The Business of Land Subdivision

Real estate is nothing without land. While land acquisition is a part of any ground-up real estate deal, some investors and operators make a business out of trading in raw land itself: acquiring, subdividing, entitling, and selling large, undeveloped parcels.

As we’ll see, doing this well can be very lucrative, and relatively small check sizes make rural or exurban land an attractive category for small operators. But land speculation and subdivision comes with pitfalls and challenges that are very different than other categories of real estate. Today, we’ll dig into those challenges and how the best land investors generate great returns.

To do this, we spoke with @landlawyerbrian, a Savannah-based attorney and full-time land investor who has exited over 160 land deals since 2021.

In today’s letter, we’ll tackle:

• The basic mechanics of land acquisition and subdivision;

• Deal economics and returns;

• How operators find sites;

• Diligencing sites and potential pitfalls;

• The role of technology and land subdivision’s future;

The Land Business: An Overview

The land business is as varied as the real estate industry itself. In general, land investment can be categorized along three axes:

• Proximity to an urban center: Land varies wildly in price, size, liquidity, entitlement risk, and target buyer based on its proximity to a major urban center. In this letter, we’ll primarily focus on rural and exurban land.

• Target hold period: While some land investors look for quick returns, others buy and hold long-term with the hope that an area will benefit from growing demand and appreciate in value over time.

• Degree of value-add: There are a number of ways that owners can add value to land, from re-entitlement and subdivision to the addition of infrastructure like roads, electricity, and sewage. Some land investors are proactive in making these investments whereas others are not.

In Brian’s case, he has a short target hold period and primarily focuses on rural and exurban properties. His value-add strategy can vary from "nothing"—simply find undervalued land and flip it—to projects that include significant site and entitlement work. "It’s on a case-by-case basis," he said. "We look at every property holistically. What does the owner want for the site? What could we sell it for? Are there things that we could do that would enable us to sell it for more?"

That said, most land deals are about buying wholesale—often from legacy family owners—and selling retail. While buyers vary, "usually, they’re end users or homebuilders," says Brian. "Homebuilders are typically willing to pay more if it’s viable. However, they like to tie the properties up for longer and sometimes drop out of contract at a higher rate than a retail buyer. Ultimately, we’ll sell to anyone who provides a solid exit opportunity."

As one gets closer to cities, "land development" as a concept almost always involves selling to some kind of developer, often homebuilders. In those cases, land buyers will usually put significant time and capital into infrastructure—bringing roads, power lines, and water and sewer—as well as re-entitlement, creating dozens if not hundreds of lots that can be sold individually to homebuilders. In many jurisdictions, this can take years and cost many millions of dollars.

Drone photo of a land deal recently exited by @LandLawyerBrian. Picture via his X.

But in rural areas, homebuilders are rare and even end user buyers aren’t always looking to immediately build a home. Brian shared a recent deal in the rural southern US in which he sold parcels to separate buyers. "One of the buyers is stationed at a nearby military base. He wanted a place where he could go shoot guns, drink beer, hang out with his family. The other one was to a prepper from Texas."

In general, rural deals are smaller—in dollar terms—and mispricing is more common, so the upside can be greater. Brian’s focus area is "at least 1.5 hours outside a major metro like Atlanta, or 45 minutes outside a smaller city like Savannah." But otherwise he isn’t geographically constrained: his firm has done deals in California, Arizona, Montana, Washington State, and Oregon as well as throughout the southeastern US. "If you can produce leads of people who want to sell you their property, this can work in any market in the US."

Adding Value to Land

Sometimes, raw land isn’t a fit for Brian’s buyers—end users and homebuilders—for a number of reasons: size, financeability, entitlements, title issues, and a lack of access and infrastructure all stand in the way. To add value, land investors solve some or all of these issues, unlocking a sale to users willing to pay much more per acre.

Size & Entitlements

Often, available parcels of land are simply too big. At $4,000 per acre, a 300 acre parcel of rural land will cost $1,200,000—well out of range for most rural end users, limiting the buyer pool substantially and depressing price.

"On higher acreage properties, you’ll find the opportunity to have a super impactful subdivide," explains Brian. "There is a specific acreage point in any given county at which price really jumps up per acre when you do a subdivision. For example, going from 20 acres to four or five acres might work. In other places, going from 50 to 10 acres makes the most sense. The smaller you go, the higher the per-unit cost associated with land. But even with the higher per-unit cost, more people can afford the smaller tract. You multiply the buyer pool."

