Seth: Hey folks, how's it going? This is Seth Williams. You're listening to the REtipster podcast. This is episode 188.

Today, I'm really excited because I get to talk to Marco Santarelli. Marco is someone I really look up to in the real estate industry. This guy has been in the business for a long time. He's seen a lot of things. He's done some big deals. I've heard Marco present a couple of times at REWBCON and every time he talks, I walk away with some big aha moments that help me understand the real estate market better. This guy is like a walking encyclopedia of knowledge.

And Marco is an investor, an author, a two-time Inc. 1000 entrepreneur. He runs Norada Real Estate Investments, a company that helps investors achieve financial freedom through smart turnkey real estate opportunities. And today, he's going to share his wisdom and experience with us.

Marco, thanks so much for being here. How are you doing?

Marco: I'm good, Seth. How are you?

Seth: I'm very good. So yeah, I wasn't joking when I said I was excited to talk to you because I've watched you and respected you for a long time. And I think people are going to learn a lot from whatever we talk about here. So maybe we can just kind of start where a lot of these conversations start.

If somebody has not heard of you, tell me a little bit about your journey. Like when did you get into real estate investing? How long have you been at it? What drew you into the niche of real estate that you're currently in?

Marco: Well, the short story is basically this. I fell in love with investing in real estate when I was a teenager. It's a weird thing to say, but I just looked around and I realized I wanted to be financially free. I called it being “rich” back then, but not really understanding what rich meant and what being wealthy meant and all that kind of stuff.

But ultimately, I just wanted to live life on my own terms and have time freedom. So for me, that was just being rich.

But today I look back and I realize, okay, I just want to be financially free. And that gives me the time freedom. But I discovered that as a teenager. And then, when I turned 18, I bought my first rental property. And it's a pretty young age for becoming a real estate investor. But I knew what I wanted. I just had to wait till I could qualify for financing.

So I had to be an adult. And that means I had to be 18. So I started when I was 18 years old. But yeah, that's how I got started in real estate. Slow at first. Then I bought a second property. I got my real estate license and started selling real estate to better understand it and to make money because every real estate agent thinks that they can make a lot of money through real estate commissions. So that was kind of the path I was taking at the time.

And that didn't last for too long because I hated being a chauffeur and carting people around in the backseat of my car, showing them houses. But I've always had a love for business, entrepreneurship, and investing. And everything I've done since then through an interesting winding journey of successes and failures have been through businesses, entrepreneurship, investing in anything and everything from oil and gas to crypto to cannabis to real estate, you name it. I just found out over the years where my strengths and interests lie. And I just started to focus more and more on that.

And so I love business. I love real estate. I love technology and technology-based businesses. And I love passive income and something that real estate is great for in terms of providing us passive income, tax benefits, and the ability to not only preserve our wealth, but to grow it over time. And that's why I focus on those two things.

And really, if you step back and you look at my journey, it was all about building businesses, scalable and viable businesses to generate income and take that income and invest it into income-producing assets and business, other business ventures. So you just kind of stack on your successes and leverage the income and the profit you make from your businesses into growing it into more profitable business ventures.

And that’s what I’ve done over the years. It’s just building on one success after another. Not all of them are successes. I've had failures too.

Seth: You've had failures. No way. That's impossible.

Marco: If you don't have failures. I don't see how you could be successful.

Seth: Yeah. I think, Seth Godin said if failure isn't an option, then neither is success. Something to that effect.

Marco: Yeah. I think it's something to that effect. I've heard it said that you can learn at least 10 times more from a failure than you can from a success.

Seth: Yeah.

Marco: There's not a lot you can get from a success other than just knowing exactly what you should be repeating and continuing to keep having that success. But when you have a failure, you can look at everything that has gone wrong and what was going right and learn how to change what you're doing, your systems, your processes, whatever it may be, your marketing, your operations and do things better.

So there's far more to be learned by a failure. In fact, if you have a failure and you walk away, not learning anything from it, you've actually completely failed. Because a failure can be a success by learning lessons from the failure in order to know what to do and what not to do the next time.

Seth: Well, I appreciate you talking about that and just mentioning failures because that's something that I feel like nobody talks about in these interviews. So I'm curious, what is an example of a failure you've had and what happened to make it fall apart? What were some of the lessons you learned from whatever that was?

Marco: Well, there's probably many. The first one that popped into my mind was back in the dot-com days. So let's just talk about that. It's not necessarily real estate-related, but it's just being an entrepreneur and wanting to build something and make money or be profitable or be rich.

So back in the late 1990s, in the dot-com era, when everybody was trying to make a fortune with the dawn of the internet and where that was going, that was the new frontier. Two business partners and I got together to form a dot-com business. It was actually the offshoot of a brick-and-mortar business, an online business, a publishing business. And so we wanted to create the Costco for the club industry.

When I say club, I mean golf clubs, country clubs, even city clubs and whatnot. They buy everything from toilet paper to tractors, food and beverage, you name it. Like, if you go to a country club or any kind of golf club, anything and everything that's there is something that they have to purchase.

And so my cousin, he had this media business and he published a magazine to the industry. And so we decided to launch a dot-com business. So we started raising capital from venture capital lenders or investors in Northern California, we ultimately raised a total of $9.5 million. And we built this company up to 105 employees.

And operationally, it was doing well. But from a marketing and sales perspective, it was failing. We weren't generating enough revenue and profit to keep the business going, to sustain it for a long period of time. Which was typically not a problem back in those days. Because if you had essentially a dot-com business, venture capitalists would continue to fund your ventures until you got profitable or you went public or you had some sort of exit or liquidity event, which made it profitable for everybody.

Well, that's the path we were on. We were on the path to an IPO, to taking the company public, and then everybody would have an exit. Long story short, the stock market crashed. And at that point, everybody got cold feet. So all the investors, as in the venture or capital investors, they basically put brakes on providing any more funding. And so we had no more funding. We had a burn rate of over $100,000 a month and we didn't have the capital to keep going and sustain the business.

So, ultimately, we just had to fold the business. We had to close shop and we laid off all 105 people. I was the third employee. I was the partner and I was the third last to leave. So it was kind of a sad last few months, if you will, just having to let everybody go.

Anyway, that's a failure, but it was a good idea. It was just too early. It was too much, too soon, too early. And if we had started six months earlier, we probably would have gotten to that publicly traded level of having an IPO and offering, and just been sitting on a whole bunch of cash because of the liquidity event from that. Or at least in part, because you can't sell all your shares right away.

But it was a failure, not because of something we did wrong. It's a failure because of poor timing, a stock market crash, and maybe it was a great idea, but just too soon.

Seth: Yeah. So it seems llike,in terms of like a lesson, it's almost like there was no lesson because you couldn't have known that, it wasn't really your fault. It's not like you made a mistake. Is that the universe was not working well with you at that point in time, right? Or was there something you could have done differently with the limited knowledge you had back then?

Marco: Well, there's always something to learn if you dig deep enough.

Number one, the importance of timing. If you have a good idea, you have to make sure that you're entering the market and executing on your marketing plan and whatever your strategic plan is at the right time and executing fast enough and hitting your milestones soon enough.

Because if you don't do that, that six months’ difference, from starting six months earlier and being able to hit our milestones, our target dates for taking the company public six months sooner, made all the difference from making no money and losing money to having made millions of dollars. Timing is so critical in a lot of ventures.

Two, it makes you look at the importance of revenue and the importance of profitability. If you have revenue but no profit, you don't have a sustainable business. You won't be able to survive for very long because you're going to be burning whatever you have in your coffers, your bank account. So you have to consider revenue, but you have to consider profitability. You have to consider your expenses. You have to consider what your profit margins are and how soon you can get to profitability.

Because if you don't have a profitable business, it's not sustainable. If it's not sustainable, you'll never get to a viable business where you have all the systems and operations and procedures in place to continue running that business and actually walk away with it and let the business keep running without you being there.

So you start to look at these things in terms of timelines.

Seth: Yeah, that's the tricky balance with business. On one extreme, you could say, I just want to do good for the world and money doesn't matter. But you can't do that. You got to think about the revenue and the profitability.

But, I don't know, it's kind of like it loses its soul when you don't actually have a greater purpose or mission behind it. But finding that sweet spot where you're doing good for the world and you're making good money from it, that's kind of like the Holy Grail everybody's looking for. It's not always easy to find that.

Marco: No, it's true. And you're talking about purpose, and it's good to have purpose in a business.

Today, with the business ventures that I'm involved in and with several of my business partners, purpose is a central focus. We give back. In some of our companies, some of our businesses, we give back 10%. We contribute or donate 10% of the profit to charitable nonprofit ventures.

And the one specifically that my partners are building that I'm involved in is called Impact Others. And it actually has a website called impactothers.com. And we have people making donations as little as $25.

But what we're doing is we have projects all around the world where we're providing communities, needy communities, with clean, drinkable water, often from wells that they don't have. Like they just don't have water. You know, water is a struggle, basic thing. But clean, drinkable water, food on a daily basis, training the locals in entrepreneurship so they can be self-sustaining, learn how to run a small solopreneur business and be sustainable. So now they can feed themselves and their families. Schooling, like education for the children in the community and make that a sustainable part of it.

And so these projects can be anywhere from $20,000 to $100,000. And so, the donations that we bring in just go to funding those projects. And we put each project on the website so they can see, oh, here, this one's in Ghana or this one's in Pakistan or in India. And this is a $50,000 project. And here's what we're building out. So that's the purpose. Like, that's the give back part of it all.

Seth: It's awesome. I'll link to impactothers.com in the show notes, retipster.com/188, if anybody wants to check that out.

So Marco, the things that you've talked about the past couple of years at REWBCON is why you are bullish on real estate. And in other words, like things are looking up. It's going well. It's going to keep going well.

I'm curious why, because that's something I think I needed to hear a lot last year. And you gave really good sound reasons for that. It's something a lot of people are constantly wondering about. Like, is the bottom going to fall out next year? Is it all going to go horribly wrong? So what are your reasons for why things are looking up?

Marco: Well, there's a lot to say about that.

Seth: Try to summarize in 30 seconds if you can.

Marco: Yeah.

Seth: I'm just kidding.

Marco: Yeah, I'll try not to be long-winded, but we can kind of do a little bit of a deep dive in two or three of those areas.

Basically, it's this. It's if you consider what Jon Gray said, who's the president of Blackstone, very smart guy. I mean, he's the guy who started Invitation Homes back in 2012. And they've just been one of the largest, if not the largest purchaser of single-family homes in and around the United States for the longest time. Very, very smart guy. He's probably got a net worth of $7 billion, according to Bloomberg. So he's not a schlep. He's a very successful person.

And Blackstone, as a company, brings in between $100 and $200 billion of capital a year, if not more. They bring in a lot of money. So they put that money to work. And a lot of what they've been focused on is residential real estate And back in January of 2022, in the Wall Street Journal, he said, never in his 30-year career has he seen real estate fundamentals as strong as they were two years ago, like two years ago around this time. And that's pretty much still true to this day.

So Jon, at the Blackstone earnings call they had in late January of this year, he basically said that the overall backdrop in the U.S. is a housing shortage. And that's namely in the single-family space, like the residential but single-family space. And that's the area that they've been focused on for a long, long time. And these guys spend lots of time and they put a lot of resources and people and money into doing research around the country and figuring out what the heck is going on.

So this kind of spills over into the multifamily space like duplexes, triplexes, fourplexes and even small-to medium-sized apartment buildings, which is kind of where Blackstone is moving towards. It's not just single-family homes, but in the duplex, fourplex and small apartment space, because there's such a lack of inventory for residential real estate. That kind of sets the stage of what is going on.

But at the core of it, it's really about fundamentals, like the macroeconomics of it. And that's just supply and demand, economics 101. When you look at our existing housing supply, what inventory is available, the inventory that's available right now is floating somewhere around 1 to 1.1 million units.

Now, that sounds like a lot, but that is actually almost at the historic low. Because if you go back to 1982, the historical average of our existing housing supply is about 2.2 million units. That's how many units we need per year to supply the existing demand for sales and new households, new household formations in the country because of organic growth and immigration.

And if we don't have 2.2 million units, and you'll see different numbers on this, you'll see 2.5, 2.7. The point is still the same. If we don't have that number of household units per year, then we're in a deficit. And that just means that each and every year we are getting further and further behind in terms of how much housing we actually need.

So this is a perpetual problem where we have housing demand exceeding the existing supply. Now, granted, it's improved over the last two, three years, because builders have just hit the gas pedal and started to create more and more new housing construction, like new housing units, which is great. It's helped.

But if you look at housing inventory from the oversupply or undersupply perspective, and you look at what's for sale, what's for rent, how many permits are being pulled versus how much new housing stock is actually being built by builders, you actually get a more interesting number. You will see that housing is actually undersupplied right now by about 2.1 million units.

So that is a pretty serious problem. Having higher mortgage rates as of late over the last year adds fuel to that fire, that problem, because it lowers affordability. Fewer people can qualify for housing to buy their own place. They're forced into the rental pool, which is not a bad problem if you are a real estate investor and you own a portfolio or you're building a portfolio, great. That pushes rental prices up, which lowers affordability for renters.

But it's good for you as an investor because it means more rent, more revenue, more profit from your real estate portfolio. It also pushes real estate prices up, which is price appreciation, which means your properties are actually valued at larger amounts, like larger dollars. So when you're on that side of the fence or on that side of the equation, it's better for you, but it still creates a problem.

So with these higher mortgage rates, they've been squeezing the market and squeezing people out of the buying pool and into the rental pool, which means that it's helpful because it lowers demand for housing, which is already constrained. But we're still seeing a downward trend in terms of housing inventory. That's a bad thing.

But that is turning around. Mortgage rates are coming down. They will continue to come down slowly over time. We will ultimately see this problem resolve itself based on current trends by about 2030. So we're still about six to eight years away before we see an equalization or normalization in the market. But that's subject to change too. There's a lot of factors that can come into play in terms of mortgage rates, people's credit, the amount of debt they carry, meaning how affordable, how well they can afford housing.

But the point of all that is this, lack of supply, strong demand, it's creating constraint in the market. So if you're a real estate investor, it's great for you. And this is why I'm bullish because we do have a lot of opportunity in the housing space, whether you're a builder, an investor, a flipper, whatever it might be.

So I can pause there. There's a couple other reasons I'm bullish, but fundamentally speaking, that's the big one.

Seth: So on that, a lot of people in our audience are land investors and many of them, the way that they work with land is they buy larger parcels of land and then subdivide them to create more parcels that they can then be built upon. It kind of goes hand in hand with the housing market and how much building is going on.

But I'm curious for like developers and subdividers and people like this who help create new inventory, what would be some warning signs to see on the horizon, whether it's one year or five years or 10 years from now? Like, what can we be looking at to say, this may be coming to an end pretty soon. Maybe we should slow up or we should stop working so hard as trying to create new inventory. Any ideas what the warning signs would be?

Marco: Are they subdividing the land to create buildable lots?

Seth: Usually, yeah.

Marco: So this is for residential?

Seth: Yeah. I mean, sometimes it's a major subdivide, where they take a big parcel and turn it into hundreds of smaller ones. Other ttimes,it's taking like a 40-acre parcel and turning it into four 10-acre parcels. But usually the idea is that something will be built there in the near future.

Marco: The best thing you could do as a real estate investor in general (it doesn't matter whether you're involved in land or not; it's irrelevant) but stay focused on housing trends.

In fact, that is so important to me. I actually spent five figures for the domain name housingtrends.com. That's how important it is to me. I'm actually building a site that's going to help land developers, land investors, residential investors. I'm building a tool. There'll be free content, but it's subscription-based tool that provide all kinds of data and analytics for people looking at what's going on in a state, a metro area, a subdivision, a zip code or a street. So you can see where supply and demand sits and pricing trends and all that kind of stuff.

So what I'm trying to say is you've got to stay focused on trends. If you stay focused on trends, you'll know what's going on. And trends can be price trends, sales trends, and a good one for land investors, land speculators, land flippers, or land developers are the number of permits being pulled by builders in an area.

If builders are not pulling permits or making permit applications, that's telling you that demand is waning or demand has gone away. But if builders are moving in into an area and they're pulling permits and they're wanting to build, they're planning to build in the next 6 to 12 months because they're pulling permits, that's a good sign. It just means that there's going to be demand for land and buildable lots and whatnot.

And you could position yourself to potentially sell that land to more of the smaller boutique builders, not just the D.R. Hortons or the Stanley Martins of the world. But you can look at the custom home builders or the small boutique builders because they don't want to buy land and put it on their books. They want to build a house on a parcel of land that's either pre-sold to a buyer or that they're going to buy at the last minute to build a house that they just sold to a buyer that wants to build it in the area.

So now they've got the buyer, they've got the deposit, they've got everything they need. They just have to lock down the land that they're going to be building on. So that's kind of a strategy.

Seth: I remember when I was building my storage facility, that was one thing I looked at kind of for a different purpose, but just to make sure there's no competitors being built at the same time I was building mine. I called the township and asked to see any permits they might have. And it was kind of a process. I'd put in a FOIA request and pay money and all this stuff.

So, how do you do that at scale? And is there some website that shows you all the permits being pulled and how much does that cost and how much is too much or not enough?

And even just in general, like your REWBCON presentation, there's so much information you look at to stay on top of these trends. Like, where do you even begin? What do you look at and how do you make sense of these trends?

Marco: Permanent information, it depends on the county. I mean, it's county by county. A lot of it is available at the county level. Sometimes it requires manual work, but that type of information is free.

But there are content aggregators. I can't name one off the top of my head. The data I buy is kind of from a private institution. It's very expensive data but they already aggregated the information from other sources. I don't know what all the other sources are, but I will say this: you could do a Google search and find information about permits being pulled.

I’m not sure what you would type in, like new building permit applications, new building permit trends, you'll probably go down a rabbit hole. You'll probably start to find some some websites and articles that provide that type of information. I think Zillow or Redfin or maybe Realtor.com has that information or had it at one time. They actually published existing home inventory and new home inventory. And then tied to that, they had building permit applications.

I will say this. I know the information is out there and it's available and it's probably available from multiple sites. It's just a matter of some Google searches to find it. But that information is available. I know I've seen it on many websites.

Seth: I know on Land ID, you can see where the developments are and who the developers are. I don't know if that's like building permits per se, but you can at least get an idea of, like, who's building in what areas of the city, that kind of thing.

Marco: Yeah. I know that information is available because the data service that I subscribe to, which is over $3,000 a month (it's not cheap), provides that information on a community basis, like down to the community level. So you can see who's pulling the permits and how many are being pulled, right down to the community level.

So that information exists. I know it's out there. It's just how it's presented or packaged.

Seth: So this other data that you look at for your REWBCON presentation, like understanding the current inventory throughout the country. How much stuff have you looked at to come up with that? Is there some website you're following or something, or does it just take you hundreds of hours to pull that information together?

Marco: No, there's all kinds of websites out there.

And again, it goes back to doing Google searches, but every website out there has similar information, but also different information. And sometimes it's the same data, but they present it differently.

Like Neighborhood Scout is a website that I helped shape. I have no interest in it. I'm not an owner. It got bought out by CoreLogic. So Neighborhood Scout is one. Then there are chunks of information available from Zillow, Redfin, Realtor.com. They aggregate a bunch of information. John Burns Real Estate Consulting has some information on their social media platform.

Seth: I'm linking to all this stuff in the show notes again for all the listeners out there.

Marco: Yeah, Altos, A-L-T-O-S. Altos Research is also a good site. They have a lot of good information and they pull from all the MLS sources around the country.

Seth: Nice.

Marco: Not the actual data. Well, they pull data, but they pull the trends from that data. The government websites aggregates all the statistics.

Datausa.io is another one. The National Association of Realtors has tons of information. Harvard. It publishes a lot of great information as well.

Seth: So that's the kind of stuff you look at when you're trying to make sense of what's going on nationwide?

Marco: Yeah, that's some of it. Believe me, there's tons of it. ApartmentLlist.com used to publish rent-based data. U.S. Bureau of Labor Statistics. That's the one I was thinking of. So U.S. Bureau of Labor Statistics has mountains, mountains of data. So it takes a little effort to kind of weed through it. That's another one. So that's BLS.gov, the Bureau of Labor Statistics.

Statista is kind of a mess of information, but you can find some very interesting research and insight there.

The Milken Institute used to publish information. I don't know if they still do, but they used to publish a lot of information. There are so many others.

Like, I mean, Google's almost your best friend. And just typing in search phrases that are clear and specific, and it'll just take you to a whole bunch of places that you can go down rapidly.

Seth: Yeah, I've heard of some of those. I have not heard of all of them, but that's great info to start with.

That's a funny thing with the Google. It's almost kind of like a forum sometimes where it's like, this is good info, but like, how do you really know when it's the best or the right info or if that person really knows what they're talking about? So it's helpful to hear from you the specific places you check out.

Marco: Yeah, those are many of them.

And then there's a bunch of them that are paid subscriptions. Like you won't get any kind of information, but they’re warehouses of massive data, like they have an unbelievable amount of data on every single property in the country. It's just a crazy aggregate.

And those are the people that I'm talking to in order to build the website. I ultimately want to build that housingtrends.com. I'm going to license the data and then use that data to create the maps and analytics and trends and reporting and stuff that I want to provide to real investors, ultimately.

I mean, that's more of a pet project for me. It's not something I need to do. I just don't have the time for it.

Seth: No, that sounds super valuable.

Marco: I want to do it just as a pet project.

Seth: Man, that's awesome.

So like, are there any particular challenges you see investors facing today or that they will face in the next few years? And how do you think they're going to overcome those?

Marco: Yeah. One challenge is just the lack of available inventory.

If you roll back to pre-COVID, it wasn't that difficult. It was getting more difficult to find inventory, but it wasn't that difficult. But then things got tighter and tighter and inventory kept dropping while demand continued to increase. So one challenge is finding enough inventory for your purposes.

But as I mentioned to you before, and something I said in my keynote presentation at the conference, is when I get asked the question, “Is now a good time to be buying real estate?” And my answer to that is yes, it's always a good time to be buying real estate.

And it's not because it's not a question of when; it's a question of where. There are always opportunities. The United States is made up of over 500 metropolitan statistical areas, and they're all broken up into sub-markets and then areas and then neighborhoods and communities and whatnot. So there's something going on everywhere all the time.

And so there are always opportunities. It's just a matter of, where is their inventory? Where do the numbers make sense? And where can you find a deal that will make sense—carry itself, has positive cash flow, has growth potential, is in a market that has stability, is in a market that has jobs and ideally job growth, and a market that has population growth. If you have those two things, you've really licked 70% of your decisions.

And then as long as you're in a good community, like a neighborhood, like what I'll classify as a B, B-plus, A-minus type of neighborhood, you've probably mitigated 80% of your investment risk. When you you have those factors in play, don't start with the property. Start with the market and the neighborhood.

The market is the most important deciding factor in where to look. The neighborhood is where you mitigate your risk because you want a strong rental pool. You want high desirability in that neighborhood. You want the numbers to make sense. You want it to be, relatively speaking, low crime, a desirable area. And then you look at the property, the condition of the property, and the numbers on the property. A lot of investors actually do it backwards.

They start with the property and then really kind of neglect the neighborhood or don't pay a lot of attention to the neighborhood. And the market is kind of an afterthought. So top-down approach.

Seth: That makes a ton of sense. So if you were talking to 18-year-old Marco today, if he were to come into the future and sit in your office right now, are there like top one or two or three markets you would tell yourself to go look at right now?

And why is that? Like, are there any specific places that you know off the top of your head? Yeah, this is a good market because of this. And this is how I know that because I went to this website and it told me this.

Marco: If you're asking me about the best markets or the top markets to invest in, first of all, you have to understand that my company, Norada Real Estate Investments, is in 25 markets. So when I try to narrow those 25 markets down to three, I can pick any three and they're all fine. They're all good, but for different reasons. Some are more prone to appreciation potential. Some markets are better suited for cash flow and cash-on-cash return.

And so when we're talking to an investor or when an investor is talking to an investment counselor at our company, we're going to ask questions and figure out what's most important to them. Is it the cash flow? Is it the immediate returns, cash-on-cash? Or is it price growth or appreciation potential in the years to come? Are they short-term, long-term investors? We'll kind of figure out where their head's at and what their investment goals are.

So I can answer that question basically in different ways, depending on what you're looking for.

Seth: Is your housing trends software going to do that? Like ask questions? Like, do you care more about appreciation or cash flow? And based on those answers, here you go, look at these markets. Is that kind of where that would be going?

Marco: It won't ask you the questions, but it'll answer the questions. That's part of the reason why I want to do it is just to help people zero in on starting with this country that's massive, that has 500 MSAs, and then zero down on markets that make sense.

So when we look at the markets right now, you can look at the top markets in the country and about 80% or 81% of them, we would rank as either in normal home market conditions, like supply and demand and sales are normal. It's basically normal inventory, normal sales cycle, normal everything. They're either normal, strong, or very strong.

Most markets today are back into the normal state. They used to be strong or very strong in terms of sales, the number of sales, sales briskness, the lack of inventory, price appreciation trends. That's what we saw for years, especially over COVID.

Like COVID, 2020 and 2021 were crazy years. We saw an average of about 20% appreciation on a nationwide basis, two years in a row. And that's just unsustainable and crazy when you stop to think about it. Things have normalized since then, obviously. But today, most of the markets, about 80% of them, are what we would classify normal or strong.

And so right now, from a sales perspective, like market conditions, Charlotte, is what we would call a strong market. Although I don't recommend anything in California, LA and Riverside are relatively strong in terms of property sales, but most of the country has a normal market. And a lot of the markets that we've been focused on are the Midwest, pockets of the Northeast, a good portion of the Southeast, heavily into Florida. To a lesser degree now, Texas, just because prices have appreciated so much relative to rents.

But the Midwest, Indianapolis is a perennial market. Kansas City, Missouri is a perennial market for us and great for investors. We've been in Kansas City for almost 20 years straight now. It's just a perennial market for us.

We're in many markets within Florida, in and out of markets like Jacksonville, Cape Coral, that whole southwestern corridor. To a lesser degree, Orlando. Can't get anything in Atlanta right now. Memphis, Tennessee is a strong market for us as well; we have a lot of inventory so we've we're in and out of that market when we get inventory. But we're always bullish for the Memphis area.

Seth: When you're deciding on these markets, do you have a checklist of, “We got to get answers to these 10 questions and this will tell us yes or no to this market because of this.” Do you have something like that?

Marco: It's basically this. Is there inventory in the market? Do the numbers make sense in the market? A lot of people refer to it as the price, like the rent-to-value ratio or the price to rent ratio. If you can't buy, San Francisco won't make sense. Why buy a one-bedroom place for a million dollars that you can only rent for about $4,000? That 0.4% rent ratio, it's not going to work. It won't cash flow. Like you'll be upside down.

And then you also have kind of higher risk of downside side price declines rather than upside. If you look at a market like Kansas City, Missouri, or Memphis, or some of the Ohio markets that we're in, you can get $150,000 property. Like a single-family, three-bedroom detached home for, I'm talking between 100,000 and 200,000, but call it 150,000, that will rent for $1,300 or $1,400 a month. The numbers work. It will cash flow. It will carry itself. It's in a good neighborhood. It's in a relatively strong market. It's not like a great market for strong price appreciation looking into the future, but it's a market that will do well. It'll carry itself.

So we look for good markets. Where there's inventory, the numbers make sense at the metro level. There's job stability, ideally job growth, population growth, ideally. If it's a flat market, that's fine because you're going to be in a desirable neighborhood.

You want a property that is either new, like- new construction, or like new, meaning there's no deferred maintenance. It's what we call turnkey inventory, turnkey real estate. So it's new or like-new. So no deferred maintenance.

Like I said before, the numbers make sense. It's got a rate of return. Turn it's in a good area good neighborhood. That's a very important thing. I would say a B-plus type of neighborhood, bread and butter, it's a cross between white collar and blue collar employees, large rental pool, low crime, good not great but good schools.

That's kind of your middle of the bell curve type of area, so the bread and butter communities, which are, for me, B, B-plus, A-minus graded neighborhoods. They don't have to be premium areas, luxury areas, and they don't have to be in war zones. You want to stay away from that.

I'm not a big fan of like the low, lower-middle income areas like the C-class neighborhoods. They look good on paper and they can do well, it's just I find that, over time, they can be expensive because of the high cost of the turnovers and the damage that could be done or left behind by by tenants. It's just you're dealing with a different demographic, a different class of tenants, so for me I like being in those B-class neighborhoods. So that's kind of the checklist.

And then of course, if you're not self-managing, having a great full service professional property management company—not an individual, but a professional company, a management company that manages your properties. You could self-manage. It's not a problem. You can do that.

So that would be the checklist. And that's exactly what we walk investors through.

Seth: Yeah. So when you sell a turnkey rental, do you have a property manager picked out already that kind of meets that criteria? Because I know that's a common issue I hear from a lot of people, and I’ve experienced it myself, where some property managers are terrible. So how do you make sure you get a good one?

Marco: Yeah. So being a turnkey property provider, we provide everything for the investor and, at no cost, we don't charge for our service.

So we've got an inventory of properties in 25 markets. The management is tied in with it, but you don't have to use that property manager. You can use any property manager you want. You can self-manage it if you want. We just provide it for you, someone or a company that we work with, that we've vetted, that we know we can provide the financing and everything else.

But with the property management company, again, like I emphasize, full-service professional management, a lot of property management companies go off of reputation, meaning that you want to look into their track record and reputation. And that's not that hard to find. You'll find all kinds of information online as well as reviews. You can also ask them for references. Of course, they're going to give you their best references, but nonetheless, it's good to know.

Talk to the team, talk to more than one person, interview more than one person from the company. Talk to the owner if you can, talk to the leasing agent, talk to the maintenance coordinator. Just get a feel for how their systems and operations are and what kind of operating procedures they have in place. Because it's kind of like a marriage, they want to work with you ideally and you want to work with them, but you want to make sure it's the right fit, and you want to understand how they work, what they can and can't do.

Seth: And just one last question. So I heard you say a few times, you got to make sure that there's inventory in the market. So what do you mean by that? What is enough inventory? Is there a certain ratio or number you're looking for to be like, okay, that is officially enough. Now I can go there versus that's not enough.

Marco: It's not a number, exactly. It's really just if that market checks the boxes in terms of the rent-to-price ratio, meaning that there are areas within that market where the numbers will work.

You can't get something that will make sense. Cash flow has a positive cap rate, the cash-on-cash return. You want to make sure that there's enough available inventory for sale that you can actually pick something or find something. Because if something goes on for sale in that market, in the bread and butter communities, and there are five offers the day it's listed, you're going to have a hell of a time getting a property there. It’s a numbers game. You'll ultimately get something.

But if you're competing, if inventory is low, there's not a lot for sale and you're competing against a lot of people who are wanting to buy whatever comes up for sale, it's going to be a difficult market to try and get something with the numbers that you want to get them at. You may be forced to pay over the fair market value, and that's only okay if the number still makes sense and it's a market that presents strong appreciation potential. Because if you have to pay a little bit over market, that market will quickly catch up to what you've overpaid if you're paying over fair market value.

So it's not necessarily a bad thing, but it's easier to work in a market where there is lots of available inventory, which is why we like places like Memphis, Tennessee, Kansas City, Missouri, Indianapolis, pockets in the Northeast, for example, some of the secondary markets in Pennsylvania, the Ohio markets like Cleveland, Cincinnati, to a much lesser degree, Akron and Toledo. But there's definitely inventory in those markets.

Seth: Yeah. Like you said earlier, it's not like you're getting on Zillow, looking in Cleveland and say, okay, good. There's 400 properties. I'm all set. It's more about, I'm going to crunch the numbers on a number of properties, see if the numbers work. If they work, if I can actually get this property, that's how I know there's inventory. It's not necessarily about the number of properties on the market. Is that accurate?

Marco: Yeah. Another way of saying that is if I can't find properties that make sense for me, the numbers work, it's in the right areas, it's available for sale, I can make an offer and I have a good chance of getting it or buying it, or if it's new construction, of course, getting it from a builder, then yeah, then inventory is going to be tight.

And there are degrees of tightness. How difficult is it going to be to get that ideal property that you want to add to your portfolio?

Seth: That's a good distinction to make. Because in the land business, a lot of parallels there in terms of choosing market and figuring out what is the sold to for sale ratio and how many days on the market are these properties there.

But in order to even go there, you need to already have some assumptions made about how much am I going to be offering for these properties? What's my plan for them? Am I going to be improving them in some way or not? Because that totally can change the course of what's acceptable for you or not. So it's kind of a holistic thing that you gotta take several different things into account.

