Creating Value with Subdivisions

One of our value-add strategies centers on creating subdivisions.

Subdividing land creates more useable and affordable parcels, so we can exit properties:

• At a higher per acre price

• In a stepwise manner to reduce our cost basis and mitigate risk

Subdivisions add significant value, reduce risk, and provide upside for our investors.

Due Diligence

During our 10-step due diligence process, we determine whether a subdivision is the highest and best use of the land. If so, we evaluate the project across three areas:

Property

• Zoning

• Covenants, conditions, and restrictions (CC&Rs)

• Roads and easements

• Topography

• Flood zones and wetlands

Local Jurisdiction

• Regulations and processes

• Timelines

• Costs

Engineers and surveyors

• Experience levels

• Lead times

• Costs

This process informs the feasibility of a subdivision, along with its associated costs.

Forced Appreciation

Smaller lots have a higher per acre value than larger parcels since zoning regulations typically allow one building per lot.

To put this into concrete terms, imagine the following scenarios:

• One family lives on a 4-acre property

• Four families live on (4) 1-acre lots

More people get value from a subdivision, which increases its overall value.

Risk Management

Smaller lots are also more affordable, which expands our buyer pool and accelerates sales cycles. 

In turn, we’re able to manage risk more effectively by recouping our cost basis in a stepwise manner.

In the chart above, the dark blue represents the cost basis of a subdivided property sold at 3-month intervals (given an expanded buyer pool).

The light blue represents the cost basis of repositioned land sold at 12 months (without a subdivision).

Since subdivisions sell incrementally, they mitigate risk by reducing our exposure to market events and competition.

Returns for Investors

Subdivisions increase the value of real estate and help mitigate risk.

It’s a win-win for our investors, who enjoy attractive risk-adjusted returns from subdivisions.

If you’re interested in reading our in-depth guide on creating successful subdivisions, please see The Ultimate Guide to Minor Land Subdivisions.