Transcription
Hi, this is Neil Clemens and this is the real deal with Neil. Today we're talking about five reasons your land subdivisions aren't working. The top five land subdivision killers.
So for anybody diving into this niche or if you're just getting started, this is going to be super helpful because I'm going to go through all the biggest reasons that I see that land subdivisions don't work, especially minor subdivisions and exempt subdivisions. So let's get into it.
The number one reason that land subdivisions don't work is definitely because of road frontage. Because the whole concept of doing a minor split or an exempt split or something like that is that you already have the road there. The road is already present. You're not normally installing new roads. Even if it gravel, dirt, asphalt, concrete, no matter what it is, the road is already in place and you can already subdivide off of it. Once you start going and installing roads and you start doing all of that, it becomes a much bigger project. It becomes much harder.
The other thing to know there is that even if you have a road, you also have to have legal access. If you don't have legal access, then your project is not going to work. You can't do a subdivide normally based upon an easement in most of the more populated counties. And so that's the first thing that we look for. If if somebody's trying to do subdivides, we instantly look and we see, okay, is there enough road frontage for what we're trying to do?
The other thing we got to make sure is that our lots have enough road frontage. Most counties or municipalities have an order or some kind of document that states exactly how much road frontage is required per lot. In Texas, a lot of times that's 150 ft minimum per lot. In other areas, your road frontage, maybe you have a 4:1 ratio. Maybe you have to have a certain amount of road frontage versus your depth. There are other areas that I've seen that go as low as 75 feet. I've seen other counties that have 400 feet minimum. And I've seen the the road frontage lot sizes increase as the acreage go up. And so the first killer just to summarize is that your road is not there. It doesn't have the amount of road frontage for the number of lots that you need or it doesn't have the legal access that's necessary for you to be able to use the road and subdivide off of.
Second reason your land subdivision will die is due to utilities. And when I say utilities, most land projects that we're talking about doing are going to have three major utilities. It's going to be water, electricity, and sewage. Now, in different parts of the United States, based upon where you're doing these subdivisions, you'll have different hurdles. So, in Texas, your hurdle is going to be water. And so, you not always you can't always assume you're going to have water. You can't assume that you can dig a well. Some areas of Texas wells have to go 500 to a,000 feet deep and they're not economical. They just don't work. Other areas of the country, for instance, Michigan and some areas like that have plenty of groundwater and it's abundant. So, you really never have to worry about water for the most part for like a minor and exempt subdivision. But in areas that have a lack of water, sometimes you have to do what's called a hydraulic analysis. And you have to figure out and actually do a test from an engineer to be able to say, is there enough water? Is there enough water pressure? And is your lines big enough to supply what is needed? And so that's your first hurdle, water.
Second hurdle is electricity. Now, in the areas that I work in, if you can see an electric line and it's not one of the big tall, you know, 100 ft massive structures, if you have an electric line running at the road and you can see it from the property, more often than not, you can get electricity. In the areas that I work in, I'm sure that there are other areas of the nation where electricity is not as easy. Maybe you have to do solar based electricity because you don't have electric lines. But for the projects that I do and in general, most of the people I talk to, electricity is not the issue. However, you do need to still call the company. You need to make sure they can supply you because if you don't have electricity, nobody's going to build there. Your subdivision is likely to fail.
Number three, sewage. You've got really two main options for sewage. I'm sure that there are others, but the two main options are either a sewer line from a city, a municipality, a county, whoever is going to have that sewer line in place, or two, which would be a septic system. In most of the rural areas that I work, I'm outside of city limits, and so a lot of times we're putting in septics. Now, in Texas, we don't really have to deal with percolation issues because we our soils absorb really, really well. We don't have to deal with some of the hurdles that other parts of the nation have to deal with. It's very common, for instance, as you go north and east and some other areas that you have to do what's called a percolation test and you have to make sure that the soil can actually absorb the sewage and that it's adequate for the county standards that say you can do it. And so whereas in some areas you might have trouble with water, in other areas you might have trouble with sewage. And just because one is a hurdle, you just have to know that you have to verify all three of these. If your subdivision can get water and it's not too expensive, you can get electricity and you can get sewage for the most part, you're going to be okay for your subdivide and that's the utility due diligence you need to do so that your property doesn't die or your subdivide doesn't die.
Number three killer is general undesirables. So what do I mean by that? So for instance, flood plane. So that's going to be one instant killer. And sometimes what we can do with flood plane is there's actually FEMA has a flood plane map. you can figure out exactly what the flood plane base elevation is uh to be able to know how deep you are into the flood plane. Now, there are engineers out there. There are ways that you can take a property out of a flood plane. In general, though, speaking in really rough generalities, if a property is fully flood plane, you're probably not going to be developing, building, and subdividing in it unless you can find other examples of other comparable sales to be able to come up with a value and there's demand for it in the area that you're working in.
A second undesirable would be something like a gas line or possibly an electric transmission line. Those would be other undesirables that if they cut off access or if they're kind of toward the middle of the property, if you, you know, can't cross over them for some reason, if you look at them and you're like, man, there's no way we could even build on this lot. Just having the lines themselves doesn't necessarily detract from you being able to do subdivide. But if they're not in the right locations to where you would actually consider like, hey, I'd build on that property or I can see somebody else building here with the layout of all this, then you know, you might question whether that's an undesirable that makes it not doable or not feasible to do it.
