I mean, do you have ideas about

Golly Man, what a good question. This is so market dependent, right? And and you do this is one of the things you need to consider when looking at a subdivision, is, hey, how long is this going to take? How long is this going to take? Can this area actually absorb this many lots? How much? How long will it take to absorb this many lots? So like, if you're in a really rural place, without very much, without a ton of, with a low sell through rate, for example, or with not a lot of properties turning over in a given period of time, you're gonna have to hold on to that development a little bit longer, and that's just something you need to factor in your risk and return profile. And so when I first got got into subdividing, especially the bigger ones, I was way too optimistic. I think, with how quickly we would be able to sell through properties, I was like, I will be out in six to nine months, and like, everybody will be paid out their profits. It'll be amazing. And yeah, it's and I have two right now that are going over a year, and the banks have been paid back. All the investors have got their capital back. So like, everybody's made whole, and now we're just letting the profit come in as the lots sell. But it could take 12, 18 months, 24 months, depending on how many lots you produce, and what the sell through rate is, if you're doing a small one in a hot area, not very long, you know, you can move those things very, very quickly.

Yeah. And here's something that not a lot of people talk about, that is so important we are selling the seller to sell us the property. We're selling the broker to work with us. We're selling the contractors to work with us, and the bank that we're responsible but we're selling this to people that potentially want to live here. And so you look across the southeast, you look across the Midwest, Northeast, whereever, and you see these subdivisions that you're like, Who the hell drew this up? There's a flag lot, and then there's another flag lot behind the flag lot, and then another one behind the flag lot. And you're like, How is this possible? So one thing that people, when they get into this business, they get really excited, and they say, dude, like, okay. So I know in this county we can do one acre lots, and, you know, I have 20 acres, somebody do 21 acre lots, and they don't consider what the market needs. They don't consider what the market actually wants. They don't consider that one acre lots in the middle of a county of 15,000 people, ain't gonna sell fast in most cases, man, it's not gonna sell fast. And so that county might want three acres, it might want five acres. So just because you have the opportunity to sell a cut a subdivision up into 21 acres. Because you're like, dude, these things are going to sell for 15 an acre, but my five will only sell for 10. So I want to try to force value. Dude, The reality is, you need to to balance what the market needs with the profit, right? I would rather sell my deals faster and give the market once it needs that it could absorb quickly. That's actually attractive to the end buyer, instead of stuffing the market with weird parcels that are kind of not attractive, but I think they'll sell because I want to get an extra 5000 an acre.

Yeah, that's yeah. Well said, when we're looking at large sub divides. I'm always looking at what is around it, like, what? What are the tracks that people actually want? What are people putting their houses on? So if I see 100 acres with great, you know, nice long side rectangle touching the road frontage, and on one side of it is a bunch of 10s. Fantastic. That's great. That means the market wants 10s, all right, at least that's what they're used to. There's a product out there for 10s people put homes on them. That's good. But if I see the same parcel and there's nothing but 40s, 80s, hundreds, farmland in the middle of nowhere, it's like, does that market really want a bunch of 10s in this area? You know, maybe not. And the subdivision regulations may allow you to do that, but maybe not. So I want to kind of pivot here and talk about a little bit of deal killers. Because, you know, we kind of touched on it earlier, but I look, I mean, I look at a lot of subdivided potentials. I get carried away with, you know, mapping them out in land ID. I review the subdivision regulations, and yeah, there it gets past them in most cases. But there's other things that can kill deals. So maybe clay, you can talk a little bit about some things that kill deals for you. And I'm happy to talk about some of the ones that I've seen recently that kill them, some of the big ones.

