Our Gracious Sponsor:
Are you tired of answering emails from investors about when they’ll receive their K-1s?
Let The Real Estate CPA handle the accounting and taxes on your next syndication and they’ll file your tax returns by March 15th so you can get K-1s to your investors by the individual filing deadline on April 15th.
Not only will this reduce headaches, but it will help you retain investors over the long-term by improving investor experience.
The Real Estate CPA is now offering a Special Virtual Workshop to the listeners of The Real Estate Syndication Show on How to Answer Tax Related Questions from Your Investors!
Learn more today by visiting: http://bit.ly/Real_Estate_CPA
Watch the episode here:
Creating Passive Income Through Land Investment Model with Mark Podolsky
One of the popular strategies these days to create passive income in real estate is through land investment. Here’s everything you need to know about how to make passive income from land.
Our guest is Mark Podolsky. Thanks for being on the show, Mark.
Whitney, thanks so much for having me. I appreciate it.
It’s a pleasure to have you. Mark is the author of Dirt Rich, the ultimate guide to helping you build a passive income from land, the Owner of Frontier Properties, a very reputable and successful land investing company. He has been buying and selling land full-time since 2001. He has completed over 5,000 land deals with an average ROI of over 300% on cash flips, over 1,000% on deals he sells with financing terms. He is dedicated to teaching the most current and relevant real-world land investing methods to his students by coaching and mentoring to help them achieve their financial goals. Mark, it’s a pleasure to have you on the show. Give the audience a little more about who you are and what your focus is right now.
I’m a professional investor. I make the argument that I have the best passive income model. Essentially, it’s a onetime sale. I get passive income every single month but I don’t have to deal with any renters, rehabs, renovations or rodents. Because I’m not dealing with a tenant, I’m exempt from Dodd-Frank, RESPA or the SAFE Act. The game that we like to play is can we create enough of these land notes where our passive income exceeds their fixed expenses? We were working because we want to, not because we have to, which leads you to do bigger syndication type deals. My model is a great gateway drug into doing larger transactions.
I’d like to jump into your model and the specifics of it a little bit so the audience can better understand exactly what you do. We’ll jump into a few other details, how it relates to syndication and moving from there to syndication.
[bctt tweet=”You can always make more money but you can’t get more time. Anything that’s going to save your time, invest in it.” via=”no”]
Let’s do the Whitney Sewell case study. Where do you live?
Let’s pretend that you own ten acres of raw land in a county in Texas. Something has happened, you haven’t gone and seen that property in ten years. You’re tired of paying the property taxes on it. I get the county list from that county and I see, “There’s Whitney Sewell. He lives in Roanoke, Virginia. He owes $200 in back taxes on this ten-acre parcel in Texas.” Whitney, you are advertising two things for me. Number one, you have no emotional investment in that raw land. You live in Virginia. The property is in Texas. Number two, you’re distressed in some way because when you don’t value something, you don’t pay for it. You haven’t paid your property taxes. As a result, the county treasurer is sending you every single month notice of property taxes owed, interest and penalties. Finally, they’re saying, “If you don’t pay your property taxes, you’re going to lose that property to a tax deed or tax lien investor.” What I’ll do is I’ll look at the comparable sales on that ten-acre parcel. Let’s say that’s $10,000. All I’m going to do then is divide by four. That’s going to get me what Warren Buffett would call a 300% margin of safety. I’m going to send you an actual offer of $2,500 for your ten-acre parcel. You think, “$2,500 is better than nothing.” You accept it.
In reality, 3% to 5% of people accept my “top dollar offer.” For every 100 offers, I get three to five deals. You accept it. I go through due diligence. I want to make sure Whitney still owns the property. I want to confirm that back taxes are only $200. I want to make sure there are no breaks in the chain of title, no liens or encumbrances. I pay about $11 to my VA team in the Philippines. They’re linked into an American title company. They do my due diligence for me. At the same time, if they’re doing due diligence, they’re creating my marketing package for the next buyer. They’re getting the GIS maps, the GPS coordinates, the Google Earth aerial maps and the plat maps. They’re getting pictures. We might pay somebody $50 to go out there and shoot video. Tell me what’s going on around the property. Is anybody dumping? What are the roads like? What’s compelling about the property? I fill out my whole property checklists. Everything checks out. I buy that property from you for $2,300. You net $2,300 because you owe $200 in back taxes. I paid a total of $2,500.