Other things could be something like an access easement, some kind of drainage easement. Obviously, topography as far as if you're on a cliff side, you're probably not doing a subdivision. A lot of the normal things that are very undesirable when you're flipping land also become undesirable whenever you're subdividing land. The difference is is that when you're flipping land, if you're flipping, for instance, 50 acres and you have flood plane on one side of it, maybe 20 of the acres, well, you still have value in the 30 acres. But if you were to try to subdivide that off and make say 10 acre lots or even two 25 acre lots, you would end up with two or maybe one lot that's completely undesirable that if you don't factor in the lower value, it could very easily kill your subdivide deal.
Number four reason your subdivide dies is lack of demand for the product you're creating. And so the coaching people that I take on and the people that I've taught how to do these subdivides all over Texas and and some parts of the US, the biggest thing that I try to emphasize with them is demand, demand, demand. We are not going out there and just subdividing just to subdivide. We are going out there and we're going to really high demand areas where there is demand. There's people moving in. there's already a good population, but there's people moving in. So that we know that people are going to want to buy our subdivides because essentially the value in a subdivision or from lower acreage comes from having too many people who want to buy, not enough supply of land to fulfill their demand. And so in general, you stay closer to urban areas in order to do that. One to two counties away from a major metro. Now you can subdivide and go farther away from that different areas maybe hunting tracks or some other recreational type tracks and that has goods you know positives and negatives in different parts of the US is in demand in different parts of the US and not in demand. In the areas that I work in it's completely not in demand to be able to do that. And so we're strictly subdividing for residential purposes.
And so when we talk about demand though one way that I like to put it is that we're looking at two different things for demand. We're looking at comparable sales, which you can run that on your own. You could run that through a real estate agent. You can run that through somebody who's going to give you advice like a coach or something like that. But you've got to find comps to be able to prove the value to yourself. And really, most of the time for these, you're looking to double out. So, you know, if a 10 acre piece, for instance, sells for 10,000 an acre, you want your, you know, subdivided 5 acre pieces to be able to sell for 20,000 an acre, right? You want to double your price per acre as you go smaller. And if you can find comps to support that and maybe 5 to 10 comparable sales within 5 to 10 miles, then you can say, okay, all right, maybe this has some merit to it, then you can re-evaluate with a local agent and you can figure out, okay, is this area the same as that area? Do the comps will they apply here? And we can know, okay, there's demand for the product that we are putting out.
Okay, the second thing is visually based. And so if you're using some kind of program like land portal, land ID, or some kind of mapping tool to be able to look at and evaluate these properties, which I highly recommend that you do do that, you need to zoom out. You need to look around the property, and you need to look a few miles out, and you need to see if anybody else has done a subdivide like you're trying to do. In general, if you can't find any other examples, and especially if you can't find comps to support your thesis, what I don't want you to do, and would this will kill you faster than anything, is to go out and think that, oh, well, I'm going to create this. Nobody else has done this, so I'm going to be the first mover. I'm going to create it. The times that I have done that, I have still profited, but gosh, I mean, we thought we were going to do, for instance, five lots and we ended up having to sell it all as one piece because there was no demand for the product that we were trying to create. If I would have just zoomed out, I would have seen that all the neighbors all on 100 acres. So, why would I think that we would be able to sell 5 and 10 acre lots?
Okay. So, verify comps. Verify visually. Don't try to pioneer and create something that nobody wants. And don't be the first person to do it in your county or your city that you're working in. Just copy what everybody else is already doing and then go and fulfill the demand that's already there. Don't try to create new demand for something that nobody wants.
All right. Number five, last one, which is deed restrictions. So deed restrictions look different depending on the county, the state, the area that you rent across the United States. Deed restrictions can kill a deal faster than anything because there are deed restrictions, for instance, against subdividing. Well, that's pretty obvious. If there's if a deed restriction says you can't subdivide a property, well, then you can't subdivide a property. Now, maybe you can get an attorney and sue and try to get deed restrictions removed, or you can try to research them, see if they actually apply to your property. But in general, if it says don't don't divide, you're probably not going to be able to.
Second thing that can kill it is that if you're subdividing into residential lots and you're producing residential lots, well, if you h are trying to do that and it restricts the number of houses that can be built, like if you can only build two houses on a tract, but you have five tracks, well, then you're going to end up with two desirable tracks and three undesirable tracks, and you end up in kind of a hard situation, disclosure issues. And so those are some things to watch out for whenever you're looking at deed restrictions. There are several others that you got to watch out for, but in general, think about the plans that your in buyers are going to have with your property and think about is this desirable for what I'm trying to achieve on the subdivides that we do. We try to do no deed restrictions if at all. And if they have deed restrictions, we especially don't want to dedict against manufactured or mobile homes.
So guys, I hope you really enjoyed that. Those are the top five dealers that I see with minor and exempt subdivisions. And go kill it. [music]