In rural counties, land investors typically don’t run into complex entitlement issues when making minor lot splits. "We like to work in states and counties with minimal regulation, and we love it when a county hasn’t adopted subdivision regulations. In most Arizona counties, you can divide any lot with road frontage into five or fewer lots through a simple administrative process," says Brian. "And where a county doesn’t have subdivision regulations, all we have to do is record a survey. Many such counties exist in the southeast," Brian explains.

An attorney by training, Brian does his own research on the rules in any individual jurisdiction before making a purchase decision. "We’ll do some up-front research on a state and see if there are statewide restrictions. Then we’ll look at the county level." The rules can vary significantly by state—in South Carolina, for example, lot splits are easier if the property is on a paved road. Previously, Brian was an assistant city attorney for two small towns near Savannah. "I have a lot of experience with local government regulation."

Entitlement risk increases exponentially with scale. "In most places, it’s not terribly onerous to go to a county and pull a building permit to build a home for yourself. It gets bad when you say, ‘I want to build 12; I want to build 100.’"

Infrastructure

Rural land developers can face challenges very unfamiliar to more urban real estate investors. Occasionally, for example, a property is simply inaccessible.

"You need access, both legal and physical," explains Brian. "If it’s not fronting a road, you need proof of easement—the legal ability to cross another owner’s property." In some cases, Brian has had to buy easements from neighboring owners to gain legal access to his property.

But physical access can also be a challenge. "You actually have to be able to step foot on a property," Brian adds. Sometimes, this can be a challenge, with miles of dense forests and wetlands separating a property from the nearest road. "We’ve had to hire people to clear a path to our properties," a significant cost depending on the length and terrain.

Wetlands—seen here in green on the National Wetlands Inventory—can present a major issue for land buyers.

Electricity, water, and sewage are the other major infrastructural issues facing raw land developments. "How will you deal with sewage? You’re unlikely to have city sewer, so you’ll need to install septic systems. But can the ground handle it?"

For that reason, Brian advises potential land investors to be wary of wetlands and unsuitable soils. "It’s about buildability," he says. "You need enough upland to be out of the riparian buffer zone and actually build. You also need to get a perc test to see if the property is suitable for a septic system."

Getting electricity to a site often involves negotiation with the local utility. In one deal, Brian shares that the properties "didn’t have power lines in front of them, but we got confirmation from the local power company that they would extend their lines from a mile down the road free of charge as soon as someone pulled a building permit." Heading off the power issue beforehand added significant value to the land—and a new pool of potential end-user buyers—for minimal cost.

Diagram of a land acquisition that required running a power almost a mile from the nearest line, necessitating four separate easements. From LandLawyerBrian on Twitter.

Title

In many cases, rural land that has been held in a family for generations doesn’t come with clean title—a problem that can require significant work and hand-holding to address. "In one deal, we had to get 18 deeds signed to get title insurance," Brian shared. "It wasn’t an assemblage, just a lot of people with their hands in the pie."

Solving title issues often involves dealing with complicated family dynamics. While each story is unique, many long-term land holdings have been passed down through generations and now involve family members who may not have aligned interests—or get along at all. "One of the partners dies; he didn’t have great estate planning so his living partner is now in business with the deceased partner’s wife and kids," says Brian. "Lots of strange quit claims. Lots of stuff to clean up."

However, Brian highlights that having the ability—and patience—to solve title issues offers a big advantage in the market. "Dealing with a title issue property is a form of market arbitrage. Few people understand the title situation, have the know-how and patience to fix it—and have the money to do so. So we can get those sites for far below market value, fix them, and bring them to the broader market."

Financing

Merely being familiar with local lenders can also offer a strategic advantage to land buyers. "Many banks won’t lend on land, and many buyers need financing," explains Brian. "Knowing the groups who lend on land in a given area—often local, community banks—is a major competitive advantage. So we have to know which banks are willing to lend on land and connect them with our buyers. There’s no JP Morgan or Truist in these markets. It’s typically a community bank that has circled an area on a map and says, ‘This is my area, I’m comfortable with land here.’"

