Most people have no idea ...
how much the land game in Texas has shifted.
Interest rates spiked.
Builders' budgets shrank.
But 68% of sellers still want 2021–2022 prices.
If you don’t adjust, you’re setting yourself up to get wrecked.
Here are 6 clear signs you’re about to overpay:
1️⃣ You’re using price per acre as your north star.
Huge mistake.
In Houston last quarter, the spread between the highest and lowest price per acre was 73%.
Smart builders aren’t buying acres.
They’re buying yield potential.
At 3% rates, builders could pay $250K/acre for 12 units.
Today? That land's worth $175K/acre to hit the same profit.
2️⃣ You didn’t update your horizontal costs.
Site development costs are up 41% since 2021.
If you’re not adjusting for that, your margins are toast before you even pour a foundation.
3️⃣ You're ignoring absorption rates.
The average time to sell out a new community has increased from 11 months to 19 months. This dramatically changes the IRR calculation and what you can afford to pay upfront.
4️⃣ You're not factoring in entitlement timelines.
From purchase to breaking ground now takes 47% longer.
Delays mean:
• Higher carrying costs (thanks to 2–3x interest rates)
• Rising construction costs (up 0.5% monthly)
• Higher market risk
5️⃣ You’re using old construction budgets.
Builders who used 2022 construction budgets for 2023-2024 land acquisitions saw their margins shrink by an average of 7.2 percentage points.
6️⃣ You're not adjusting for the new mortgage rate reality.
This is critical. When the average homebuyer could afford a $400K home at 3% rates, they can only afford $325K at today's rates.
If you're still using 2021-2022 metrics to evaluate land in today's market, you're playing a dangerous game.
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Tu Amigo,
David Cabrera
P.S. What’s the biggest land-buying mistake you’re seeing right now?
Drop it in the comments — I’d love to hear your take.
In the evolving real estate landscape, particularly in Texas, understanding market dynamics is essential for builders and investors. One significant factor is the shift in interest rates, which have considerably affected buying power. Builders who rely solely on price per acre fail to recognize the varied yield potential of different parcels of land. For instance, while 2021 prices still linger in sellers' minds, the cost to develop land has escalated due to increased site development expenses—up 41% since 2021. Therefore, ignoring these adjustments could lead to underestimating true investment value and potential profit margins. Moreover, the absorption rates indicate a longer timeline for selling out new communities, shifting from 11 to 19 months. This delay requires a reassessment of internal rate of return (IRR) calculations that affect how much one can afford upfront. Builders must also take into account the increased entitlement timelines, which now take 47% longer, resulting in higher carrying costs and construction risks. The key takeaway for anyone involved in land acquisitions is to remain adaptable and informed about the market's current state while strategically utilizing updated financial models. Ignoring these critical signs could lead to significant financial repercussions in the competitive development arena.