Yeah, um, so I think there are a couple of things that, especially when you're starting out, you really need to be aware of one of the big things is, when we look at a piece of land from a satellite view, we see the piece of land, and we're like, wow, it looks like every other piece of land that's there, right? And we think, I know, if I cut this thing up into, you know, 100 acres, 10 acres, like it's going to sell for, you know, 5000 acre, because everything else is selling for 5000 acre. But you realize there's only one acre of buildable lot. The rest is on the side of a hill. So one of the deal killers is the topography, right? Because people buy usable acreage. And so you might say the one acre will sell for the 5000 acre, right in this example, but the other four acres are going to sell for two, right? And so all of a sudden, your tracks. And I just messed up that math. It was a 10 acre I was talking about. But you get it, the topography is a killer. Man, it's a killer. And people don't consider that the ravines, like, you look at land ID, and there's like, a ravine through the middle of the property, and you're like, Well, I can kind of, like, subdivide through that. Like, a lot of times you can't, right? And so for me, that topography is a big thing. Number two is, you know, getting a broker out there walking the land, like seeing how it lays, and specifically related to wetlands or flood plains, that's really important. And the last thing, I don't want to steal your thunder, because I'm just throwing out bombs right now, is the local area. Man like you, you drive out to this parcel and there is a mobile home next to you that's on fire. And there, there's, you know, weird trash everywhere, and it's just not an area that the product that you're looking to bring to the market. Can you really maintain. So you might say, like, Justin said earlier, like, Oh, it's 100 acres. Like, there are the five acres around it, there are the 10 acres around it. But in reality, that whole area might be like a black hole. There's nothing being sold. And when your broker drives out to the parcel, there's just nothing there, because it's this weird part of town that you as an out of town or don't really know, but you can get when you get those feet on the ground. So those are the top three things that I see people just screw up time and time again.

Yeah, those are all really good points. It's hard when you're doing this remote to really know that local area and having a good when you do it, where you're doing sub divides or development deals. Your team on the ground is super important. I think it's really important to have a good surveyor. It's really important to have a good broker that can be your boots on the ground and advise you on the area, their their price, opinion for the end lot, and advise you, hey, what do you actually need to turn this into so you can sell the lots? Because, again, you want to create lots that sell, not inventory that sits on your books and doesn't sell. A couple more deal killers for me really are water. Water availability is a huge deal killer, especially in the some of the more rural markets. You know, wells are great, but they're always an unknown. So if you don't have water on the road, it's hard to really plan. It's hard to plan for a development, because people need water. So if you're in an area of the country where wells are really common, and it's well understood that you're they're gonna have to drive drill a well, that's good, or for you, if you know that, you can, you can factor that in, and you can understand, okay, people are generally buying properties without water. They expect to drill a well, and if there's a lot of wells around, you can get an estimate of depth. You can call a well contractor to figure out how much it's going to cost, and you can provide that information to the buyers so that they can make an informed decision. Water lines running along the road that that is like, that's what you want. But even still, you have to make sure that the local water utility, the size of the pipes, the pressure in the pipes can actually support the number of home sites that you want to build. And so multiple times, I've gotten pretty far in underwriting and like almost prepared to make an offer, waiting on the water situation, and I finally get a hold of that maintenance manager at the local water utility that knows all the sizes, and it's a one inch line or a two inch line that can only support like, five or 10 home sites at the very most, and I wanted to put 20 there. And I'm like, Oh, well, I guess. And then we talk about where the nearest larger pipe is, where I would have to tie into it's like, two miles away. It's gonna cost me $400,000 to lay a six inch line all the way up and around to supply water to these properties and that, you know, that kills it. I was literally just underwriting a deal a couple weeks ago that looked amazing. $3 million purchase price, beautiful, beautiful track in Alabama, like, close to town, but it had a one inch pipe that, again, that's kind of the example I've just kind of kind of explained I had to, I would have had to lay six inch pipe about over two miles, an excessive cost, which is fine, like you can underwrite that into a deal. But that dropped my offered price down to like $1.8M sellers were asking three and we were so far away that there's just no way we were going to get that that deal done. So water is a big one, power utilities, right? Especially if you're selling residential tracks, you want to you want to make sure that people can actually do what they want on the lot and if you sell a bunch of individual lots to people, it's much harder for that individual person who bought lot seven, that's 2000 feet away from the nearest utility pole to talk to the power company about extending that pole all the way out to their lot, right? But if you as a developer, can talk to the power company ahead of time and understand the cost to bring it in, or at least get a letter to serve or or some sort of commitment from them that they will provide power that can help you overcome some of those, some of those issues and objections.

