The atrocious underwriting behind most subdivision agreements in the real estate industry has driven me crazy.
Insulted? Good, but for traders who want to improve, read on.
Having reviewed thousands of “potential” subdivisions (and I bought and sold them successfully), I think less than 5%, probably even less than 1%, of the land industry has a good handle on land subdivision analysis. The focus here is on minor, or major, subdivisions that are not be sold as lots of paper to a developer or builder.
This article is intended to be as basic as possible, as I want to refer to these guidelines regularly, including with my team.
Some quick definitions:
- Minor subdivisions They typically involve dividing the land into fewer lots (usually 3 to 5), with limited or no infrastructure, and allow for a quick approval process.
- Main subdivisions They involve dividing the country into more total lots (varying widely, but potentially in the hundreds), often with stricter infrastructure regulatory requirements.
- Main plots They are the original subject property before a subdivision.
- Children’s packages are the new lots created from the main parcel after a subdivision.
RELATED: What are parent-child plots?
Warning: This is a STARTING point. These are bets that apply approximately 99% of the time, anywhere in the country. But each piece of land will have its own unique characteristics, its own market and its own set of regulations. Adjust accordingly; The subdivisions are complex.
And if you only take one thing away from this, never forget that the market does not care about your VISION; only rewards the TRUTH.
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Step 1: Testing Market Precedent
On the aerial map, are there parcels with similar acreage (within ~1 to 2 acres) as your proposed subparcel plan within a ~5 to 10 mile radius, with similar features such as outline and street frontage?
- If yes”: That’s a good sign. The market has shown that it accepts that product.
- But”: You are the first to move. This is a huge red flag unless you have patient capital and an appetite for long wait times, potentially for years.
Understanding whether comparable subdivisions exist in your target area is the foundation of an effective parcel division feasibility investigation. Unprecedented in the market, you are basically experimenting with buyer appetite using your own capital.
Step 2: Volume Analysis and Price Appreciation
For step 2, check sold, pending, and active listings within a radius of approximately 5 to 10 miles. The closer, the better. Some areas will warrant extended search radii.
If you are creating 2 child parcels of similar size, please note at least 2 times the secondary packages (compared to the area of the main parcel) sold or pending in the last 3 to 6 months, maximum 12, in that area. Bonus points if sold or pending comparables are from another subdivision project.
Creating 3 child packages? Needs 3 times the comparable volume sold or pending compared to the area of the main plot.
If the subparcels are spread over multiple acres, such as three 5-acre parcels and two 20-acre parcels, adjust the multiples of sold or pending comparables for each acreage band.
The active market is effectively the opposite. If you see a bunch of active secondary parcels (particularly if they are grouped together as part of another subdivision project and have similar characteristics), be more careful about bringing in additional inventory, unless you can significantly undercut the market. The longer the collective days on market (DOM) of active listings, the more cautious you should be.
Ask yourself:
- Are they all closer to an interstate or city limits? Note where the child packets are moving. If your project is much more rural, it may blow up in your face.
- Are the secondary plots moving significantly faster (for example, 2 times faster) than the surface of the main plots? While rare, this may offset lower sold or pending volume, but be more conservative if making a decision from this point of view.
Step 3 – Price Per Acre Appreciation (PPA) Must Be Real
For step 3 in the subdivision analysis process, as a general rule for secondary parcels larger than ~2-3 acres, the PPA should show at least Appreciation of 1.5 times on the price of the main plots. For secondary plots below that area threshold, the gross price should be at least a 1.5x premium, as the PPA breaks down.
To be very clear: If my 50-acre primary parcel acreage is trading at $10,000 PPA, then my single split pair of 25-acre secondary parcels should be trading at a minimum of $15,000 PPA. Anything less means you won’t have a sufficient risk premium that takes into account the schedule and cost of the subdivision, potential adverse selection, and the DOM.
The more secondary parcels you bring to market (especially if they are roughly the same area), the greater the appreciation of the PPA should be.
The mechanics of the agreement can make a key difference in this case. If you are purchasing a main parcel outright, you will want greater appreciation of the PPA. If you are partnering with the seller and your capital outlay is lower, a lower margin may be acceptable. This is a completely different discussion, but it’s worth mentioning here.
Step 4: Take adverse selection into account
Are all secondary parcels relatively uniform in physical characteristics, or will one or more parcels be significantly more or less desirable than the others?
If you are creating 3 plots and one needs significant grading to account for an unsightly contour and is also affected by wetlands, while the others are flat and clear, You cannot average the price. Lower packages will reduce your combined return and potentially dramatically lengthen your total DOM. Model each subplot separately with conservative assumptions about the weakest bids.
RELATED: How to identify (and avoid) wetlands
Remember, if you are introducing a package that is in the Bottom 25% from a characteristic perspective especially anything that has been sold and is on the market, then you should think twice before buying it.
Step 5: Know your true total costs and timeline
For the final step, assuming you’ve cleared the previous 4 hurdles, what is the actual total cost of subdividing? Includes filing fees, studies, engineering, legal matters and transportation costs during approval.
What is the approval process? Are there hearings? Planning commission reviews? Environmental evaluations?
Most operators underestimate both costs and schedule or I haven’t done any research on either. If you carry out horizontal development work (for example, cleaning and access), add a minimum 25% cost margin to soft quotes to be safe… and triple the quoted schedule.
A thorough analysis of subdivision costs requires taking into account all indirect and physical expenses, as well as the opportunity cost of capital over long approval periods. The difference between projected and actual expenses often determines whether your business makes a profit or loss.
The conclusion
Most of the time, after rigorously applying the above steps, the market willpower Let you know if it is better to try to sell the main parcel instead of trying a subdivision.
Even if the data indicates that a subdivision is a good option, the market may surprise you (as he usually does), where the only serious buyers want the entire area. Therefore, having optionality is ideal, as you can at least break even by selling the main parcel acreage, net of all added value and closing costs.
Almost no one who sends us subdivision agreements has even worked ONE of the previous steps. I realize that the steps above are not as simple as I intended. Ultimately, there are so many nuances in the land that it’s hard to boil things down to strict rules. So you have to get reps to start seeing things as clearly as my team and I do.
Subdividing works… when you follow the guidelines. Otherwise, the market will beat you down. Difficult.
Whether you are considering partnering with us or evaluating a subdivision on your own, review this checklist first.
If you can’t confidently answer each section with data, subdivision probably won’t work.
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Originally published in https://seriousland.capital on November 24, 2025.
