For as long as I can remember, I was always trying to make money from the internet. In my first semester at college, I started an online business. Well, I tried. I made $5 (I spent probably $300). And my roommate made fun of me, rightfully so.
Anyway, one night, I came across some guy who sold $24,000 in 24 hours. He was featured on Oprah or something, and he was in real estate. I forget how he made his $24K, but I do remember that it was connected to his real estate company.
That stuck with me because even at 18yrs old I realized that there is always money to be made in real estate.
My story obviously went a few directions, and ultimately to starting a software company. I really enjoy tech, but I have always liked using it more than making it. As that chapter closed, I revisited an idea I had in 2018: investing in land.
Sticking to the plan.
When you hear about real estate investing, you picture owning a few residential rental properties and slowly, over time, letting the renters help pay off your loans.
I’m not knocking that method of building wealth, but that shit takes like 30 years for the real rewards to kick-in, and I’m not very interested in buy-and-hold strategies. In addition, I prefer not to deal with renters, fixing stuff, evictions, and all that headache. This brought be back to the original real estate play: land.
For my land investing business, I will make money in four ways:
Flipping
Seller Financing
Buy & Divide
Developing it (possibly…?)
I think most people understand the flipping concept, but few (including myself at one point) know that it can apply to vacant land as well. The key to this strategy is getting the parcel at a below-market price where I can then clean it up a little (land clearing/clean-up if necessary) and then turn around and sell, possibly at wholesale.
This is a quick-cash method, but also is the hardest to deal with when it comes to taxes, as it will fall under short-term capital gains. There are strategies to mitigate the tax impact, but ultimately a quick flip is a quick flip, and the government wants to get paid handsomely.
I did discover though that there is a way to avoid a big hit of taxes. Selling land with seller financing. Banks normally don’t make loans for plots of land, so in this scenario, I become the bank and allow people to pay over time.
I like this option a lot for three reasons:
Spread out capital gains tax
Create a predictable, compounding income stream
Make money on interest
Not to mention, this increases the potential buyer pool since financing gives more people an opportunity to purchase land. Oh, and if they stop making payments, I don’t have to worry about evicting anyone (assuming they aren’t squatting on the land). I still own the Title, so it’s just a matter of finding a new buyer to start the process all over again.
The holy grail.
Flipping and offering seller financing are two of the first strategies I will be using, but what I really find intriguing is the opportunity to buy a parcel of land, divide it into smaller ones, and then sell those.
This is a more advanced strategy, and quite honestly something I am not comfortable approaching right now as I get my feet wet in the industry. My first priority is to do a few simple flips, then venture into seller financing. Once I got those processes nailed down, then I’m going after buy & divide property.
I think one of the main reasons I like this is that it means having to work less deals in the course of a year to hit targeted income levels. Finding four to eight of these properties, and then splitting them up into 2-4 lots each, would mean that I spend more time on larger returns rather than eating up my time with one-off deals.
Taking this one-step further, if I could sell off the properties with seller financing, then I get the advantage of interest payments on top of the profit margin, plus spacing out the capital gain tax (assuming this happened within the year of purchasing since anything over a year is long-term capital gains, and those rates are more favorable.
Getting my business to this point is what really energizes me!
Not going about this slow.
I know, I know. Conventional wisdom is to take your time. Move slowly. Learn. Blah, blah, blah.
I’ll be doing that, to some degree. But I mean, if something comes up, and I have an opportunity to move forward quickly, then I will. I have a plan, but the best teacher in any industry is experience.
I have currently found the area where I’ll be searching for my deals. I’ll get into it further in my next update, but the short answer is that I’ll be kicking things off in Washington state based on some counties that satisfy some key metrics. This business is a data game, and with the ability to get access to big data in real estate, it’s a lot more fun.
In fact, if it weren’t for the big data availability, I wouldn’t even be in land investing! You’ll see what I mean in the next update. If you geek out on forming strategies based on data, then land investing is probably for you.
So, that’s all I have in this go around. I wanted to give you a glimpse into where my head was at in terms of making money with land and what my strategy will be going forward. To recap:
Negotiate a good deal, sell higher (shorter holds)
Offer seller financing (after getting a few flips under the belt)
Buy large, divide the land, sell those off (either for all cash, or with seller financing)
As is the case with any business, it’s easy to just go in circles, preparing and preparing. I want to avoid falling into that trap, so soon I’ll be getting my marketing plan initiated and will start making deals.
Seeya in the next one!