I love that. One thing that's really interesting is depending on, we just did a little minor subdivide, and I'm not going to tell you the market, because it's killer for us. We've done a bunch of deals, but the county will pay for like, putting in roads to the to the parcels and the utility companies, and this is not uncommon, will pay to extend the utility lines. These are ATMs for them, guys and so, yeah, you call these utility companies up now, if you're talking you know, the water companies get out of here. It's a cartel. But electric companies, for sure, are going to be extending, in many cases, they're open to extending the electric lines, you know, provided you have enough things that you're bringing into the market, and it's close enough. So we got, like, some almost grants like help with building culverts over these little creeks at the at the front end of this subdivided we just did, and it was like would have been $10,000 and we spent like $1,500 and so these little things.

You bought the pipe, and they installed it, right?

Yeah,

yep.

They installed the gravel too. They like, did it? Yeah, yeah. It was incredible.

There's a lot of lot of a lot of, like, smaller, more rural counties will do that. Well, they'll, they'll size the pipe, you buy the pipe, you have it delivered, and then they'll come back and tie it into the public right of way. And then, yeah, man, good point on the on the power companies. So there's sometimes you're working with really small local power companies or Power Co Ops, and a lot of times those ones don't have as big a budget. They really want the developer to front the cost, but especially larger companies. So a good example is Alabama Power, right I've done few, quite a few subdivisions in Alabama, if Alabama Power is serving it, they they will pay, I think it's like five times whatever the annual revenue they'll make from the end the end user of their

Right, And this goes to another point, and we're going electricity to extend the line. And if you're if you're a developer, and you're not actually building the homes, they may not actually front that money, but what they can do is they can give you a letter to serve so that when those homes do start getting built, they're like committing to actually providing power. And that can help you. In the case where I didn't have a power line, but I had a letter to serve by power that said, hey, when you're ready to build and you start construction, they will come in and extend the power lines along the public right away for you to your house. And so we could say, yeah, there's electricity available. Because, look at this letter to serve. And we didn't have to front, I didn't have to come up with the $45k or whatever it was going to cost to extend the line 2500 feet, or whatever it was. to be wrapping up here shortly. But you know that the difference between a good, quick selling subdivision and a slow selling subdivision does have to do what, what Justin and I talked about does, has to do with the local market. Does have to do with the the type of broker that you choose, but a lot of it has to do with the things that you do to prepare the parcel right, cutting out home sites, making sure you have those perk tests done, giving a letter to serve so you can show your end buyer that this is a no brainer purchase. We want to do what we can, besides prepping, having the nice photos, besides choosing the right broker, besides making sure it's the right area with the right absorption phrase, giving the end buyer a turnkey product, that is a no brainer, is the is worth the extra money? It might cost you an extra $5,000 per lot. Might cost you an extra 2500 per lot, but it's going to make a difference in selling the the parcel. What do you think about that? Justin,

Yeah, you couldn't be more, right? I mean, imagine, I just think, I just put my, I like to put myself in my end buyer shoes, and I'm thinking, Okay, so I've got this 10 acre tract home site, kind of rural in a lot of cases, and I've got to convince my wife to allow me to buy this lot. So she wants to see it. All right, great. Let's go. Let's go on a drive, honey. It's 45 minutes away. Let's go pull up. If I pull up on this lot, and there's just a ditch and then, like a wall of trees, you think I'm gonna convince her to buy the slot. She doesn't have the vision. I have the vision. So whatever I can do as the developer to allow people to see what the potential is of the lot, to actually get out on the lot, walk around on the lot, visualize where their home is going to be, see how the land lays. I want to do all of that stuff because I don't want those objections. Those are easy objections to overcome with a little bit of cleanup and clearing work, a culvert, a little bit of a gravel drive, maybe a gate at the front, clearing a half acre, or a whole acre at least, maybe not clearing it, raising it to the ground, but maybe leaving all the nice, big trees and clearing out all the underbrush. It's pretty minor. And when you're doing a larger project, you can get, like, lower, basically, bulk rates on that type of cleanup and clearing as well, because you're gonna be giving, giving the contractor, 10, 20, 30 acres of clearing work. It's definitely worth the investment, right?