But I want to switch gears just a little bit, talk about kind of your personal experience and advice for investors. Cause I know you've been in this business for a long time. You've seen a lot of things, you've talked to a lot of people and I know you've even done these kind of interviews quite a bit on podcasts and you've got your own podcast.

And I'm curious, when you get interviewed like this, or when you listen to other interviews and conversations about this business, what's something you think people talk about too much? And what's one thing you think they don't talk about enough?

Marco: Oh, wow. Never been asked that before. That's an interesting question.

What do they talk too much about? I don't know if there's any one thing that's too much, but a common question is like, what are the hot markets?

Seth: That seems to be what I asked you about.

Marco: Yeah. People who are not really well-seasoned will always ask, well, what's the hot market? My response is, how do you define a hot market? What's hot to you? Is it price growth, rent growth, sales activity, available inventory?

The thing that all the investors are talking about what's hot today in terms of investor interest, what are they tweeting about versus something else. Define a hot market? Hot in terms of cash flow, hot in terms of appreciation, that can mean different things to different people. And so I see that being kicked around a lot.

Sometimes people refer to it as best, not necessarily the hot market, but what's the best market. That's what's talked about a lot because obviously that's what people are interested in. Where should I be investing? What's the best market that I should be investing in right now?

Seth: I've heard it said that for every complex question, there is an answer that is clear, simple, and wrong. So I think maybe that's what's going on is people just don't want to think too hard about it. They want you to just give them an easy button and they'll realize the complexity involved and understand some of this stuff.

Marco: A hundred percent. Yeah, everybody wants the easy button. That's probably the thing, I think, has been talked about the most or too much. What was the other part of your question?

Seth: What's one thing you don't think they talk about enough?

Marco: Maybe it's some of the things we talked about, just the fundamentals and the principles, like what should I focus on? What is my checklist? How should I be approaching real estate investing?

Like, for me I have all these rules like, and one of them is like taking a top-down approach. Don't be presented a whole bunch of properties and evaluate the property. And then look at other factors around it, more big picture, start with the market. I call it the funnel approach. Start with the metro area, the markets within it, the neighborhoods, and then the property. And then you build your team around you, your property manager, your lender, etc.

Taking that top-down approach will assure that you have a high degree of success.

Seth: What is something that you hear novice real estate investors or critics of real estate investing complain about that makes you roll your eyes?

Marco: Damn, that's a good question. I wish I had known these questions beforehand.

Seth: My goal was to stump you.

Marco: I think the biggest thing that makes me cringe is what I call real estate speculators. They think they're investors, but they're not. They're gamblers. And they speculate on the market. And that’s their sole focus.

My pseudo-cousin is an example of this. He's just been lucky or fortunate because he's been in markets that have just been experiencing hypergrowth. So he's done well from an equity perspective, but not from a cash flow perspective. And it's just investing in the so-called hot markets, markets that are experiencing strong growth and price appreciation.

But if that's your sole focus and you've got blinders on, you're not considering all the other factors that you should be considering, then I refer to you as a real estate speculator, not a real estate investor.

A real estate investor is focused on sustainability and cash flow. So they've got the cash flow. They've got cash flow to carry the property in the short term and forever, but they know that they're in markets that have growth and appreciation potential. So they're going to make out well in the years to come.

That's investing smart and strategically rather than just focused on rolling the dice at a craps table and saying, “Yeah, you know what, I should be able to flip this house in a year and make 50 grand on it,” or something like that if they wanted to sell it.

So that's a mistake a lot of investors make, but especially made in the early 2000s, like leading up to 2006 and the housing crash. That's where a lot of mistakes were made and a lot of investors were left with their shorts down when the water went down because they couldn't carry the property. They bought a property, went up fast in value, and then the market turned and then that equity disappeared and dried. Then they were upside down. They owed more than the house was worth, what they could sell it for, and they couldn't carry it.

If they were able to keep that property and carry it for the next three, four years, they would have made out okay. They would have come out on the other side whole and then would have made gains in terms of appreciation from that point forward. But because they had negative cash flow, they couldn't afford to keep it. They couldn't carry it. And they were forced to sell, liquidate, foreclose, or file bankruptcy.

Seth: Now that you've gotten this far in your business and your career, you're successful. I don't know what your PFS looks like, but I presume you've made plenty of money in your career. You're in a place where a lot of people would dream of being.

And now that you're on this side of the fence, what's something that really is everything you thought it would be? And then, what are some dreams that you had early on that turned out to be maybe false hopes or just harsh realities of the business?

Marco: Well, I guess the more success you gain and the more financial freedom you have, the more things you can do that are more fun projects.

Like we were talking about this before with with Broadway, it just gives you the freedom and flexibility to do other things. Some of them being passion projects or investments that are beyond what you started with. For me, it was business and real estate. And then that ventured out into me creating Norada Capital.

Norada Capital Management is my private equity firm, but it's an investment fund. So investors are investing every day, but certainly every week, to make 12% and 15% gains. And we arbitrage that capital and I can build things, build business ventures and projects and whatnot that I want to do. Not that I need to do, but that I enjoy, understand, have fun and can make more money and then contribute back to impact others, for example, or other purpose-based projects or purpose-based endeavors.

I think the first goal for a lot of people probably should be to be financially independent, which means that you've got your monthly expenses covered. And beyond that when you 2-5x that income, if you need $5,000 a month to live and cover everything and be okay, like completely sustainable, then you should look at at least 2x-ing that, get to $10,000 a month. Now you're financially free.

When you're 2x or 3x, you're financially free. When you cover your nut at $5,000 a month, you're financially independent. You can get to 2x to 3x that. That's financial freedom. And if you get 5x to 10x that, that's when I consider a person to be truly wealthy. Now you shouldn't have very many concerns at all.

And you have a lot of time freedom to be able to do what you want, when you want, with who you want, how you want. And you can make a real difference. You can do things that can change the world, impact the world.

Which is like what we're doing with our Aspire tour events every month in different cities around the country. We bring in up to 4,000 or more people at each event. It's crazy. We're just providing people with all kinds of incredible content and education to build themselves personally, financially, and otherwise.

Seth: You've got a lot going on. You do all kinds of stuff, don't you? How do you juggle all this? How do you keep it all straight in your head?

Marco: A team. You can't just do it all by yourself. You have to hire the right people to help. You have to have the right partners and then the right team of people to help you execute and build.

You come up with the ideas and the vision. You build the right team around you to make it happen. And then you bring on the team, whether they're employees or contractors or outside staff or whatever it may be. You bring in the people that can execute and fulfill that vision.

Seth: How much of this stuff would you say runs without you? Like you could literally die tomorrow and this stuff would keep going without you. Is any of it like that? Or do you have to like kind of check in every week or every month or something? How much involvement is required from you at this point?

Marco: I'd say 80% of it is sustainable. The other 20%, either I need to be involved or I choose to be involved. And it's usually both. Usually those are tied together.

I don't want to let go completely. I don't want to be a control freak. I want to have some level of control and I want to know what's going on and be able to conduct and direct what's going on. So I want to feel that I have some level of impact and control over it, but I don't want to be micromanaging or a control freak and directing everything because then there's no point in having a team.

Seth: Yeah. To some extent, it's almost like if you don't want to play any role in it, then why is it there at all, you know? Like, why don't you shut the whole thing down? So there kind of has to be that balance of, you're sort of there but it doesn't need you necessarily to exist.

Marco: That, actually, is ideal. Building a real estate portfolio is a great example of this. If you can build a real estate portfolio that is profitable, cash flows, is sustainable, and doesn't require your time and attention on a daily weekly or monthly basis (especially if you have a manager managing it like a management company), then you can go on a vacation for a year. You can disappear for a year and come back a year later and everything should be running smoothly.

You might have someone as a backup in case your team or your property managers need to contact someone and you choose to make yourself not available. At least give someone the knowledge and authority to make decisions on your behalf while you're away. And under that scenario, theoretically, you could disappear for an entire year and come back and everything should be just as good, if not better, than when you left.

Seth: So this is kind of a random thing, but I noticed as I was preparing for this interview, I saw you had posted something on LinkedIn or Twitter or something. There was this quote that said, “You don't have to be extreme. You just have to be consistent.”

And I think I know why you feel this way. The statement makes perfect sense to me, but I'm curious if there are any situations in life where you do have to be extreme or when your life or career really does boil down to one key moment.

If so, what situations do you think that would be true?

Marco: You need to be extreme when you are required to hustle to get something launched.

I like to use the analogy of a rocket getting off the launch pad. When you first launch a rocket, it requires a lot of fuel and energy to get it moving. When you watch a rocket lift off, it moves up slowly off that launch pad. It looks like it's almost not even moving, but you're burning the most amount of fuel at that point in time to get it off the launch pad.

And then slowly, as you keep pushing it and burning that fuel and putting a lot of energy into it, it starts to move and accelerate faster and faster, until you ultimately are going hundreds of miles an hour. And then ultimately, you get into orbit, where it requires the least amount of energy. But now you're in orbit and you've built this thing. You've launched the rocket. You've got this thing going.

So that's when you have to be really aggressive and be hard and strong.

You know, it makes me think of David Goggins. He would say… He's one of the guys we have at our events each month at Aspire.

Seth: Oh, cool.

Marco: He just broke his leg. Well, not on purpose, but I was just looking at his cast.

Seth; Are you sure he didn't do it on purpose? Seems like he would do that kind of thing.

Marco: Well, it was a choice, but he had to get his leg fixed and they had to break his bone in order to fix it. So the pictures weren't pretty. But the guy’s a machine.

Seth: Does this stem from his experience in the Navy SEALs when he messed up his knee and had to tread water or something like that? Any correlation?

Marco: Yeah. He's had knee damage for a long time.

But one thing I like quoting him on is he would say, “Stay hard, mother*****r.” You can finish that sentence. But you do in the beginning. You need to stay hard and aggressive and not let up. You need to push with all your might and energy to get that rocket off the launch pad, because if you can do that, then the longer you go, the easier it becomes, the more sustainable and profitable your ventures are.

The first property you buy is going to be the hardest one. It’s got the steepest learning curve. It's going to be the most unnerving and stressful. The second one will be a little bit less. So the third one will be much easier. The fourth one will be even easier than that.

So you've got to push hard and build that momentum. And then, as you go, you'll realize, oh, damn, this wasn't so hard. You know, when you look back, it shouldn't have been as stressful as I'd let it be.

Seth: So this is the Aspire Tour. Is that right? I think I found that on Instagram.

Marco: Well, the website is Aspire with an A, AspireTour.com. A-S-P-I-R-E, Aspire. You know, like I aspire to be something bigger, better, greater than I am.

Seth: Yeah. Got that. Sweet. Yeah. I'll put that in the show notes too. It sounds fascinating.

Marco: So we usually post two or three months in advance on the website. Like we'll always add cities. We might have four or five of them there. The closest we just finished was Denver two days ago. It was Dallas before that. LA and then Dallas before that. The next one closest to you is probably New York.

Seth: Okay.

Marco: Maybe there's another closer market. But we just signed the agreement about a month ago for Madison Square Garden for July 20th.

Seth: Wow. Wait, what role do you play in this? Did you start this or are you a co-founder?

Marco: Yeah, I'm a co-founder. I'm essentially a one-third partner. So I have two partners building out Aspire and our money is mastermind and our real estate mastermind, which is called Level Up Real Estate.

The Aspire event is really to get 2,000, 3,000, 4,000, 5,000 people in a room and just feed them tons of great information, content, value, personal development, business development, entrepreneurship, real estate education, and entertainment all in one full day. And then from there, if they love what they learn, they love what they see, we give them the opportunity to attend our master classes, our mastermind. They can go further down the rabbit hole with us, but they're going to get a ton of value and entertainment at the Aspire event.

Seth: Yeah, that's awesome. I'm looking at it now, there's a lot of big names that have been involved with that, so that sounds pretty cool. I'd have to check that out.

Marco: Yeah, if you, as my friend, want to attend any of them, just let me know. I'll give you VIP access as my guest.

Seth: I appreciate that. It's very, very kind of you. Yeah. I'll let you know if I'm ever able to fit that in.

I know we're coming up on our time limit here. One last thing I just wanted to mention, this is something a lot of people might not know about you. I know we kind of mentioned a little bit earlier, but you are a Broadway producer and co-producer, right? Your productions include, correct me if I'm wrong, A Beautiful Noise, Broadway Vacation, Harmony, Joy, The Devil Wears Prada, and Here Lies Love, among others. Is that right? And how did you get into that work and why?

Marco: Yeah, those are six of them. I think I'm involved in about 11 or 12 of them. We just had opening night last month for The Notebook, based on the movie and the book, which was phenomenal. I highly recommend The Notebook. It's such a great production.

And then if you remember the band The Who with Pete Townsend, so they have all kinds of great songs. But Tommy was one of the characters in one of their songs that you remember, Pinball. But anyway, we just opened up Tommy a couple of weeks ago. We had opening night for that. And that's a great, great production as well.

Seth: And you actually like one of the financiers of this, like you invest in the production and pay for it to get up and running. Is that right?

Marco: Yeah. I'm one of the co-producers. So, you have three levels, if you want, from an investment perspective in Broadway productions. And I'm talking in general terms, generally speaking, you have the lead producers, who are typically the general partners. Like if you had a real estate syndication, you have the GPs and LPs. So the GPs are typically the lead producers that could be one person or two or three individuals. And they're usually the ones that bring it all together, make the story come together, bring in the initial team to get that production off the ground.

Then they will bring in the investment capital needed through co-producers, which are often associates and people that they know in the industry and whatnot. And so the co-producers typically come in with bigger numbers as an investment and they're usually the people listed above the title. So you'll have the title like, Sister Act is another production that I’m in. You'll see Sister Act or Broadway Vacation, or The Devil Wears Prada, and above that you'll see a small batch of names. Those are the co-producers. And then, right above the co-producers you'll see one two or three names and those are the lead producers.

And then anybody else that could potentially be making an investment or just simply referred to as investors, they don't show up anywhere, but they've got a piece of the production in terms of an investment perspective.

Seth: So how much does it cost to, for you to do that kind of thing? Like per production? And what kind of return would you normally expect out of that kind of thing?

Marco: Well, it's an interesting question. You're actually asking me two fun fact questions. To invest in Broadway, it depends on the production, the amount of capital being raised, and the lead producers.

Some Broadway productions, off Broadway or smaller productions, can be $3-5 million total capital raise. Most of them are between $10 and $20 million. The larger ones, like the much larger expensive ones, can be $30 million-plus, but most of the productions I'm involved in are like $15 to $25 million.

The investment will depend on, again, the lead producer in the production, but the minimum investment is typically between $50,000 and $100,000. And then there's often no cap. It's just until they fulfill their capital raise. But I don't go in for $50,000. Like if I'm going to be involved, it'll be six figures. My largest one was seven figures as an investment.

So it took me a while to get my head wrapped around that years ago. Because if you're coming from the real estate space, an investment in a film or a Broadway or theatrical production does not make sense to you if you've got the mindset of a real estate investor. Because you don't get returns right away.

Your first goal, first of all, if you're going to write a check, you write the check as if you're never going to see that check again. The risk is pretty high, like about seven out of 10 productions will lose money. You won't recoup your investment. You'll lose money on it. Two out of 10, you should recoup your investment and maybe make some money.

And then it's to be determined how long you're going to make a return because it really comes down to how long that production's running. And then about one out of 10 will be like a Wicked or Hamilton or Phantom of the Opera or something like that, where it'll just run for years until you just want to shut it down. And those are big moneymakers. So those could be astronomical, like they'll just print money for years.

But it is a high level of risk. And you have to know that going in not every production makes money, a lot of them will lose money. But the rates of return can be anywhere from negative to zero to 10% to 30% on your money. And then the ones that run for years on end can be a lot more than that; they can 2x, 3x, 4x, 5x your initial investment.

Seth: So like, what's your track record? I don't know if you're open to sharing that, but like, do you lose money a lot? And if so, why do you keep doing this? Is it just fun for you?

Marco: Well, it is fun. It's sexy. It's entertaining. I like the arts. I support the arts. I love theater. I fell in love with musicals and theater long, long ago when I first saw Phantom of the Opera almost 30 years ago.

Seth: Did you see it in Toronto?

Marco: No, good guess, though. But it was actually in Calgary. The first time I saw it was Calgary, Canada. And then I saw it again in New York. And then I saw it again in Orange County, California.

I know one of the Phantom singers who played at the opera. We had him sing at Aspire actually a few times as entertainment right after lunch as people were coming back from their lunch. Yeah.

So it's a fun industry. You definitely will have your losses and successes. You should never invest in theatrical productions or Broadway if you're only planning to invest in one production because odds are stacked against you to not recoup your investment. So you have to go wide, not just deep in one.

Seth: Marco, thank you again so much for spending your time with me. I know we're at our time limit here. If people want to work with you in any way, I know you've got several websites. I'll link to all of them in the show notes. Again, retipster.com/188. But if there's one particular place you would drive them to, where would that be?

Marco: Probably just my personal website because I link to Norada Real Estate. I link to Norada Capital. I link to all the things I'm doing from there. So it's just my name, MarcoSantarelli.com. Just my full name, MarcoSantarelli.com.

And just as a side note, my Instagram, I couldn't get Marco Santarelli, so it had to be MarcoGSantarelli, my middle initial. But yeah, you can follow me on Instagram as well at MarcoGSantarelli.

Seth: Thanks again, Marco. Appreciate it. And hopefully we'll talk again soon.

Marco: Thank you so much, Seth. This has been fun. I appreciate your time today.

Seth: Hey folks, how's it going? Seth Williams here. You're listening to the REtipster podcast. Today, I'm talking with my friend, Chris Duff from Serious Land Capital.

So I first met Chris at the Land Unconference Inner Circle this past fall. He's been a great guy to know in this business, extremely knowledgeable and very well connected with other folks throughout the land business. Today, I wanted to sit down and really get to know how his business works.

So Chris and and his partners are land funders. But it wasn't always that way. We're going to hear about how he discovered the land business and what his experience was like as a land operator and how and why he decided to pivot into the funding space.

And in that funding space, there's all kinds of things we're going to talk about, like the types of projects he works on, the different pros and cons of being a funder, the unique challenges of this kind of business, and where he thinks the future of this niche, the land space, is headed.

So, Chris, welcome to the show. How are you doing?

Chris: Doing well, Seth. So lucky and honored to be here. I've been listening to your podcast and following your teachings really since my partners and I got into the space.

So, glad to be here and be able to share some of the knowledge that my partners and I have gained accordingly with your audience and help keep this industry moving forward.

Seth: So glad to have you following along over the years and glad to talk to you in this format too. So maybe you just start off with your story. So what were you doing before you discovered the land business? And how did you get into land? And what led you to this funding space that you're in now?

Chris: Yeah, definitely.

Seth: So it's kind of three questions in one there. Sorry about that.

Chris: Fortunately, it's one I've been able to answer before here. And when everybody, anybody who might be considering entrepreneurship and so forth, asking, hey, what's the history and everything.

And yes, some folks have a really smooth pathway. They just find their niche right away and off to the races. I'd say that's probably the minority of folks that I know that have tried to pursue their own businesses and so forth.

And mine was definitely the opposite. I'm a physician by training, a medical doctor. That type of pathway didn't really fit with me from dealing with the hierarchies and not controlling your own schedule and so forth and dealing with unruly patients and everything.

And so I tried coming out of medical school to start a med device company with another friend and colleague at that time. That crashed and burned kind of spectacularly. And then I was left at a reckoning, okay, coming out with a medical degree here, this business didn't work out, what other skills can I build up?

So I started learning more in the internet marketing space, eventually joined a company that was doing crowdfunding marketing agency out in San Diego for Kickstarter and Indiegogo campaigns. So I was working for them as a while, polishing up some of my marketing skills and also tried to start a couple other businesses with other friends on the side there, including one where I was attempting to sell backyard chicken coops.

So still to this day, my friends will still joke, hey, you traded away a path along having a medical degree to go sell backyard chicken coops. So it was definitely a turn from the original direction that I was headed. And that one ended up not having quite the right market fit there.

So eventually, as I kept working at that marketing agency, then got poached away to a healthcare venture capital fund out in New York that one of my friends was a co-founder at.

And you'll hear kind of a common refrain that most of the opportunities I've found, I've tried to work with closer friends of mine. That's always been a passion and goal from even high school days. And you'll see how that lends into the land business.

But yeah, I worked in VC for a while, gained a lot more experience there, both on the marketing side as well as how to underwrite some of these larger, more complex biotech, med device, health tech deals.

And then heading into 2019, after doing that for a few years, one of my other closest friends who had been working in Wall Street for a time, was planning on leaving that industry. We're close high school friends and had always intended to work together. The timing was right. So I decided to leave VC then as he was leaving his position.

And so we started exploring a whole bunch of different companies. We had a big spreadsheet just trying to outline what are the best opportunities to go from a monetary upside perspective to room for growth in the market, how much freedom would it afford us.

And so we looked at all kinds of things from like dog walking business, pet insurance. We looked at multifamily investments as a limited partner, for instance. My friends and I had been in crypto for a long time, close to 10 years or so at this current period in time.

And so we looked at, could we do Bitcoin mining, guys? We'd moved down to Texas and doing like flare gas operations. So a whole grab bag of different opportunities that we looked at, but ultimately settled on land in late 2019 as we were introduced to this individual that was running about a million-dollar business in Florida. Mostly off tax auctions, back when you could actually find margin on tax auctions.

I know it's almost impossible nowadays that the markets are so efficient, but he was making a good living there. So we started investing in him, picking up some skills. Ultimately, we decided to build our own business within the land space, not focusing on tax auctions.

So this is where RETipster came in and getting out the direct mail and getting a couple buy for $1,000, sell for $5,000 deals under our belt and realizing, hey, there's really something there. And so we started pursuing this business. And I should mention that this was with a partner from Wall Street, as well as another high school friend.

So we three are kind of the core partners here. Those two had run a single-family residence rental business prior, so already had some real estate experience. I came in as more of the operator here. And so we just started developing kind of the whole standard land flipping business.

Fortunately, we came in during late 2019 through 2020, 2021. Those type of markets might not never come again, where it was very easy to buy, very easy to sell, you get a lot of mistakes out of the way. Hindsight's always 20/20, probably could have earned a lot more money with the experience we have now.

But, you know, at the same time, it was great downside protection, because we got out a lot of rookie mistakes compared to today's market where it's far less forgiving, and you have to be a lot more careful with your your investments.

So, you know, we did that for a few years, but ultimately, as this industry has continued to grow and you get a lot more capable individuals who pursue deeper and deeper niches and more specific marketing techniques, I think, like the Callans and the Ajays and so forth.

And, you know, my partners and I were kind of looking at ourselves like, this is not really our primary benefit that we can bring to the industry. Like we're not the the best marketers out there. We're not the best at talking to sellers. But what we do know is we know how to structure capital.

Fortunately, we have a fair amount of capital to work with to put into deals. So this was at the time when a lot of the coaches in the space were advocating for people to use OPM, other people's money, try to scale up your business by going after bigger deals, even if you have to share some profits with funders.

And so ultimately, just about a a year ago, a little over that, we decided to completely stop marketing out on our own and just start advertising ourselves as funders. And it was much better kind of service market fit. And we've grown tremendously since then as we've settled into this.

Seth: Yeah, that's really interesting to hear about your journey, man. Sounds like after the whole like medical device thing, it's almost like you were trying to do anything but become a medical doctor. I mean, you listed off a lot of different things.

It's actually funny, though. I hear from time to time, from active medical doctors and surgeons and stuff like that who are trying to get into the land business. Just kind of goes to show, being a doctor with all the work it takes, all the money and time and all this stuff, it's kind of portrayed as like this glamorous, like this is the epitome of existence. Like this is what everybody wants, but like, “not really.” It has plenty of drawbacks and hidden costs and not hidden costs that go along with that, too.

So it's interesting to see how that works.

Chris: Yeah, absolutely. And even my friends and colleagues still in the medical space, you know, some who really, really love medicine, just gung-ho, do it in their spare time and everything.

I mean, most of them are pretty burnt out working, you know, even less than 10 years out of school here. So I mean, that's a whole other discussion podcast we could have.

I know there's a lot of other folks discussing that and the issues of the healthcare system and paperwork and yeah, the burnout and so forth. But you got to take the pros and cons of different paths in life.

But I knew this one would work out better for me. And even with the ups and downs, because during that journey, there were plenty of times where things were going better. And then you're not so good. Like we had a really rough 2022 and nearly didn't make it out of that. Had a buckle down and kind of consider, hey, like, is this even a viable business for us anymore?

And ultimately, sometimes you just need to stick with it long enough, stay in the market and be able to pivot accordingly. And once we found out that, hey, our niche is really becoming a funder in the space, that's when we were able to start accelerating again and build up our revenue and profits.

It's also interesting when the moment came, when you realize like this land flipping thing, like this isn't for us, like we're going to let go of this dream to pursue a different dream.

Seth: So I think that's something a lot of people understandably have a really hard time with is knowing, when do you call it quits? At what point do you just say, you know what? I tried it. I don't get it. It's not working for me. Or maybe it used to work for me, but it's not working anymore.

How do you know when to pull the plug? Because it's kind of like the opposite of this glamorous thing that everybody likes to talk about. Is it like, I succeeded and I hit this home run. We're talking about the opposite of that. Like I'm hitting a low point. I'm at the end of my rope. I can't cut it.

I feel like it's not talked about enough. It's like, how do you know when to abandon an idea and just go in a different direction? It sounds like, I don't know if it's easy or not, but you guys had a different direction you could pivot in somewhat easily because of your background with underwriting and venture capital and all this stuff. Like you kind kind of got that world. And also the market was sort of headed in that direction anyway.

Was it difficult for you to say, well, you know, we're not going to do land flipping anymore. We're going to totally hit the reset button and do this thing instead. Like, was that a long, difficult process to get there? Or was it a pretty natural, like you figured it out pretty quick because you just knew what else you could do and be useful to the market?

Chris: Yeah. Great question here, Seth. Fortunately, this particular pivot was more of the latter where it was more of kind of a natural growth within an industry that we had already developed. A few years’ worth of experience and had already reached success and previously funded internally using friends and family capital and so forth. And then have already underwritten hundreds of deals at that point. So it was a little easier for us to pivot there.

But yeah, your question about when to potentially eventually quit or move in a different direction? I mean, that's kind of the age-old and golden question here.

I know Seth Godin's written a book about it called The Dip, for instance. I read that in the past during other transitions in my entrepreneurial journey.

The only thing that I really try to keep in mind, and again, I've failed at plenty of things, probably will fail at many others over the course of my career. And when you look at the stats, don't feel too bad that about it when you look at the rates of business success in the U.S., because I think the stats now for like finding a business that at least succeeds for at least a year, you have to on average start at least seven businesses.

So like, I think I'm on like number seven or eight. So I'm right in the middle of the pack there. So just just keep that in mind.

But to me, the kind of analogy to keep in mind here is that when you're starting the business, even a lot of the times, I wouldn't even worry about setting up your LLC or the branding or so forth. Just try to find somebody who's willing to buy your product or your service.

Don't worry about all the legalese, anything like that. Just see if you can get some product market fit first off, and then fill in all those details later.

And what it should feel like when you're on the right pathway is like if you're driving down a street and you're just hitting green lights, I guess just, oh, I'm kind of just getting on a roll here. And there's not really any blockers that I'm feeling that it's kind of an instinctual feel that you'll develop over time.

But that's what I really look for in any type of venture that I'm going after. And again, speaking from experience, where I was just routinely hitting yellow, red lights, dead-end walls, all of that. Whereas, you know, when we were able to pivot to the funding model, that again, was already an industry that we had developed a bit more experience, but it was just pivoting into something that was, frankly, more exciting for us. Removing parts of the business that, like I mentioned, we weren't that good at that, was a big kind of depressor for energy. And yeah, I really don't like talking to sellers or doing the marketing and so forth.

So an energizing feeling to go into something that I knew we were more suited to and luckily started hitting those green lights almost immediately within the first couple of weeks. So affection, kind of luck there as well as seizing the opportunity.

Seth: Yeah. I like that analogy, hitting the green lights. It's well-put. Sometimes, given what you said about it takes, what is it? Six or seven or eight tries before you find one that works? It makes me wonder, I don't know if that's the answer, but it's like, if I know I have to do all these tries and a bunch of them aren't going to work. How do you do this in such a way that each failure isn't catastrophic, ike it doesn't just completely wipe you out financially?

Do you set aside, I'm going to put 10 grand into this business and I'm just setting aside that money to burn. If I don't make money by the time I'm out of that, then I'm done.

Because you just kind of think through it that methodically. I'm sure it depends a lot on the business itself and your financial position and all this. But when I think about how I go after a business, like if I believe in it, I'm going to kind of wipe myself out financially until I decide that it's not going to work. But I wonder how I could protect myself and safeguard myself so I don't do that, you know?

Chris: Yeah, different risk tolerances, different personal situations. You know, some folks, they might've already accumulated a pile of money from their W-2 that they have set aside to start a business. Others are earlier in their career and don't have that opportunity.

So, you might have to start like a lower cost business, like consulting or freelancing, for instance, where there's almost no startup costs.

And yeah, I'd count land as one of those. I've seen the influx of people joining this industry over the past few years, especially since 2020. I mean, you only need a couple thousand dollars to start some cold calls and some mailers. You have to take some real focus and staying power to last.

But fortunately, it's a pretty low-cost entry business, especially if you utilize funding partners and so forth for going after bigger deals and able to keep costs lower accordingly and not trying to hit massive growth trajectories. So that's how I would kind of think about it from a strategic side.

But yeah, I've known some folks who wanted to start a new shoe company and order $250,000 worth of inventory before they'd even sold like a couple pairs. So, that to me is like, man, you're really setting yourself up for disaster without having found that fit. So to me, it's all about doing low-cost experiments first.

Is somebody willing to open up their wallet to pay you for something? That is the hardest thing to do. It's the nature of business, right? But as soon as you find them, start gradually increasing the amount of expenses into growing accordingly.

And yeah, whether that is bootstrapped, slower build, or do you need investment from outside partners? How fast are you trying to grow? I mean, those are whole other questions to look in. Largely dependent on certain industries as well. It's not like you can start a biotech company totally bootstrapped.

So you just have to kind of pick a pathway that might be the best fit for you.

Chris: You mentioned there's three people total on your team. Is it yourself, Vivek, and Omar? Do I have that right?

Chris: Everett is the other core partner. So Omar is another closer friend of ours, but he has had a background working at Blackstone.

Also, yeah, more institutional background, he’s done a lot of real estate underwriting, especially in the commercial space. And so he serves as a consultant for us to assist with our full spreadsheet due diligence pathway for late-stage funding opportunities. So we were able to kind of triangulate across multiple different input and underwriting sources for our deals.

Seth: Okay. So we've got Chris, we've got Vivek, we've got Everett, we've got Omar.

Chris: That's right. That's the core equity partners.

Seth: Okay. And do you each own like 25% or something? How is that broken up?

Chris: Yeah. Sorry for that. So Omar is not an equity partner in the business. He's just serving as a consultant. So we'll just pay him on a per-deal basis based on the diligence he's providing.

But in terms of the actual DBA, Serious Land Capital, Seeking Land is our LLC. It's just three equity partners split evenly. So all the money going into the business equally split from an inbound perspective.

But because we might each do different work, I'm more of the front-facing day-to-day operator. So I have more upside from a profit perspective in the business, but that's able to change over time as we continue to grow and responsibilities increase and decrease.

Seth: So Chris, Vivek, Everett, you're all 33.3% owners or partners in this. You all put in equal amount of money when a capital infusion is needed. What are each of your roles? Like what specifically does Chris do? What specifically does Vivek do and what does Everett do?

And why is it set up that way? Like, how did you decide Vivek is going to sit in this seat and do these things? Like, is he good at certain stuff or have some history in that part of the business?

Chris: Yeah, certainly. So this is, again, another thing that's changed over time since we started the business, especially transitioned into this funding model.

But, you know, like I alluded to, me as kind of the primary day-to-day operator. So, definitely more of the the face of the business, like a lot of the inbound people looking to chat about deals they want to bring or get to understand our funding model and so forth.

I'll be the primary person that that's going to speak to them for the various in-person events. I'm usually the designated person to go, though, as we've continued to grow, like for instance, you met Vivek a few weeks ago. And so we're trying to increase our presence there accordingly as our outfit grows.

