Recreational Land Subdivide Loans: Buy Big, Split It, Sell the Tracts

How does a recreational land subdivide work?

You buy a large tract, split it into smaller hunting or recreational tracts, and sell them one at a time. A 120 acre tract has few buyers. Eight 15 acre tracts have many, because more people can afford them. Smaller tracts usually bring more per acre. Sell them on owner financing and the pool of buyers grows again. The profit is the gap between the bulk price and the retail tract prices.

This is one of the oldest plays in land investing, and it works in most rural counties with hunters, weekend campers, and people who want a few acres to call their own. The work is in the split: a survey, maybe a road or an easement, and the county's approval. The money is in the resale. Our job is to fund the buy fast so you get the big tract before the next investor does.

How much will you lend on a recreational subdivide?

Up to 80% of the after subdivide value if the plat records at closing, never more than the price. If the plat records at closing and perc tests show conventional septic on every lot, we lend up to 80% of the after subdivide value, capped at the purchase price. If the plat records after closing, we fund 65% of the as is value at closing and release 15% more when the plat records, if the value is there.

Either way the loan never goes over 80% of what you are paying, and the numbers come from comparable sales in the county, not an appraisal. Cross collateral can cover the rest of the down payment: pledge one other property you own free and clear. The instant land loan quote has a Subdivide option that runs both cases.

Do small recreational tracts need a perc test?

Under 10 acres, yes. We need a perc test approving a conventional septic system. Subdivide loans with lots under 10 acres need a perc test showing a conventional septic system will work. The same rule applies when we buy notes on tracts under 10 acres. At 10 acres and up, no perc test is needed. So cut your tracts at 10 acres or more, or perc each one before you sell.

Why do we care? A buyer who cannot put in a septic system cannot build a cabin, and a buyer who cannot build is more likely to stop paying. That makes the lot harder to resell and the note harder to buy. Many recreational investors cut at 10 acres or more on purpose. It skips the perc test and still keeps the tract price where local buyers can reach it.

How do partial releases work when a tract sells?

Each tract has a release price. Pay it at the tract closing and that tract comes off our lien. Before closing we agree on a release price for each tract. When a tract sells, the closing agent pays us the release price from the sale, and we release that tract so your buyer gets clear title. The loan shrinks with every sale until the last tract pays it off.

More on how this works in how partial release clauses work and on our subdivide financing page.

Can you buy the notes when I sell the tracts on owner financing?

Yes. We pay 80 to 90% of the note balance, at the same closing if you want. Sell a tract with 20% down and carry the rest on a promissory note. We can buy that note at closing, so you walk away with 84 to 92% of the sale price in cash. Part of that cash pays the release price on our loan. The rest is your profit, today instead of over 10 years.

Our note rules apply to each tract: promissory notes only, no land contracts, $25,000 minimum balance, $50,000 minimum property value, 65% max ITV, legal access, not in a flood zone or wetland. We do not buy notes in California, Hawaii, Louisiana, Maryland, New Jersey, New York, or Pennsylvania, so in Louisiana, Maryland, and Pennsylvania we can fund the buy but not the notes. Details on the sell at closing program and the note buying criteria.

What does a recreational subdivide look like with real numbers?

Here is an example, not a real deal: a 120 acre tract at $300,000 split into eight 15 acre tracts. The plat records after closing. We fund 65% of the $300,000 value, $195,000, at closing and release another $45,000 when the plat records, $240,000 total. Each tract sells for $52,500 with 20% down on owner financing. The release price is $30,000 a tract, so eight sales pay off the loan.

Each note is $42,000, over our $25,000 minimum, and each tract is worth over $50,000, so the notes qualify. At 80% of balance we pay $33,600 per note, which also fits our 65% ITV cap if our value on each tract holds at $52,500. With the $10,500 down payment, you take in $44,100 per tract at closing, 84% of the sale price, and $30,000 of it goes to us. The survey, road, and county costs come out of your own pocket. We do not fund them.

What does a recreational subdivide loan not cover?

Survey, roads, platting, utilities, and any site work. We fund the land purchase only. Survey, platting, road building, utilities, and county fees come from your own capital or a partner. Budget for them before you make the offer. County rules on splitting land vary a lot. Call the planning office before you buy and ask what a split takes there.

Want a sense of those costs? See how much it costs to subdivide land. We lend in every state except California, Arizona, Nevada, New York, New Jersey, North Dakota, South Dakota, and Vermont. 2 acre minimum on the full tract. Business purpose, entity borrowers only.