As with all deals in real estate investing, due diligence in critical. Mark Podolsky goes over the different steps you need to take to make sure the deal you’re looking at is worth it.
With land, you need to always verify who owns the land. There’s also other areas to double check before agreeing to a deal that Mark explains for us.
Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Mark: Hey, it’s Mark Podolsky, The Land Geek with thelandgeek.com, and I’m so happy to be back as a host of the REI Classroom. I want to talk about analyzing a raw land deal.
Mike: This show is sponsored by passiverental.com.
Mark: What are some of the aspects that we want to look at when we’re analyzing a raw land deal? Because the due diligence is so critical, it’s so important. And just to recap, we don’t want to be in the appraisal business. And I talked about this in a couple other classroom shows, is number one, we want to price the property correctly. And the way that we do that, is we have this huge margin of safety because we want our margins to be 300% to 1,000%, and at the lowest, 300%.
So what do we do? We look at the comps, we divide by four, we send out our offers. Whom are we sending these offers to? We want the lowest hanging fruit, we want people that owe back taxes and live out of state. Three to 5% of those people are going to accept our offer. And now if we’ve done things correctly, we have more deals than we can handle. More deals than we can handle, but now we need to know, are we going to close on this deal?
So number one, we want to analyze the deal. First thing we want to do is to make sure they actually still own that property. And the way we can do that is contacting the county recorder and seeing the last recorded deed on file. So if John Jones says he got our offer letter and says that he owns that property, then we want to see the last deed with John Jones’s name on it.
So now we have determined that yes, John Jones owns the property. Well we also need to contact the treasurer and find out how much in back taxes does John Jones owe because maybe we offered $2,500, but he owes $2,500 in back taxes. And the back taxes are killing our margin because he probably won’t just give us the property. Maybe he would, but sometimes he won’t. So we’re going to analyze that.
So we want to look at the ownership, we want to look at back taxes. We also want to make sure there are no liens or encumbrances on the property. There’s been no break in title. There are no liens, there are no IRS liens, there are no mechanic liens. So they had some work done on their house, they didn’t pay the contractor, the contractor looked at their assets and said, “Hey, you know what? I’m going to put a lien on this piece of land.”
So then we’re going to look at . . . make sure that there’s no [inaudible 0002:50] entitled, no liens, no encumbrances, and make sure that it’s all very safe and clear.
Then we want to look at the compelling attributes of the property. Is there ingress and egress? Do we have legal access to get to that property? What are the neighbors like? Hopefully they’re not putting dilapidated cars on their pieces of land and destroying the neighborhood values. We can also look at the compelling attributes. Are there mountains, are they near a lake, are they near hunting, fishing, recreational amenities?
So there’s typically a pig for every barn for a piece of property. There’s always the highest and best use. Even swamp land, even swamp land has a highest and best used, you can grow shiitake mushrooms on there.
So there’s no such thing as land that has absolutely no value, as long as you can find it and as long as there’s legal access to it. There isn’t legal access, we got a problem.
We also want to know, what’s the water depth? Can we get water? There’s not water, can we build on that property? No. Well, maybe we can, we have to get a storage tank. But we need to know these things for our potential buyer.
So it’s really, really smart to have a checklist. One of my favorite books is “The Checklist Manifesto.” And make it dummy-proof. And so we can just check off, one, one, one, one, one, in our due diligence, and know when we’re analyzing that deal, we can go ahead and safely close on that property.
So with raw land, it can get a little tricky, maybe a little . . . even a little trickier than houses, but once you’ve kind of done it . . . once you’ve done it a few times, you’re really going to understand that this is the best model there is because you can buy a piece of raw land, and you can sell one time, create a note and now you’ve got a passive income stream with no renters, no rehabs, no renovations, no rodents. You get that one-time sale recurring income in a non-competitive niche because you don’t go on a HGTV and see, Flip This Land. If you go to an REI meeting, hundreds of people will be flipping houses and only one would be you, the raw land person.
So learn more, go to thelandgeek.com, we’re going to show you this program step by step. And thanks again. I hope to see you on the other side.
Mike: Passiverental.com is your source for turnkey, done for you, rental properties. If you’d like to be an investor and not a landlord, please visit passiverental.com to learn how to purchase cash flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting passiverental.com.
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