Now that I own the property, Whitney, I have a built-in best buyer because I’m going to sell this property 30 days or less. I have a built-in best buyer. Who is going to end up buying that property most likely are the neighbors. I’m going to send out neighbor letters and say, “Here’s your opportunity to expand your holdings, protect your views, protect your privacy, know who your neighbor is going to be. I’m going to give it to you for a great deal. It’s only going to be $10,000, $2,500 down payment. I will make it a car payment $449 a month, 9% interest over the next 84 months.” Oftentimes, the neighbors will buy it. If they don’t buy it, I’ll go to my buyer’s list. If my buyer’s list passes, I’ll go to a little website you’ve probably never heard of called Craigslist. It’s the tenth most trafficked websites in the US. I might go to an even smaller website, Facebook via sell groups and Marketplace. I might go to a site like Landmodo.com, LandAndFarm.com or LandsOfAmerica.com. These are places where people list land for sale.
The magic is that I want to get my money out with a down payment. Maybe I’ll go six months out to get my capital back. I’ve got this passive income stream of $449 a month at 9% interest over the next 84 months. No renters, no rehabs, no renovations, no rodents. We use a land contract as opposed to a deed of trust. That property remains in my ownership until they pay off their note. We might have, let’s say in a good economy of 4% default rate and in a bad economy an 8% default rate. Even if they default, I’ll get another down payment. We get another monthly payment and 90% of this is automated with software.
What were you doing before you built this model?
I was miserable as an investment banker working with private equity groups, specializing in mergers and acquisitions in the mid-market, $50 million to $500 million enterprise value, so nothing too big. I had a 45-minute commute to work and back. I was micromanaged. It was stressful. I had no control. It was a long sale cycle. It got so bad for me that I wouldn’t get the Sunday blues anticipating Monday coming around. I’d get the Friday blues anticipating the weekend going by fast and having to be back at work on Monday. My firm hires this guy and he told me that as a side hustle, he was buying up raw land, pennies on the dollar at tax deed auctions, flipping them online. This is the year 2000 and making a 300% return on his investment.
A great company has 15% EBITDA margins or free cashflow and average companies, 10%. I was looking at companies all day long, less than 10%. I didn’t believe him. I went with him to New Mexico in this tax deed auction. I got $3,000 I saved up for car repairs. I did exactly what he said to do. I bought ten half-acre parcels at an average price of $300 each. I put them up online. They sold for an average price of $1,200 each. It worked. I took all that money and I went to another tax deed auction in Arizona where I live in Southern Arizona. It was $2,000, no one was in the room. I was buying up lots. I was buying off acreage. Over the next six months, I sold all of that property. I made over $90,000 in cash. I went to my wife and I was like, “I’m going to quit my job and I’m going to become a full-time land investor.” She said, “Absolutely not.” She was pregnant at the time. I said, “Fine.” It took about eighteen months for the raw land investing business to exceed the investment banking income and I quit. I’ve been doing it full-time ever since.
I want to know how that relates to your land investing and how that’s connected.
[bctt tweet=”Overcaring is a good strategy in business and life.” via=”no”]
You get to a point in real estate where you realize other people’s money is important because the only reason to have a fund is the scale. For the longest time, I self-funded or I would have friends and family do a debt raise. What I would find is that I was passing on massive developments, massive deals, simply because I had this scarcity mentality or I was playing as a small ball game. I was scared to go out and do these bigger acquisitions even though I knew intuitively that my margins are ridiculous. It took a little bit of convincing from a mentor to be like, “Mark, you can do this. This isn’t brain surgery. Go out, get the best securities attorney you can find, talk to these people, network. You’ve got a track record. Go out, flaunt that track record. There’s so much cash out there sitting there on the sidelines making nothing.” You’ve got a compelling argument there. We created that fund and it has been great.
What’s your scale now? You said you put 100 offers in. How many offers are you putting in per week or is it per day or month? How do you do that?
We do at least a minimum of 1,000 offers per month.
Would you have 30 accepted?
It’s 30 or 50.
What size of deals are you having? You’ve got the funds. Are you doing some larger land deals as well?
Yeah. I’ve got my company and the fund is a little bit of a separate entity. What the fund specializes in is we want to buy huge tracks, either subdivide and sell. I did a deal with an old school guy, 75 years old. He’s been doing this for years. He makes millions of dollars a year, but he’s tired. He’s got all the different structure in place. This is where I get to put my investment banking chops to work is we’re buying out his company and taking advantage of the inefficiencies there and some synergy. One plus one can equal to three. I’ve spoken like a true investment banker right there. I haven’t thrown out synergy in forever.
Roughly, you’re buying about a deal a day. Is that accurate or maybe a little more than that?
Ideally, we want to do a deal a day.
Tell me about that conversation with an investor about telling them what you do. It’s a very different type of business. What different questions does an investor have with this business model?
