While many investors are comfortable coming up with a price they’d be willing to pay for a house, they aren’t quite as familiar with purchasing raw land. Mark Podolsky, the Land Geek, shares how he prices his offers for a piece of raw land.
Mark goes over how he calculates and presents an offer so that his ROI is massive.
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 from The Land Geek with the landgeek.com. I’m so happy to be again another host to the REI Classroom. And today, I want to talk about how we send out our actual offers.
Mike: This show was sponsored by passiverental.com.
Mark: In the typical housing model, you either send postcards, or send out letters saying, “Hey, I’m interested in buying your home.” In raw land, we’re all about efficiency and automation, and our effective hourly rate. How do we get our effective hourly rate so high? It’s because we don’t send out these general offers. I don’t want to be in the appraisal business because what’s going to happen is, they’re going to get my letter, and a percentage of those people are going to say, “Well, I’m interested in selling my raw land. How much are you going to pay me?”
And now I’ve got to go back, and I’ve got to do due diligence. I’ve got to look at the comps, I’ve got to negotiate. And a percentage of those people are like, “Well no, that’s not okay. That’s too low.” Or maybe I’m too high. And because I’m spending so much time on the phone, I almost feel this internal pressure to have to buy that land, because I’ve just spent this time, I’ve already invested so much time just like they do at the car dealership. They try to get you to spend more time on the lot because then you’ll feel like, “Oh my gosh, we’ve just wasted all this time, I’m not going to another dealership. I’ll buy there because I’m going to have to go through this whole thing again.” We avoid that completely.
The way that we do this, is we take a look, and we do county research. And we take a look at the comps, and we’ll throw out the anomalies, because we’re in such an inefficient market with raw land, so we’ll take out the highest, we’ll take out the lowest, we might get a median price. And because I want to make 300% to 1000% on my raw land deals, what do I do? I divide by four. If I see the median price selling is, let’s say $10,000, I’ll divide by four. And the most I can pay for that property then is $2,500.
Then we take a look at our list, and we batch it by say, assessor’s parcel number, or legal description, and we send out to this one area ten $2,500 offers. And that way we’re maximizing our mailing, and we’re getting the people who really want to sell. We’re not going to be in the appraisal business. And then they come back to us, they take our offer letter, and they say, “Yeah, I will sell for $2,500.”
We then go through the due diligence, we close the deal, and we have this huge margin of safety, because if I want to flip it for cash, I’m going to make 300%, at least $10,000. But if I want to sell it the way I really love to sell it, which is owner-financing, then I could probably sell it, because of time-valued money for 25,000, and make my 1000%.
I hope that all makes sense. If you want to learn more, go to thelandgeek.com. And we have a whole array of information that can walk you through this program step-by-step. Anyway, thanks again, and I hope to see you on the other side.
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