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Scott’s Strategy
Although Scott started flipping land before Mark Podolsky released his Land Investing Toolkit course, and for that matter before RETipster’s land investing course, Scott didn’t have to go it alone. He asked if Mark could mentor him and teach him a profitable land investing strategy.
“I typically look for rural land, my customers like the land out west. I think a lot of people have fantasies about heading west; the West has always been an adventure for Americans and I help people realize their dreams.”
Scott has followed the same model with subsequent purchases. “I buy land for 20 to 30 cents on the dollar from tax delinquent owners and then sell it on lease-options for the full retail price and take in the monthly payment each month.”
In other words, owner financing. Except without the expensive foreclosure if the buyer-borrower defaults (more on that shortly).
Land Investing Expenses
The other way that Scott finds deals is by direct-mailing off-market sellers, finding through tools like Propstream (if you’re interested, see our full Propstream review here). Of course, neither direct mail campaigns nor dealfinding software tools like Propstream are free, which raises the question of expenses.
When I asked Scott about his expenses, he shrugged. “That’s the great thing about this business, you really don’t have a lot of expenses. I’m not making any improvements to the land, we are simply finding good deals, paying the back taxes and reselling with owner financing or lease-option agreements.
“What I do incur are mailing expenses associated with finding properties. My business model has me looking for off-market deals and honestly, Realtors don’t want to be involved in real estate transactions where the purchase price is a few thousand dollars.”
Risks
Perhaps the most elegant element of Scott’s business model is that he’s protected against defaults.
My experiences as a landlord have all been on the residential side. Defaults and evictions are extremely expensive for landlords — they are a real risk.
But land? Scott suffers no real risk when his renter-buyers default, because the process to reclaim possession of undeveloped land is quick and cheap.
“Because I’m selling through a lease-purchase agreement, not every buyer will complete the purchase. If that happens, I can then simply lease the land to someone else, so it creates a perpetual money machine.”
Even better, he has no maintenance costs or headaches. No tenants calling him at 2:00 AM complaining about a leaky roof or running toilet. All in all, it’s a relatively passive real estate investment.
Scott put it succinctly: “No toilets and no termites.”
Scaling, Financing
His model has worked, too.
“Over the next seventeen months and three days, I purchased over 100 properties, sold some of the properties for cash, which allowed me to generate new capital to acquire more land.”
Which raises an important question – does he finance any of his purchases with investment property loans?
“Banks won’t finance these properties because of the low purchase price. I pay cash for all my properties. I have purchased a third of an acre in Florida for $100 and I’ve also purchased 160 acres for $16,000.”
Because his returns are so high, and his model includes both selling and leasing, he generates both cash flow and the occasional capital gains from a land sale.
And, of course, the low purchase prices mean he doesn’t need much cash to do a deal. Instead of worrying about the minimum down payment on a $300,000 investment property, he just invests a few hundred or a few thousand in parcels of land.
What’s Gone Wrong
I pressed Scott; surely something has gone wrong, in the 100+ properties he’s bought?
“I purchased a property that turned out to be a swamp. I was surprised to learn that the land was underwater, and it really freaked me out; it was my fourth property.
“I was still able to sell the property quickly, doubling my money, to a guy that was looking for a place to ride his ATVs. As my land investing friends say, ‘There is a pig for every barn.’”
Seriously? No big mistakes? Nothing has gone wrong?
“The biggest mistake I made was that I messed up on the taxes once and missed the fact that a seller had more property taxes due on the property. I missed the total amount and ended up overpaying for the property. We purchased the property for $700, the seller had $2,000 in delinquent taxes. We sold that property for $3,000 cash, so I still made a very small profit.
“This really is a very forgiving business.”
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