Underwriting the deals, that's my primary role within the company. Fielding offers with realtors, ultimately deciding on buy price and so forth, that largely falls to me as well, as well as working with the clients, bringing us deals, developing marketing strategies for our firm.

So it's a mix of kind of a CEO, COO type role within the company, or even a chief investment officer. Yeah, more of that kind of CIO role. I've never really cared about what those labels are. But you know, some people can kind of orient what they might mean within a similar type of company. So that's largely where where I sit.

And then I have a Philippine virtual assistant, who's our only core VA who works with us. And then we just have hundreds of various contractors that we're dealing with, other consultants, realtors, and so forth that we consider part of our business, but you know, not directly part of of our payroll.

And then, yeah, still on that partnership level. So Vivek, he kind of has the best connections within the capital industry. I mean, he had been on Wall Street and lived on the East Coast for over 10 years. He's still there, currently planning to move back to Texas here shortly.

But a lot of the mentors and folks that he knows, really large bank roles. And so, you know, as we continue to grow, he's able to keep those connections warm and have pretty ready influx for capital as needed for us.

And that's definitely a luxury compared to a lot of other operators or fund managers to be able to reach the folks who are worth in the single high seven figures at minimum to the eight to nine figures and so forth. Oftentimes, they have a lot of gates in place to be able to reach them, let alone develop a relationship where they're willing to inject capital into your business. Especially in a more difficult macro environment, high interest rates and so forth, where capital markets are tighter. That's a highly valuable skill to be able to pull capital as needed.

So he helps out a lot from that perspective. And even if it's not as readily utilized as we are currently growing, it becomes more and more advantageous as we grow larger and need larger check sizes in order to keep our company rolling.

Plus, he's just kind of accounting and math genius. You know, he was like valedictorian at our high school and everything. So I'm not really a math guy, so I can send all these other, you know, spreadsheet questions and so forth to Vivek and Everett and be able to not have to feel that on my own. So, yeah, it helps out a lot from the numbers perspective and capital structuring.

And then Everett is… he didn't go to law school, but he basically serves as an in-house attorney. He works at a hedge fund in New York currently, but handles a lot of underwriting and the legalese for our deals.

So we were able to in-house our LLC agreements or a number of our funding legal documents and so forth, things that might cost tens of thousands of dollars from hiring another attorney. We were able to do all this in-house so that helps a lot.

Plus, he just manages our books extremely well. We operate across the country, so tax burden should theoretically be pretty high. But because our books are so tight and we're able to display the net asset value of our company or the exact multiple uninvested capital across all these various deals, every single cash influx and efflux out of the business, it keeps our tax burden very low.

And we're able to present that to potential capital partners into our business since we have such kind of a tight understanding of our financials, which is very difficult to do. I couldn't do it on my own.

So again, this is kind of demonstrating how we're able to differentiate roles within the business.

And Everett is also, we have kind of the Goldilocks mix within our company. Like Everett is more the Papa Bear saying no to almost everything and a harsher underwriter for deals. Vivek's more of the Mama Bear kind of softie within the business. Hey, let's go for it. I'm kind of in between on both sides there.

So it gives us a good balance across risk tolerance between partners, which allows us to be more conservative on average across things, but not fully overlooking opportunities for growth as well. So that served us well too. Too.

Seth: And the way you found these people, are you just past friends with them? Is that kind of how you knew them? Like, is it kind of a luck thing? Cause not, I mean, I've got friends too, but they're not necessarily like business geniuses. So how did that come together?

Chris: Again, this is just super lucky for being high school friends. Vivek and I met our senior year in high school and really just hit it off. We've been best friends ever since. You know, we're in our mid-thirties, so it’s coming up into like 20 years or so of friendship.

Everett was one year below us, but you know, he had always been friends since high school as well. And I just think, some of the people you hang out with, you start figuring, hey, what's our real interest? Chris, what are we talking about outside of school or hanging out?

And a lot of times it would focus on general macro or microeconomic items going on in the news or like, hey, we're considering, look at this new business model, this new tech firm that came out. How are they growing accordingly?

So, you know, a lot of our conversations were heading that direction anyway, or you always think, how could we monetize this idea accordingly? And so always more business-oriented.

But that's one thing. Obviously, the next step of actually building a business together is a whole other animal. And it's definitely not for the weak of heart. You got to have a strong stomach for it. We've had some very difficult discussions, to put it lightly.

Again, that could be a whole other podcast in and of itself about how to work with healthy partnerships and also being friends, too, and how to mix that. Not take things personally when things get difficult and so forth. I've made probably every mistake in the book so far. Deep, deep scars from mistakes having been made. But fortunately, we've been strong enough to make it through all the hurdles so far.

But yeah, I wouldn't have it any other way. Personally, I think when you can succeed with friends in a business, there's almost no greater feeling. And being able to provide other opportunities for other friends and family and help grow their wealth too, it's just so exciting for us.

Seth: Yeah, I know. I haven't had a ton of experiences like working in a business context with friends, but I have had some and you're right. It's inevitably those hard conversations come up. And I think if you've got maturity on both sides, like you can get through just about anything.

And it's actually kind of feel good to get through that and realize like we had this hard conversation. We both came out of this better. It's kind of like building a strong marriage, you know, like it's inevitable that you're going to have these moments of tension and conflict, for lack of a better word, but it's not all bad.

And I think everybody kind of grows in maturity when you can get through that stuff. So yeah, that's cool, man.

Chris: Absolutely. Yeah. Like you mentioned the marriage part. I mean, I think we had talked about before picking a partner for a spouse is probably the most important decision in your life, at least I would say so.

So picking business partners would be a close second there. I mean, arguably, even more than my wife, I'm more intertwined financially with Vivek and Everett, just such deep roots and tendrils that, yeah, pulling that apart would be a multi-year journey at the very least.

So before you get deep in with somebody, you really have to understand what's at stake.

Seth: So it sounds like when you guys get a new deal, all three of you look at it with your underwriting glasses on. Is that correct? And if so, how crucial is that to have all three of you looking at it? Like, say if it was just you, for example, how much harder do you think that would be? Or like, do you think you would have made worse decisions if it was just you looking at stuff?

Chris: Yeah. So that's been another part that's evolved within our business because primarily it is just me doing the initial underwriting. So I was trying to have my VA put this together in time, but the data was a bit more complex than I thought, but I was trying to figure out, okay, how many deals deals? Am I actually saying no to over a period of time? Has that grown or decreased over the last year?

And off a rough estimate, and I think I'd mentioned this to you the other time, I'm on average probably saying no to 90% to 95% of deals coming our way. Most of that's related to pricing or just it's not a quality property. So that initial cut is pretty much all me at that point.

And then if it actually makes it to that next stage where we're going to do deeper diligence, set up a whole spreadsheet, start the realtor conversations. Figure out the utility situation and any other kind of key diligence, which I'm sure we'll get into. That type of stuff would only happen after that first cut.

And generally that is where I'm going to have my VA set up the initial diligence spreadsheet. Then I'm actually going to have our consultant and friend Omar fill in that whole spreadsheet. And then, so he's going to assign a value of what he thinks it's worth. I'm going to review that and then ultimately decide what I think it's worth as well. And usually by that point, we'll also have a local realtor's opinion.

So it's kind of a triangulated process from an underwriting pricing perspective.

And we also have historical analysis of where all of our properties have sold in relation to what we expected them to be, especially according to what the realtor mentioned. Because oftentimes, hey, it's just part of the business. like the realtors are more optimistic for what they anticipate selling a property as, but most of the time we're selling at a bit of a discount from what they mentioned to us.

So we have that all built into our spreadsheets based on all the historical analysis of our deals, whatever a realtor tells us, do we have to take off 7.5%, 8% based on what we've sold it before. So we have that built in with Omar's valuation, with my valuation.

And so then all of that is present on a final dashboard, where me, Vivek, and Everett will then have an investment committee, usually every Friday, where we go over, where I present, hey, this deal is basically all set for funding. Here's all the diligence, according to what we've gathered so far. Here are the risks here. Are they worth taking?

And ultimately, at that step is where we'll decide as a team, are we going to go ahead with this purchase or not?

So multiple fail-safes built in and multiple different folks providing opinions there. And this has really been refined over time because I've made mistakes in the past, Omar's made mistakes in the past. Relying on realtors too much has been an issue. Or if things get too busy and I'm pushing deals ahead without consulting Everett and Vivek on it, we've just missed something.

Those haven't been the best deals either. So that this has been a continuing evolving process after making many mistakes along the way.

Seth: So where do your deals come from? Like, do people hear about you through your daily due diligence thing you do on Facebook or you have a website or are you advertising somewhere? How does that work?

Chris: That's another thing that's changed over time. So when we first decided to be funders, we weren't known within the industry there. So that required a lot more on the ground work to get our brand out there.

Seth: What did that look like? What is this on the ground work you had to do? Like, did you reach out to people specifically?

Chris: Exactly, yeah. It was just almost grassroots marketing at its core there. I actually had my VA at the time go through every land community. Most of them are on Facebook, some are on other platforms, Discord and school, for instance.

And so I would have him go on and then look, just try to search for certain keywords, like funding or land funder, capital needed for a deal, for instance. And I'd search the entire history of that Facebook group. And then we would log all of that into a Google Sheet, what they had asked for.

And it didn't matter to me when they had asked for funding, even if they had, a lot of these Facebook groups, again, the industry's grown by like 2019, 2020. So there wasn't a lot prior to that. But even if folks had been asking for funding three years ago at the time, like back in 2020, I would still reach out and say, “Hey, not sure if you're still in the industry. Obviously, I'm super late here, but I just wanted to let you know, my company's providing funding.”

So we were able to get leads that way. There was no barrier in so far as reaching out. It was just a lot of focus and how do we get our name out there and direct communication, direct messaging.

There's a lot of other folks, frankly, I think are a little bit more lazy. If folks say, hey, I'm looking for funding on a deal, and then they'll just say, okay, DM me as a comment. That's not really building a connection with somebody. So I put in the extra effort to send over our whole website, had the whole FAQ built out. Here's our criteria, everything like that.

So that helped us stand out, I think, as a bit more of a serious operator within the funding space.

So that's how we initially started. And then, you know, there were a couple areas, Fund My Land, which I know is a pretty basic website we’ll get into. What we're trying to build is one that is a bit easier to use from a user experience perspective. But we got on there, so we were able to get some leads from people reaching out accordingly there.

And then, yeah, there was just some kind of word of mouth over time as we started to work with some folks.

But it was really a lot of that initial hustle of just anytime somebody posted something about funding, we were immediately on top of it, trying to follow up and seeing if we could work together.

Seth: Yeah, I will say, I admire that approach, not just posting some, Hey, looking for a funder. Because can't stand that when people do that. And I remove them every time I see it because it's basically spam.

But that whole idea of actually looking for people who are talking about relevant stuff and reaching out to them personally, showing that you're actually putting thought into their situation, these are totally different things. But back when I was starting my self-storage construction project, I had posted a couple of things in some self-storage communities, just kind of asking questions about getting started.

And there was a consultant that reached out to me very similar to the way that sounds like you did. And he just said, “Hey, Seth, I noticed you're starting this construction project. Do you need help with getting things started? Need a second set of eyes or anything?”

I ended up paying them like $25,000 in consulting starting up just because they took the time to reach out.

So I would definitely recommend that whatever you're looking for, whether you need funding or you're offering funding or something completely different, don't just do these mindless posts all over the place.

I know it's tempting because it feels like free advertising, but it's extremely annoying and not that helpful to the community when you're not really getting to the point and not actually showing that you understand somebody's situation and care about it.

So, and also say regarding that funding thing you're putting together. So I'll just plug it for you. It's landfunding.partners and it's pretty well put together. If you go and check it out, I'm actually linking to it as one of our five current directories. Go to retipster.com/directory, you'll find some directories that I've put together to find accountants and realtors and attorneys and CPAs and drone pilots and all this stuff.

And one of them I was going to put together was land funders. But then I heard about what Chris was doing. It's like, man, you're doing this way better than I can or want to do. So I'm just linking directly to his. So go check out landfunding.partners and you can kind of get a quick look at, I don't know if it's like literally every land funder in existence, but it's pretty much all the notable, more well-known ones.

And it's just a well put together site if you need help with funding.

Chris: Very grateful to you for that, Seth. And yeah, we tried to put together every known land funder.

You know, it's hard to find all of them because some of them are just under wraps where they might only have like a Gmail associated or hey, like DM me. And, you know, they somehow have capital put together for deals.

But, you know, even since you had linked that on your site, some other funders who weren't already on had already reached out to be added. So, you know, your REtipster reach is already helping to fill out the directory even more than it had already been put together.

And yeah, so just to remark on that briefly, too, as the industry has grown and a lot more funders have entered the space, you know, that there wasn't, in our opinion, kind of a well put together directory for funders and being able to kind of sort,, I'm looking for equity funder like

Serious Land Capital, or I'm looking for hard money lending, debt funding. I’m a more experienced land operator and can take more personal risk that way. Or, hey, I'm just looking for transactional funding.

So this tool helps you sort out those types of funders that are specific to your needs much easier. And you're able to have a comparison table so you can look over kind of all the most basic questions everybody asks land funders: what's your deal requirements and purchase purchase price range, and so forth.

So you can just compare multiple funders at once, cross all of those different parameters, or look at all of them on a certain page if you just want to scroll through every single one, or there's just a page linking all of the contact info for the various funders.

Because yeah, we know some folks just like to grab every email and reach out. It's not the best way to start a relationship, but I can say that there have been some folks that we've worked with that just did kind of that spray-and-pray send out, as opposed to following up with some of those folks. So that's the type of approach that you want to take that's available for you on the site as well. So just try to hit all of those angles.

But yeah, just developing it as a tool for the community where we're not earning any money on it or anything. Obviously, our firm is pretty well featured on that site. But we feel like from a objective perspective, we can advocate for ourselves across any of those parameters. And it only helps us build a better business by knowing who the other funders are out there and what they're offering as well.

So yeah, appreciate that plug there.

Seth: So let's talk more about these deals that you guys fund. So when we're looking at the value of the property itself, or maybe the acquisition price or the sale price, whatever that is, help me figure out how big is too big for you guys and how small is too small. Like what is the size range of deals you guys fund?

Chris: Yeah. So even that has changed a bit more since we started. When we started, we were pretty much open to anything because it was reputational play. Even if we can do something smaller, we're only going to earn a $1,000, $2,000 bucks on it. But we could do larger deals down the line there and develop more of a track record and reputation within the industry.

But after we had quickly done that, we started ratcheting up the purchase price that we're going after. So we prefer going after deals that are between $50,000 and $500,000 in equity per deal. We'll not do anything below $20,000 at this point.

Seth: When you say an equity per deal, are you saying that is the purchase price or that's the equity that you're getting as a result of the purchase, like the spread between your purchase and the value? What do you mean by equity?

Chris: Yeah, so that would be the total cash injected into the deal at origination. So that allows us to go after larger deals. You know, like we could go after a $2 million subdivide if the seller is willing to hold debt on the deal. But if we're able to get it for like a 20% down payment, and then, you know, there's various other engineering, clearing costs, whatever that equal out or, you know, it doesn't have to be exactly 500,000, but around there, that'll make the deal far more attractive to us.

Because cutting a $2 million check, we could put that together, but the amount of risk that we're putting into one deal just doesn't make sense for the current size of our business. We try to diversify over a larger number of assets that are returning capital at different times to help keep our business moving. So that's how we're adjusting for risk currently.

And even within that $500,000-mark, things that are north of 275,000 or 300,000, we'll oftentimes look to syndicate that deal out with other internal capital partners. So we'll still be managing the deal as Serious Land Capital, but we might only inject like 100,000 ourselves and then just raise the remainder of that capital from other individuals or businesses and then split the profits on the back end. So that also gives us flexibility that doesn't come up as often as the lower range.

You know, there's a lot of folks who might bring us lower value deals, we prefer not doing anything below 20,000. The spreads are just too low there to motivate realtors to sell lower value properties, even if you're paying them a higher commission rate. It’s just not that much and your closing costs are going to eat into the relative exit value of the property as well.

So we just prefer not working with those lower value deals as much and save more of our available equity for higher value purchases, 50,000 plus.

Seth: So going back to the valuations that you were talking about earlier, when you or Everett or whoever looks at these things and figures out what do I think this thing is worth? Like, what is it likely to sell for? What are you looking at to get these valuations? Like, tell me all the sources, which ones are most important?

And then how often do you end up being wrong about those valuations for better or worse? Like, how accurate is it in the end?

Chris: Yeah, judgment is always the hardest thing to figure out as an investor, right?

I mean, it's something Naval Ravikant talks about often, and it can be such a long-term metric to check in on too, because you could have just gotten really lucky for six months to a year. And frankly, that was us. Anybody who was operating the land space in 2020, 2021, you might have thought you're like the best investor in the world.

And then, you know, the market turns into more of a buyer's market. It wasn't even really a buyer's market or a seller's market. It was hard to buy, hard to sell. And all of a sudden you're like, wow, I'm not nearly as good as I was, both from a valuation side and a selling side.

And you can kind of get punched in the face really quickly there. And all of a sudden, your judgment is not as good as you thought it was.

So I'm constantly thinking about that and, you know, trying to stay focused on the base principles. And, you know, it can be tough sometimes because now that I’ve become more of an authority in the space, you can start attributing a little bit more ego associated with it: “Hey, I've looked at a lot of these deals and kind of skip over some of these steps. And I know where this is going.” But that's a very easy way to trip yourself up.

I've made that mistake still to this day by not getting back to the raw fundamentals of underwriting, which is just critical, especially because this is not an easy market to operate in currently. And again, there's a lot more competition in the space, so it requires constant focus.

So I always have that warning going on internally and try to mention that to as many folks as possible. Number one rule in business, don't lose money. That's the name of the game here. So you just have to be conservative.

But when it comes into the actual business, strategy and tactics here. So there are multiple touch points whenever a deal is coming our way. So let's just, for instance, say somebody, I should mention, we get a large range of experience levels from investors sending us deals. So some might have only been operating for a couple of weeks. They send us, hey, here's an APN, the county, purchase price, anticipated closing date.

That's enough for us to get started. We'll advertise. We want to be simple to work with. We're not going to require written OPVs, opinions of value, or CMAs from realtors just to get started. Frankly, we think that's a little complex and not that necessary in our experience.

But let's just say I get that initial deal in with just the base amount of info. What I want to do first is just check the basic principles of that deal.

So I'm just going to pull up my Land ID, which every land investor should have at this point. I know when it was MapRight, it was more expensive, like $100 a month or more than that. Now I think the most basic Land ID is like less than $10 a month.

So really, everybody should have that since it brings in so many different key parameters for underwriting land deals, especially all the terrain maps and so forth.

So I'm always going to want to be checking that before anything else. So I might do an initial scroll out. Okay, how close am I to a larger city? just understanding how rural it is versus not. And that's not necessarily a critical piece for us, but it might give me an understanding of how hot the market might be or what the buyer pool might be, depending on how rural or suburban it might be, or even possibly urban.

But we'll invest in infill, rural, doesn't matter, feel comfortable with all of that. But that's my initial piece of that, like where am I in the country?

Because we invest nationally, right? So it's just, you have to be able to position yourselves and understand, there are different geographic considerations, depending where you're looking at in the country. And then I also might know how close am I to the coast or, you know, the ocean or mountains and so forth.

So then I already know what are some of the next steps I'm going to be looking at in regard to this deal. Do I expect there's likely going to be some flood zone or wetlands impact? And is that going to impact my decision making as much as it was in another part of the country?

So for instance, this property, when I zoom in on it, might be covered in flood zone, but if it's close to a coast and I see there's other improved properties around and maybe it's only in a 500-year floodplain instead of 100-year, there's no floodway with it, no core wetlands impacting it. Then that flood zone doesn't really matter to me.

But if I see it's in an area where there's significant flood zone impact, and I see all the surrounding properties within the flood zone don't have improvements on it, that's going to cue a red flag much quicker for me. And, you know, at that point, I might throw out the property entirely.

This is going to be high risk to build on, for instance, maybe if it's large enough, it can be considered for recreation, you know, hunting and so forth, depending where you are in the country. But even hunting properties, I want to make sure, hey, is there a possible creek area, or is it maybe connected with some state- or national-owned land where wildlife and game can come in that that's going to make it more viable?

So all of these different underwriting principles are going through my mind as I'm taking an initial look at the property just to consider the possible utility there and whether I'm going to kill the deal immediately or not.

So you know, that flood zone wetlands piece is always going to be a core visibility feature that I'm going to have on my Land ID pretty much anywhere I'm at. If it clouds your vision too much, once you already understand it, then you can turn those off.

But as far as my base ones that I have on, I have those on. I have the contour on, so I understand the elevation piece. And then oftentimes I'll have the soil map on initially just to understand, again, is there a higher risk for the property being able to perk if we're expecting septic to be installed, especially in a more rural area? Probably 85% of properties that get sent our way are going to have septic involvement compared to sewer.

So, you know, that's always something we're considering. And a quick rule of thumb on soil maps, having learned from some soil scientists before, almost anything can perk nowadays, but it just depends on what type of system you might be looking to install.

So if you're looking to install a conventional septic system, which might run, five-ish thousand dollars, depending where you are in the country, you want to be aware of clay-based soils or anything on Land ID that might say excess water on it. Sometimes that's not always a deal killer, but if there's a soil map portion that is along a strip of wetlands, for instance, and says excess water, and I can see that not that many people have built within that particular type of soil, then I want to be much more careful about investing in that property.

And if I am going to take it more seriously, going to want to make sure that perc test is done prior to purchasing, because yeah, you can be misled sometimes, you know, hey, there's no real wetlands involvement here, but my soil map is telling me that wetlands impact in terms of a perc test might expand more than what it's showing me on the map.

So that's another piece I'm keeping in mind. But even if you have clay-based soils, excess water, you might still be able to get those aerobic or mound-based septic systems. But that could cost the end buyer closer to $10,000, $30,000, depending where you are in the country. So you want to be baking that into your price.

And then how does that compare to other properties that are currently comps on the market in relation to what your total exit value is going to be? And were they able to get conventional systems or did they already have aerobic or mound based systems built into that anticipated exit price?

So these are all things going in there.

Seth: I actually learned an interesting trick on that from David Hansen, who you introduced me to, in episode 176 of the podcast. He was talking about wetlands and something I'm aware of is that a lot of times those of wetland maps, like just the map itself on a Land ID is not necessarily right. There's just a lot of flaws in that.

However, if you just call a wetlands consultant and have them do a desktop review, so they don't actually have to go there. They can just look at it with a more critical eye and understanding what they do. They can usually get a pretty accurate, 90% accurate look at that to confirm or deny the likelihood of actual wetlands, regardless of what that wetlands map says.

So when I heard him say that, I was like, oh yeah, that totally makes sense.

But in case anybody out there has never thought of that, just keep in mind, you can always just call a consultant and get their quick five-minute review. And I don't know if they charge for that or not, but it can at least give you more confidence on whether this is actually a wetland concern or not.

Chris: Precisely. Yeah. Leverage experts whenever you can.

Seth: Yeah. So I want to shift gears here, talk a little bit more specifically about how you partner with operators.

So question number one is what is the typical profit split between you and the operator? And when I say “operator,” I'm talking about the person who finds the deal, but doesn't have the money and they need the funding. So what is that typical profit split? Does it depend on like their level of experience or it doesn’t matter and it’s just the quality of the deal? What would impact that?

Chris: Yeah, so a mix of all of the above. We built out a lot of custom agreements for various deals here. But, you know, I'll just mention some standard parameters.

Let's just assume it's a vanilla deal across different purchase price ranges. So generally, if we're going to be purchasing below $100,000 purchase price here, net expected market value of the deal, we'll start at a 30-70 split, 70 in favor of you as the land investor.

For instance, and that will be a time-graded approach. So if we're able to close within 60 deals or 60 days, then you'll be able to get that split. And so that period of time starts when our money is wired into the title company up until the time the deal is closed and we receive the wire back.

Seth: Just clarify one thing. When you say you're able to close within 60 days, you're talking about closing on the sale price. So 60 days between you buy and sell, right? Which is a pretty fast turnaround.

Chris: I mean, it's really counting on finding a buyer within the first month. You're just anticipating, usually like a 30-day standard close. So you're really having to move there.

Seth: So if it goes beyond 60 days, then does it change in some way or what does that change to?

Chris: Yeah. So then the profit split will increase in our favor accordingly.

So then beyond 60 days, it'll go up to a 40-60 split still in your favor. That's up to 90 days. And then from 91 to 120 days, it will change from a 45-55 split still in your favor. And then beyond that 120-day four-month mark. That's when it will become a 50-50 just until the deal is sold there.

So that really incentivizes proper target purchase price as well as a conservative fast exit price. And even though we might earn higher profits by letting deals sit longer, it really pays for us to keep our capital moving because the sooner we can get things out, the more deals that we can do.

Plus, it helps our reputation. This is a marketing game as well here. So if somebody makes a claim about us on one of the land communities, hey, you know, Serious Land Capital, they really drag their feet closing deals, they could bring up bigger profits. It could be a death knell for our business. So we're never incentivized to act in that manner.

And, I know a lot of more experienced operators who, in this buyers market, might take on average four to six months to sell anyway. We're, on average, quicker than that. Out of the 25-plus deals that we've funded over the last year, I don't have this in front of me, but I think only two have gone beyond the four-month mark at this point.

So maybe three, as of the last month, a larger deal that we were expecting to take a bit longer to sell anyway. But we are very aggressive with getting properties moving. If I'm not getting a good response or serious interest within two weeks, oftentimes, we're ready to pull the trigger and do price cuts accordingly, oftentimes weekly.

And this is assuming all of our marketing is already set up, drone photos, et cetera, properly advertised across all different platforms. But assuming all that's taken care of, price is really the primary driver. And we'll just keep lowering until we find the market to move it.

Seth: Yeah. So what happens if this deal goes 6, 9, 12, 18, 24, 36, you know, just what if it just keeps going and going and this thing does not sell? Is there a point at which it's like, okay, operator, you're out. We're going to keep all the money and no matter what happens.

Or does it just stay 50-50 forever? Like, is there a consequence in the operator's shoes if something just takes forever to get sold?

Chris: Yeah. So technically, in our base boilerplate funding docs, we'll have a 12-month cutoff to where, if the property sells over this period of time, we're going to retain all the profits. That is really only built-in in the circumstances that the operator and the land investor bringing us the deal is handling the disposition of the property on the sell side.

So the vast majority of the time, I'd say 95%, 99% of the time, we're going to be working with a local realtor anyway. And because our company is holding title on the deal and the one signed the listing agreement, we're usually the direct liaison with the realtor.

So, again, we keep our realtors on a very tight leash. You know, we don't sign a 12-month agreement. We do max of six months. So everything is incentivized for a faster sale. If there was some you know catastrophic event where we just cannot figure out how to get this thing moved or maybe there was something that occurred on the underwriting, like some mineral rights issue or some environmental impact that just somehow slipped past diligence that we're gonna have to deal with to find a way to move this property, then we're totally fine with resetting the JV funding documentation to remove that 12-month.

Because it's not not the operator's fault. They're not the one out there trying to dispo and so forth. They shouldn't be punished for it accordingly.

So again, we haven't even gotten remotely close to that before. And again, we're very open to reworking that accordingly. So that's how we would handle that.

Seth: Yeah. And am I correct in assuming that you hold title to this property as the funder, not the operator?

Chris: That's right. Yeah.

Seth: As I hear you talking about getting these properties sold, it almost sounds like this is up to you to get the property sold. You're doing a lot of the work or working with realtors and that kind of thing.

Is that correct? Or does the operator have some responsibility? Like, it's on them to get this property sold?

Chris: Yeah. So that also can vary depending on the experience level of the operator bringing us the deal. You know, if it's somebody brand new in the industry, hey, they might've found a good deal where there's real upside there.

And because my partners and I, we have a full understanding of the land industry. So we're going to do all the diligence regardless because it's our capital at risk here. So it's always an alignment issue. You know, even if we have somebody very experienced, it's still on us to make sure that all our I's are dotted, T's are crossed because, if the deal goes kaput or we miss something, it's 100% of our capital that's on the line, not the operators there. So we're always going to be double checking that work regardless.

But sometimes we're able to defer some of the responsibilities. If we have a more experienced operator, they might have had a local realtor they've had good success with in the past. That makes our job a lot easier, not having to find one and chat about the deal, have them visit the property and so forth. That can be a bit more time-consuming. Or maybe the operator has already called the city and figured out the zoning, utilities, and so forth. That saves us some internal work as well.

And, occasionally, the operator, if they already have good experience with the realtor, might actually be fielding the conversations and offers coming in on the back end. Usually that defaults to us, but not always.

So we're quite flexible in that regard, where we can adjust to the level of experience that the land investor is bringing to our business. We prefer working with folks who are more experienced; that's less work for us, but we're not necessarily going to turn somebody away just because they don't have all the processes in place.

And we're here to help and grow the industry because our business is totally reliant on operators bringing us deals. So, you know, if folks are struggling in that arena, it collapses our business as well. So that's why we try to provide so much value in terms of helping with underwriting or providing feedback on why different deals didn't work out or, hey, here's how you talk to realtors to get them to respond to you and provide opinions of value and so forth.

That's what we're able to provide as a smart money funder.

Seth: So on the selling end, when we're trying to get this property sold, does the operator have any responsibility whatsoever or is it zero? Like it is 100% on Chris to find the agent and work with them until it gets sold? That's kind of what it sounds like, but maybe I'm misunderstanding it.

Chris: Yeah. Again, because it can range there. So finding the realtor is probably the hardest part to do. So that's great when an operator can bring us a solid local realtor. And we're pretty choosy with them and we'll bias ourselves to working with hyper-local realtors who ideally have sold a nearby comp within the lagging three, maybe six months.

So that's our primary target when it comes to realtors, versus somebody who might have three or four counties that they work with in the area. And we might've worked with them before, but they don't necessarily know the hyper-local area that we're looking at.

So to me, I'd be more focused on finding somebody who's hyper-local rather than somebody I already have a relationship with unless I know they can operate in a larger area.

So finding that realtor is the most critical piece. And we can do that or the operator can do that. And I should just mention an aside here, just because anybody doing bigger deals, you're oftentimes going to be working with local realtors there. I really like to get them on the phone and get a better understanding of how they're thinking about the property, compared to getting written CMAs or OPVs.

Because oftentimes I just don't find those that valuable. Certain infill areas where markets are very efficient. Yes, those numbers can be more reliable. But when you're looking in a lot of rural areas, those type of CMAs are oftentimes not telling me anything that I don't already know. Because by the time I'm chatting with a realtor, I've probably already comped out the property anyway. And so that's not necessarily helping me get a better understanding of whether to pursue this or not.

So I want to talk to somebody who has the on the ground knowledge. What are buyers looking for? Do they need surveys done? Are perk tests necessary? What's the build type of activity there? Is there seasonality in the market? How intelligent is this realtor speaking to me? Are they responding to my texts or my calls more often than not? Or is there a big lag time in between there?

If they're not really responding to me, they're probably not going to be the best from incoming buyers as well there. Or can they tell me much more detailed knowledge? For instance, we were looking at a property in Colorado where a lot of inventory on the market, but there was a lot of differentiation and variance in the type of properties.

And this realtor was able to tell me, hey, your property is actually positioned much better because the way the geography and terrain are oriented, an end buyer on this particular parcel is not going to get like 60 mile per hour gusts coming in in this direction.

So that's the type of info that I need to hear in order to make proper buying decisions that aren't necessarily going to be conveyed over a CMA or, you know, just kind of simple text or email conversations with realtors.

Seth: The reason I'm asking about this stuff in terms of whose responsibility is it to sell is because the way I've seen other funders do this is they put it totally on the operator. Like, “You are the operator. Get it sold. We don't care how, but get the thing sold.” And that's kind of the reason why there is that step down in the split as time goes on.

Like if it takes more than 60 days, now we're at 60-40. It's more than that, now it's a 50-50. It's almost like a motivator for that operator to like, hurry up, like get it sold, keep going.

But it sounds like you're kind of doing a lot of that. And in some situations, it sounds like it varies, but it just makes you wonder, like, It almost sounds like maybe a potential misalignment. If there is a change in the split as time goes on, then maybe it should be on them instead of on you.

Why are you doing that work? Or am I misunderstanding something? Or maybe it wouldn't change things in terms of how that's supposed to work.

Chris: The alignment… you can look at it in a couple different ways. And this is something my partner Everett will harp on more than anything.