Taking Inventory

In some cases, land sellers simply aren’t valuing everything on their land. Identifying and appraising timber is the most common way to add value simply by enumerating what’s already on a given parcel. "We’ve never cut the timber, but we do get a forester to give us a timber cruise when we know there’s significant timber value," says Brian. "Then we include that in our sales package. That allows us to capture a lot of that value by considering what the timber’s worth separate from the value of the land."

On Pitfalls

Brian’s list of potential pitfalls in land investing is the same as his list of value-add strategies. While each one of these problems is solvable—with the possible exception of wetlands—buyers should know what they’re getting into before going hard on a land deal. Not having legal access to a property, for example, is solvable. However, buying an easement and building a road costs money, and investors should make sure those costs are included in their underwriting model.

Finding Opportunities

To Brian, his greatest value add has nothing to do with improving individual sites: it’s about finding viable deals. "We’re an advertising company," he explains. "We are a niche marketing company that focuses on reaching owners with vacant land." To do that, Brian sends mail—a lot of mail.

From LandLawyerBrian on X

We dove deep into strategies to find off-market deals in a Thesis Driven letter earlier this year. Of those strategies, we identified direct mail as perhaps the most impactful, reaching owners and prompting responses at a far higher rate than other approaches. "Our number one marketing channel is direct mail," says Brian. "We put a lot of experimentation and time into having great copy to get people to call us back when they get one of our letters."

Brian estimates he sends 10,000 to 20,000 mailers per month at a total cost of $0.71 per letter. He breaks down his costs as follows:

• Postage: $0.39/letter

• Letters: $0.21/letter

• Data: $0.11/letter

"That produces inbound leads," he continues. "Once those come across our desk, we figure out the highest and best use for them and what we can get them for, what we can sell them for, and what we can do to improve the value." Brian generates a deal "for every 1,500 letters," putting his marketing cost at between $1,000 and $1,100 per deal—well below his average deal profit.

Of course, plenty of land investors buy raw land on-market, focusing on the value-add side of the equation rather than finding sites at below-market prices. "There are other people who do subdivide deals who get 100% of their sites on market," Brian adds. "They add value by going through the entitlement process." Typically, land developers working in areas closer to major metro areas will rely more heavily on on-market sites.

But looking where others are not has helped Brian find mispriced deals. "We’re able to find many of the opportunities they do because so many people in the real estate investment community are focused on major metropolitan areas. But there’s land out there in rural areas that aren’t part of an MSA, and there’s still high demand for land in low inventory areas," he adds.

"There may come a day where we need to go on market and look at deals, but we’ve been fortunate so far to get great deal flow from off market channels. Even larger deals, you can get them at a better price off market where the deal makes a lot more financial sense versus when there’s a broker involved and you’ll have to pay commissions."

Financing & Returns

From a check size perspective, rural land deals are fairly small; Brian’s largest land acquisitions to date have weighed in at a bit north of $1 million. Small check sizes and bespoke deals keep larger investors with cheaper capital at bay but also mean land investors either self-fund or raise their capital from small, private investors.

In Brian’s case, he operates under a fairly standard GP/LP structure with his investors—high net worth individuals—earning a preferred return on any deal before Brian’s company earns its promote.

Returns of land speculation can be lucrative even without value-add improvements if an investor is willing to search hard for mispriced deals. "Years ago, people in the space were talking about buying land for 20-30 cents on the dollar," said Brian. "Today, we’re typically seeing—for standard flips—buying 55-60 cents on the dollar. For larger acreage properties, sometimes you’re paying 80 cents on the dollar, but you can afford to do that since you can use leverage and subdivide the parcel so you can get the returns you need. On a cash-on-cash basis, we often triple on our large bank financing deals."

In general, smaller deals can generate higher multiple actual returns. "If the land cost is under $150K we look for close to a 2X return," he explains. In those scenarios, Brian may simply look to flip the site without any value-add work—which takes time and effort—rather than look to subdivide or bring in infrastructure.

But regardless of the business plan, rural land bets can have remarkably short hold periods. Brian described one recent deal with a 120-day hold period: he acquired the land in December, marketed as separate, smaller parcels as the subdivision was ongoing, and fully sold-out the project by March of the following year as the administrative subdivision was completed. "With that one, all we had to do was go get a survey. There was no zoning in the county, so there was no review or anything."

