Is Land Development A Form Of Gambling?
Like it or not, there are some similarities:
Land development is speculation. This means the undertaking of risk with no guarantee of a successful outcome. But when you think about it, almost everything in life has a speculative component.
If two people decide to get married as an example, there is absolutely no guarantee that the relationship will be successful long-term. Just like picking the right partner, land development is a huge decision and you better be totally committed to the undertaking.
The speculative nature of land development:
As a speculative enterprise, land development is highly so, meaning the degree of risk associated with it is unusually high. How high depends on the project, but most folks would agree that it is more risky to be in land development than to be, say, a union pipe fitter or school teacher. But, ahh yes… the reward can be worth the risk!
Land development is a game of chance. In some ways it’s like going to the casino and playing blackjack. The developer being the player and the permitting authorities being the house. When other players get involved in either game the risks can multiply.
How so?
Years back full-blown casinos became legal in my state, but I had never been in one. My personal life turned upside down for a while in 2010, so a lifelong friend convinced me to go on a deer hunting trip to Idaho to get my mind off things. I was about an hour early driving to his house on the day we were leaving and I needed to kill some time. Just about that moment I saw a casino off to my right and I impulsively wheeled into the parking lot, figuring I would spend the extra hour there.
I didn’t know any casino games except blackjack, so that’s the table where I wound up sitting at. It was the mid-afternoon and the table was empty - just me and the dealer. Although I was no expert, I knew enough about the game to not hit 16 when the dealer was showing a 5, but that’s about it. The short story is that I absolutely could not lose. I took just about every hand and although my bets were small at the $3 table, I walked out an hour later with $340.
Land development can be like that when hitting the home run. The project where problems are few and small, the project is on time, the budget is good and you wind up in a strong sellers market at the end. It’s exhilarating and you can’t help but want more. But like a blackjack hand, every land development project is a new bet on a new hand. What happened last time doesn’t really matter going forward.
Multiple players add risk:
As you play your way deeper into the game of blackjack, other factors creep in. Bets can became larger and so can the wins and losses. Also, the odds even out and you don’t hit a home run every time.
In my blackjack days the one thing that really irritated me were other people at the table doing dumb things. Folks that were drinking too much free beer and making careless mistakes, along with the rookies that just didn’t know how to play the game in the first place. So, additional factors come into play - it’s not just the house and you, (in spite of what people say), it’s also the other people playing and the moves they make or don’t make.
Land development is similar. As one gets more experienced in the game, the projects and subsequent risks tend to get bigger. You don’t see many guys that keep doing short plats or 10 lot projects over and over again. You tend to see them graduating to the higher stakes projects just like a card player might graduate to the $25 table to avoid the idiots. The risks are greater but so is the reward.
In land development, like at the $25 table (that has a $300 max bet), you have multiple players in a much bigger game. County staff, environmental groups and the hearing examiner are just three of them. They have a direct effect on outcomes and results are not guaranteed. As more or different players come to the table in either game, variables increase and risk factors change.
All in:
In blackjack, once you place the bet and the dealer turns the first card you can’t back out. You’re in it to the end and it’s the same with a land development project. Sure, you can fold at the card table or bail out of a problem project, but it’s going to cost you. Most players in either game will try to adjust and stick it out to the end. Even if you do, you can still go bust since there are no guarantees in speculation.
In blackjack the rules are clear and they are played and enforced with consistency. Not so much with land development, where rules can be open to interpretation by county staff, the hearing examiner and a multitude of other agencies. Land development has many more rules and it gets more complex since the rules apply in different ways based on the varying characteristics of a project.
What’s my opinion?
Land development is certainly risky, but in the end I don’t feel like it is gambling. Through continually refining what works and avoiding what doesn’t, I can deliberately change the variables in my favor. This makes it less of a game of chance and more of a game of skill based on knowledge. There’s still risk, but it can be managed and minimized. The best way I know of to tilt the odds in land development is to be properly funded, make smart acquisitions and put together a quality team.
Getting the right team is always a key area of focus since most projects require experts in varying fields. They not only work for me, but they also have to work effectively amongst themselves. When a team is high-functioning, good results typically follow. I almost always find that the collective knowledge of the team is greater than any single member, so I don’t have to know it all myself.
Land development involves risky actions that are taken with the hope of a significant monetary reward. It is a game of chance - therefore speculative. I couldn’t cut it playing the odds as a blackjack player so I quit for good; but I was able to succeed in land development through learning what works to manage risk and avoiding what doesn’t. You might too, if you’ve got the right skill sets. Good luck!