In regards to the alignment, ultimately, we have to trust ourselves internally to get things to move, because it's 100% of our capital, right? Like it's all upside for the operator, assuming we're able to sell it profitably.

So even if their split might go down over time, it's still just pure profit, not necessarily impacting their day-to-day business. You know, maybe they need some of those funds to market out more, try to grow their business in other ways.

But for the most part, in our experience, you know, folks kind of hand off a deal. And they're not necessarily that interested in maintaining the dispo side of the business anyway.

And frankly, from a reliability perspective and incentive, we want to get our money out ASAP and also try to hit the profit margins that we're orienting to.

Seth: Is that in any way a conflict of interest? I'm not in any way saying you would do this, but in general, if a funder is in charge of the selling process and if the commission split goes more and more in their favor, the more time goes on, wouldn't that be an incentive for you to just kind of sit on it for a few months until it takes longer?

Whereas if it's the operator's job, it's like, no, I'm going to get this thing sold because I want the most money out of this thing. Do you think it's a thing or would that ever be a concern?

Or it's almost like if you were going to be in charge of selling it. Automatically you get more of the profit because you're doing a huge part of the job that they don't have to do.

Chris: Yeah, it is. And I mean, that's something we grapple with sometimes. I know some of the funders will operate in different ways depending on how much responsibility we're taking. You might change up the splits.

It's sometimes something that we’ll build into the agreements. Like, yeah, if we're especially taking a lower value deal, for instance, and we're having to do the whole ground up operation, we might ask for a 50-50 straight off the bat here. So there is some customization that can be built into specific circumstances.

But like I mentioned a bit earlier, it's really a reputational type of thing because there's plenty of funders out there. If we had a monopoly on the industry, then yeah, the alignment could be more set up in the funder's favor of like, well, people have to come to us anyway, so we can just sit on these deals and rack up as much profit as possible.

But that's also assuming you have enough capital to be able to turn over because that's the risk of the game. There's plenty of folks who have sent us over deals where they presented it to another funder and then the funder was maybe anticipating on another close happening and didn't. They don't have the capital to close.

So you could play that game, hold on to properties for longer, try to generate more profits. But if your business is growing at the same time and you don't have that replenishment or you can't just pull in more management equity to invest in the deals, you're playing a very dangerous game there that can also hit your reputation.

But again, on the flip side, if you somehow developed a nefarious reputation as a funder where people are thinking, okay, they're not fielding offers properly, or maybe there's not an ongoing dialogue, I feel like they're hiding something from me. And just to rack up more profits, then you're not going to get repeat business. They'll just go to another funder who might operate in a faster way.

So there's built-in checks and balances in the industry. And we feel over time that we've always acted in the best interest of our clients. Because the more business that they bring to us and word of mouth and everything is only helping us regardless of potentially lower profit splits coming to us if we move on properties faster.

So hopefully that answers a bit. It's never like a fully easy answer. But on average, we're always trying to move things ASAP, especially since we pursue cash sales.

Seth: And part of what I'm getting at with all these questions, or I guess just something to understand, is that this whole land funding profession is absolutely not an exact science. It's not an established thing where it's like, this is the way it's supposed to work.

Every funder I've talked to handles things a little bit differently. And it's kind of about figuring out, okay, what is the balance that works for us and that operator?

So that's kind of why I'm trying to figure out, Chris, like, what's working for you? And that whole thing about safeguarding against a bad reputation in the market—like, that's a very real thing. And I've heard stories from different operators who will say like, yeah, man, this funder totally screwed us out of our money. They took all the profit and didn't share their split with us. And digging deeper into it, what it really was, was the funder was just adhering to their partnership agreement or their JV agreement that they signed. Like they were just doing what they both agreed to, but the operator didn't really read it or didn't understand it.

And what it comes back to is sort of like this line of communication between the funder and the operator. So like there's a deadline coming up. If something's about to change, that shouldn't be a mystery. It shouldn't be a surprise to anybody. Just because it's in the contract doesn't mean that the other person is going to perceive you as doing things aboveboard.

I just think it's an important thing for everybody out there who is either a funder or trying to use a funder to like really understand that contract. Like both parties should get it. And when there's something on the horizon, it was like, Hey, we're coming up against 60 days here. Things are about to change.

There ought to be some kind of communication and conversation about that. Just so that no one's in the dark.If we're coming up on, I think you said it was a year in your case, Chris, where it's like, Hey, now the funder keeps a hundred percent. Like people should be seeing that coming from miles away so that if it finally happens, it's not like, oh, we're yanking the rug off for money. You're not getting any money.

And that's, I would imagine that's probably how you safeguard your reputation in this business, right? Is just by being very transparent and clear with everybody. Is that accurate?

Chris: Yeah, absolutely. And yeah, it even becomes more granular than that because we're so busy day-to-day too. It's like across different deals. It's hard to pay. That's probably something we could build into our CRM, but like, yeah, okay. It's past like the 30-day mark and so forth.

And we do have that within one of our spreadsheet trackers, but with how much communication’s going on, usually the focus is on, hey, we just got this offer, just FYI, we're trying to counter to this. Let's see what comes back here. Here's a couple of the contingencies they're looking at. And so that'll just be our consistent follow-up there. And then, okay, yeah, this offer got accepted. Here's the anticipated closing date.

So we're always just trying to keep our operators in the loop accordingly. Some prefer more frequent updates than others. So it's a balancing game accordingly there. Some, if it's a very popular property, don't need to be mentioning every single offer. If it's really low ball that we're unlikely going to go after, then that's not worth remarking on oftentimes.

But anything that's real and we're positioning as strong consideration, that's always going to be a text follow-up.

And it's not always us maintaining that black box communication with the realtor. We have plenty of operators who might be in a group text thread with the broker in us or a group email thread, or again, they might be managing the communication themselves.

So we're not, we don't have hard and fast rules for those communication patterns. It really kind of depends on what the client prefers when they work with us.

Seth: In terms of that profit number, like say if you buy a property for 50 grand and sell it for 100 grand, how exactly is profit measured?

Because it's never that cut and dry. There's closing costs and there's holding costs, there's property taxes, there's insurance in some cases, if you're doing improvements or subdivides, there's all kinds of other stuff that comes into the fold.

So like, is there a simple equation you follow to say this minus this, that is the profit. And that is what we then use to split and disperse the money.

Chris: Yeah, precisely. So we follow more of the institutional paradigm of using waterfall documentation after the point of disposition.

So I partner Everett through along with some attorney help and just making sure that we're absolutely solid on all of our numbers. We'll make sure that the waterfall is conveyed properly within an Excel spreadsheet at the point that we're going to be wiring profits over to the operator that brought us the deal. And, you know, according to such and such amount of days, here's what the split's going to be.

And sometimes it might just be like a pure 50-50 too, like anything we do above 100,000 purchase price is usually going to start at 50-50 anyway. So depending on the risk of the deal and so forth, that's going to adjust accordingly.

But generally within the waterfall and any type of costs that we covered in the business are going to be paid back first. So that's going to be the purchase price of the property, any related costs, say marketing photos, like do we have to spend on anything on a drone or survey or perc test and so forth. All those costs are going to be funneled back to our firm first as having covered those.

We have a couple variable costs, rarely more than $1,000 per deal that might cover our due diligence that Omar does on the deal, really ensuring that all the numbers are aligning prior to us purchasing. If there's a little overhead covering some of the work that our VA does on the deal, for instance, or covering a little bit of the legal expertise that consult through Everett and a couple of our third-party attorneys that we work with to make sure all the JV docks and the waterfall is flowing properly, that would all get baked into the waterfall.

Again, we try to keep those costs as low as possible. From a reputational perspective, we don't want people reporting, hey, Serious Land charged me 10,000 in superfluous fees at the time of close. And that impacts our profits as well. So it's not like it's just coming purely from the profits that are allocated for the operator. That's just coming out of the total profit pool that we're both sharing.

So those are all going to be flowed out first. The realtor commission that's going to be taken care of, title company expenses, all of that gets paid out first as principal within the deal. And then after that is when the actual profit is calculated there.

So depending on what those splits look like, that's how we end up at that number.

Seth: So it sounds like you cover pretty much 100% of costs once the deal lands on your table in terms of due diligence, marketing to sell the thing, realtor commissions, all that stuff.

Who covers the costs on the front end with the acquisition? If somebody finds a deal with direct mail, you're not covering that, right? Is the operator paying for all that and you start covering costs once you enter the deal? Is that accurate? Or how's that work?

Chris: That's precisely right. Yeah, there are some funders who will engage in covering marketing costs for more of an exclusive relationship with an operator. Some folks have approached us about that. And we've looked at that. Ultimately it wasn't the best fit for us at that time that that's not necessarily saying it wouldn't be the best fit for us going forward.

But that's a whole another consideration. Because when we left the direct marketing space, that saves us a lot of variable costs and overhead within our business. But we're also taking a hit by having less profit margin on deals. So we have to do a higher volume as well as reduce overhead costs to account for the lower profit that we're taking on a deal-by-deal basis.

So that's something that we'd have to keep in mind before potentially funding, that doesn't necessarily have a guarantee of finding us more quality deals because there is no guarantee within in direct marketing there.

So it is an option, but I don't know that many funders who are handling the marketing side.

But if the originator or the operator, they might pay EMD on a property, or maybe they cover a couple other costs associated with the deal before we're brought in, then those would also get incorporated into the waterfall. So that would also get paid out back to their account prior to the profit split.

So ultimately, assuming the deal is profitable, which is not always the case, but we do everything we can to make it so everybody will get paid back first and then the profits will come into play.

Seth: So how often do these projects involve like subdividing or entitlements or improvements or like not just a straight flip, like there's extra costs in work required to do more to make the property worth more? What percentage of the time does that happen?

Chris: Not as often as we would like. We want to grow that part of our business more, but finding subdivides that really pencil out or entitlement deals, it's hard to find.

We are just in the midst of completing a minor subdivide project. I mean, this was very tiny. We were just splitting off one parcel of vacant land that was attached to another small parcel with a house on it. But I mean, we've been working on that deal since August of last year.

There was a partial lien release involved with mortgage on the property and dealing with the county and surveyors and having to get all their recorded documents done. Like that took a long time. And a lot of our costs are still baked into that. We probably have $6,000, almost $7,000 that's still been held at bay in that deal really since August, getting paid down before we even bought the property and have a chance to return funds on it.

So we're always a bit more cagey and conservative about going after deals that are going to have more inherent expenses and oftentimes longer sales timelines. Minor subdivides. Maybe you can move everything in six months, but oftentimes longer.

So we just have to bake all of that in accordingly. Same with entitlement deals.

Seth: And again, I don't know how many, if any, if you've ever done like an actual proper subdivide or like a platted subdivision or something like that. But when I think about those projects, they inherently require more work. Like somebody's got to find the surveyor and communicate with them and get stuff recorded and all this stuff.

Who handles that work? Is that the operator's job or is that that your job? Does Chris have to go and do that stuff?

Chris: Yeah. So that's where we can have some variance as well for some of those type of deals. Some folks who have brought subdivide opportunities are much more of the on-the-ground operators, they're out visiting the property. They might even be handling a lot of the dispo outside of realtors. They might be running Facebook ads or setting up a land buying expo, which can actually work well for subdivides. You just say, hey, we have a whole bunch of land to sell this weekend, come out here and you can sign some paperwork.

Works better for owner financing, but it's an option to offload some properties quickly, even before you close and survey out the child parcels. So you might have operators like that who are providing a lot more inherent value to the actual on-the-ground work.

Whereas some folks, yeah, they might bring the deal, but they're not necessarily local to the area, or the work required is just not as intensive. Even if you're finding a surveyor to head out there calling the water department to figure out what's the cost going to be to add a water line here, that's fine. And we encourage folks to help as much as possible on that end. But that's also something that we can handle in-house if needed.

So we're not necessarily going to be as inclined to give up more upside for circumstances like this, or like the latter case, where there's less expertise needed to both acquire, do the operational work and sell the property. So that might change up the terms on the final funding part of the deal.

And for these larger deals too, some of the operators, they might be looking to inject skin in the game into the property, which we always encourage for bigger properties where, yeah, there's going to be more of a trust and time requirement to sell this deal.

So yeah, if you can inject 50, a hundred grand, great. That helps us make sure that you're aligned more to see this project through and, you know, encourage more splits in your favor. But because of these various factors that might change the custom criteria in regard to what the final profit splits might be for those types of projects.

Seth: I'm sure you don't have a direct answer to this because it depends on so many different things, but like, say, say if I brought you a deal and I wanted you to fund it, it requires maybe 200 grand of funding to buy this thing, but I want to put my own a hundred thousand dollars into that too.

So like you put in a hundred grand, I put in a hundred grand. How would that change all of this stuff in terms of, who holds title? What's the profit split going to be? Who's in charge of what?

Like, I got to imagine you almost hit the reset button on everything, right? Because we both have our necks on the line in the same capacity. Have you ever dealt with that kind of thing?

Chris: Yeah, occasionally we get offers for that. And that $200,000 mark is right around where it gets interesting. You know, usually we'd only want to consider taking operator funds and skin in the game for those higher value deals where, yeah, we can spread the risk around for anything that's lower than right around that $200,000 mark.

And we have funded, self-funded deals north of $200,000 where we're the sole equity partner. So that's not the hard and fast distinction.

But the problem is, all of our documentation that we have currently is set up to where we're the sole equity in the business. So if we do something smaller than that, we're going to have to draft more documents. Probably some more attorney involvement there and costs associated with that, might have to set up a new LLC that's going to be serving as an SPV, special purpose vehicle, for that particular deal. So there are a lot more costs added on just to manage the basic operational groundwork of that deal.

So usually we try to refrain from pursuing those type of opportunities, again, unless they're larger deals where it makes sense to invest more money on the legal groundwork. Otherwise, yeah, it's just too much of a hassle to be splitting and having different roles and responsibilities and different types of title situations. Do we have to do like joint tenants and more complicated for the title company and everything?

So it's a whole another can of worms that you'd have to think carefully before engaging in.

Seth: I've gotten to about half of the questions I wanted to ask you, but I know we're going a long time here. I'm going to try to wrap this up relatively soon here.

But one of the questions, and this is something where I've heard conflict arise between operators and funders. And that is, who gets to decide what that listing and sales price is going to be. And at what point do we accept a lower offer versus not?

Maybe one party thinks, Hey, I think we can get higher if we hold out. The other part is like, no, we got to sell it now.

And also the issue of seller financing. Like, do you ever offer that as an option when you sell properties? And if so, how do people get paid? And when do they get paid?

I'm going to go out on a limb here and assume that you get to decide on all that stuff as a funder, since you're holding title. Correct me if I'm wrong, and then let me know, just elaborate on that. How does that get handled?

Chris: Yeah, certainly. So within our documents, ultimately, we have the final say-so on accepting an offer or not to sell a property. Again, this is where the alignment piece comes back in and where there could be potential reputational damage. Because the funder abuses that, takes an offer that they didn't consult the originator on or hadn't discussed prior. That's just gonna leave damage. You might lose a potential long-term JV partner on deals, or they might leave you a bad review in some of the various communities, or bad word of mouth. All those are disastrous to our business.

So I hammer in that point because, really, it’s the funders' advantage to be as open and communicative as possible in finding solutions and sales prices that best suit the needs of each partner in the deal.

That being said, prior to even listing a property or even before funding it, we're going to have a conversation with the operator. What we anticipate selling the property for and our anticipated strategy for price cuts and so forth, if we're not getting the interest that we're anticipating.

And we actually have built in within our documents, again, prior to even funding, a base clearing price indicating that if we get an offer that is at least this amount, and there's no crazy contingencies, you know, like a 90-day close or other random things some buyers might throw in as wrenches into a deal.

But let's just say, you know, kind of a standard 30-=day close, whatever this number, we're just going to accept that. So we're already have an understanding that, hey, that this is a threshold that's going to work for both of us here. Anything below that is going to be a discussion.

And while yeah, our firm is a title holder, we still ultimately could say, hey, no, like this is the best option to go for. It still gives us a an understanding of anything below this number, we're going to to be bringing to you, discussing it. Here's the pros and cons, why we think it'll be better to take this deal versus trying to stay on the market longer. Hey, wait, maybe we just misjudged this market entirely here.

This thing's been sitting for three months and secret, not so secret in the industry, but oftentimes you might get greedy off the bat where, you get an offer that's like not quite where you want right off the bat, but usually offers don't get better over time. They usually get worse, or at best, the same. So the market will tell you very quickly whether you're on track or not with your pricing.

And so, even if we get an offer that's a little bit below our clearing price threshold within the first couple days of listing the property, if it's a quick 30-day close, for instance, no crazy contingencies, usually we're going to take that, you know, we'll always try to counter. I know it goes against the Chris Foss Never Split the Difference. Splitting the difference is oftentimes just part of this industry.

And you don't oftentimes have that much negotiating power in a buyer's market here to just say, hey, I'm not going to accept this lower offer here. Usually I'll just throw out because buyers expect that anyway, and most of them will accept. So throw out your counter or maybe you want to counter on something within the document. Hey, I'm not going to cover your survey costs or I'll take like $1,000 off. So you cover the survey yourself. Or I want to cut down on the due diligence time period.

I'll always have something that you're going back to the buyer with and try to squeeze as much purchase prices as you can out of it. But that's always going to be our strategy. And if we can't extract anything more, yeah, we'll go back to the operator and say, yeah, this looks like it's going to be the best option for us. We did all we can here. And then we'll anticipate closing.

So again, it always comes back to the communication element.

And like you mentioned, in regard to possibly fielding seller financing offers. I mean, we're open to it for most funders, especially equity funders. It's not going to be a preference just because of the nature of our business. We need capital turnover.

And if we're growing, if we just have too many finance deals going on, we won't have the capital to put into more deals. So we are open to it, especially again, in this buyer's market where seller financing can bump up the buyer pool for particular properties.

But generally, we're going to be looking to sell the note after a short seasoning period, maybe three to six months at most. Ideally, you could table close the note as well. But we just have to keep that in mind is that if we're offering somebody to buy via seller financing, and we're going to be looking to offload the note, usually, you know, we're going to be taking 80 cents on the dollar. So that's going to be impacting our margin anyway.

That's not necessarily a terrible thing there. Because in this market, most of the properties that we're selling are probably at a 10% to 20% discount, even off our conservative listing price anyway. So, you could keep cutting from a cash perspective or potentially sell for a little bit higher finance, anticipating selling with a 20% discount after a period of time.

So, you just have to weigh that with your underwriting as well as what might be the best profit accordingly.

And usually for seller finance, in terms of profit splits, we'll get paid back all of our principal first and then 50-50 thereafter if it gets into payments, especially if a note buyer comes in there.

Seth: So this kind of going back to earlier with the due diligence side, like when you're doing deal intake, are there any ways that you've been able to screen out bad deals to avoid wasting your time with them?

What do you expect the operator to come to the table with to save you time on due diligence and ensure you're not looking at a junk deal? Are there certain things that you'll just automatically say no to and you say, hey, operator, before we even start talking, make sure you've answered these questions and check these boxes and then we'll start looking at it.

Or do people just dump all kinds of junk on your table and it's up to you to figure out if it's a good deal or not?

Chris: Yeah, unfortunately, it’s more of the latter than you would hope for in this industry.

And some folks learn that lesson quickly and realize, hey, yeah, this was bad criteria. I'm going to change that up. Some folks just don't learn and we might not prioritize trying to work with them as much going forward.

But yeah, I mean, it's so simple, right? For a lot of funders, you know, a lot of us have websites and basic FAQ or deal criteria. Just take 60 seconds to check that out really quickly. Yeah, it'll show you, hey, we're looking for, on average, between 50k to 500k purchase price, nothing below 20k. If you send us, you know, a $10,000 deal, that just tells me, hey, you probably weren't paying attention.

And even if you didn't check the website, oftentimes when I'm introducing myself to people or they ask criteria, hey, I'll just text over here some of our base stuff. So, usually that info is it's very easy to get a handle on.

But, yeah, even beyond that, I mean, if you're sending something over that's just landlocked or you haven't done the basic diligence, you send something over where you might have already spent like two hours on the deal, comping it all out. But then I pull it up on Land ID, and it's covered entirely in wetlands. And that's just kind of embarrassing on that side. And hopefully, they’ll learn the lesson afterward to do a little bit more upfront work.

But yeah, just making sure you know, those key red flags are dealt with.

And then the pricing side is more difficult. That's why I run that Land Daily Diligence Facebook group, because most of the errors made in underwriting is from a pricing perspective, not necessarily from a geography or terrain perspective, for instance.

So pricing, it's really, really hard to do well in land. It requires constant practice. There's an art to it. It's not just a pure science. Even me doing your underwriting, virtually every day or every business day, looking at hundreds, thousands of deals at this point, like I'm still learning new tactics to utilize in this space.

And especially when you're trying to invest nationally or across different geographies, like there's just almost an infinite amount of material that you can learn there. And again, kind of requires constant work. Even when I took a break over the holidays, Christmas, New Year's and so forth, I was rusty coming back to it.

So it's just something that requires hours and hours and hours of practice to find those right pricing mechanisms. And sometimes there's not a key answer. You might have to go to a local realtor and just kind of throw your hands up and say, you know, can you visit this or check out some of these key issues here? Because it's just impossible to tell based on the lack of comps or the aerials, what might be going on with the property.

So, you know, the pricing piece, yeah, you can send deals our way on that Land Daily Diligence. I'll try to provide as much info as I can help you become a better underwriter. But don't hang your head too much if you're off on that, because most investors in the land space, it takes years to get better at that particular piece.

And even though my like deal requirements might say, hey, like, I want 50% of market value, just like most funders, my 50% is probably going to be different than your 50%. So don't don't get too hung up on that precise pricing there. Just send some deals our way. We'll provide feedback and what will help you center in on how we evaluate deals more. So then you can bring us one that's going to be a better fit in the future.

Seth: For people to be featured on this Land Daily Diligence Facebook group, do they basically just go to Serious Land Capital and submit their property there? And is that how they end up with you reviewing it that way?

Chris: You can do that. Or you can just email directly to me or Facebook Messenger. Any of those paradigms is fine. You can text me a deal too with my direct business line number that's also on the website. So those are all options to do that.

Deals that come in, because the Land Daily Diligence is not necessarily just for deals submitted for funding. Even if you don't plan on working with us or you just want an extra pair of eyes or you haven't got a signed purchase contract yet, you're just trying to value the deal better before you interact with the seller. Because that's always a better option, right? Before settling in on a purchase agreement. Then it's easy for me as the funder to say, yeah, this is way overpriced. Now you have to go renegotiate. That's a really hard conversation.

So if you can settle in on your price prior to setting expectations with the seller, that's always going to be a preferred option as well. So you can definitely send any deal that way.

And even if you submit on our website for funding and so forth, I'm always going to be double checking with you before featuring the deal on the live Facebook. Because I know some people would prefer to keep their deals more private.

I provide as many safeguards as possible. I'll never mention what the precise purchase price you have it under contract for, trying to keep some of the key details back with the expectation, hey, we're trying to build a trusted industry here folks, don't go trying to poach deals and so forth from each other. That's always going to come back to bite you in the end.

But nevertheless, I try to provide those safeguards accordingly. So then you can still get the full value from the service being provided there. But yeah, rest assured, you won't be featured unless you've given explicit permission.

Seth: Well, Chris, totally appreciate your time and pulling back the curtain a little bit about how your business works. If people want to learn more or work with you, is it just seriousland.capital? Is there some other place they should go to connect with you?

Chris: Yeah, that's our base funding website. So yeah, you can reach out there, submit a deal there. My email, chris@seriousland.capital, is there, as well as my number. Or join the Land Daily Diligence group on Facebook. It’s free to join, free to get any help on that. That's always going to be a free resource.

And like we mentioned before, the landfunding.partners is also our community resource for providing all the other funders out there because there's almost an infinite number of deals. We can't fund them all. There are plenty of other high value funders out there who might be better at certain types of properties, or maybe they can provide splits that are a better fit for your company. Maybe they're debt lenders instead of equity lenders.

So take a stab at working with different funders. Find somebody who's a better fit or maybe work with multiple. Some folks are are a little bit tapped out at a certain time. And so you can rely on different funders depending on the time of year and what type of deal that you're looking at. That's really our intention of building out that resource.

And yeah, just looking forward to interacting with many of you going forward. I know we've been going on for a while here, Seth.

And like you mentioned, I feel like we could probably do another like two or three podcasts worth on additional underwriting questions here. But I just wanted to express my gratitude so much for the opportunity to be on here, my partners and I, even with the success we found in this space, we really owe you a debt of gratitude.

We wouldn't have been in this land space operating without all the expertise you provided across our REtipster and all your various resources. I mean, yeah, back in the day, getting started on this, just reading every single article you had posted, every single comment back when the comment section was still available on your site and everything, but buying the postcard templates and so forth. Just immense value provided to us.

And, you know, I’m so grateful to have gotten to know you more over the past several months as well.

Seth: That's awesome. Appreciate the kind words and really glad you've been able to find help there and be part of the community for so long. And it's really cool to see what you're doing for the land space today. So thanks again for the great conversation, Chris.

And all the listeners out there. If you want to connect with Chris, now you know where to go and how to do that. If you want to check out the show notes for this episode, it's retipster.com/187. This is episode 187. You'll find links to Chris's website and Land Daily Diligence and all this stuff that we mentioned.

Again, Chris, thanks a lot. And hopefully, we'll talk again soon.

Chris: Absolutely, Seth. All right.

Seth: How much is farmland per acre? Like what would be a normal average price to pay?

Why is land so expensive in places like Iowa and Illinois that are just sort of known as like some of the best places in the world for crops and that kind of thing?

Pat: Nobody wants to spend $4 million on a farm to buy somebody else's environmental issue.

Commodity prices are just kind of are what they are today versus the last number of years. We've seen prices go up, but we haven't seen the commodity prices just racing out of sight. If I've got like $50,000 and I want to buy a piece of farmland just to get my feet wet, is that enough money?

Seth: Like what is the smallest piece of farmland I could get with financing from a bank?

Like if you were to buy a piece of farmland, what kind of yield would you want to see to say, yes, this is a good deal?

Pat: What I would want to see, I guess, is…

—

Seth: Hey, everybody, how's it going? This is Seth Williams. You're listening to the REtipster podcast. And today I'm talking with my friend, Pat Porter.

So this is my second interview with Pat. The first time I talked with him was back in episode 153, where he gave us a ton of great insight into the life of a land broker, how to find a great one, and even what the profession is like and what kind of person is best suited for that line of work. But something you didn't hear in that episode was some of the expertise that Pat has about farmland.

And I didn't even realize this the first time we talked, but after I stopped recording, Pat and I continued to talk casually about farmland for about a half hour or so. And I learned so much from the guy about how farmland really works.

And that was when it hit me that I needed to get back on the podcast at some point so we could have a whole separate conversation about farmland. Because there's a lot you need to know if you ever want to buy this kind of land. And Pat is going to give us kind of a crash course, a lot of that information in this conversation.

And just before we hit record here, I was asking Pat, so like, how authoritative of a figure are you in farmland investing? And he was saying, not really, like I'm not the authority on it, but he was saying that maybe one in five of the deals that he works with are farmland in some way, shape, or form. And that's a whole lot more experience than most people in the REtipser audience. So while he may not know everything, I think he still knows a lot. And so we're going to glean as much as we can from him right now.

So Pat, welcome back. How are you doing?

Pat: Hey, Seth. Good, man. Good to see you. Good to be on your show again.

Seth: Appreciate it. So we already kind of heard your backstory in episode 153. If anybody wants to go back and hear how Pat got into the business of being a land broker, they're welcome to listen to that earlier conversation.

So I'm just going to jump right into the farmland stuff. And was I right in saying that maybe 20%, 25% of your deals are farmland? Does that sound about right?

Pat: Yeah. And again, I just pulled that number out of my ear a minute ago. I don't keep hard metrics on all that, but it's the smallest overall piece of what we do. But when you do several farms a year and some of them small, some of them big, I guess it does weigh in there, they're maybe one-in-five or one-in-six deals.

Seth: Sure, gotcha. So you live and work in Louisiana, right? So are most of the deals that you work on in that state? Or how often do you work on these kinds of deals in other states in that area?

Pat: Ah, well, RecLand, my company, is in a number of states. I think we're in seven states, but most of the farm deals that we do are here in what we call the Delta—Louisiana, Arkansas, Mississippi—are most of our farmland deals.

Seth: So if somebody is kind of agnostic about which markets they work in, like if I want to go out there and buy farmland, I don't really care where it is, I just want it to be in the U.S. I want it to give me some kind of yield. I mean, do you have an idea? Like what are the top three to five states they should be looking at?

I don't know if you know that, given where you work, but does anything come to mind? Like, yeah, check out this, this, and this state.

Pat: Well, I'm really partial to our part of the universe down here, you know? I really am. But, you know, just like you, I see a lot of action taking place in the Midwest, where farmland prices are just exorbitant, ridiculous, absurd, through the roof, you pick your adjective. And so those things always jump off the page when I see that.

But my expertise—what little bit I do know—is down here in our part of the world. And I guess I'm biased to the Delta area down here.

Seth: Yeah. That makes sense. Well, and when you say the prices are through the roof, what does that mean? Like how much per acre are we talking about, in your book, means this kind of ridiculous? And what's a more normal, reasonable price for farmland?

Pat: Well, again, that's my way. And that's all just a matter of perspective from your vantage point, you know, because we'll sell farms down here for 3,000, 4,000, 5,000 an acre.

And then I see deals that are going off at 6,500, 7,500, 8,500, even 10,500 an acre in Illinois, Iowa, and parts of the Midwest. Double what we're doing down here.

And I know everything is not exactly apples to apples, but still, you just look at those comparative numbers and you go, wow, when you look at that, a $10,000 an acre deal in the Midwest somewhere versus a $4,500 an acre deal down here. I mean, it's just, wow.

Seth: Now, why is land that expensive? Like, is that inflated? Like, are people actually getting a return to justify that? Or is there some other weird reason why people are overpaying for farmland? Any ideas on that?

Path: You and I discussed that back at the end of episode 153 a little bit. I actually talked to one of my agents yesterday. His family is a generational, second-generation farmer, and he sold a number of farm tracts himself. Very knowledgeable guy.

And he kind of reached back into the '90s when Alan Greenspan used the phrase “irrational exuberance,” I believe was the phrase he used. He wasn't talking about farmland, but he was talking about just how our irrational exuberance, I believe is the Greenspan phrase, where he and I are just scratching our heads going, in our little peanut brains, we can't figure out how to make the economics work on some of these numbers.

So I don't really know how the economics work on some of those Midwest deals. I've got my opinion, my hunch, but I don't necessarily know for sure how they're making those things work.

Seth: Gotcha. Maybe more of a fundamental question is why buy farmland at all? Like if I'm a, I don't know, a newer land investor, I've got a bunch of money laying around. I want to park it somewhere.

What is the appeal of farmland? Is it just because it's easy? You don't have to do anything, like zero maintenance. Is that why people do it? Or is there some other, I mean, I guess if you were a farmer yourself and you were working the land, that would probably make a lot of sense. But aside from that, is there any other reason why you would go out of your way to buy farmland?

Pat: Well, as an investor, renting your farmland is relatively easy in this day and time. If I've got a strip center, just to pull the commercial piece, for example, I've always had turnover in tenants. I've always had issues.

And not that there's anything wrong with commercial investment at all. I know people do it. Everybody does. A lot of people do it well. It's just what you prefer.

In my opinion, farmland is probably a touch easier than something like that. It's a lot more hands-off. You've got an operator there, the farmer, who's got a deeply vested interest in making it work. And so they are watching all the little pieces, all the components of it. And so, you can be a little more removed from it on the investment side.

As of now, it's always in demand. You look at some of the bumper sticker phrases, you know, the world's not getting any bigger, but the population is growing. And so people have to eat and farmland is always going to be in demand.

Seth: I don't have any hard statistics on this or anything, but it seems like more and more agricultural land is going out of production every year, at least when I look around my market. I mean, it seems like every year I see a new parcel of farmland that is no longer being farmed. It's being developed into a residential subdivision or something like that.

Is that accurate? That we're losing farmland every year? So it's sort of an asset base that's getting smaller and smaller every year?

Pat: I would guess… my guess is that we are losing some actual tillable acres. My guess is that, because not only does some of it go into a higher and better use for, say, development, but also a lot of it, you know, you've got the USDA programs. You know, WRP, WRA, CRP, all the different programs that people are putting their farmland into. And so those acres are coming out.

