Land investors — how do you actually underwrite a deal before making an offer? (Day-j
Hey all — I'm a financial land analyst at a national homebuilder (day job is underwriting land acquisitions: residual value, lot feasibility, entitlement risk, the whole thing). I also invest on the side, and something has been bugging me.
At work, we have institutional models for answering "what's the most we can pay for this dirt?" But when I look at what's available for individual land investors and small builders, it seems like everyone is either:
- 1. Using a spreadsheet they built themselves (or inherited from a course),
- 2. Using tools built for HOUSES (DealCheck etc.) and forcing land deals into them, or
- 3. Gut-feeling it off comps from Zillow/LandWatch.
So I'm genuinely curious about your process:
- 1. When you're evaluating a parcel — flip, subdivide, or develop — how do you land on your max offer number?
- 2. How do you account for the stuff that kills deals: rock, wetlands, flood zone, slope, rezoning risk, utility extension costs?
- 3. Have you ever bought a parcel and gotten burned by a site condition you didn't price in? What was it?
- 4. If a tool existed that ran builder-style residual land value analysis (enter your exit assumptions and costs, it backs into your max offer, with sensitivity sliders and a due diligence risk checklist that feeds real cost ranges into the numbers) — would that change anything for you, or is your spreadsheet fine?
Not selling anything — there's no product. I'm trying to figure out whether the gap I see from the institutional side is a real pain point for individual investors, or whether spreadsheets are genuinely good enough. Brutal honesty welcome.
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- Real Estate Consultant
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#1 All Forums Contributor
- Real Estate Consultant
- Summerlin, NV
In the real world for me personally.. I have developed 3 subdivisions and took them full cycle IE horizontal and vertical that totaled about 200 homes. I have funded for others 8 developments totaling well over 1000 lots. And continue to look at new funding opportunities every week.
For my personal projects the dirt is too competitive to do deep dives up front.. the goal is to be able to do napkin math in your head basically make the offer and get into contract. Once in contract its common for these deals to have very LOOONG Due Diligence periods and thats when you dive into all the things your mentioning NO Way I am doing any of that up front if the property is not locked up and under contract waste of time and money.
Once property is in contract then we start down the list being somewhat experience I know what most jurisdictions are going to ask for. So we hire the appropriate consultants and then put together a basic tentative plat and then order our pre app meeting with staff.. This is a critical meeting in my mind cheap to get to and should come out of it with a fairly good idea of the road map.
Each Jurisdiction is unique though so its certainly not one size fits all.
As for your question on site conditions many times you wont know until you start moving dirt. And that is what contingencies are for and a good underground contractor will have a pretty decent idea of these issues and or have a rock clause etc in their contract.. So you basically start and then Pray.
Generally speaking though 10 to 50k up front risk money will de risk the project later on thats about what I spend up front to see if the deal is going to work.. Deposits are then made hard once we get a very solid idea that we have a project.
Biggest risk I have had is when planning department at the public hearing to approve your project comes back and cuts down your density to appease neighbors.. I lost 100k on that one time and could not move forward as my seller would not discount the property enough to make the project feasible at that time. It was all over neighbors wanting to protect the trees this parcel had a very SIGNIFICANT amount of Merch Douglas fir and wanted to save as many as possible however when buildind roads and homesite the trees have to go.. So I could not move forward and my seller well he just went in and CLEAR CUT the whole thing the neighbors ended up with a stump farm instead of a plan I had put together to create very nice buffers etc.
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