All in, Brian paid $460,000 for the land—249 acres at $1,840 per acre—and exited for $720,000 after closing costs. One 75-acre parcel was sold for $240,000 ($3,200 per acre), and the other 174 acre parcel went for a bit north of $500,000, or $2,900 per acre. While this kind of return required substantial title cleanup, it demonstrates the potential power of mispricing in small, off-market rural land deals. (Readers can find more overviews of Brian’s land deals—like this one—on his X account.)

Given the short hold periods and relatively small amounts of money, Brian spoke of his financial returns more like an operating company—with a focus on operating cash flow and multiples—than an institutional real estate investor. IRR didn’t come up once in our conversation. (And I don’t blame him for not wanting to calculate the IRRs of 160 land deals with four-month hold periods.)

His costs, after all, are more operational in nature: the time spent sending mailers, answering phone calls, dealing with title issues, and wrangling utilities and county offices. Given the small check size and operational intensity of Brian’s business, his model looks more like an operating company than a real estate investment business—a relevant point when it comes to our discussion of scaling in the next section.

Regardless, Brian has had no trouble capitalizing his deals. "We’ve never turned down a deal because we didn’t have the money," he notes. And of all sectors of real estate, the land development business has been fairly immune to rising rates. Most rural deals have short hold periods and low leverage—so the direct impact of rates is muted—and tend to serve buyers relatively insensitive to rates.

Scaling a Land Business

Given the small check sizes and operational work involved in rural land development, it’s worth considering how Brian—or any other investor—could conceivably scale this kind of business. Perhaps unsurprisingly, they plan to scale like an operating company by adding bodies. "You’ve gotta build out the team," explains Brian. "You have to scale it by creating additional producers. Right now my brother and I are the producers. We prepare mail, send it out, take calls, approve deals, negotiate, et cetera."

Scalability issues aside, rural land development can be a tremendous opportunity for the scrappy operator. "Conceivably, you could do this with a bare-bones team and make low seven figures, say, $1-4M per year," estimates Brian. "If you have a bigger team built out, there’s no reason it can’t be an eight-figure business."

That’s not to say there isn’t opportunity for operators to scale up the deal size latter. "We started by flipping armpit properties, 40 acre desert squares in Arizona without power," says Brian. "We’d buy for $15,000 and sell for $30,000. Now we do bigger sites—300 acres for $1 million."

Finding more ways to add value—such as doing site work for a potential SFR development, as seen here—is one way to scale. But check sizes are still very small.

But there’s clearly a limit to scaling through deal size alone. Relatively few individual parcels are larger than a few hundred acres, and prices for large acreage properties well outside major metros or recreation hubs usually don’t rise above five thousand dollars per acre. And doing land work alone—infrastructure, entitlement, and subdivision—doesn’t require a lot of capital, just a lot of time, experience, and thoughtfulness. This would be a tough category, therefore, for anyone who needs to deploy a lot of capital in a short period of time.

"You’re not going out and buying 4,000-acre sites—you’re doing more deals," says Brian.

The Role of Technology

While the fundamentals of land development haven’t changed, Brian’s business does take advantage of technology where they can. For example, they use:

• Datatree to pull property-level data, including owner contact info. We’ve now highlighted Datatree as a key tool several times.

• Land id (formerly MapRight) to evaluate properties;

• Pricing macros to help them price direct mail;

• Rocket Print & Mail to send direct mail;

• GPT4 to organize and synthesize online data scraped from Redfin and Zillow;

• A CRM to stay current on contacts and outreach.

"We use technology every day," says Brian. "If you’re not staying abreast of the newest technological developments and utilizing them, you're going to fall behind."

But the high-touch aspect of value-add in land development—working with county offices on infrastructure and entitlements and resolving complex title issues—means that technology can only go so far in helping the business scale. This isn’t all a bad thing for Brian, as it means he’s unlikely to face institutional competition for deals any time soon. "Negotiate a power line easement with four separate legacy landowners" is not on the short-term roadmap for any real estate tech company I’m aware of.

Even though Brian is now doing bigger deals, he hasn’t moved completely away from his origins. "But we don’t like to turn our noses up at a deal that’ll make us $15-20K. In the real estate world it might be small, but it’d be arrogant for us to say it’s too small if it’s easy."

— Brad Hargreaves