However, we also sell a good number of tracts of CRP that are being put back into production. So, I don't know the exact data like you, but my guess is we're losing some acres, but we might not be because stuff is going out of production, but there's also stuff going into production as well or back into production.

So that's a great question, I'd love to see some hard numbers to know the actual acreage. Is it increasing or decreasing?

Seth: And when you say CRP, what does that mean?

Pat: Conservation Reserve Program. It's a USDA program similar to WRP where farmland is taken out of production and put into wildlife habitats. Depending on what part of the country it's in, it may go into trees, it may go into grassland, but just put into a conservation program for wildlife habitat.

The Department of Agriculture pays an annual rental rate to the landowner for the right to be able to keep that land in a conservation program. So it's income to the landowner without having to lease it out to farming.

Seth: Is that subsidy that they're getting, is that about what they would be making if they were leasing it out to a farmer? Is it less, do you think? Or do you know anything about that?

Pat: Yeah, it's... As soon as I say this, there's going to be somebody out there who's going to raise the exception flag and go, “No, you're wrong because I know a place!” Okay, there are probably some exceptions.

I know, in general, in our part of the world, what the CRP rental rate is. And when you compare that to cash rent for farmland, it's a little less, but it's also guaranteed. It's hands-off. You never have to do anything. Never have to touch it. It's a check that comes annually, once a year. You don't do anything to the property.

So yeah, if it's a little less, there's some trade-off in that you're not having to be hands-on anymore with your property. You literally can put it in a program, walk away, and forget about it.

Seth: Do you know why that's a thing? Why is the government paying people to not do anything? I'm sure there's some rationale behind that. Do you know what that is?

Pat: I don't want to mislead anybody… Those USDA programs—WRP, CRP, those types of conservation programs—are not the government just giving you money to leave your land alone. There is a purpose there. It's taking substandard, according to somebody's definition, farm ground, taking it out of production and putting it back into either wetland habitat, wildlife habitat, trees, and grasses.

So there's some value to that. It's not a straight, “We'll give you money just not to farm your land.” You do have those types of programs that farmers will understand better than I do, where you lay out land and you're paid a little bit not to farm it. But those CRP, WRP, those types programs, in my opinion, are not exactly that.

Seth: So, you might've already said this, but I know the answer to this question is going to vary a lot by state. But when you look at your neck of the woods in Louisiana and the surrounding states, how much is farmland per acre? What would be the normal average price to pay?

Pat: Just ballpark figures ahead, this part of the country down here, the last dry farm I sold down here not long ago was $3,900 an acre, which is a little bit strong for dry farm ground, at least compared to what it has been.

And then irrigated ground, $4,800 to $5,500 an acre. Now, there are some exceptions. There are a few unicorns out there that we've seen sell for like 65, which is, you know, down here in our part of the world, it seems unheard of. In fact, when I heard it, I was going, wow, I can't believe it sold for that. But again, that's not anywhere near some of the numbers we see in the Midwest.

But the dry ground, ballpark, high threes, low fours. Good, irrigated farms, now high fours, fives, and even into the sneaking into the low sixes an acre.

Seth: Correct me if I'm wrong about any of this stuff, but my understanding in terms of, why is land so expensive in places like Iowa and Illinois that are just sort of known as being some of the best places in the world for crops and that kind of thing?

And I think it has a lot to do with annual rainfall. Like, if you just don't have an irrigated farm and you just rely on nature to water your crops, is it going to happen? Or are they going to dry out and you're going to lose everything? So it's that kind of thing.

There's also the soil type. There's also the type of crops that can be grown because certain crops may be worth more than others.

And there's a lot of stuff beyond that. I actually have a blog post where I looked pretty deep into this, and looked at over seven different nationwide maps that kind of point out these areas are good because of this reason. And it's obviously not just one thing you'd look at, but a lot of different factors.

But am I on the right track? Is there other stuff that influences the value of land beyond that?

Pat: Well, those are excellent points. Because, generally in the Midwest, you've got, across the board, a little bit of different soil types to grow grains, the rainfall that you mentioned. So there's a little bit less irrigation cost.

But still, you know, the cost of diesel is the same across the country. The cost of nitrogen is the same. “Inputs” is a phrase you'll hear farmers use a lot, what it costs to put a crop in the ground, the input cost. Those input costs are still as strong up there for the most part as they are down here in the Delta, but the prices are double in the Midwest than they are down here.

But the part where I scratch my head is good as the soils are, say, just use Iowa for example, Iowa, Illinois, those places, they're not growing 600 bushels an acre corn. We grow some strong corn down here. We may be in the low mid-200s a bushel an acre.

And then you go, okay, everything being equal, that means I should be growing about 400 bushels an acre in Iowa. They're not. The yield doesn't keep up with the ratio and yield increase doesn't keep up with the ratio and the land increase.

And that's the part where we kind of scratch our heads a little bit and go, how are they making this work? The commodity prices are the same there as they are here. And the yields are not that much greater. They are greater on average, but not double and triple.

So these other factors that you mentioned, they do cut into it a little bit in terms of being able to make the return stronger. But I'm mumbling a little bit because again, I keep bumping my head against the wall going, how do they make $8,500 an acre of land work? How do they pencil that out with the cost of growing that crop?

Seth: I'm also speaking a little bit out of ignorance here. I don't know, but I do have a cousin-in-law, husband of my cousin, who is a pig farmer in Iowa, kind of over by South Dakota, and he owns a lot of land.

He was telling me something about how—and this was like 10-plus years ago—apparently a lot of farmland owners from California will buy up land in Iowa and drive the prices way up, way higher than they should be. And I don't know what the play on that is. I don't know if they just have a ton of extra cash and they're just trying to park it somewhere.

I'm not really sure, but I think you're right in terms of whatever financial yield you get from that. I don't know that it makes sense, but if you have millions just sitting around and you don't know what else to do with it, and you happen to be in the farming business, why not buy farmland? Maybe there's something going on there is my only guess.

Pat: Let me tell you, and maybe some of your listeners will be able to make some comment when this is released down the road and give us some insight because you got a smart audience and they're a lot smarter than I am. So let me give you my theory on why that works up there.

And I'm probably so far off-base that everybody's going to laugh, but it's the only thing I can make make sense in my mind.

You've got these generational farmers that own their land. They own it outright and they've been multi-generational farmers. You hand it down and they've got, say, 2,000, 3,000, 5,000 acres, whatever.

A farm comes up for sale that either joins them or nearby in their footprint, so to speak, that they can then roll that into their operation without it being burdensome. And they can then pay, just for conversation's sake, say $8,000 an acre. Crazy number in my opinion, but they can pay $8,000, $9,000 an acre for an 80-, 90-, 200-acre tract that comes up for sale.

Well, they paid that crazy amount. They roll it into their existing footprint that really doesn't have any debt, so to speak, in terms of their land cost. And so they've taken that seven, eight, nine thousand dollars an acre for a couple of hundred acres, spread it out into their whole operation.

And they've diluted the cost of that land down greatly just by rolling it into their existing operation. And it becomes very manageable at that point. That's the only thing that I can see how that works.

But then you throw a wrench into it when you talk about these outside investors who don't have that existing footprint leverage, so to speak, that they can just roll something into and dilute the cost out.

They're coming in. Now they've got a big debt nut to service in addition to all the normal costs and expenses of owning ground or farming land; how they make that work, Seth, I don't know. But my little humble theory of how owner-operators just roll it into their existing farm footprint, I can see how that works because that makes economic sense to me. I can do the math on that. I'm not a smart guy, but I can do that little bit of math. I can go, yeah, I can make that work.

Seth: Absolutely. No, it totally makes sense. Say, if you're already farming a bunch of ground and there's like a parcel right across the street, it could make a lot more sense for you to do that than for some other person who has to travel 20 miles to get there to do it. Maybe there's some economies of scale there too.

Pat: The economies of scale is a very good phrase for it to kind of boil it down. But that's exactly, that's the only thing I can understand. I hope some of your listeners will have some insight will jump in here in a month or so or whenever this is released, a couple of months and go, no, hey guys, here's what's going on. And we'll both learn something.

Seth: Yeah. I know. I love it when that stuff happens.

Actually, I should probably have a conversation with my friends at AcreTrader because they probably deal with a lot more of this macroeconomic stuff in terms of, you know, farmland markets as a whole and all this stuff.

But I totally appreciate your insight into where you're coming from as just kind of like the hands-on, down-to-earth, like you're dealing directly with people buying individual farms like this.

But I'm wondering, again, if you don't know the answers to any of this stuff, no worries. I'm just trying to pull out anything you might be confident about.

Pat: It's not just us. It's not like we're the only two, forgive me, only two dummies out here that don't understand how the economics of it work.

I've got a pretty good client we have sold some farms to over the last decade and a half. He lives up in your part of the world. He doesn't buy farms up there. He buys them down here because he can make the numbers work better. This conversation I've had with him multiple times.

He owns farms in three states down here, and some of them substantial farms, large farms. He doesn't buy them up there. He buys them down here. He's a long way away. He gets good operators and he does very well, but he's also scratching his head and he lives up there. He prefers our economics a lot better than the economics in the Midwest.

Seth: Well, that's a great point. I mean, there's really no reason why you couldn't do that as a farmland investor: buy land in some other state that you never really see. You just need to know that the fundamentals make sense and that it's a good piece of farm ground and you can find a good farmer to lease it from you and that kind of thing.

It leads me to another question I've got. So just like any land investment, there are different hot button issues that can kind of make a big difference in terms of whether or not a farmland investment is good or bad based on the geography and what different factors might affect it.

For example, like wetlands and flood zones and soil types and all this stuff. So this varies a lot depending on what state you're working in. For example, if I'm trying to buy a piece of farmland in Louisiana and I've never been to that area, how important is it that I personally go and physically inspect that property myself? Or what kind of tests or due diligence should I make sure I'm doing to make sure this is a good piece of land that I'm not buying something that's going to be really difficult to make money from in the future?

Pat: That's a heck of a good question. That comes into play a lot of what we do. I'm thinking of a little small farm I sold for a gentleman several years ago, but the guy in California, he's an IT guy. He's never done that his whole life. He never leaves the screen.

He bought it as an investment. And he asked me just for a checklist of things. “Hey, Pat, what do I need to make sure, what boxes do I need to check, due diligence-wise to check this farm out? Because I'm not going to fly out there and look at it. I don't know what I'm looking at if I do, but what do I need to do?”

And I gave him several things to look at. And as the farm size increases, this list will get a little bigger and we'll get a little more involved. But I said, hey man, just look at the soils and of course the soil types are easy to determine. In our CS we can do it right now on the internet. We need to make sure that the wells are operational, all the irrigation pieces, the risers and all of that, any reservoir capture areas, all the irrigation is in good shape. We need to make sure there's decent infrastructure in place for the market. The crops have to go somewhere and have to go there in an efficient manner.

Is there a good base for tenants? Sure, you've always got somebody clamoring to lease it from you today, but is he a good long-term guy? Or if he goes away, something happens and do I have people in line that I can easily rent my farm to going forward?

The soils, the wells, the infrastructure are huge deals. Knowing that they can rent it out and what those kind of area rental rates are, knowing those things are very important.

If it's a larger farm, you're going to find people who are going to have environmental studies done to make sure that there's no chemical seepage, massive fuel spills, anything eroding into creeks, streams, and rivers to cause them any environmental issues.

Phase one environmental studies are getting pretty common these days, to make sure at least that's done. Nobody wants to spend $4 million on a farm to buy somebody else's environmental issue. That's become kind of the top of the list for a lot of buyers to make sure that there are no environmental issues, problems in place.

Irrigation systems, if it's an aboveground irrigate, you know, pivot systems, those things are becoming less and less desirable in our world. People want to get away from the pivots and use underground systems or polypipe, aboveground, movable irrigation structure.

Those are just a handful of big items right there.

Seth: When you mentioned soil types, I don't know if you know this granular level of information, but what kind of soil type do you want to see and what do you not want to see? What's a problem when you go to the USDA soil maps and see what's there on the property?

Pat: You know, there are a lot of people who know a lot more about soils than I do. I use the data and I use it routinely when I'm looking at farm ground.

And also, you know, a big part of our business is timberland. I use the same NRCS website to look at site index for here in our part of the world, loblolly pine. Same data. It's just a different crop, you know, pine tree versus soybeans, corn or milo, that kind of deal.

Soils are called different things in different places. Class one soils in your world are going to have a different name than class one, class two soils in my world. You start learning those names of those different soil types and what to look for. So I couldn't throw out any names because they're going to be different with every one of your listeners in different places.

But typically you want to learn the good silty loams versus the heavy clays. You want to know the difference in those because that matters based on the type of crop that is the predominant crop in that area or the mainstay that somebody that's going to be farming your place is going to be growing.

Here in our part of the world, we've got here in northeast Louisiana, specifically up and down along the river, we've got some real heavy clays. And those heavy clays are tough sometimes when it comes to irrigation.

Seth: Is it because it doesn't drain well. Is that the problem?

Pat: Exactly. Yeah. Then we've got the silty, loamy type soils are what most guys are looking for because they do drain well.

So learning the names of the soils for the silty loams and the heavy clays in your area is what's important in my mind.

Seth: Well, as you were talking there, Pat, I just asked ChatGPT, the ultimate authority of all truth, what kind of soil types farmers would or wouldn't want to see. And it basically just matched what you said. Said good soils for farming would be loam, sandy loam, silt loam. And the worst soil types would be like heavy clay, sandy soil, and rocky soil. So I don't know, whatever that's worth.

Pat: The rocky soil, yeah. See, that's something that here in our part of the world never comes to mind.

But, you know, we sell a lot of land. We're licensed in Missouri. And, you know, in my mind, Missouri is all rock, you know. But, yeah, so that's a good point, rocky ground.

Seth: Do you ever see people who buy raw land? Maybe it's like a forest or something and they develop it into farmland? Does that ever happen? So, what does that cost per acre to do that? Any idea?

Pat: It's not going to be a one-size-fits-all, but it's going to be… I’ll give you an example.

I have a very good friend, lifetime friend in Arkansas. I'm in Louisiana. He's in Arkansas, South Arkansas. He's an hour and a half, two hours away. He buys these types of tracts and will go in and clear them. So he'll have all the timber cut and then he'll have it completely stumped. All the stumps removed, piled, burned. Then he'll go in and have it land formed and irrigated.

Now he can do a lot of his own work because he's got heavy equipment. He's got guys that can run it. So he's got some economies in place that your average bear doesn't have.

But ballpark and acre, he's looking at, you know, $1,000 an acre to get water on it. He's looking at $200 to $500 an acre to stump it, rake it, and burn it. And that's at his numbers. It's going to be a bit higher at ours.

So, ballpark, but using his example, it's $2,000 an acre is what it's going to take him plus the time. And so you got the cost of money, but without getting into that part of the equation, a couple thousand dollars an acre.

So, he's looking at, okay, if I do this improvement, I've got ground that's now worth 4,500 to 5,000 an acre. So if he can get in it for a couple of thousand an acre, let's say for round numbers, do that work, couple of thousand, he's got, for conversation, 4,000 an acre in it. He's got something that he can then farm himself—because they farm several thousand acres—a good irrigated piece of ground that he created himself for a little bit less than he could have bought it for.

But the problem is, you can't just go out. It's not on the shelf. You can't just go out and buy it, you know, in your footprint. So he had to go kind of make it. So he's created a valuable piece of ground for him for, say, five hundred to a thousand dollars an acre cheaper than he could have bought it for if he could have found it.

And it's where he wanted it because he chose the tract. It's in his footprint. He did the work. He made it work himself. And so he's kind of like a custom land developer for his own farm.

$2,000 an acre is his number. And that's him being able to shave costs or shave some money because he can do a lot of the work himself.

Seth: That's a great example. I had had this conversation with a farmland broker about five years ago, and he told me very similar numbers to that.

But to your point, the question I asked you was like impossible to answer because there's so many different, like what if there's no trees on it? What if it's already perfectly flat? What if, you know, there's ravines and all this stuff? It just depends totally on that property.

And also it sounds like this guy had a really nice competitive advantage in that he could do a lot of work himself. I mean, that's, I would never be able to do that. So if I had to pay somebody else to do the exact same thing, I'd probably be paying, I don't know, I don't know if it's 3,000 bucks an acre or what it would be.

But it's a really interesting thing to think about because I know a lot of land flippers in our audience are always looking for new ways that they can add value to properties, whether it's subdividing them or putting some kind of improvement on it.

And this is something I don't think a lot of us have really thought about in terms of, what if I could buy a piece of land? And what if it costs me, say, $1,000 to convert this to farmland that I could then sell for four thousand dollars an acre? I mean, it would definitely be a very much more involved project and there would be a lot of costs up front to do that, but I haven't heard anybody who's done that and I'm sure there's opportunity like that out there.

Pat: It's a very niche thing to do because the capital outlay for to do that is huge. We're talking about, even at my buddy's number, a couple thousand bucks an acre, that's real money. And over time, it's a good while before he starts getting any returns.

So he's got his neck out there until he gets this thing, a crop on it and starts getting a little bit of return. But they're third generational farmers. They know what they're doing. It's not their first rodeo, you know, so it's a lot less risk when you know what you're doing and you've done it in the past and you've kind of been there, done that. It takes some of the sting out of the risk.

They also (in our part of the country, this doesn't work everywhere), use the example of it's got trees on it. They also buy catfish pond, ground that's been in catfish ponds, and just convert the ponds back into tillable acres.

That's the same scenario, but just a bird of a different color, so to speak. Instead of taking down trees, you're taking down levees and forming the ground for irrigation based on that. So that's popular down here too, but it's hard to find those tracts. But when you can find them, they really make some pretty good farms.

Seth: Do you know what is a normal financial yield? Not crop yield, but like… What kind of ROI should a person reasonably expect if they invest in a piece of farmland? Like, is it 3% or 5%?

And I know this, again, this depends totally on the person and all this stuff. But if you were to buy a piece of farmland, what kind of yield would you want to see to say, yes, this is a good deal?

Pat: What I would want to see, I guess, is, of course, I'd want to see double digits. You know, OK, great. Fine. Knock yourself out. You go buy all those up you can.

But in the real world, to use my Midwest guy who buys farms down here in the Delta, and he's a heavy hitter. Now, he doesn't buy 10s and 20s. He buys several hundred, several thousand acre-big farms, multiple farms. He has to have, if it's not 3.5, he won't even entertain it.

So he's 3.5 and up. 3.5 to 5.5 is his sweet spot. If he can find something over five and a half sign him up as quick as he can because he understands that it's just difficult to buy an established farm that's ready to go day one that he can get an operator on immediately. Four and five percent he's in there all day long sign him up.

I'm sure that you've got some listeners that they've got some spots and places you know they may be in the six, seven percent. That's great. That's a strong return for farm ground because that's an ROI on the ground.

But then you've also got the asset that's appreciating right now, at least pretty rapidly. So you're doing well on two sides of the of the equation, assets appreciating and you're getting, you know, ROI for your cash.

To answer your question. 4% or 5% is kind of where most folks want to be from my experience in our part of the world.

Seth: It's really good to know because just so people kind of understand what they're signing up for, what they're chasing after if they try to buy a piece of farmland, that's kind of the average or the normal range of what some people go after.

And when I hear that, it doesn't get me terribly excited. That's not a huge yield. But to your point, the appreciation is there. It's a very easy investment. It doesn't require a whole lot of effort for the landowner to do anything, provided they have a good tenant who will lease it up again and again.

So is that mainly is the fact that there is some return on it? Maybe not huge, but there's something, but also just the ease of it.

And then also the appreciation of those kind of the reasons why people do this instead of investing in, say, a hotel or a self-storage facility. Like why go after farmland when there's stuff that makes more money out there?

Pat: Yeah. Tomato, tomato. Everybody's got looks at it differently. They may call the same thing. I don't know. Everybody's just different.

Also, to the stage of your life. You know, if you got a guy that's like my buddy, I keep talking about in the Midwest, you know, he's in his late 60s. Heck, he may be in his early 70s now. He doesn't want a high-risk situation. He He wants steady, dependable, rock solid, a reasonably easy asset to handle estate-wise, you know, because, I mean, he's in the fourth quarter.

You know, you probably have some buddies, maybe some, you know, I've got some investment friends that, you know, hey, it's early in the first quarter for them, early second quarter in life. You know, they're wide open. They got a lot of time to correct some mistakes if they mess up.

So it probably just has to do with season of life, ease of investment. If you're dealing with a real turnkey developed farm down here in the Delta or probably just about anywhere, you're dealing with the tenant a couple of times a year. You may talk to him a few times just to check on things. You get a check from him once or twice a year. You get a certificate of insurance, additional insured from him once a year.

You know, the management of something like that is just a few minutes of your time versus a multi residential, a multi resident unit, a hotel, a commercial building. That's every day, all day, nonstop, late at night, 2 a.m., you know, toilet overflow. You've got so many different things going on.

And you just, you got folks that just don't want that hassle. They've got cash. They park it in a good asset. They get the return they're anticipating. The money's in the bank. The details are taken care of. No muss, no fuss. It's just easy. And the risk is tiny.

Seth: Now, you mentioned that farmland is appreciating right now. So why is that? What all affects farmland values? Is it like commodity prices? I've heard in my conversations with different farmland experts that like, it's not really tied to the housing market at all. Housing values can be plummeting while farmland values are going way up. So, what is causing that?

Pat: Demand. You have something that's happened. And again, I'm 59 years old. I haven't seen everything. I don't know everything. My understanding is based on my history and time.

We've had so much foreign investment that's come into farmland and funds. There are a lot of, I've sold farms to large funds that go out and they make these big purchases and they drive the demand.

You know, the supply gets a little tighter because you've got foreign investors or you've got big funds that are buying up massive chunks. And so your demand is there, but the supply is almost finite, it's limited. And so that's going to drive the prices up.

Commodity prices drive the prices up, but that's a double-edged sword. My buddy and I were talking yesterday. One of my agents is a farmer. Commodity prices are just kind of are what they are today versus the last number of years. We've seen prices go up, but we haven't seen the commodity prices just racing out of sight. So that's a head scratcher. But that does drive it, commodity prices.

I guess, like I said, the outside demand and the commodity prices and the limited supply, and I say limited supply because you and I both talked about just a few minutes ago, we wonder, are tillable acres increasing or decreasing? I personally think they may be decreasing a little bit. So that supply is pretty flat or maybe even decreasing, in my opinion. It could be going up, but it's not a massive supply of farm ground.

So that's all got to factor into it.

Seth: If I've got like $50,000 and I want to buy a piece of farmland just to get my feet wet, is that enough money? What is the smallest piece of farmland I could get with financing from a bank and it would still make sense? Is that small of a parcel even exist out there? Are there 10-acre parcels of farmland or is 40 the minimum? How much cash would I need? How small would a parcel need to be before I could really feasibly get that thing?

Pat: I would get a lot of pushback from your folks because everybody's got a different strategy and different perspective, and I respect that.

But from my point of view, an investor buying farm ground in this day and time doesn't want to use a lender. And just think about right now, if you went and bought a piece of ground, you bought a farm, just what the interest would be just with the banks you use, what's the interest rates?

And you look at your return and you're going, golly, my return might not service the note. It might not, depending on your mathematics there and depending on how much cash you put into it.

So I would think it would need to be a cash investor who's buying an asset that they're going to just lease out and not own or operate. And so with that in mind, it's got to be a straight-up cash deal to find a good tenant in our part of the world.

Yeah. 40-acre farms, people lease them all the time, but it's got to be in a good spot. It's got to be in a footprint that there are a lot of good operators so that you can always keep those 40 acres rented.

Because 40 is small, especially if you're wanting to irrigate it. You know, 40 acres is a pretty small tract of ground to irrigate. There are a lot of them out there. Don't get me wrong. They're out there.

But sometimes economics get out of whack on a small piece because the cost is the cost and you don't have as many acres to spread it across. I go put down a well, it's a flat fee. I mean, it's a number, one well to service 40 acres. I can't put down a half a well or a quarter of a well. I got to put down THE well and I could put down that same well and maybe service 120 acres, 200 acres, just depending. So I can spread that cost out over more acres. And that makes sense to you and all your listeners.

But if it's a small piece, it's got to be in a great footprint because it's hard for a good operator who's 45 minutes away to put equipment on the road and employees on the road to go and work a 40-acre tract somewhere because you lost a tenant and you got to lease it to this other guy.

So you got to have people all around those smaller tracts to keep it leased out. Does that make sense?

Seth: Oh, for sure.

Pat: If it's a large farm, it's a lot easier, but a small farm is tougher.

Seth: And that was one of those kind of light bulb moments I had. It's actually like a very obvious thing you're saying here, but it just never occurred to me until we talked about this last time when you mentioned location matters in terms of, there's got to be sort of an existing farmer economy in that area. Don't just develop a 40-acre piece of farmland, you know, a hundred miles from the nearest farm. Like, it's going to be a lot harder for you that that way.

Pat: I'll tell you how I learned that, Seth. I don't mean to interrupt you, but I'll tell you how I learned that. It's not like I came into this with all this knowledge and information.

I was helping a Louisiana guy who is a farmer and an investor and a real estate agent, a land agent. Helping him look at a farm probably five hours away from us in north central Arkansas. And it was a great price and it was a beautiful farm. I mean, it was all there. And you just pluck it out. You look at that farm. You go, oh, wow, this is great. What a deal.

But the more we dug into it. And again, I'm listening to him a lot because he is the farmer. He is the guy. He's going, “I can't farm this. This is six hours from my operation. I've got to find tenants up here.”

And then we started looking at the market around it, the infrastructure around it. Just to haul the grain to elevators was a long, long way. There were very few large farmers in the area that he could lease to.

We ended up passing on the deal. The numbers were really good, and he passed on it. And he's an aggressive buyer, but he passed on it because there was a limited number of tenants available.

And the infrastructure in that greater area around that farm was so insignificant that he's saying, man, I'd have to buy it for $1,000 an acre, less than what they're asking, feasibly make it work. And that's when I realized, wow, just because it's a beautiful farm, it seems like it has everything.

These are two big factors that made the difference for this guy. And he is a pro. I've sold him lots of ground. And so that started getting my attention when I saw him react that way. And I'm going, those are important factors. You take that same farm, you pluck it out, and you come put it anywhere in my part of the world down here, 5,000, 6,000 an acre.

But up there, he passed on it for a lot less money just because he couldn't make it work.

Seth: So this idea of buying a piece of farmland that's not irrigated and then irrigating it. And just by doing that, it makes the property's value go up significantly ecause now it's irrigated and the farmer can kind of have more of a guarantee that their crop is actually going to turn out well.

So it almost kind of reminds me of flipping a house where you buy something that's worth less, you make an improvement and it's very clearly worth more as a result of that. Maybe you wonder, like, how does that work in terms of like, what does it cost to buy, use this 40-acre example that's not irrigated and then, drill the well, add the irrigation equipment.

I don't know if you have any examples in Louisiana there, just in terms of the cost of that. Like I know to drill a well in Texas would probably be a lot more than it would be in Louisiana, for example. But just think and do that kind of project on paper. Like if I wanted to buy a parcel of farmland, add the irrigation, sell it for more. Does that ever make sense? Like do the numbers work out?

Pat: Oh, absolutely. Yeah, absolutely. One little point to add in, since we're talking about irrigation specifically, again, you'll have folks that will go, hey, I know I know a different exception.

Many, I don't want to use the word most because I don't know, but I do know many lenders whose business is crop loans for farmers, for operators. They're requiring the ground to be irrigated to loan on it because they know that it greatly protects their investment. You get a better chance of a better yield on irrigated ground.

And so a lot of lenders are going, “Hey, if it's not irrigated, we're not going to be able to help you on your crop loan like we used to or like we've done in the past.”

So irrigation is getting more and more important other than just making sure my corn is getting the proper inches of, you know, moisture every year.

But to answer your question, yeah. Just ballpark, we put a well down, you know, there's 10,000 right there. And then you've got the infrastructure. If you've got underground piping. Again, all that's going to depend on the distance and the degree of work.

Most farmers down in our part of the world now are using risers with polypipe because poly pipe has gotten so easy to use. It's pretty inexpensive. Polypipe, you know what I mean? And I'm sure your readers do or your listeners do, too.

Seth: Why don't you tell us what that is, just in case we don't know what that is.

Pat: Polypipe is a 12 inch diameter white plastic tubes you've seen laying on the ground.

Seth: PVC?

Pat: Yeah, that's poly pipe and it's hooked up to risers. Risers are a solid piece that come out of the ground that the well pushes water through pipes to the riser. It's called a riser because it rises out of ground, hook the poly pipe to it, water fills the pipe and they lay that pipe down out along the row.

So it runs down the row furrows and then they'll pierce the pipe. It doesn't come with holes in it. It's a solid piece. but you just go in and puncture it in each furrow and to let the water out and it runs down the rows. It’s a really easy, efficient way to water these days. Anyway, you got the well, 10,000, you got your infrastructure of the underground piping, the risers.

That's one thing, but the major cost outside the well, is you've got to make sure your ground is to grade so that that the water will run the rate you want it to run, the direction you want it to run. Because if the ground's not properly leveled and set to grade, it will flow a certain direction at a certain pace, then it really becomes useless.

And a lot of people don't think about it. I'll put a well down. Well, yeah, but that ground is all like this and crazy. You know, it's got to be leveled. And we use the word “level,” but the ground's not level. It's set to grade. It's actually at an angle, very small angle, but set to a grade.

And the cost of that runs the gamut depending on how much work it takes to cut that ground down, to grade. There's some ground it's easy to cut because it's just gently rolling. They don't have to cut much and it's already sort of rolling the direction that makes sense for the shape of the tract.

So cutting it to grade can be very expensive. It can be several hundred dollars an acre, no matter what, but it can really get more substantial depending depending on how much it takes to put that property to grade.

So each one of them is going to be different, but you're looking at, again, I use my Arkansas buddy as an example. He roughly says, hey, if I buy a piece of ground to get water on, it's going to cost me anywhere from $1,000 to $1,500 an acre. Just sort of his rule of thumb in his universe.

Seth: Is there like an industry professional, like if I'm trying to do a Google search for whoever can help me figure out what those costs are going to be, is there like a certain type of contractor that does all of that? Or do I have to contact one person for the irrigation equipment and then find an excavator who can move the earth around?

How do I figure out and put those numbers together to figure out the real cost for that?

Pat: Typically, you got two different folks there. You got your irrigation people and then you've got your dirt guys.

And there are companies out there that landform and will cut a piece of property to grade. And it's just, I don't know how to tell you who to use anywhere. I mean, I know who I'd use down here because I'm local. But it's just going to be finding those people online.

It's going to be very easy. Somebody's in a farming community. There's going to be a handful of irrigation companies. They're a farming universe. They're probably going to know irrigation companies just by name, even if they've never used them. They've heard of this company, that company, because they, you know, they're the ones that put down wells and not just for farm ground. They put down wells for WRP, you know, for duck impoundments, for catfish ponds. They put down wells for ruled home sites. They're the company that does it. So they're the easy guys to find.

And then you've got to shop around just a little bit for the landformers.

Seth: Awesome. Pat, thanks so much. I'm very grateful to have the chance to talk to you about this stuff.

If people want to learn more about you or check out farmland properties you've got for sale, what's the best place to go for that?

Pat: RecLand.net is our main website.

And of course, I'm easy to find on social media. Don't look for Pat Porter. You won't find much of that. But if you search RecLand, RecLand Realty, or RecLand Talks on any of the social platforms, you'll find us. But RecLand.net is our main site.

Seth: I'll be sure to include links to all that stuff in the show notes for retipster.com/182.

Pat: Back in episode 153 that we did, you put a link in there that if any of your listeners wanted to email me for a copy of one of my books. And I had really a ton of responses. People email and ask questions. I sent them there. Be glad to do that again for your listeners. You got a great audience out there.

So it doesn't cost anything. There's no tricks, gimmicks. You don't get put on a mailing list. You just simply email me at office@recland.net. Ask for one of our land books and be sure to put your address in there. I'm not a mind reader.

Seth, if you want to put that in your show notes, I'd be glad to honor that again. I'm happy to take care of your people.

Seth: You bet. office@recland.net. I'll include that in the show notes as well. Again, retipster.com/182.

And again, thanks a lot, Pat. It's great to know you. Great to talk to you about this stuff. and hopefully we can talk again soon.

Pat: Seth, my pleasure, buddy. Take care, man.

Seth: Hey, how's it going? This is Seth Williams. You're listening to the REtipster podcast. This is episode 176.