And one other thing that I love to do with my sub divides is depending on the county, state jurisdiction, whatever you can go down to local post office and you can buy a mailbox, ship a $200 mailbox, and get a address, and put a mailbox in that, in that front yard, and all of a sudden, you know, your wife is there with you, and they're looking, oh my gosh, look at this mailbox, right? It is a game changer when you have an address instead of 000, Stockdale circle zero is. 00, Piche lane. It is 123, whatever. And that actually makes the all these little things make a difference. It is an art.

that's gold

and so I love to do that. Throw a little mailbox up there, go down to the post office, get a little, you know, post office address, so that we said that when we market that it is not just 00,

Man, awesome. Well, let me spend like two minutes talking about a deal that kind of will hit on some of these things that we just been talking about. I've got 100 acre subdivide that I'm working on right now in Tennessee that was actually brought to me from a coaching client of mine that wanted to partner on it. So we're partnering on this deal. And you know, my first call, my first thing is, what we just talked about. The first thing I do is I look at how the land lays. The next thing I do is I go to the county subdivision regulations to understand what is allowed in this county, and in this particular county, it's an exception to the subdivide rules, if it's along a county road, all the parcels are greater than five acres and there there's no infrastructure or utility improvements needed. Those are the three kind of criteria to be an exemption. So we definitely meet two of those. I can cut in fives, and it's all has a lot of county road frontage around the outside. The big question was utilities. So there's already power lines. I can see them. The next question, or the next call I make is to the water utility company. And I called the water utility company. They're a small utility. They don't actually employ engineers. They employ an advising, contracting firm that does their engineering and hydraulic calcs. So I get connected to them, and I just ask them, show them the what I'm planning to do, ask them about the road frontage. What size lines can I actually get taps for this many home sites? And today they're having a board meeting the advisors. The engineering advisors said, Hey, there's a two and a half inch line along the top, and I want to put seven home sites there. And there's a four inch line along the east, and I want to put seven home sites there. So I'm confident the four inch line can support the two and a half inch line I have questions about. They seem to think, if it's for residential use, it can work, but they have to get it approved by the board, and if it's not approved, well then I will have to, as a developer, incur all of the infrastructure improvement costs, which is something I haven't put in the underwriter yet, and that may be a deal killer, right? If it comes back and isn't able to be done. But I've already engaged my local bank that has lent to me on three projects of the same size, about a $700,000 purchase price. And so I've got that part lined up. It's just, I'm waiting on the water right now for the waters ago, after this meeting they have today, the whole project's a go, and yeah, so it's every single deal. It's the same kind of process. You've got to figure out the deal killers as quickly as humanly possible, so you don't waste time, waste money, like I'm not going to pay a surveyor until I've figured out are these things going to be going to kill the deal? Right? I need to talk to the planning and zoning as well. I have been struggling to get a hold of them to confirm that my interpretation of what I consider to be very clear language, saying that my development, the one I want to do, is an exempt subdivision, but I still want to confirm that with them, right? You gotta, you gotta talk to them. Gotta talk to that. Usually it's a county engineer in this county. It's called the county executive, but you got to talk to them, hear it from their mouth, make sure it's something they want, and figure out those deal colors pretty quickly.

Yeah, getting a hold of someone at the county is that's the hardest part of our job. As a part of the gentleman's agreement. Those who made it through the end of the podcast say, No, guys, we put our all into these podcasts. As you could tell, we do not hold anything back here. And so if you got value from this podcast, leave a rating, leave a review, and make sure to say, hey, I really like Clayton's portion more than Justin's. You can just emphasize what you liked specifically about mine, and if you like Justin's more, I'll be heartbroken, but I'll understand as well. And if you didn't like either of ours too, you can still give us a five star review and let us know. Hey, you know, these guys are really giving us value. And share these with your friend guys, if you want, if you maybe have a friend. Hey, I think this could be a good new part of our business, a new revenue part of our business, and maybe you partner up with another guy locally. This could be a good podcast episode to help you guys get into that. The primer, you know, subdividing 101, share with a friend and and share the podcast with a friend. So guys, thank you so much for listening to another episode of the ground game podcast. This is your host, Clay Hepler.

This is Justin. Signing off.