Week 9: Due Diligence on Land Pre-Construction

Some properties are walking red flags

This edition is mainly about land characteristics and real estate.

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This edition has the following sections:

Learning: The Minimalist Entrepreneur

Adding Value: Due Diligence on Land

Florida Markets: Real Estate Markets

Interesting things: Tweets

Other Stuff: Acristo Engine Progress

Enjoy!

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Learning:

Minimalist Entrepreneur

I began reading this book last week in an attempt to consume material that will flood my mind consistent with my current focus. Since I’m working hard to restructure our construction company and build new software, I’m trying to read as many books on startups as possible. I’m not quite through with it, but here are some of the lessons I’ve gotten from it so far:

• Start without investor capital: Focus on building your business without relying on external funding.

• Begin with a community: Instead of developing a product, identify and immerse yourself in a community to understand their needs and problems​​.

• Profitability is key: Prioritize creating a profitable business at all costs.

• Embrace minimalism in building: Only develop what is necessary for your business.

• Share your journey: Be transparent and authentic in sharing your story from struggle to success, as this can be a powerful marketing tool​​.

• Focus on solving real problems: Ensure your business addresses genuine issues your community faces, providing value and fostering loyalty​​.

• Community contribution precedes business success: Building a successful business starts with being an active and helpful community member​​.

When we started, we looked more at real estate through an investment lens, working to build up our portfolio. Our company has evolved to have a service aspect where we build for other clients, which means we need to shift our perspective from an investment-focused one to a business-focused one where our clients come first.

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Adding Value: Due Diligence

Back in 2019, when we were starting with new construction, we figured building would be the same as the hundreds of value-add (flip) projects we had done in the past. It was very similar in some ways, such as the actual "adding value" part. We hired subcontractors to make improvements on the property. The only difference with construction is that we added value by building everything rather than repairing it.

As we started to buy land, we noticed patterns between excellent and bad lots. Throughout the years, our lead superintendent, Alejandro, and I developed a framework for the criteria we look for before purchasing land. Please note this process has nothing to do with the financial underwriting of the land or market studies. We have already negotiated a good price on this land and plan to build on it. However, we want to do our due diligence on the construction feasibility.

When Alejandro and I were the superintendents at various job sites, we would use the early mornings to see the progress made by our construction crews and make any adjustments. By around 2 PM, many of these crews were done for the day, and we were on to our next objective, visiting new potential job sites that our acquisitions team would text us throughout the day. This was land that they either were negotiating or had under contract. This due diligence consists of two parts.

Part 1 

The first thing we did was visit the site where we would eyeball different aspects of the lot, such as:

• Quantity and Type of Vegetation: The variety and number of plant species on the lot were essential to us. The vegetation type can impact soil stability, drainage, and the need for landscaping or clearing before construction. Often, we were able to identify potential wetlands designations due to the type of vegetation we encountered.

• Lot Shape: The shape of the lot influences the design and placement of the construction project. Irregular shapes require more costly custom designs.

• Lot Elevation: This refers to the height of the land relative to sea level and its topography. Understanding elevation is crucial for drainage planning, foundation design, and resistance to flooding. We often encountered lots with big dips or highly elevated on one side. These could all cause problems during construction.

• Soil Type: Soil analysis determines the composition and bearing capacity of the soil, which affects the type of foundation required for the construction. Soil types, such as clay, sand, loam, or silt, all have different properties that influence water drainage, foundation settling, and the need for soil stabilization.

• Utilities: Assessing utility availability involves identifying access to water, electricity, and sewage services. This includes the proximity of utility connections, potential costs for extending services to the construction site, and any easements or rights-of-way that may affect the project. We would eyeball the availability of these as much as we can.

• Demographics: Understanding the area's demographics includes analyzing the people and places nearby. We want to ensure that it fits the demographics we want for our projects.

When prepping a job site for construction, you have to tear out the vegetation and backfill it with new soil. How much soil is removed determines how much backfill is needed. The costs for the fill can add up quickly, so the less you need, the better. 

The look and feel of the vegetation and soil can tell you a lot about how much backfill you need. The utility situation and the overall look and feel of the land will also help you determine what your finished product will look like. Who are the neighbors? What shopping and dining does the land have around it? These are all important things when we decide to build in a specific location.

Before wrapping up our inspection, we took pictures and documented our findings to give our acquisitions team a better idea of what they were working with. 

Part 2

The second part of our due diligence came to the office.