And today I'm talking with a new friend of mine named David Hansen. So I met David through a mutual friend, Chris Duff. Chris runs Land Daily Diligence in Sirius Land Capital. And the first time I met Chris, it was at the Land Unconference Inner Circle, and I just overheard him talking about how he was working with this guy named David Hansen.

And he kept mentioning David Hansen this and David Hansen that, and I was like, who is this David Hansen guy? Am I supposed to know who he is? It sounds like he's like Mark Cuban or some huge name or something.

And so eventually, Chris put me in touch with David, and I got on a call with him, and just learned a lot more about who he was, and I started to see why this guy was kind of a big deal.

So, David Hansen is a civil engineer, planner, and land developer, and probably a lot of other things I don't even know about yet. And he has a wide breadth of experience in the world of land development, and today I'm gonna talk with him about how he's been able to take a lot of different properties and figure out how to set them up so that they're worth the most on the back end when the development is done.

And he's got a very interesting mix of experience and abilities that I think can be pretty valuable to learn from. So we're gonna learn right now.

So David, welcome to the show. How are you doing?

David: I'm doing great, Seth. Thanks for the overwhelmingly positive vibe you've set. I hope I can live up to what you just said.

Seth: Oh, yeah. I'm sure you will. No problem.

Other than what I just said about you in that intro, why don't you tell us your story? Who is David Hansen, and what have you done in the past, and what is it you do now?

David: So, let's see, I was born and raised in Pensacola, Florida, went off to college in Tennessee, went back to Pensacola. In 1985, I moved to the D.C. area. I sold paper and office products for three years, and I woke up one morning and said, “I can't do this any longer. I need to find something else.”

And I promise you, I pulled out one ad and I opened them to the civil engineering ads and I read a couple. I went, sounds interesting. I actually went on five interviews. I knew nothing about civil engineering; my degree’s in mathematics. But I went on five interviews.

And at the fifth interview, at the point in an interview when you think you're probably about halfway through, I looked at the guy across the table, stood up, and I said, “Everything sounds great, when do I start?” And I reached out to shake his hand and he stuttered. He shook my hand and said, “How about Monday?”

I said “Great!” So I was at that firm for 11 years.

And on my five-year anniversary, the VP of the company came in. When you were there for five years, they gave you a week's pay, and ten years, two weeks paid, just as a bonus. And I could feel—his name was Lou—I could feel him standing behind me.

I stopped and I said, “Yeah, Lou, what is it?” He goes, “Well, you've been here for five years,” we shook hands, and I went back to work, whatever I was working on at the time. And I could feel that he was still there.

So I turned around and I went, “What's up?” And he goes, “Don't take this the wrong way, but why did we hire you?”

And I said, “I don't know if there's a good way to take that, Lou.” I went through my story that I just told you, and he paused for a minute, and the guy that hired me—his name was Dick—and he goes, “You know, you might be the only good thing Dick ever did for this company.”

And as I said, I was there for almost 11 years.

Seth: One quick question, was I hearing you right in your interview? You basically hired them? It almost sounded like you made the decision that you were gonna work there, and they just kinda accepted that. Did I catch that right?

David: Yeah, you got it right.

Seth: Yeah. Is that a good tactic that new employees should take when they want a job? Just interview your employer and then say it.

David: I don't know. It hit me at that point that, A, I really knew nothing about the industry, I mean, other than you deal with it every day. You drive on roads every day, you pull into the shopping area, and you notice how traffic flows and things. And all of that just kind of hit me all at once, at a point where I was like, “Okay, it's gonna go one way or another. Either he's gonna say, no, we need to take this decision or whatever.”

But it just felt like the right moment. So yeah, you kind of hit it. I just said, “This all sounds great. When do I start?”

Seth: So you didn't need a degree in engineering or something to get there? You can just, like they just taught you, based on your math knowledge?

David: Actually, in high school, I've always wanted to be an architect. And we can do this again and I can tell you all the things I've restored: eight historic homes in Virginia with my own hands, done all the engineering, all the architecture. But when I found out it was a five-year program and I knew I was a four-year student, that wasn't gonna work.

Yeah, you don't need an engineering degree to learn how to practice. I can't seal and sign plans—I'm not an engineer—but I still get phone calls from firms that I've worked with and worked for. The engineers that I engage for my current projects, we sit down and confer on how I like things laid out, how I want to handle stormwater management, where I think the best location for, whether it's ponds, low-impact design, things of that nature.

Once I started, I immersed myself in it. One of the things that I did then, and I still do, and I recommend people do—I think you and I talked about last time—is to read the zoning ordinance and read the subdivision ordinance in a jurisdiction that you want to be working in.

Those are the Bible. It is what the bureaucrats in the jurisdiction use to counter anything you're trying to achieve. They always roll back to, what's the standard zoning ordinance? What's allowed in our subdivision ordinance? Those are the tools that they use. So my recommendation to everybody is that you should be well versed in in those tools. That is what is going to be, the end of the day, how all the decisions are taken.

Seth: Cool, and then after the civil engineering thing, so you said you had some other career after that? Or what was next?

David: I worked for one of the national builders for a couple of years, not in their engineering. I thought I was going into work in their engineering department, acquisitions and entitlements, where I ended up was in the field, developing land.

To be honest, I couldn't be more thankful. I learned a lot in two years. I'd seen a lot. I'd watched a number of my projects, whether it was big road design or things like that, I'd watched things get constructed. I've been in the field watching heavy equipment move, watching rock being blasted, and all that of excavations.

Two years of learning how to move dirt from one spot to another on the phone with the excavation contractor on one phone and my dirt hauling guy in the other, negotiating prices to have them come in with 400 trucks and how I had to pull permits from the city of Alexandria to ensure that.

But you learn a lot. I learned a ton about not only how to engineer it, how to plan it, but then how to develop it. And I continue utilizing those skills to this day.

And then after that, I went back to engineering. I was at another big national civil engineering firm for another six years, where I was the assistant director of planning. So I got out of the day-to-day civil engineering end of it and worked strictly on town and urban planning.

Seth: And when was that? What year?

David: 2004. In 2004, I stepped away from engineering and I went full-time doing owners’ representation. I had my own projects. I had three huge projects in West Virginia and got everything teed up just in time for the 2008 crash. That was a party.

Seth: Oh, I'm sure.

Now, that decision to leave your job and go out on your own, so what led up to that? Like, how did you know, okay, it's time to move on and do my own thing? Like, did you get people asking you to do some kind of consulting on the side?

David: That is a great question. In my time with the National Builder, I'd stayed in contact, of course, with engineering. As the development wing, I was in meetings with sellers and property owners as we were negotiating the acquisition of property, rezoning, and everything.

But I stayed in touch with people. I had my old clients, my development clients, I stayed in touch with them. And like anything else, I'd gotten immersed in land and land development, so I was still finding deals and sending deals to whether if my group didn't want it or to other people.

And when I went back into engineering, I was still kind of juggling those things. And finally, what hit me at some point was that I was really running the risk of a conflict. I had to sit down with the owner of this company, who's still a very good friend of mine. We had a conversation. I said, I can't run the risk of you guys risking somebody brings a deal into the office that I'm working on on the side.

I know about it, this guy. They come in and say, oh, well, your guy saw the deal, stole the deal, took it to somebody else. And so I felt it was time for me to put it aside, you couldn't do both. You can't serve clients and serve yourself at the same time.

Even though ethically, I don't think it was a problem. It was, ethically, it was a problem for me to run that risk. I couldn't, I didn't want to risk a relationship that I'd built up and so many other things, it wasn't worth it. So I decided to just do it on my own.

Seth: So these three big developments in West Virginia that you're doing, was this the kind of thing where you're putting your own money into it or people come to you with money and you just tell them what to do to make the development? What's your involvement in that?

David: Yep, a little bit of both. I was lucky to have been introduced to landowners who had the desire to develop their property. They had some of their own money to put toward the entitlement cost. They, for the most part, had very low basis in the land and I also had investors, guys that I knew would step in.

I had the relationships that I built up with all the national builders over almost 15-plus years in the engineering world. So it was fairly easy for me to take deals that I planned to builders that knew my reputation and set up the deals, the projects in West Virginia.

One of them was, it's built out today, it's called Archer's Rock. It finished out at 3,800 units. Another one called Morning Dove, it was almost 600 units. And they're both finished today. The third one never got built, but it's one that I wish it had. So this is one that's 3,800 units.

Seth: So like, tell me, what was that property originally? How many acres was it? How do you take a property like that and figure out, okay, this size property should be this number of units. Like, how do you know what to do with it?

David: It was a total of 1,400 acres, three owners. It was an old apple orchard. It was in Berkeley County, West Virginia. It was planned in, I think we had six or eight phases. The original land plan that I did was, you do it in big bubbles. They're big bubble diagrams. You lay out the main infrastructure, the main roads, the big divided roads, how you're getting the traffic in and out and distributing it throughout the site, and then created the pods of varying lot sizes.

Again, working with the builders, and I still do this today, I don't do a deal today, if I can't lock down a builder during my study period, I'll kick out of the project. If it's not interesting enough to the builders, there's really no need to proceed.

The other thing I do, and I'm going to steal a phrase from somebody else, I hate to bake a cake with the wrong ingredients. So, not having a builder and not knowing what product they're going to put on the project and what product lines, how many different product lines they want to use.

You know, you can go from a 45-foot lot to a 55 to a 65 to an 80, depending on product width and depth. And I like to work with the builders to make sure that what I'm specing, now you can run into a lot of problems if, say, you spec a 50-foot lot, but all the builder's product is with two 5-foot side yards, so you've got a 40-foot envelope, but everybody's product is 42 feet. Nobody's product fits on your lots. Or they have to step down to a smaller product, which is less expensive. They'll pay you less for your lots.

Had you designed all your lots at 55s or 53s, everybody's product fits, or the builder's product fits, and they can build what they want to build and you can sell at the number that you need to sell at.

So the big projects start out as big planning efforts. And once you create the framework and the grid, you work your way down into the individual blocks and lot sizes within those, then it gets passed on to the engineers and that's how they engineer it.

Seth: Man, tons of questions are coming up as you're talking. Just kind of like an off-the-cuff question. By the way, when you say units, you're talking the parcels, right? Like making lots? Is that what you mean when you say that?

David: Yeah, when I say unit, it's a building unit. So if the builder wants to do, say, three product lines, so you're dealing with NBR and they want to do three product lines. What they're gonna want is a 30- to 35-foot piece, a product.

And then a 40- to 48-foot product, and then they're going to want a big product that'll fit on an 80-foot lot. It's going to be 65, possibly 70 feet wide.

Seth: And when you say product, are you talking about like a type of residence or something? What does product mean?

David: So the builders program and they have product. Their program is how they're combining their product lines and sizes. But the product is the individual building that they're going to build.

Seth: How do you determine what that size is supposed to be? Is that after a long discussion with the builder to figure out what they want? Or do you just kind of know, no, this makes sense. I'm going to make it this way. I'll lay it all out and then I'll start talking to builders to see if they want it. Like, what comes first?

David: Two things. Yes, you kind of hit a couple of things that happen.

One is, once again, the zoning ordinance and the subdivision ordinance come into it.

A good example is my city of Augusta, Georgia. I have a project there. It's got three different zoning categories. It's got R3B, R1B, and R1A.

R3B is a multifamily townhouse. Minimum lot boundary is 2,500 square feet. The R1B is a minimum lot size of 7,500 square feet, and the R1A is a minimum lot size of 10,000 square feet.

That said, I dug deeper into their zoning code. They have an option called “open space conservation design.” If you give them 40% open space, they'll allow you to reduce your lot sizes by 40%. In the R1B, 7,500 square feet goes down to 4,500 square feet, and the 10,000 square feet goes down to 6,000.

I take all of those into consideration, then I start talking to the builders. First question to a builder is, do you have product that will fit on a 45-foot wide lot?

They all do. The question is, are you building it in this market? If you're not, what's your preference?

There, they've come back to me and everybody's got a product that will fit on the 45 and the 60.

And we've also got some 10,000 square feet that's either 80 to 100 feet wide depending on what we do for depth. So they can do three product lines on that particular job, possibly four, but they do have one that fits in those lot sizes.

Now they could have come back to me and said, “Look, in this particular market we don't have the bigger product. So we only do two. If you got to have 10,000 square different lots, we've got to put the only other product that we build, so we're not going to pay you more for those lots because we can't get any more out of the house just because it's on a bigger lot.”

Seth: Now, the first time we talked, you mentioned something about—maybe this is a good example of what you're talking about—a 149-acre development in South Carolina where the owner was going to do 70 single family lots, but you figured out how to do over 260 lots, which made the deal a lot more profitable. And I think at the same time, you also added more green space to that development.

And the first I was like, how does that work when you add more green space and get more lots like that? And that's probably what you're talking about right here, right?

David: Yeah, that's the same thing we're doing in Augusta. If you did it per the ordinance with the lot sizes that they had, you end up with significantly fewer lots, and you basically lot out the entire property by going in.

And the same thing in South Carolina, that was in Richland County. If you utilize their open space option and give them 40% open space, you can reduce your lot sizes down to… they didn't even have a minimum. I could have made them anything.

So on that one, we were actually working with the builders to lay out the lot size based on product that they wanted to build, because there was no absolute minimum in the lot sizing, as long as you came up with 40% open space.

And there were some bonus densities in there. If you gave them more contiguous open space, you got a 5% bonus. If you created parks and amenities, you got a 5% bonus. So, all of those add up to constantly increasing the yield.

The other interesting thing about that in South Carolina was that I didn't have public water or sewer. That's never scared me. I've done communal-based water systems and wastewater treatment with disposal. And that's what we were going to do on that particular project.

And again, as I said, unfortunately, the contract wasn't exactly right to make it work the best. So, the guys that I was helping out decided to kick out of the contract. It's funny, I actually reached out to the seller over Thanksgiving and he said he's under contract right now, but if they kick out, he'll call me back.

Seth: It sounds like, you know, say you find the piece of land, and maybe your first step is to read that zoning ordinance, understand maybe a few different scenarios of what's even possible. Then you have this discussion with a builder or two or three to figure out what they want.

And once you understand that, then you can go and actually start plotting it out and just saying, okay, well, given that this is what they want, we could put these things here and those things there. Is that the right order to think through this?

David: Kind of, yeah. One of the things that I do in between, I'll do a sketch almost. Before I speak to the builders, based on the ordinance, I'll do a sketch. A little bit more clean than rough. I can say, “I'll email you one of my hand sketches. They're to scale, they're detailed, show the open space, whatever preservation, I show wetlands.” I try to get all of that out of the way first, but I use that to entice the builders.

The one deal that I've got right now in South Carolina is funny. All the builders looked at it, we got it under contract. And when I sent my sketches out to three of the builders, three of the nationals, one of them called me back and he was laughing. He goes, “We looked at this and the engineer we took it to could only get 125 lots on it. How did you get 200?” And I explained to him how I'd configured everything and what I'd based everything on. That particular builder actually has that project under contract with us right now.

Seth: That right there, your ability to do a hand sketch… are you literally like putting pencil to paper or you have software or something? I have no idea how to do this kind of thing.

David: There it is right there. I do everything absolutely by hand.

Seth: In order to do that, though, don't you need topo surveys and wetland delineations to actually know for certain where all that stuff is?

David: Yeah, it's amazing how accurate it is; there's a ton of ways to find all of that. I utilize every available tool.

Local GIS is fantastic now. Jurisdictional GIS is unbelievable. Most jurisdictions that I'm working on, if they're developing right now, they're fairly sophisticated. All of their topography is LIDAR-based, and if you interpolate, even if it's at five-foot contours, most of them go down to two-foot contours. But even if it's four and five-foot contours, you can interpolate in between the two.

The National Wetland Database is great to work with. Once again, most jurisdictions that I'm working in are sophisticated enough to have at least a rudimentary wetland determined area. I normally stay a minimum of 50 feet off anything I plot.

One of the first things we do when we move in and are looking at a project, I find a local engineer and surveyor, I have boundary done. I send out a wetlands survey, or bare minimum, I'll have the wetland scientists do a desktop survey for me.

It's amazing. The wetland scientists, and I don't know if a lot of people know this, have a lot of really powerful tools now. Whether it's the LIDAR-based infrared. They know with probably 90% accuracy where the wetlands are on a piece before they leave their desks to go flag it. And most of them will give you a desktop version for maybe a thousand bucks.

Seth: Do you use Land ID for any of this stuff?

David: You know what? I looked at it briefly. I don't want to say whether I trust it or not. It's enough, combined with a couple of other things. Again, I've been doing it for a long time. I can look at aerial photographs and tell you from the color of the flora and fauna where the likely spots for the wetlands are.

But I trust the local wetland guy. Again, with a phone call and 10 or 15 minutes on the phone, if he knows you know what you're talking about, he'll generate a desktop version of what the potential wetlands are for you based on soils and his infrared LIDAR. He'll be about 90% correct.

Seth: I guess what I'm getting at with a lot of these questions is when I look at a huge deal like this, where you sink tons of money into it and put a lot of work into it, what questions need to be answered before you actually close on the thing and buy it? And what do you do to lock up the property in the meantime to get those questions answered?

David: Okay, well, now we're down to contract and then there's not a deal that I've done unless it was; we closed on part of a deal in Augusta, because it was too good not to close on, price-wise, it was ridiculous.

Generally speaking, you're looking at appropriately contracting things. Most of our contracts, 90- to 120-day study. We go hard after the 120 days. I try to contract as well as possible with an approval. Generally, final site plan, if at all possible.

If they're looking for more of a date certain, and most attorneys or counsel will ask you, you know, we need some kind of date certain. I'll start out at 18 months after the execution date of the contract, and the least that I'll do is 12 months.

Seth: And this is, you have that much time to get the property purchased, all of the entitlements, everything completely finished?

David: Yeah, and I usually base it on that, and I try to have fairly in-depth conversations with the jurisdiction. I talk with the engineers. For any deal or any new jurisdiction we're working in, I'll interview four or five engineering firms. And from that, part of that interview with me is asking, you know, what's the generalized processing time on a buy right, construction, and plats here?

And you'll hear a ton of different things. Generally, what they're going to give you as the processing time is six to nine months. And then you have to add in the ramp up time for the engineer to get the plans done and submitted, the engineer's time to respond to comments and scheduling.

And it runs, again, depending on the jurisdiction, it's nine to 12 months. I do a lot of work still in Northern Virginia. It could be 18 to 24 months.

Seth: Yeah. So talking about money, I guess a few different steps in this process, you got this initial earnest deposit that you're putting down for 90 to 120 days. Is this like a 5% or how much money do you put in it just to lock it up?

David: Nah, normally, and here's the way I negotiate that. Normally, depending on, I mean, it tracks back and forth with the value of the contract, because most of what we're doing exceeds a million, to two million, let's just say.

Seth: Just to buy it or to do all the development?

David: To buy. Just to give you an example, the piece we have in South Carolina, 105 acres, it's 1.85 million. $10,000 at contract for the first 120 days. If we decide to proceed after the 120 days, we put up another $40,000. So the at-risk deposit at that point is $50,000.

The reason that number is what it is, and I do a couple of other things too, and I'll allude to those and I'll actually disclose them, because we've run into issues where it's difficult to negotiate contracts because people have been misled by other folks in our industry. And I don't think it's malicious, I just don't think they understood what they were doing.

And what it does is it kind of sours the pool. So if somebody else came in and had a 120-day study and didn't do anything, then the seller is soured. And if I come in and ask for, yeah, the last guy didn't do anything.

So one of the things that we do is, during the study period, I stay in touch with the seller's counsel or the seller, at least monthly, I disclose all of our due diligence. And if we decide not to proceed, I do two things.

One, I release all of my due diligence and I do it with a written report as to why we're not going to proceed. I tell them why. “I can't make the numbers work. Here's what the builders are telling me. Here's what it's going to cost to extend sewer or water or whatever, whatever the issues are, that make it a deal that that's just not going to work for me.”

If we decide to proceed, one of the things in the contract is that I have my engineer either bi-weekly or monthly write a status report and he signs it and seals it. One thing to remember is an engineer's seal is a license, just like a lawyer's bar certificate. It's a license. If his veracity comes into question, he could lose his seal. He's not going to risk his seal over giving bad advice.

So I make sure that all my engineers will do that. They'll sign it and seal it. And we provide that to the seller and to his counsel monthly, because when I'm negotiating a contract, one of the things I tell them is about the project in South Carolina.

So we got 50,000 hard. We're going to spend probably close to 230 grand to entitle the property. And if at the end something goes wrong, we can't settle, guess who gets all that? The seller does. It's his. We release it. His only cause against us is the deposit and everything we've created while we had it under contract.

Seth: How often does that happen, where you do all this stuff, the due diligence, like you go the whole nine yards and then something falls apart, you spend 230 grand and then you lose it all? Has that ever happened? Or what would cause that to happen?

David: Yeah, not quite that much in engineering, but yeah, I had deals in, well, I lost a lot in West Virginia in 2008, and somebody got it all.

Yeah, I keep, to this day, copies. I had $9 million worth of worthless paper or selling finished lots to three national builders. It all fell apart, and it felt like overnight, but I think it was probably like a week, but it was pretty tough.

Seth: You kind of skipped over and got into the good stuff, but back in 2008 when you made these, or tried to make these three, and they kind of fell apart, was that your money into that, or was that somebody else's money? And how do you recover from something like that if it just goes so horribly wrong? How do you bounce back from that?

David: It was both because I'd rolled not only my own money, I'd left some in and I subordinated to a bank a couple of times to get settlements across the table. A lot of people lost a lot of money and it really happened overnight. How do you recover? It was a bloodbath.

Seth: Yeah, it was awful.

David: I mean, they went from selling, I mean, man, they were rolling through those two of the subdivisions. I can tell you very briefly. I attended a meeting at a bank with the guys from NBR, and we were sitting at the table, and the banker, a lovely woman, but she told the guys at NBR, and I was there with one of their VPs, and she said, well, we have your deposit, because we were trying to renegotiate the deal. They were going to keep working their way through the project.

At the time, we were selling finished lots for $72,500. They came in and said, we can't do $72,000 anymore, but we'll keep working through it. We'll buy lots from you at $55,000. And they were getting 70 at every closing—the bank was—to pay down their debt.

And the banker goes, “Well, who's going to pay the other 15?” And we're all looking, I'm there with the owner and the developer, myself, the guys from NBR. And we all went, “Nobody, you'll get 55,000. Nobody else is getting anything. You'll get the 55,000.”

And she's like, “No, we get 70.” It's like, “But there's not going to be 70, there's going to be 55.”

And she looked at the guys at NBR and she said, “Well, if you're going to walk away, you're going to walk away from the deposit.” it was like, 700-something thousand on that section. And she goes, “You're going to walk away from 700,000?”

And the guy from NBR, it was great. He goes, “Do you read the papers?”

She goes, “What do you mean?” He goes, “We just walked away from a $35 million deposit. Do you think we care about 700? We're trying to work this deal out and the place you are, you can't even see the forest for the trees.”

But that's how it was. She was so filled in the week before, where everything was great. Not even paying attention to what was going on in the world that day, and basically told NBR, no, we'll just take the land and sit on it, thinking that it was all just like a bad dream. And I think, well, and I think the bank would belly up, I don't even know.

But yeah, NBR would have stayed in the deal. They would have kept buying lots at their takedown at 55, and the deal would have worked, but the bank couldn't buy what was taking place.

So, yeah, it was tough, it was a weird time. I had to go and tell my wife we were losing the house, and it's hard, it was hard. You know?

Seth: Yeah, did you kind of just get out of the business for a few years, or like, what did you do at that point, when it's so catastrophic?

David: So, when I graduated from college in 1982, I learned how to build houses, and I worked for a couple of big builders in Northwest Florida, and then I worked for a couple of custom builders. I've always stayed in it. I would build decks and do additions for friends and stuff like that.

When the market crashed, there were still people that were still doing stuff. Not everybody got pummeled. It certainly wasn't as bad as when the S&Ls all failed in ‘89 and ‘90 because I was there for that too and survived all the layoffs as a civil engineer.

But I just started building things. I started restoring, like I said, I restored eight historic homes. I've got real older friends who are doing the fix-and-flip things. I would go in and roll through a house and roll it back out for them, anything to keep rolling.

I still kept dabbling in what I knew. I had a friend who owned his own small engineering firm. I would do all of his comment responses and land plans. If he had a client come in and ask for a land plan on a piece, I would do all the layouts and everything. And I kept that up and then rolled it down from there.

Seth: Does that make you gun-shy, I mean, going through that? I know I got into land in 2009, so like from the very beginning, I was also in banking at the same time, and like you said, it was just a bloodbath. It was terrible everywhere, and that was kind of the mentality that I got into the business with.

I never had really seen it any other way, and that kind of made it hard for me to go out on a limb with this stuff, because it's like, well, what if there's another 2008 after I do this, now what? But it sounds like you were able to overcome that. So was that hard? What did it take for you to be like, yeah, let's take another risk?

David: You got to remember, I watched 89 and 90, you know, when they all the S&Ls failed. And I watched just the community where I lived in Northern Virginia, countryside, like overnight, people were selling houses, new homes were going in, and they were like in the 390s.

And overnight, that fell apart so badly with the S&Ls, nobody knew where to send, there were people who didn't even know where to send their mortgage checks because the bank was gone. And, you know, people tried to get out of houses that one day were 390 and the next day were 150.

And I was at the engineering firm that I started with and I lasted through all the layoffs there and watched it all roll back up again. And then I saw what happened in 08. Now we are where we are right now.

But the one thing that I learned in both of those, in 89 and 90 and 08, you know, the national builders, you know what they did? They kept building because it's what they do.

So I even look at today and say we're in the 08 thing, which was catastrophic to the point that it put us in the housing deficit that we're in today because, you got to remember, everything slowed down and everybody was afraid from like 08 to 15 or 16. And that's a long time. I mean, the builders kept building, but historically, year after year, if you look at the number of building permits that are being pulled in any jurisdiction that's seeing growth and whatnot, and there's a number.

And then you look at what happened during that time frame, and you noticed you were in banking, so say you're at 5,000 permits, which is the norm. But then for five years, you're only pulling 3,000, so it's 2,000 behind. Then, even when you swing up and you think you're catching up, you're still behind.

I live in Northeast Florida now. When I first moved here, I hooked up, I met all the builders. I'm doing some stuff down here. One of the builders, super smart guy, nice, he's a great regional builder, he and I were out having drinks one night. He goes, “In 2018, in this area, we were 30,000 permits behind.” Even what happened from 18 to 21 or 22 with all this huge growth, he goes, “we are still 18 behind.”

Even with this, with what's going on in the markets today, yeah, there's going to be ebb and flow. I mean, I was lucky to live in Northern Virginia. You got the federal government there. It flows. But there's always something there. I feel for some of the areas that really get hard hit and shrivel up and die.

It's funny. I'm working on a deal, oddly enough, in Lackawanna, Pennsylvania, where there are no national builders. We're trying to figure out how to make this little deal work, which is really tough because… So it's right next to Scranton and, you know, essentially, when steel and that industry died, Scranton was just kind of bumping along. There's no big draw there. There's nothing happening. It's very funny to try and work in those.

And then, when you see the economic impacts of today, they kind of tighten back up a little bit, too. You know, there's not a builder that wants to go out on a limb. And that, looking down at what's going on in the Southeast, with industry moving out of the North and Northwest and Middle America, moving down to South Carolina and North Carolina, those areas are kind of thriving and moving. It's interesting to see those subtle shifts and changes.

But again, what I did notice was that the national builders are machines and they get to feed their machine, even when it slows down. Those guys are more innovative. I mean, right now, they're buying down points on 7% more. Whether it works or not I don't know. You said you were in the banking industry. I don't know whether those things work, but it's what they do.

The national builders don't have a fallback plan. What are they going to do? They don't wake up and go, “Hey, let's start making cars.”

Seth: Yeah. On that whole thing of talking about the Southeast U.S., what does a market need to look like for you to pursue these projects? Like, are you looking for something like certain demographics or growth trends? Like, what makes you spin the globe and be like, okay, we're going to go here and not there? Or when you see a big development opportunity, what would make you say, no, we're not gonna go there because there's not enough demand. Like, what are you looking at?

David: Yeah, that's another great question. For me, so I've spent my life essentially up and down the eastern seaboard, the southeast. I was in Chattanooga for a couple of years. I was just outside Nashville for a couple of years during college. And I grew up in northwest Florida, so I know the Gulf Coast, Alabama, doing some stuff.

I've got two or three projects in Alabama. I know the Mid-Atlantic from having been there. I know how the Mid-Atlantic functions. And I learned interesting trends on things, just me personally, where I think people are heading and why. I look at the right-to-work state and the opportunities there.

And then COVID. I mean, myself, we were in Northern Virginia. They shut Northern Virginia down. And I have teenagers, my daughter's a senior in high school, our son is at the Fire Academy of the South in college here in Jacksonville.

But when they shut everything down, my children didn't take to the electronic learning. They needed that peer push. And we sat down and had a long conversation, the entire family, and it was like, we have to go somewhere where A, school's in session, and B, preferably, if they lock down the globe again, I wanted to be somewhere where it was warm. So, Northeast Florida, so we're here.

And so what I noticed from that, just also being a student of people, I watched people streaming out of the Northeast, out of Middle America, South. And a couple of other things happened with that was we can work from anywhere. I mean, I do what I do here. I have projects anywhere from Texas to Virginia, Florida, Tennessee, Kentucky. I don't have to be there. I can go there and visit and look at things. I can have somebody put eyes on the ground and take photographs

It's the idea of being able to virtually accommodate what we do that has become unbelievably prevalent and a lot of ease in function with electronics and better access to information. Things that started out in engineering, when I started out, everything was done by hand. You were in a jurisdiction. I mean, there were computers, but it wasn't like it is today. Everything was paper copies of ordinances that you went through.

So I noticed those things. And to me, people are going places for a reason, whether it's to escape the cold, escape an over-aggressive regulatory arm, whether it be government or quasi-governmental, that was kind of where I look. And I gravitate toward areas that appeal to me, you know?

I mean, I'd love to do a deal in Colorado, because I think it's—to me, Colorado is where the people that flooded out of the east and came to a mountain range and basically said, I'm not crossing that, we're stopping here.

Seth: Yeah.

David: You know what I mean, they were like, “Man!” Yeah, think about it. If you left the Blue Ridge and you rode in a covered wagon and you saw the Rockies, I'd pitch my tent under where we are, I’m good.

Seth: I saw this video a while back explaining why California sort of operates like a different country. Like in its prices and its culture in a lot of different ways and a lot of it has to do with the Rocky Mountains, because it's so hard to, or for a long time, it was so hard to transport oil there and just travel there at all. You had to come around the other side of the country just to get there. So, it's interesting.

David: Yeah, well, until the Panama Canal. But I think that's a lot of people, Seth. I think a lot of people focus on… not necessarily what they know.

And actually I do, I see it in the industry that we're in. I see the guys who… I don't understand it. I appreciate it but I don't understand it. The guys that flip lots, one lot, 10 lots, but individual lots everywhere. I don't understand it because to me, 20 transactions criss-crossed everywhere, versus I find one piece and I can turn it into 20 lots and I can do it. The timeframe takes longer, but it's what I know.

For me, I see the added value of that operation. And that's not to discount the fact that there's been a lot of money made. I'm sure there's a lot more to be made in finding those one-off lots and finding the right buyer.

Seth: Can you tell me about a time that a development opportunity crossed your desk, and you just said, no, this is a terrible idea. The market's bad, the property's bad. Why did you say no? What went wrong with that?

David: Nine times out of 10, it's not right off the bat. I look at a ton of things. I’ll give you a great example.

I had somebody bring me something in Oklahoma. And for all the world it actually might have been a really cool opportunity. Eventually, it was east of Tulsa, almost at the Missouri border, can't think of the name of the city. Although I want to say Roger Maris's house was in the little town, Converse right above it. And it was really neat. And the gal that brought it, and I explained to her after I went through everything, like the little town is kind of coming back, Route 56 goes through there, and all these things.

And her big thing was that the American Heartland is about to do this park, you know, like Disney World in the middle of nowhere in Oklahoma. And her thing was, this would be great for housing and things.

And I paused for a minute, and one of the things that hit me was, and I sent this to this gal, was Orlando and Disney World. Go 30 miles, draw a circle, 30 miles around Orlando, and what are you going to find? It is still rural as hell. And this little town was like 45 or 50 miles from that core. And I went, it's not what you think it is. It won't work. I mean, it theoretically has a potential, but it's not going to work.