We walk them through the model and show them that the worst-case scenario is you own land. Even if we have to liquidate the fund, we still have to sell that land for you. The risk is low. We’re buying the assets $0.25 to $0.30 on the dollar. We look at it from, “Here are other funds and what they’re doing.” We’re more of a specialty fund because I’ll make the argument that your capital as great as it is, isn’t what drives this fund. It’s the expertise. It’s the deep knowledge and deep experience of the operators that’s what you’re buying here. You don’t want the land. I don’t even want the land. What we want is the inefficiency in the market, taking advantage of that, knowing how to find that, how to structure it and ultimately sell it and get you a return on investment.
What are some of the biggest problems that you run into with this type of business model?
The biggest problem is going to be due diligence. Number one, we’ve got to make sure we’re not making a mistake in our research. Oftentimes on these bigger deals, the title company can help us with all of that. We want to dot our I’s and cross our T’s. We certainly don’t want ever to overpay. We do some cool things before we even acquire the property, which is we will pre-sell a number of lots before we take down the parcel. We know definitively that we’ve got our 300% to 1,000% return.
Tell me about preselling. How do you do that?
[bctt tweet=”It’s so easy to get caught up in the day-to-day tsunami of life. ” via=”no”]
Oftentimes what we’ll say to our seller is, “We are going to test the market. We’re going to put out some blind ads in this area. We’re not going to say anything specific about your property. We’re going to see what kind of demand there is for the property. We want to take a look at the comps as well. How long has it been since the property has sold in your area? What did it sell for?” We want to confirm that there is a strong buyer pool for this property. This is my liquidation value. It’s 100% is what I wanted to look at if everything goes out.
You’re not wholesaling it. You own every property.
I want to own everything. I might lock it up on an option as well and test it. Usually, we’ll just extend out our due diligence. During due diligence, we’ll start preselling. We might take deposits, letting them know that we’re in the process of closing. We’re using a land contract, oftentimes they don’t care because they’re paying us monthly.
Do you find that most people that are using this business model stick with this or they moved to different types of real estate? What’s the most common thing people do?
It depends on the person. It also depends on what they like to do. I know for me looking at other models, I’ll get shiny object syndrome like anybody else. What I’ve determined is that what I like about this is I can work when I want, where I want, with whom I want. I don’t have to deal with anything physical. Nothing to maintain, nothing to protect. These are smaller deals on average, I’m never going to get knocked out of the game. There’s never going to be a mistake that completely knocks me out. For me, that’s enjoyable. A bunch of my clients has graduated into multifamily. I like the Frank Rolfe mobile home park model as a syndication play. It’s the same thing, you own the dirt, you don’t own the home. You are renting the dirt. It’s more due diligence and infrastructure from there. In five years, you can create $1 million of equity simply by raising rates and taking advantages of economies of scale.
You said you had the Frank Rolfe model. He specializes in mobile home parks. You’ve had people go to syndicating mobile home parks after doing some land deals like this?
I always recommend Frank. He’s fifth in the country now.
What’s something else about doing a land deal like this where somebody makes a mistake or something that we need to know if we’re going to start down this road or some way to educate ourselves?
As far as mistakes, the big mistake is either going to be overpaying, not doing your county research and in due diligence. In the areas that I specialize in, we avoid any environmental issues. It’s not like I’m going to Pennsylvania or New Jersey and buying up raw land. We’re sticking to the sunshine states, the Southwest California, the Northwest and Florida. I’m avoiding a lot of those areas of the country. Let’s face it, nobody wakes up and think to themselves, “I’d like some raw land in Minnesota,” unless you live in Minnesota. Arizona, Colorado, New Mexico, Texas, Nevada, these are fast-growing states. They’ve got an abundance of inexpensive raw land. That’s where I want to focus.
What’s a way that you’ve improved your business that we could all apply to ours?
It’s automation and delegation. I spent about two hours a week in my business. The only way I can do that is by having the discipline to look at every task that I was personally doing and saying to myself, “Can I eliminate, delegate or automate it?” One of my favorite apps is Zapier.com. I am in that thing every day. Anything I can automate, I’m going to automate. We also created our own proprietary software program that automates the business. I created my own software company that automates the collections, GeekPay.io. It’s a one-time set-it-and-forget-it system. It does the amortization. It does the interest. It does the notifications. My whole philosophy is I can always make more money, I can’t get more time. Anything that’s going to save me time, I’ll invest in it.
You look at every task and see if you can automate it, delegate it or eliminate it. That’s a great way to look at it too. A lot of people ask about using VAs and that’s something I tell people. You think you don’t need one. If you sit down every day and think about what you do or in one day, things that you could give to somebody else.