But I didn't walk away from it immediately. Anything that I look at, I embrace. I'll look at what it could be and what all the options are. I guess what I like to see myself as, I'm not a problem finder, I'd rather be a problem solver. If there are too many things to overcome, then I have to just say, you know, it's probably a deal for somebody, just it's not a deal for me. Does that make sense?

Seth: It does. And the next question is, when you find a deal that does make sense, how are you figuring out how much to offer for these things? Are you just paying full market value, whatever that is, or do you need to get it at a certain discount or something?

David: There are a couple of ways to look at it. I look at as many, people say, off-market. That always makes me laugh. It's off-market. Is it for sale? Yeah. Well, apparently it's on the market. If it's for sale, it's on the market. You stumbled upon it. I know guys have lucked out. A blind squirrel finds a nut kind of thing.

But yes, there's a negotiation. Once again, I open book them. I'll sit down with a seller and tell them exactly, “Okay, here's what you have. In my opinion, you've got this much wetlands. I think I can get this many lots out of this, the builders will pay me X for the lot, I need to be here.” They can either get down to that number or we go back and forth with a few things.

What I learned a long time ago is that I don't have to buy every deal. Many times, sellers are too stuck on a number that doesn't work. Have I put things under contract at a seller's number because I thought, yeah, we kicked out of two deals this year, maybe three, one north of Atlanta and one in Savannah.

What I do with those is the deal in Savannah. I told the builders what I wanted for it and I had a builder come back. And he gave me my number and I still couldn't get it over the line. I went back to the seller who was an elderly gentleman and I made him a great offer of a structure and he didn't want to do it.

But what I ended up doing in the end was I hooked my builder up with the seller because the builder, he'll entitle himself to develop. So basically, I didn't get there in time, I couldn't assign my contract and get a fee or anything, but it was a builder that I haven't worked with before. And by putting him in the deal, I built a relationship so I can go back to him.

We had this conversation and I said, “So okay on the next deal, you're gonna pay me a little bit more.” And he goes, “Yeah, if it works, we'll do that, definitely.” And actually, we're looking at a South Carolina deal that we'll probably do with him.

So I was able to post it with a builder, saved the deal, kept the seller happy because I know the seller's got some other stuff, and it created a relationship with a builder that I didn't have before.

Seth: So when you're coming up with an offer price, it sounds like you're kind of reverse engineering this, right? It's not like you're comparing other comps, if comps even exist, it's more of, okay, what's the end game and what's that gonna make and how do we back into our offer price number? Is that right?

David: Yeah, a comp to me is, it's useless. Because, I mean, I'm sure it's useful to someone. To me it is, it's useless.

Seth: No, I totally get that.

David: I don't care what somebody else paid or what they got. And I've heard that from sellers who, well, so-and-so across the street sold for this. And I'm like, yeah, they sold on a rezoned piece with construction plans done. You don't have that. You've got a raw piece of land, and I don't know how we're going to make that work.

Yeah, I do. I basically reverse engineer. And then figure from there what could go right and could go wrong.

Seth: I don't know if you've ever heard this, but I know when I first started learning about house flipping many, many years ago, which I did not end up doing, because I was not good at it, but I heard this idea that anything is a deal at the right price.

And when I think about what you do, and the fact that, you know, going back to this Oklahoma example, say if you got that land for free, and you put half a million dollars into developing, you know, a development that nobody's going to buy. Would you disagree with that statement, that anything is a deal at the right price?

David: I would disagree with that every day. But you made a great point. In that genre of a house flip or a lot flip, then that's 100% correct. If you can pick up a lot for a thousand bucks that has any intrinsic value and roll out of it for $2,500 or $3,000, that's a deal.

What I like to think that I'm doing is, and others do—I mean, this is no innovative thing that I just somehow managed to figure out—not every deal is a deal. There's a lot of things that… again, I've looked at a lot of things where I wanted to make the deal work and if you can't, you can't.

What I like to think of it as is leaving a deal where I don't sour the other side.

Seth: Yeah. So how are you finding these deals? Are you finding them yourself or do other land investors bring them to you? Where do these come from?

David: Yes and yes. I'm in a couple of deals where other people have come to me who couldn't figure it out and have asked for help. I'm in deals that I've found. I found the one in—the big one that we have in Augusta. A couple of South Carolina deals, realtors.

Seth: So you're kind of just always scanning the horizon and people know they can come to you with these kinds of opportunities?

David: I'd like to hope so, yeah.

Seth: And how many of these projects do you do per year?

David: It depends on the level of involvement.

And again, like we talked about earlier, I'm trying to get better and I can't keep doing everything for everyone for nothing. But I love it, so I kind of do it in my sleep.

But I think once you get to a certain point in the engineering process, once you get past the study period, the 120 days, because I think somewhere between eight and ten of these per year, there's a lot of work in it, but you got to be backfilling. You need them staggered and you got to backfill with things coming in. As long as you can't just have eight of them and stop and then scramble for eight more than that.

I think as they roll forward, juggling eight to ten, because again, not every deal is a deal. You're going to kick out of a few. Some will make sense, some don't. And some things get through the process faster.

Seth: I'm trying to figure out, how do you make money and how much money can you make from these deals? And which hats are you wearing in this process? Is it you doing literally everything? What are you not doing in this process?

David: Okay, well, it depends on how the structure is. I'll just focus on the deals that I'm working on with one partner.

So we're 50-50. He's the money guy, I run the show. Just a quick example, right now, the deal in South Carolina, 1.8 million. Our contract is for 3.9.

Seth: So that profit you guys split 50-50?

David: Yeah, and once everything is paid back, entitlement costs and things like that are netted out, yeah, 50-50 of the net.

Seth: And then being the money guy, so whoever this other person is, they're kicking in all the cash? Are you getting like a bank loan to float it while it's being developed and sold off? How does that financing work?

David: Right now, he's covering the entitlement costs, and then as we close deals, money will stay in to fund other deals.

Seth: And was I understanding the timing right? Like you get a property under contract for, say 120 days, in that time you're doing your due diligence like your topo survey, your wetland delineation, anything you need to know to get the thing figured out, and then the entitlements happen after you close or before you close?

David: You're not gonna close until it's fully entitled. So now after the 120 days, your deposit goes hard, then you start your entitlement work.

Seth: Okay, so after the 120 days, what is the time frame after that you have to get your entitlements done?

David: Depends on the contract. The least would be eight months, both probably 18, or depending on the jurisdiction, if they entitle quickly, it'll be less.

Seth: Okay, so like on that $1.8 million deal, say if it takes, I don't know, 12 months or something to do that, once the entitlements are done, then you buy it for $1.8 million, and then it's up to you to, are you putting in roads and utilities and all this stuff?

David: No, although I can, I don't like that. I'm not a fan, but we could. If you get that far in, it's debt and equity to finance.

Seth: So you're just doing the paper entitlements and then you're selling off everything to a builder and they come in and put in the roads and do all that stuff?

David: Yeah, or a third party developer. My preferred method is to contract directly with a builder developer or a third-party developer.

In Augusta, we're going right with a JV between a third-party developer and the builder. I've got a project in Alberta, Alabama. We are contracting with the third-party developer who has an agreement with the builder. I put the builder in, he brought the developer to the table. Now we're working with the developer who's got an agreement with the builder.

Seth: So, that builder is super important. How do you know that they're committed? And at what point did they come in and say, yes, we'll do it, and do they put money down or something? How do you know they're serious about it and they're not gonna flake out?

David: Yeah, my builders, my preference is to have a builder either under contract or right at that point before we go past our study period.

Seth: So, before you go past the 120-day due diligence period?

David: Yeah, to give you an example, on the South Carolina project, we had six LOIs from the national builders.

Seth: So six different builders were like, “Yeah, we'll take it.”

David: Yeah. And the builders post 10% of the contract value in a deposit.

Seth: And that happens before the 120-day, or whatever the research period is?

David: No, that'll happen after their study period, depending on what the terms of their contract are. Normally, 60 to 90 days.

Seth: And if something were to happen like what you were talking about in 2008 in West Virginia, maybe they would walk but you would get there 10% that you could keep?

David: Yeah.

Seth: Okay.

David: But hopefully they don't. What you do is you restructure.

Seth: So just like, ask for less money?

David: Well you know hopefully everybody sees the writing on the wall and you go back in maybe restructure a little bit with the seller, restructure with the builder you know, and just try and keep the deal like anything else to try and keep pace together.

I mean, we did everything everything we could to try and keep things pasted together, and it was just, as you and I spoke about earlier, everyone was in shock. You said you were in banking, right? The bankers were in shock.

Seth: Yeah, for sure.

David: They didn't believe it. It was like, “No, no, no, this will all change tomorrow.” Like, it ain't changing.

Seth: Yeah, that was a crazy time. I don't know if we'll ever live through something quite that bizarre again, but yeah, it was nuts.

David: Yeah, it was definitely different. And it's hard to explain to folks who missed it.

Seth: I know demand for new building and that kind of thing is super important for this kind of thing, because if you're creating all these new products for builders and that kind of thing, there needs to be sufficient demand.

So given this environment that we're in with rising interest rates and buildings kind of slowing down in a lot of places around the country, does that pose a serious risk to you? Say, if you started these projects back when interest rates were a lot lower, and now they're going higher, I don't know, does that ever happen where a builder's like, you know what, things have changed, we don't need this anymore, see ya.

Is that only the most catastrophic situation where that kind of thing would come up?

David: You know, it could, it did in no way. I'd like to hope we're a little more savvy about it now and that people are more realistic.

No, I mean, you certainly could, I mean, it's a risk. Anything we're doing's a risk. The question is, how do you minimize your risk? How much are you out, you know, can you afford the deposits? Can you afford how much entitlement you've spent?

It's the biggest reason to avoid closing on a property until you have something. I mean, imagine you spent a million eight on a piece and now you gotta sit on it for five years. It might be better to walk away from 70 or 80 grand than try to figure out how to juggle a million nine for a certain time frame.

Seth: If somebody's out there, they're listening to this, they're hearing you talk, and they're like, man, this David guy, he's awesome, what he's doing. Like, I want to do what he's doing.

And admittedly, it sounds like a big unfair advantage you have with your ability to look at a property and just intuitively know and sketch out, “This is what I think is the best thing. Here are a few scenarios.” I don't know how to do that. I have no clue where to even start with that.

So, is that because of your civil engineering background? Or if somebody wanted to become like you, what would you suggest they do in terms of their career path?

David: Again, well, career path, I mean, trustable engineering if you have an aptitude.

Without that in place, no, I'll tell you the same thing. I've said it a few times in this, read the things that matter. In this industry, to me, if you're looking to do this, you need to understand those things that matter, the zoning ordinance, the subdivision ordinance. It sucks to read them. They're technical manuals. But in those, there's little ClipArt pictures sometimes and some ordinances that show you what they're looking for.

And all that does is give you a basic understanding. The rest of this is, I guess, you could find the right engineer in. I don't know, but you're killing me. It's a tough question.

Once again, I use the tools that I've forged over 35 years to kind of do my end of it. There's a dozen ways to skin this cat, find an engineer, but then you're trusting someone else. My issue with these things, and I tell this to folks I help. It's not that I don't trust everybody, but here's one thing, it's why you need a lot of people looking at things.

If I had one piece of property and I gave it to ten engineers and I got ten of the same answers, I don't need nine of you. You want ten different answers, but you also want somebody who's looking.

I'm the most unconventional engineer I've ever met. I don't think in terms, in boxed terms. Given an opportunity to lay something out where somebody tells me that the minimum lot size is 15,000 square feet and the minimum frontage is a hundred square feet, I know that five out of ten engineers are going to give you a layout with lots that are a hundred by a hundred and fifty.

And I'll use an example. I had an engineer do that on my project in Alberta, Alabama and he gave me 75 lots and inside of an hour I've set in my layout with 95 lots. I've magically found 20 lots? No, all I cared about was, if my minimum lot size is 15,000, what's 111 by 130? It's 15,000.

Now, I just picked up 20 feet on three-size lots, that's 60 feet. I picked up another row of lots. I double-loaded a street he had single-loaded, but he thought inside of a box.

My first vision of things is not inside of a box. I have guys in our industry calling, going, what's your buy box? I'm like, I don't have a box, I'll look at anything you send me and we can take a decision from that. Because once you're in a box, it's hard to get out.

Seth: Maybe the box is the zoning ordinance, right? So whatever that says you can't do, that's essentially the box, right?

David: Yeah, yeah. But there's one thing, there's nuance in every zoning ordinance. And there is because they want to build in some flexibility while trying to contain you. But if you think in rigid terms, then you're stuck there.

But if you step back a second and go, “I can make 15,000 square feet look different a bunch of different ways,” that's when you start nailing the success.

Seth: And I hope people are catching what David's saying here in that taking a plan of 70 lots and turn it into 90, or however many he's able to do, effectively he's creating money out of thin air. And sometimes a lot of money, because you can sell it for a lot more. And when you have that kind of a brain that can think in those dimensions, it is surprisingly uncommon.

And in terms of finding a good engineer, I mean this is probably a huge discussion, do you have any pointers on how do you know when you've got a good engineer who knows how to think outside the box or just see things in different ways.

David:Here's one of the things, this is a good one, maybe we should do this again, Seth.

One of the things that I've learned is, in 35 years, see I can speak with you on your level, with your experiences, right? When I'm on the phone with a lawyer, I speak to a lawyer in ways that he can recognize that I'm educated, I know what I'm speaking about. When I'm on the phone with a bureaucrat, jurisdictional bureaucrat.

I've been dealing with them for 35 years. I speak to them the way they see things and I don't try and argue with them over their reading of the ordinance. I merely point out the way I read the ordinance and I don't ask them what can I do on this piece of property. I tell them what I've read in their ordinance so immediately they know that, “Wait a minute, this guy read the ordinance!”

And then when I'm having a conversation with an engineer, I speak to him using engineering terms and speak about it the way an engineer would.

And I think that can all be acquired and it doesn't have to be in those terms exactly. I mean, if you read enough, if you know enough about what you're seeking to find and you're asking the questions the right way, the answers you get are significantly different than the answers you get if you just ask someone, “What do you think I can do with this?”

Because then they're going to revert to a box. “Oh, well, you can do these five things.” And they're going to leave out the fact that we've got this other part of our ordinance that if you give us 40% open space, you can shrink everything down and do something completely different.

You'll never find that out if you don't say, “Oh, I noticed that you have this other section, and if I read it correctly, if I give you 40% open space, I can make my lot 6,000 square feet.” And a lot of times, whether they read it or not, then they're going, you hear the pages flipping. “Oh, yeah, I see that. That's interesting.”

So I think, if anyone wants to learn anything, it would be to focus on not necessarily asking an open-ended question, because you're not really gonna get the answer that you're seeking. Even if it's subtly educating yourself before you ask the questions, you're gonna get better answers.

Seth: That's a huge lesson right there that I can totally vouch for. Being able to dispense with any assumptions that a lot of us make when we ask and answer questions and really get clear on what you want to know.

Those open-ended questions, I can't stand them. I see them all the time in our forum and my answer is it depends on 500 different things. Get really clear about what you want to know and show me that you've actually thought through it yourself before you start asking questions and wasting everybody's time.

David: It's great because we talked about earlier, I met my one partner because he asked the question online and I read it and what I knew was that the question he really wanted to ask he didn't know how to ask. And so I responded to what I thought the question was they was and I wrote it out pretty detailed like, you're not asking it correct here. Is this what I think you're looking for and within three minutes I got a DM from going can we get on a call?

Seth: Yeah. Well, David, this has been awesome talking to you. So appreciate your time and sharing your wisdom with us.

If people wanna get ahold of you, do you have a website or something that someone else can learn more about what you do or anything like that?

David: Yeah, our website is openlandcommunities.com. If you got a deal or something that you're not sure of, reach out, man. I'm happy to give it a look, give you an honest opinion. I tell people I got enough of my own. I'm certainly not gonna steal anything from somebody. I've never done anything like that in my life.

I’ll also sign NDAs or non-competes, I have no ill will. I'd rather give somebody free advice and help them structure a deal right than run into a deal that somebody has just soured or clouded the water and then you got to unwind it. Besides, I like this community and I think we should all help each other.

Seth: Yeah, I'm with you, man.

Well, thanks again. Thanks to the listeners out there. If you want to stay up to date on everything going on with REtipster, you can text the word free, F-R-E-E, to the number 33777, stamp it in, all the stuff that's going on.

Thanks again for listening, and we'll talk to you next time.

Seth: Hey, everybody, how's it going? Seth Williams here. You're listening to the REtipster podcast. This is episode 171, and today I get to talk with some old friends, Jaren Barnes and Drew Haney. Guys, welcome. How you doing?

Drew: Hey, guys. Doing well.

Seth: Yeah. So something I appreciated about preparing for this episode was that I didn't have to do much preparation because the conversation flow so freely with these guys. I don't have to think too hard. I just know something good is going to come out. So I don't have a whole lot of pre-scripted, pre-thought out questions, but I mainly just want to find out what's going on with you guys, what's been happening over the past year.

I know, Jaren, you've had some big new developments with the Land Maverick Society and everything that you're doing there. And Drew, you're also playing an integral role in that, in the podcast, and you guys are working together a lot. So I just wanted to find out how it's going, what you guys are doing, and what you've learned over the past twelve-ish months. So where do you want to start?

Jaren: Well, I guess I could kind of give a summary of what Land Maverick Society is. You helped give me some very strong feedback on the importance of being able to clearly articulate what we do and who we are.

So the Land Maverick Society, in a nutshell, is a community that provides everything that you need to get started in the land business and then to scale to a 100K/month model. We have kind of an ecosystem, when you buy into it, that includes training through the Land Maverick Academy, strategic partners like Supercharged Offers to handle the marketing, Pebble REI to handle the lead processing system. I have a sister company called Virtual Outsource that also provides a bunch of outsourced VA solutions and scaling automation tiers of service.

And then we have Rooster Capital, which is Drew, who is exclusively the funder for the Land Maverick Society. We fund deals between 15,000 to 250,000 per acquisition for a 50-50 split, and we buy at. So that would be a market value of 30,000 to 500,000. And we will fund deals that are more expensive than 250,000 per acquisition, but we're normally doing a 60-40 split in our favor because there's more capital risk.

So in a nutshell, that's who we are. It includes a lot of really nifty kind of perks, I guess you could say. I give out my cell phone number to everybody in the community, and I'm pretty much outside of Saturday I'm just a text away for anybody who has any urgent needs. So direct access to me.

We have kind of a video database called the Land Maverick Academy. But really the big value is the one-on-one training that you can have with me. So I walk you through everything from picking a market, sending out the mail, getting started with Supercharged Offers. When you subscribe to the Land Maverick Academy, you also get a build out a carbon copy of my Pebble environment. It's based on the starter plan, but it's like six months included.

So when you sign up, you get six months of Pebble included in your membership and all that. So it's pretty much like everything that you need to crush it as a land investor.

Drew: And I just want to brag about Jaren for a little bit. I did some research, and from the competitors that I pulled, he is the most affordable one-on-one coach by less than half. So I've told him multiple times to increase prices. He refuses to, and he's doing a great service to the land flipping community. So thank you, Jaren.

Seth: It sounds like this is one-on-one coaching, right? Or is it group coaching or both?

Jaren: At this stage, it's one-on-one coaching. Yep. So Tuesday through Thursday I have availability on Calendly, and maybe by the time this launches, it's going to be a different scheduling link. But people can jump anytime on my calendar.

If I don't show availability, I intentionally bookmark the ends of the week, Monday and Friday to do makeup sessions or to squeeze people in, and I walk them through every step of the process.

Seth: Yeah. So it sounds like this is just like one-off coaching calls. Or is this like a six-month engagement or twelve months or what does a coaching relationship look like?

Jaren: Yeah. So it's membership-based. I would look at us not necessarily as kind of pigeonholed as a coach. I would look at us as a membership to a mastermind or a community, and then coaching is a footnote of that. That's a part of the full suite of services and value we bring to the table.

But to answer your question, it's an annual membership. So on the front end, there's a larger cost, let's say. I don't want to necessarily timestamp myself and throw out numbers because that may change in the future. But then the annual membership renewal fee is $5,000 a year.

Drew: Does that include access to you, Jaren?

Jaren: Yes.So as long as you're an active member in good standing, you have direct access to me, like forever and ever.

The long-term goal for us as a community is to be partnering with members of the Land Maverick Society. So our goal is to fund 40% to 60% of all of the people that we are training and are part of our community. And again, we have resources in place to help them not only get started, but then to scale to 100k/month model.

Seth: So basically you're paying for this annual membership and whether you use Jaren or not directly, like what? I want access to you that's available. That's just part of the package.

Jaren: Yeah. And I would very much encourage people to, at least in the beginning for sure, if they're getting started to meet with me, if not once a week, several times a week, in order to get a strategy going and get a game plan and what have you.

A lot of, in the beginning, especially the bulk of one-on-one training sessions, are revolving around running comps. Running comps and due diligence. I actually call back sellers with people, so I showcase how the conversation works. All that.

Seth: Yeah. Is there a particular thing like you just talked about, running comps, calling back sellers, picking markets, that kind of thing. Is there any particular line item or task that you find people need the most help with? Like a place where people get the most stuck the most often, or is it just kind of all over the place?

Jaren: It's mostly comps, yeah. Market research is pretty straightforward, at least initial due diligence. We run through Land ID. We have a six-step checklist within Land ID that we run through each time.

But comps is more of an art than it is a science and you have to develop a feel for it. I actually had somebody who is in our community come from kind of the luxury real estate world, and she was one of the top performing agents in her market, but really struggled to wrap her head around land comps because it's kind of like you get to kind of a certain amount of surety and then you just kind of go in the direction of being conservative. You just kind of merge conservative.

We verify comps and as we go through the process, we get land specialized agents to come in and provide list amounts and stuff. So as we move through the pipeline of processing leads, we do have lots of checks and balances in place to ensure we're not making a mistake. But on the front end, we do try to call back our sellers with an offer in hand. And we're able to do that about 80% of the time with online resources, 20% of the time we have to loop in an agent before we make an for.

Seth: Yeah. Interesting.

Do you ever get calls or just people who want your help because they're doing the direct mail thing and the responses just aren't coming back or the deals aren't coming out of that? And if so, are there any typical problems that you see that there are things that are going wrong? It's like, okay, fix this problem and then you'll start to get those responses.

Jaren: I think a big key, at least right now at the time that we're recording, is pulling from First American Title data. So when I first got started in the land space, I was actually working with you at REtipster when I ran this comparison.

The two leading competitor data service providers were DataTree and AgentPro 24/7. AgentPro 24/7 pulls its information from Black Knight. DataTree pulls its information from First American Title. AgentPro 24/7 evolved into a company called Sitex Pro, and then the market share, when that happened, went to a company called Prycd. And Prycd pays for API access into DataTree. So they're getting First American Title information secondhand.

And what that translates to is there's what I call kind of like an “artificial saturation” taking place where if you just diversify where you're pulling your data from, you'll get a competitive advantage. So pulling from PropStream, Versium, Supercharged Offers, kind of anybody that's not First American Title, is going to give you a competitive edge.

And we've seen it across dozens of different land companies that I've helped kind of oversee in the evolution of, I guess you could say, when I first ran a comparison between AgentPro 24/7and DataTree in Citrus County, Florida. In AgentPro 24/7 there was say 30,000 record counts, but in DataTree there was only three. And there's other places within DataTree where they had more information available. But the majority of the land investing community is targeting the same owners over and over again, those, say 3,000 owners that are registered in the First American Title database.

For Citrus County, Florida, there's going to be an artificial saturation and then there's going to be a big missed opportunity for the 27,000-odd, at least at the time when I ran, were not registered in the First American Title database. Beyond that, there's a lot of house wholesalers that also pull from First American Title information. David Lecco, we've actually interviewed him at the REtipster Podcast together. The entire DealMachine operation pulls from First American Title Information. There's also a company called REI 8020, REI-something, that's like a big lead provider in that space. They also pull from First American Title data.

So people that are registered in that database are just getting hit fairly often. It creates kind of this artificial saturation where if you can just pull from a different database. And again, I'm not mad at DataTree. It's just that fact that most land investors are all collectively pulling from that source that creates this artificial saturation where if people just pull from something else, I've seen it firsthand, overseeing different land investors getting started in the land business, DataTree, they'd have lackluster results, and they come to me, why is it not working? What's going on? I say, just pull from somebody else.

And then it's back to… these days we're seeing about one deal for every 3,000 units of mail, sometimes 3,500 depending on the market. If it's a Florida or parts of Texas, Colorado, that can even be 1,000 units of mail. But generally, in most places, we're still seeing about 1,000, 3,000 to 3,500.

Drew: And another thing I want to add is that I think a lot of people, especially newer land investors, they don't have a big enough sample size. So they'll send out 2,000 mailers. They won't get any responses or any deals from it and they'll get frustrated and think it doesn't work, where in reality you need to send out significantly more, maybe 20,000 mailers to really understand what's working and what's not.

So a great example, everyone knows Dave Denniston, he mailed to Wisconsin, multiple counties in Wisconsin for the first time, didn't know what he was doing. Out of four counties, three of them bombed. One county he picked up, it was actually Door County, Wisconsin, where my parents lived. He picked up a parcel for 80 grand and then once he owned it, he sold it in one day for 200. So let's say he spent ten grand on mailers, then it's totally worth that profit was totally worth it.

And I think a lot of people aren't willing to try large numbers because they're afraid where in reality you just need a larger sample size to see the results.

Jaren: Yeah, and if you're going to grow a land business and really treat it like a business, you probably need somewhere in the vicinity of 20 to 50 grand to really do it right. Now, those that are just getting started and they want to just take some savings that they have and start using land as the vehicle to generate more working capital. That totally makes sense. But you're probably going to be a part-time investor, kind of a side hustle type of situation before you're able to really grow until you get to that point of having 20 to 50 grand plus.

Seth: So several questions came up as you were talking here on your comment there. About 20 to 50 grand. So what do you think is like the minimum viable amount now? At what point should you not even be considering getting into land because there’s not enough money.

This has changed over the years, obviously understandable. Things have gotten more competitive. It takes more to get the data and the mail and you send more and depending on what kind of marketing mediums you use and all this. But what do you think the current amount is? Like, “Have at least this much ready to go or don't even try.”

Drew: I think you can start with $0. I want someone to try it. So go on Facebook Marketplace or go on Zillow and make a thousand offers at 50% of whatever they're asking, it's impossible to not get a deal. And I still haven't had someone try it. How long would it take you to make 1,000 offers? Maybe 40 hours of work.

Seth: These would all be like assignment offers.

Drew: Yeah. So you'd need to get it under contract, I guess.

Jaren: Or a partner, a funding partner.

Drew: You would need to have someone holding your hand or you would need to have a contract. You can't just start off knowing nothing.

But once you have it under contract, you can go onto all the Facebook groups, find someone to assign it to or find someone to fund it, and then boom, with almost no money, just a bunch of sweat equity, you have a deal under contract and I still haven't… I've told that probably to five to ten people. Nobody's done it yet. Nobody wants to make a thousand offers.

Jaren: I would answer that question. I completely agree with Drew's assessment there. You can get started with no money. You can get started, partner with somebody. You can use Facebook Marketplace and Zillow or online, different directories to his point, and just sit there and really strategically have a game plan of getting out a thousand offers.

And you're probably going to get a deal. You probably end up getting a deal within your first 250 offers. So within 1,000, you're probably going to get more. But I really think it boils down to the type of land business you're doing.

If we were to talk cheaper deals, because again, our buy box is a minimum of $15,000 acquisition. When I first got started, I would routinely buy stuff for 2,500 to 15 grand, that was kind of my starting point, that is a very different response rate in terms of units of mail you need to send out, I guess deal-to-unit ratio, what have you. And if you're doing red ocean, I guess that's know Travis King is dubbed the red ocean, is kind of the cheaper stuff, that's very different. You could do a blind offer campaign right now, and if you do Mike Ferreira's strategy, you're going to have more deals than you ever want. But he's buying the stuff that's not buildable, that has crazy elevated property, that's landlocked, troublesome stuff that nobody really wants. But he has an ecosystem that he's built out in his business to consistently sell those through his buyer's list.

So if you have a model that is able to get dumpy property and sell them on terms, that's very different, you can do a blind offer direct mail campaign, you're going to have a crazy response rate. It's going to be very different. But if we're talking like our model where we try to buy kind of more, I guess blue ocean, as again, Travis King kind of coined in the space, where we're buying 15,000 up to 500,000 as kind of our go to buy box, it's a different animal. And you're going to have a different conversion rate in terms of your marketing efforts and what have you.

So I think if I were to advise somebody to have a certain dollar amount in terms of getting started, I would probably say a minimum of $10,000. And you probably want to do cheaper deals. You might be starting off with kind of doing one-off direct mail campaigns or different marketing efforts. Get a deal, have that deal sell, and then take that capital and then reinvest it in your business to develop working capital. But I think that's probably the bare minimum that I would suggest people have.

I mean, again, if you got hustle, you can put the pieces together. There are people you can partner with. You can literally go to Facebook Marketplace and sit there and make offers all day if you want to 80-20 it just, whatever they're asking, just have like a templated script that says, “Hey, I'm an investor in the area. Would you take this amount for your property?” And then just cut the list asking price in half. And it's a numbers game. As long as you get that out there, you're going to get a deal at some point.

Seth: Yeah, it's interesting what you're saying, Drew, about the way to do it for no money by just sort of pounding the pavement, digitally speaking, reminds me of the comic I just saw this morning. It was of two different tables with two guys standing behind it.

And above the tables, there were signs above them. And one of the signs says, “Hungry to win.” And there's a huge line of people at that table. The other one says, ‘Hungry to do what winning requires,” and there's nobody lined up at that table. So kind of made me think of that.

Going back to what you were saying, Jaren, about the DataTree issue. So I almost wonder if the data is either right or it's not. So it makes me think, like, is DataTree wrong? I know the filters are different among different data sources. I almost wonder if it's more of a misunderstanding of how to use the filters, or maybe I don't know what the answer is, and I don't know that I wouldn't even know how to begin split testing this in a reliable way among multiple markets, seeing what everybody's doing and how they're filtering it to know for certain what the issue is.

But is there like a secondary or alternative data source that you recommend instead of DataTree? And if so, where are you sending people?

Jaren: Yeah, so my hypothesis—don't hold me to this, because at the end of the day, I don't know. But my hypothesis behind why there's discrepancy in different databases of data collection agencies, let's say, is because certain counties aren't digitized. And certain counties, you, literally, if you want to get an update of property ownership, have to go manually to the county and pull all of that information manually. And whoever, in terms of the data collection agency, goes to that specific county first is going to have the most up-to-date information on those counties.

But it's a grind. I mean, Costar is one of the largest data collection agencies and providers in the commercial real estate space. And they take it to such an extreme that they literally hire a pilot to go back and forth across the United States, taking aerial snapshots of the ground to cross-reference their database, because there are people like me out there who don't pull a permit and notify the county that they put a fence in their backyard. So they take the aerial snapshot and then cross-reference the database in order to get the most accurate information that they can.

Nobody has a monopoly on all the data. We like that, by the way, because the discrepancy in the market is what gives us the ability to buy property at $2,000 and sell it higher. We don't want a centralized system of data information. We like that because that's why we have an opportunity as land investors. But I think that's probably what's going on there.

But to circle back to your question about who I recommend, I really like Supercharged Offers. From an 80-20 standpoint, they are more expensive, but you're buying into an ecosystem, essentially what Supercharged Offers is.

Seth: You're talking about downloading lists from Supercharged Offers and like doing your property research to them?

Jaren: So actually just becoming a full-on client with them. So Supercharged Offers will provide you data, they'll scrub the data, they'll do your branding for your website, they'll set up your letters, they do everything. You pretty much just say, here's my market criteria and list criteria, and then they take it from there.

So from an 80-20 standpoint, I like working with them a lot. At least at the time we're recording this video, this podcast, they have really solid property data information, but they're a little bit limited on the ownership demographic side of things. So if you wanted to target things like senior owners, pre-probate inherited property, there's some limitation there. I do think that they have things (actually, I know that they have some things in the works because I talked to them quite a bit) that will kind of remedy that and give us a lot more options in terms of ownership demographics to target.

But from an 80-20 standpoint, in our model, there's really three core skill sets of a land investor. We're experts at running comps and due diligence; we're experts at talking to motivated sellers on the phone and handling negotiations; and we're experts at finding, managing and vetting land specialized agents. Outside of those three core skill sets, it's noise and a distraction, and as much as possible should be automated or outsourced so that we can focus on what we do best, which is making offers and getting deals done.