Even in my personal life, my wife says, “Let’s go look flights.” I’m like, “Let’s go to Fiverr, have them do the research for us like, ‘Find me the best flight.’ Why are we spending this time?”
Mark, what’s the number one thing that’s contributed to your success?
It’s been the focus. I’m an inch wide and a mile deep. As much as I get distracted, I remind myself, “This is what you’re competent at. There’s a reason that Frank Rolfe is the best in mobile home parks and why he sees those deals and I don’t.” If I see a deal, Frank’s probably passed on it. There’s a reason he’s passed on it. I want to focus on my area of expertise. Focus has been my killer app.
What are you excited about for your business?
I’m excited about doing these bigger deals, buying out some of these older players in the industry, going through that analysis, cultivating those relationships. It’s been a lot of fun. It’s a challenge and also learning how to manage a fund.
What are some difficult things you’ve learned about managing a fund?
It’s constant communication.
Can you tell us how you do that or how you’ve improved that process to have constant communication?
I would create projects in base camp for each investor, give them summaries and tell them that. There’s nothing like picking up the phone. I have in my calendar, pick up the phone, call and over communicate to the point where like, “I hope they don’t want to take my calls.”
I can’t stress that enough as well. I’m trying to do better at that with our investors, not being afraid to call. I find I have to schedule the time. It’s schedule this time every week to go down the list and making these calls. How do you manage that?
I do the exact same thing. I always have to have empathy for the investor because I don’t know what’s going on in their head. They have busy lives. I have a busy life. It’s so easy to get caught up in the day-to-day tsunami of life. The next thing you know it’s been a month that you didn’t talk to this person that’s made a major investment in you. You don’t know. They might be fine but they might not be. Over-caring is a good strategy in business and life.
What’s another way you care for your investors that maybe we hadn’t thought of?
Make them more money, “Where can I make you more money?”
Make them more money in every community.
“Can I make your friends more money? How can I help you?”
How do you like to give back?
I look at my life and I do a daily gratitude journal. I’ll look at my gratitude journal and I think, “I am lucky to be able to eat healthy food every single day.” I don’t have to think about it. I open the refrigerator, there’s food. I will go and donate to UNICEF. I do a monthly return thing to UNICEF. I feel better about giving back to people that don’t have that luxury. There are other organizations such as Ball to All, which was one of the mentors. He sold his company for $360 million. He created this foundation, which is my idea by the way, except instead of soccer balls, there’s going to be Xbox but economically it didn’t work out. The idea being that in these poor communities if kids are playing soccer, they don’t have time to get into trouble. They are nice soccer balls that are puncture proof. I donate to that every month. We volunteer with our kids, let them see our perspective about how lucky they are. Every Monday, I like to pay for the person behind me in Starbucks. You’ve got to help the uppies, Whitney.
Mark, you’ve been a fantastic guest. I appreciate you being on my show. Tell the audience how they can learn more about you and your business.
The best place to go is TheLandGeek.com. Whitney, if you don’t mind, I’ve got a $97 course I’d like to offer your audience for free. It’s TheLandGeek.com/launchkit. They can dive in a little bit deeper and see if it’s something for them to get started with, start building up their capital through the land, start playing with the big Whitneys and create their own fund.
Mark, thank you so much. Thank you for providing that value to the audience. That’s incredible offer there. I hope the audience will reach out to Mark. I hope you’ll also go to Life Bridge Capital and connect with me. Go to the Facebook group, The Real Estate Syndication Show. I hope you will do us a favor and share it. We will talk to you soon.
- Dirt Rich
- Frontier Properties
- Frank Rolfe
- Ball to All
- The Real Estate Syndication Show – Facebook Group
About Mark Podolsky
Armed with only $3,000, gut-wrenching fear, and absolutely no real estate experience… Mark bought his first few parcels of raw land in 2001.
Today Mark is the author of Dirt Rich, the ultimate guide to helping you build a passive income from land. and owner of Frontier Properties, a very reputable and successful land investing company, and has been buying and selling land full time since 2001. By focusing on working smart, not hard, he has completed over 5,000 land deals with an average ROI of over 300% on cash flips, and over 1,000% on the deals he sells with financing terms.
Prior to his land investing success, Mark had a high-stress, soulless corporate job, and felt trapped in a state of solo-economic-dependency (i.e. his income stopped as soon as he stopped working).
Escaping solo-economic dependency changed Mark’s life in so many positive ways that he decided to teach, coach and mentor others to help them achieve their financial goals.
Even though Mark invests a lot of his time helping others, he stays actively involved in running his land investing business, and is dedicated to teaching the most current and relevant “real world” land investing methods to his students.