So Supercharged Offers, from a system standpoint, is really a solid route to go and I would probably say 95%-plus of our community use them to process all of their mail and marketing, because when you buy into them, you are essentially buying into a fractional acquisition marketing department for your land business. So it's all on the acquisition side. But if you build out over six months with them, they do have some on-demand options where you can come and just do a one-off campaign and stuff. But if you buy into them, they will literally build everything from your website.

They do retargeting ads now they're actually starting to provide cold call leads in addition to direct mail leads. Like, it's pretty cool what they bring to the table. And they actually care about their clients, so they routinely meet with all of the people that they service on a monthly basis, sometimes twice a month basis. How's it going? What are your results like? And if you're not getting results, they work with you to try to figure out how to get things moving. So it's like buying into a fractional team, and that's why I really like that.

That being aside though, I think that the north star of getting deals is targeting pre-probate senior owners and inherited property. Anything that you can do at a principal level to target that demographic over and over again, you're probably going to have the best source of deal. PropStream allows you to easily do that.

Now there's limited data, just like there are with all different data service providers. In certain areas, they might not have any pre-probate leads registered, but in the areas that they do, it's very convenient because you know that you're targeting property that's in the name of the recently deceased, so you can actually go in and specifically target those demographics and really get a competitive advantage.

I really like PropStream from that standpoint. It's pretty clunky, since it's made for house wholesalers and there's some issues from a user interface standpoint, but all in all, those are probably my go-to for data service providers.

But I would say and highlight your recent review on Versium, because I think Versium probably would win the cake. I haven't used it personally, so I can't vouch for that, but it seems to be pretty phenomenal, especially when you couple how cheap it is to get like emails and phone numbers and all that. So if Supercharged Offers didn't exist, I probably would be pointing people in the direction of Versium.

Drew: I want to brag about Alicia a little bit. So her team did ibuyland.org. She completely redesigned that. So if you guys want to check that out, that's a good sample of what her team can do.

Also, as Jaren mentioned, you pay a premium per letter, but you get all kinds of data analytics and you get a consultant. Alicia meets with you personally. Is it every month or every three weeks? It's pretty often.

Jaren: I think with us it's on average like twice a month, but it varies client by client. If somebody's doing low volume, I think it's at least a once a month.

Drew: She helps—she's a consultant—you figure out, okay, if you're not getting the results you want, what are some potential pitfalls? Because she runs her own land business as well, and she knows she can help identify very quickly, along with Jaren as the coach, what is not being executed properly.

Jaren: Exactly.

Seth: Yeah, interesting. So Supercharged is basically just kind of handling the marketing funnel department for your business. Like they just deliver you warm leads and then it's up to you to close on them so they don't have the conversations for you, but they have all the mechanisms in place to do the lists and the mail and the ads and whatever that consists of to get those deals coming or those leads coming your way. Is that accurate?

Jaren: Yeah, I would say for everything outside of SMS marketing management, which Virtual Outsource, a sister company of ours, can fill in the gap there.

Drew: And then if you use Realtors, you're outsourcing the last 50%. So really, you only need to master 10% to 50%.

Jaren: And if you work with the Land Maverick Society, the deal funding aspect is also outsourced with Rooster Capital through you, Drew. We're putting an ecosystem together. We're putting a templated model for people to get started, learn how to run comps, do the business, but then all the pieces are in place to actually scale.

Drew: So if you can comp land and talk with sellers, you can run a land business?

Jaren: Pretty much, yeah. And I can train you how to do that.

Drew: I remember I used to have to chop up Excel spreadsheets and it was very frustrating. Now you can pay a small premium, outsource all of that.

Seth: When you say comp land, does that include due diligence in that? Is that also what you mean?

Jaren: Yeah, so I would say high level, how to use LandID practically in order to run initial basic due dIligence. But then at some stage, after you get a purchase agreement in place, you've had an agent opinion of value in place. You want to call through the county and walk through a series of questions, maybe multiple different county departments. Like if you have to verify, see if there's a perc test on file.

Depending on the circumstances of the deal, you might have to call a couple of different county departments. But yeah, high level. There are checks and balances as things heat up towards the finish line. But yeah, we will walk you through A to Z on all that, man.

Seth: So if you could figure out a way to outsource the comping, due diligence, talking with sellers, I mean, you can basically just do nothing, right? Is that the idea? Is that where this will eventually lead to?

Drew: That's what I've done that with Land of the Free. So if you go to Western Arizona on Landwatch, you'll see my cheesy smile there on slot number three. But that business is 95% outsourced. I pretty much host a weekly call with my team, make sure that they feel valued and taken care of.

I handle any fires, I put out any fires or problems that come up. But the day-to-day is totally outsourced with very competent employees that really love what they do.

Jaren: I would say, from a educator standpoint, you're probably better off for a long while still being involved in your business. I know that to do what Drew has accomplished is very sexy, and he makes it look really easy, but it's hard, and you want to make sure that you have systems in place and really good people on your team before you let go of the reins, especially in the beginning.

I have had people come to me and be like, “I don't want to be hands off from the beginning.” And we've tried to bring on VA Filipino-based lead managers and has not worked very well. You need somebody probably Stateside who at least is a driver, and pay them well and compensate them well, make sure that they're incentivized to do a good job for you and happy to be on the team. But I would very strongly discourage people from being super hands-off, at least for the first long while, maybe six months, a year, year and a half.

Drew: And paying them well is extremely important. My general manager of Land of the Free makes more money now than the job that I left. My salary was less than what she makes now. And so when you pay them well, they feel valued. They'll ride with you to the gates of hell and back and absolutely love every minute of it.

Seth: So, Drew, it sounds like this business that is 95% hands-off, just from what I hear you saying. It sounds like it's a smooth sailing, well-oiled machine that's just kind of churning out deals, and you just kind of check in every once in a while to see how it's going.

What was hard about getting into that point, just going off what Jaren was saying? What were the biggest challenges, and how did you do that? I mean, it's kind of like the Holy Grail that everybody wants.

Drew: So it's not perfect. It's more like a used car with tires that are almost falling off. But it works, right? It's like a ten-year-old Honda Civic that gets you from point A to point B. Our systems are not perfect. A lot of our systems don't talk to each other, and the communication between different databases is done through the employees.

But I think the biggest thing that people struggle with is letting the employee you hired potentially crash the ship. And if you don't let them potentially crash the ship, you're never going to have time to build a new ship, a different ship, right?

So I've built two, maybe three businesses now, depending on how you see it, and I would have never been able to do that if I didn't trust the employees on the first business to manage the day-to-day. They can send money. I still have to approve it, but they buy stuff without me knowing it, I don't even know.

I asked them the other day how many parcels we have. It turns out we have 130, which I didn't even know. And so the potential is that they ruin it. but that's such a small risk, and most problems can be solved with an apology or with money. And so usually, they make it better than what you did. Right? So my employees, they care more about their job, their specific little niche, than what I did when I was doing that job. And so they make it better, they make it more smooth, and they really master their area of expertise versus me. I was so spread thin that I couldn't do it as well as they're currently doing it.

Jaren: I want to chime in there, though, because I have the benefit of knowing you personally, Drew, and you are a really good leader when you want to be. And I think the key to accomplishing what you've accomplished is really strong leadership. People need to be willing to follow you to hell and back, like you brought up earlier. And a lot of business owners, for one reason or another, they don't know how to inspire their team. They don't know how to get the best out of people.

But you do. You can turn it on when you want. So I do want to highlight that from a practical standpoint, you can't just go out and hire any random Joe Schmo off the street and think that it's going to thrive. From day one, Drew has been really good at getting one.

Just kind of blessed to get good people, but then massaging those people into the role that they are into today, being able to kind of run shop for everything. So I do want to emphasize that don't go out and just hire some random person on Fiverr or HireMyMom and think you're going to get what Drew gets, like, the same day.

But if you can develop those leadership skills and encourage and inspire and provide an incredible opportunity. People will die for you. It's true. They will go to the nth degree to serve the leader well if the vision and mission is very clear and you're taking care of them. Like Drew's point, his main person at his red ocean business makes more money today than she ever has.

Drew: She makes more money than the job, the W-2 that I quit.

Jaren: Yeah, exactly. You see, it's important to make sure you provide that for people. I don't want anybody listening to be like, okay, I just got to go hire some random person and then just give them the reins and then see you later. It doesn't work that way. You got to be able to lead them well, massage them into the position, and probably do it in increments where you say, okay, this person, I'm going to give this amount of authority and responsibility and then increase it over time as they continue to perform well.

Drew: And I would say generosity is big part of it. So giving them an uncomfortable amount where you actually wonder, is this too much? Am I paying her too much? And am I too nice? For example, every employee at year one of their first year anniversary, they either get a vacation on the company or they get, like, my second employee, she just hit one year, and they're going to rent out an Airbnb the whole weekend. And her friends are coming and they're going to have a party. And that's all going to be paid for by the company.

Each employee gets, as long as it's legal, gets an AR-15 paid for by the company. Because one of my employees lives off-grid and is actually a security device, they get treated quite well. And the thing is, you need to treat them like family, because really, they're putting food on your plate, not the other way around. Right?

So I would say two things that have helped me was the US army putting me in charge of 45 soldiers at age 22 and then also doing books that most people see as unnecessary, such as “How to Win friends and Influence People.” Just the basics of learning how to take care of people. I think those books are often overlooked. Everyone wants to jump to the strategy. What's the secret sauce? And in reality, the secret sauce is being a good human being and taking care of people.

Seth: You mentioned earlier, Drew, that your business is running like an old used car where the wheels are falling out off like a ten-year-old Honda Civic type thing. So why is it running like that? What should you be improving that you haven't? And why haven't you made those improvements so that it's not running like a brand new Mercedes? Just out of curiosity.

Drew: Because I've put forth C-level effort and I'm getting B results and I'm happy with that. So it's a sweet spot right now, even the general manager, she'll agree with me that there's so many imperfections in our system, but it works. And it's the type of thing where, what takes more effort, to improve it or just to keep it how it is?

Seth: So I just wonder, could you actually make more money or would there be an impact to revenue if you made those improvements? Or is that why you're not making them because the improvements wouldn't result in making more money?

Drew: So there's a million improvements we could make. The question is, do I want to work more than 5 hours a week? So a great example is: we currently have (and I'm not going to name the name) a loan service provider that we are not happy with. But the question is, do we continue living with the quirks of this software program or do we switch all of our 60, 70, 80 notes?

I don't even know how many notes we have, but let's say if we have 70, 80 notes, is it less work to deal with the frustrations of this current provider we're using, or is it less work to switch them over to a better provider, but have maybe 20 to 40 hours of work on the front end? So there's all kinds of little decisions we could make, When we post land for sale, all we do is put it on land.

Seth: So along those same lines, Drew, I know you've got this funding operation with Rooster Capital, so you've got that, you've also got your own land business. How do you decide and prioritize, “I'm going to put my capital to this business instead of this one”?

It seems like, not necessarily conflict, but sort of, because if you put it towards one, you're not enriching the other one. So how do you make that call on which one you're going to prioritize?

Drew: I just do a lot of praying. It'll be very common where it'll be a Saturday I'll have twelve grand in the account, and by Tuesday I need 200 grand. And I don't know how it works, but it always ends up working out where everything that gets funded needs to be funded. So far, fingers crossed, we have not dropped the ball yet on not funding a deal.

So I don't have a good answer to that. I just know it always works out, and it's been going very well so far with both companies.

Seth: And then back to the leadership question. So why do you think you're a strong leader? And when you talk about paying people more in this kind of stuff, how do you decide what's enough? How do you justify, “I'm paying you this dollar amount because of this, like this is a data-backed number.” Or is it more just like. “Well, it's more than I made at my previous job, so it must be pretty good. Here you go.”

How do you nail down, like, okay, this is a generous amount, and it makes sense because of this, and therefore, you are happy and you want to keep working for me. What are you doing to make people go to the front lines for you?

Drew: Yeah, I don't think I'm a very strong leader in terms of convincing human beings to take the hill and attack the machine gun nest and risk their lives. I think I'm an okay leader in that category.

Where I think I am good at is I truly care about people. So, if you're listening to this and you have a team, have you visited each one of your employees? Because Jaren and I went to the Philippines and visited his team. I've met each one of my employees multiple times. I just hired an executive assistant. She lives in Houston, and I'm seeing her next month. So do you care enough to go actually see them? And then also, are you casting a vision that people can buy into?

So, we run for-profit companies where we're trying to put food on the table for our families. What is the vision? Is the vision just to make money, or is it to make everyone we interact with, to make their day 1% better? Because I tell my people, even if we don't do a deal with a seller or a buyer, we want to make sure their day is better, and we want to sow goodness into their life. That's a vision people can get behind.

And then the second question. So, Land of the Free has three positions. One is to buy, one is to sell, and one is an admin support position. Two out of those three are commission only. So they only get paid when they perform. And so those variable costs really help the cash flow, where your overhead is actually quite low because they only get paid when the company gets paid, essentially.

Seth: What are those positions? Is it like a sales position or acquisitions role? And then what is their commission like? What do they make?

Drew: Yeah. So, the first position is an intake manager. She takes the football from the zero yard line to the 50. So she does the mail campaigns, she answers all the phone calls. She buys all of our properties. We're still doing self-closings in Land of the Free. And once the ball gets to the 50-yard line, we own the property. Then the sales manager takes over, takes the ball from the 50 to the end zone, and she lists it. She answers buyer leads, she sells it, she gets it under contract, and we transfer title. We have an administrative support position.

So those first two positions are all about making money for the company. So, buying and selling properties, anything that doesn't fall into those two buckets, the admin support does those tasks. So, downloading photos, uploading photos, ordering photos, anything to do with that.

The intake manager is 125 flat fee when she buys if it retails under ten grand, $250 flat fee if it retails over ten grand. And then when it sells, she gets 4% of gross profit if it sells cash. If it sells on term, she gets 2% of gross profit. So, when I used to have that position, I would take one to six hours per acquisition on average. So that position makes anywhere from 30 to 200 an hour if they're as efficient as me.

The second position, which is the sales manager, she's also currently my general manager, that is 10% of gross. If she sells a $15,000 property, she makes $1,500. She sells it terms, it's 5% of gross. So if on terms, she sells it for 18 grand, she would make $900. And then the admin support position is $15 an hour.

Seth: This is kind of going a slightly different direction, but it's in reference to what we were talking about earlier in this conversation about Jaren, how you're using Supercharged Offers to pull the list and basically do all the marketing for you.

And I'm wondering… I mean, it sounds like it's working, which is awesome, and that's probably the most important thing. But when I think of outsourcing the list pulling function to somebody else, that's a lot of trust I'm putting in that person to understand what I even want and where to do this. And I'm curious, how much guidance do you have to give them? And then how much do you even have to pay attention to what they're doing?

Are you even kind of aware of what's happening, or is it just a matter of, like, “Well, leads are coming in, so it's working, and I'm outsourcing this anyway. I don't have time to hassle myself with that end of the business because I'm paying them to do it.” So do you even have to pay that much attention, what's going on? Or do you have to police them to make sure that they're doing what you want them to do?

I say this from the standpoint of somebody who has a hard time letting go and just trusting people to do the right thing. So how do you handle that?

Jaren: I think a lot of it boils down to who Supercharged Offers is as a company and the integrity that they have. I wouldn't just go in the direction of anybody, but because I have tested the waters with them, not only in our company, but also in kind of overseeing the evolution of a lot of other land investors getting started in the space. They are very detail-oriented, almost to a fault.

For a long time, even back in the day when I worked here at REtipster with you, Seth, I remember you interviewing them, and in my head, I was just like, oh, they're an expensive direct mail company. And that was how I checked them off in my head, because on their website and a lot of their branding, they're almost overly detailed on all the things that they can do.

So why I say that, why I highlight that, is whenever they provide you the direct mail list before mailing out for approval, they have something like nine different tabs on the bottom that walk you through systematically all the different checks that they have done with the data. They also send it to you for a review. And I have people who I've worked with who are much more detail-oriented, who have, on the rare occasion, caught a couple of things that maybe were some mistakes or some, I guess, missing criteria, stuff like, for example, using assessed value as opposed to market total value in their assessment of kind of trying to project certain dollar market value on the property that they're targeting.

But at the end of the day, when you're a business owner, you got to kind of weigh the 80-20 of it all. And instead of being so bogged down on data and focusing on, are they doing it right to the nth degree, just getting to good enough and then having somebody who's like…

I wouldn't even say good enough, I think they're exceptional at what they do. Everybody makes mistakes. Nobody's perfect. Direct mail is still direct mail. The nature of the beast is sometimes you do everything perfect and you don't get any leads. So that does happen. But all in all, they are very detail-oriented, and they actually set a specific number on the letter that tracks all of the calls. So they know at their level they will forward it to whatever number you want to use, Open Phone, Pebble, whatever, but they actually track every single call that comes in.

They also have a number of other checks and balances in place, like they use inform delivery. They have a system where they can track all the way to the point where the mailman takes it from the post office and is in route to deliver. They can't track if the mailman chucks it out the door or not, but they can get all the way to that point. So when they say deliverability rate within their dashboard, it's as accurate as you can possibly get. So there's a lot of things that they have in place to actually ensure the quality, and it's pretty phenomenal in that regard.

So, no, if you are more detail-oriented, you want to make sure that you want to have all your I's dotted and T's crossed. They are available for feedback, for pushback, for dialogue, brainstorming, which is phenomenal. I don't know any other data service-ish provider, I guess technically I think they white label with somebody that they pull that they keep close to their chest.

Seth: DataTree? I'm just kidding.

Jaren: No, definitely not DataTree. But they really do a lot to ensure quality and they're very detail-oriented and they're an open book too. I don't know any, I guess, direct mail processor that will use that as a term that would do this level of care and detail for their clients.

Seth: So how much time do you spend scrutinizing what they do? Is it like after every campaign you're like, okay, let me review where you get how you filter the list and what you said in the mailer. So I provide the criteria that they target and I work with the Land Maverick members to figure that out. So we'll do market research together. We have kind of a standardized criteria that we target and we customize member by member based on what their goals are and so on.

But at this stage, because I've been working with them for, I don't know, a year and a half or something, and I've repeatedly seen dozens of other clients and I've done the in-depth checks and what have you, I kind of just trust their system. I tell obviously the Land Maverick member to make sure that, to cross-reference stuff, walk through things with the staff there. But at this stage, I kind of just trust them to do their thing because they haven't disappointed people. Send enough amount of mail, and that's a big key. Gone are the days of sending out 2,000 units of mail and getting a deal. I think you at bare minimum need to be no less than 3,000, 3,500. But as long as you send out ample mail size within one to three campaigns, you're off to the races.

And sometimes things you do on the front end. Maybe your letter is off or maybe you use a weird logo or maybe you would be better off not using a picture as opposed to including a picture on your direct mail letter. There are some things when you're first getting started to kind of tweak and refine, but that's more on like a coaching land operator side as opposed to Supercharged Offers.

Seth: I can say that actually I noticed this with REI PrintMail when I was talking to them a few episodes back. There's a huge benefit to taking this portion of your business, whether it's just direct mail or like all of it, like every possible acquisition funnel and just being like, if something's not working, just say, look, this isn't working, figure it out. Why is this not working? Give me suggestions or what can I do to make the warm leads come in as opposed to just being completely on your own, when you're kind of just like guessing around and poking around in the dark, you don't really know what's not working.

But with something like Supercharged Offers is where they're doing this for, I would presume many different land investors. And they kind of have their hand on the pulse of like, we know that this is working and we can track these results over here. You know, you've made it big as a boss when you can just yell at somebody, “Figure it out!” and hang it up. So if you're able to just say that to Supercharged Offers, it's kind of a nice luxury to have.

I don't know if that's exactly how it works, but is that how it works? Like, if things aren't working, can you kind of just throw it in their lap and tell them to figure it out? Or what of that process is on you to figure it out versus they will step in and figure it out for you?

Jaren: So I think it's not as extreme as you just figured out, but it's more know or if they're in one of their review calls and Alicia is running in and says, hey, your conversion rate's a lot lower than what's average or what we should expect. I think we need to kind of go back to the drawing board and assess a couple of things. And then they'll give different template options for different mail pieces. They'll think through. Maybe we readjust the logo or maybe we use a local number.

But where I think I step in as kind of a coach and lead educator at Land Maverick Society, that's where you can kind of get to that point of like boss level. Just go figure it out. Between me and Supercharged Offers, we kind of get you going.

Drew: Jaren, are most of your students, they're receiving the calls and they don't use PAT Live or an answering service. Most of your students are receiving seller leads themselves?

Jaren: Yeah. So I recommend people, especially in the beginning, to have everything go to a pre-recorded voicemail. This is how I learned the land business from the REtipster Masterclass. And I think from a workflow standpoint, it's best to have everything go to a voicemail and then try to call back people with an offer in hand. Especially when I'm training people and I have to meet with people to run Land ID and run comps before generating the offer amount, it's a lot easier to manage that way.

Now there are people who kind of, I guess, quote-unquote, graduate or evolve in their land business that will handle the calls, take some calls live. I do think that with texting you kind of have to like you're generating leads and you have to have that kind of initial filtering between the noise and actual qualified leads.

But on the fence about PAT Live, I think PAT Live can work very well, but you have to do a lot of massaging. You have to be very intentional to review the calls of the call reps and to give a lot of feedback. And I have seen people come to me and be like, “Jaren, I don't know what's going on. Six months ago, all my leads dried up.” And I was like, “Oh, really? When did you start using PAT Live?” And they’re like, “Oh, six months.”

Again, I'm not saying anything negative on PAT Live.

Seth: Kind of sounds like you are.

Jaren: No, I mean, because there are people who get it to work, but the key is you can't be lazy about it.

To your point about how detailed do you need to be with a third-party person? In regards to the conversation we had earlier on Supercharged Offers, it's very important to make sure that if you use PAT Live, that you are all hands on deck in the beginning and that you're auditing calls and providing feedback and ensuring the lead quality or the process quality, I guess you could say.

Drew: And then getting back to that very quickly is extremely important. So in my business, I instruct my team, you need to get back with seller leads within 24 hours, ideally within a few hours. And with buyer leads, we need to answer within 10 minutes or we need to respond within 10 minutes.

And then I was in Travis King, I'm in one of his group coachings right now because I just love, never stop learning. I've spent close to 100 grand on education and it's never going to stop. So I was in one of his meetings yesterday and he was saying, if you don't feel like you are great at converting seller leads, the way you can make up for it is just by being more consistent than your competition, by following up more, being more prompt. Because a lot of the competition, you can test them out. So message your competition, pretend like you're a buyer or seller lead and see how long it takes them to get back with you. Usually it's multiple days in a row.

Seth: Well, I was just going to say, for anybody who listens to these podcasts consistently, you're probably noticing. What I've also noticed is that this follow-up issue comes up again and again and again.

Everybody who's making this work consistently says that how important follow-up is. That's kind of what wins this game. I've even heard, I think we were talking with Ajay mentioned this in the last episode about how if they look at the number of contracts that they send out and only half of those are getting accepted or actually closed, there's some kind of an issue with follow-up. Like you can spend nothing more on marketing and just improve your follow-up process and double your business, potentially.

And a lot of people, I get offers all the time from people, and when I try to follow up with them, they don't answer the phone, they don't call me back, they don't respond to emails and do anything. It's like people have this idea that if I just push these buttons on the computer, money will start flowing in my bank account. But it's like you're flushing money down the drain, like you're starting a process and not closing the loop. It's like, why would you do that? That's crazy. But a lot of people just unconsciously apparently think that.

Drew: So we all have that skill inside of us. So think back to your childhood before texting was a thing. How did you get to play with your friend? You had to pester them. You had to call them five to ten times and figure out when they were getting home from soccer practice. So what I would do is I would call my friend every 15 minutes and just wait till they got home. Right? And it drove the grandma nuts because the grandma had to deal with seven-year-old Drew calling all the time.

Think of it like that. We all have that skill set inside of us to follow up almost to the extent where we're annoying the seller lead. But we've all done it in the past and we can do it again.

Jaren: I want to say how important that is. I want to very strongly emphasize what Drew just said because I run into a lot of different personality types. And the people that are afraid of bothering people, whether me as a coach or seller leads or even canvassing for land specialized agents, they struggle. You got to get rid of that. You're in a sales-oriented business. Even though it's weird because we're buying property, it's still sales. And I promise you, you got to throw that out the window. If you're bothering somebody, they're going to tell you to go kick dirt and then you can not con them anymore. But until they say that, be very aggressive.

And I do want to say there is a line there because you don't want to be, like, calling every 15 minutes like seven-year-old Drew. But twice a day follow up, three times a day follow up. Ajay Sharma's famous double dial, where you call him and then what goes to voicemail, hang up, call him again. All those things are really important for you to be successful.

And I do want to circle back a little bit to the PAT Live conversation. I think a lot of why PAT Live may struggle or why there may be an issue there is because people are responding to a letter and they're expecting you to be familiar with the property already and to have an offer in hand. And when you call into a call center and they're gathering property details, that really kind of jars the seller lead.

And I just want to say, principal level, you're going to be far better off having an offer in hand as much as you can before reaching out to the seller leads because that's going to streamline things. I would not really approach the initial call for gathering data. You can get that data on different software websites and different platforms. You want to call the seller to build rapport, number one, and then to talk about your offer amount. And I really strongly encourage people to frame the conversation around the offer.

Seth: You guys know Joe Roberts from Landcaller.com?

Jaren: No.

Seth: Yeah, I interviewed him a few episodes ago. He really gave me a very good, clear understanding on how they do cold calling.

Anyway, it's basically a cold calling call center, but the process they follow. It's episode 168, if anybody wants to listen to that. So basically it's a three phone call process. And the first phone call is coming from that call center because that's the lowest value task because you're going to call lots of people. Some people won't answer, some people won't be a warm lead. But basically that first call is to establish is this a motivated seller or not.

The second call, that's then where you jump in as a land investor, and that's where you're building rapport and you're figuring out specifics of the property, getting any questions answered. But that offer is not made on that second call.

You then come back on a third call, and that's when you make the offer after you've built rapport, after you kind of know the person and the situation, and it's kind of been through a lot of this filtering screening process already, and you're much more likely to get a positive response. And even if the answer is no, it's not like a “I hate you” kind of answer. It's not like what you'd get with direct mail because you sort of know each other already and you're humanized very much more.

And going through this three call process is something that pretty much no other land investor out there is doing right now. It's very unusual for somebody to go through all those stages, but apparently it's working really well for the people that are doing that. And it makes wonder you generous saying, like, with that first call back, like have an offer ready. Do you think it would help to, I don't know, build rapport first and then have a third call or any thoughts on that?

Jaren: I don't think it would be beneficial. Obviously, it's working for them and I'm not questioning their success or any of that, but I probably would shy away from that depending on how quickly those three different calls are taking place. Because while they're building rapport, I would come in with a strong offer day one, and we're talking numbers again. You have to be good at the phone. That's one of our core skill sets as a land investor and good at building rapport and what have you.

But if I come in and I'm just as nice or equally as nice and I have an offer ready, they're going to proceed faster with me than with that other person. Of course, if they have stronger rapport with me, it's a competition. I get all that. But Ajay actually had an epiphany in his land business talking to my wife, Asia. He was taking too long to get offers out, and after he heard that my wife can comp and get back with an offer within about 15 minutes of analysis, it was a complete pivot in his business. You can talk to him about it.

But we were actually, I think, indoor county at our famous retreat between Ajay, Peter Nukasani, and Drew and me. And that was a big shift. And I think that from a KPI standpoint, you really should double down on offers made and really focus on getting more and more offers out. Statistically, the more offers you make, the more deals you're going to have. And maybe that's an oversimplification, because you have to factor in variables like making sure that they're accurate and so on and so forth.

But Ajay even has kind of highlighted past mastermind groups and things we've been a part of. He has this system in place where he offers his VAs, get to, like, 70% accuracy, and then goes 20% down, and then 20% above cuts it in half, 50% on the dollar, and then that's the offer range. And on the rare occasion, they have to go back and renegotiate.

But having a simplified system that allows, whether they're Filipino-based VAs or other people on the team, to get more and more offers out. So over the long run, even if on the rare occasion they have to go back and renegotiate or lose the deal because they offer too much, it still gets them getting more offers out.

So I would personally beg to differ, respectfully, to that guy.

But, I mean, it depends on how many. If it's day-to-day, if it's lead comes in and then you're calling, like, three days in a row, sure, it probably could work, and it probably would be good. And he has the results for us. I could be very wrong.

Seth: Do you guys do cold calling at all?

Drew: I do want to clarify real quick the equation, because you went through that real quick. So let's say Ajay's team, they're 70% sure the parcel is worth 100 grand, then they go 20% below that (correct me if I'm wrong, Jaren), they go 20% below that. So 80, then they offer half of 80. And that, statistically, they found, is a sweet spot for getting enough accepted contracts and also being safe enough.

Jaren: I could misunderstand, but I think they also do the high range, too. So they would bump up between 80 and 120. Ajay, I wish you were here to clarify this.

Seth: Yeah, man.

Jaren: And then cut that in half. So it would be 40 to 60 would be your offer range.

Drew: Oh, I see. Okay, that makes more sense.

I do want to brag about Jaren for a bit. He's one of the few people I've met in this business that truly cares about every single person he interacts with. And so there'll be plenty of days where I know he's extremely busy, but he knows that I'm stressed out or bothered about something in my personal life or even professionally, and he will take the time to help me work through it, and he does that for his students as well.

So thank you, Jaren, for who you are as a person, and I'm excited to hang out with you.

Jaren: Thank you, Drew. I really appreciate the kind words, and I really love working with you. You know, I think that you are an incredible human being. You're one of the really leading with generosity, really caring about. Know the feeling is very mutual.

But I really want to highlight Seth before we jump off since we're loving each other right now.

Seth, I owe you. So Land Maverick. Society wouldn't exist without you, who I am today. I look in the past of my life, and you're one of the key people that really mentored me and smooth out the wrinkles, as they say. And I think the entire land investing community is better because you and REtipster are here. And honestly, none of this be here without you.

And, you know, I kind of feel weird talking about all this stuff on the REtipster podcast, because in a lot of ways, I feel like it's a baby of the REtipster Community. So just really appreciate you.

Drew: I'll never forget when you spent time hung out with me in my car when we were waiting for that river cruise to start. It was like having a celebrity in my car for a whole hour and we got to hang out.

Seth: That was fun, man.

Drew: And, Seth, you're always willing to spend that extra moment with someone when you know it will really impact them. So thank you for that.

Seth: Yeah, I appreciate both you guys, and thanks for highlighting the good things about each other as well. It's good to just hear the mutual love and appreciation. And I can echo the same thing as Jaren.

I know in our time together, I mean, you're absolutely a very caring person, and I've seen you show that love to me and a lot of other people. It's unusual, but it's a good kind of unusual, for sure.

And Drew, we've interacted not as much as me and Jaren have, but in our interactions, I've seen you to be a great leader in the cohort that we were in. You had a lot of great things to say, and I almost felt like you were a better leader of the room than I was. You just kind of knew how to control the tempo of the conversation and when to interject and when to comment and when to let people talk. And I don't know if that's something you were just born with or if it came from the army or what, but you could probably write some kind of leadership book at some point if you wanted to. That'd be interesting to see. If you ever do that.

Jaren: You're the best at navigating human psychology compared to anybody else that I've ever met. You are the absolute GOAT. You're great at that leadership influence. You're fantastic.

Seth: Thank you, gentlemen. Awesome.

Well, again, if people want to check out Jaren and Drew, are there specific websites or something they should go to or what's the best way to learn more about what you guys are doing?

Jaren: LandMavericks.com for me, Drew, what about you?

Drew: Just find me on Facebook. Andrew Haney, send me a message. Love to talk with you.

Seth: Do you find that people search more for Drew Haney or Andrew Haney?

Drew: I need to figure that out because I'm usually called both names and I need to brand myself as one. I think Drew Haney sounds better, but Andrew Haney is my legal name. And so we'll see.

Maybe by the time this airs, I'll be Drew Haney on Facebook. Maybe find me as Drew Haney.

Seth: Cool. Well, thanks again. Appreciate great to hear your insights and the updates on what's going on in your business.

And again, I'll have links to a lot of the stuff we talked about. Supercharged Offers, PropStream, DataTree, all these different things in the show notes. The REtipster Podcast 171.

Thanks, everybody. I'll talk to you next time.