How to Invest In Land for Real Estate Investing
Have you ever thought of how to invest in land? I never thought that would be something I would want to do and I didn’t think you could make any money from it. I met a gentleman name Seth Williams, that actually does this and has been doing it for over 10 years now.
Seth buys land for 10 percent of the market value and from there he sells it for a mark up.
On his first deal, he made $1,600 and he realized he could make money from buying and selling land.
Since then, he has done so many deals, including seller financing, and he makes passive income every single month.
Listen to the Podcast Episode:
How Seth Got Started in Land Investing
Seth spent a couple of years, from 2006 to 2008, trying to find rental properties or houses to flip, but he couldn’t find any deals that made sense. He was getting really frustrated, because he couldn’t find any opportunities.
Land is very simple and very boring, and that is a good thing. It sits there and behaves itself. Nothing gets broken, stolen, or destroyed. It is a very hands-off investment.
There are a lot of people who own vacant land and for one reason or another, they don’t want it anymore. Some inherit it, others bought it 20 years ago and their plans changed, and the land ends up being just another tax bill and a nuisance they don’t know what to do with.
Seth learned about lists of land owners he could get in any county in the country. You can filter the lists to target the types of landowners that you want, whether it is people with delinquent taxes or land of certain shapes or sizes or certain value ranges.
Simple Process to Find Land To Buy
It is as simple as just sending them a piece of mail, direct mail marketing, and either asking if they want to sell it or making them a low offer.
He found that it was incredibly easy to find deals on land versus houses. With houses, it is extremely difficult to get one deal with thousands of letters, where with land, Seth was getting deals after sending 500 letters and sometimes less than that.
The offers he made were around 10 to 20 percent of market value. If you can find anything that is worth only 10 percent, it makes it easy to make money from it, especially if you own it free and clear.
The lots don’t always sell at lightening speed, but it is not common for him to hold onto them for more than a few months. Turnover is pretty quick, because there is a huge margin of error. The fact that he is getting the land so cheap makes it difficult to not make money.
How to Value Land You Are Going to Offer to Buy
There are 3 main ways to find the value of the land you are going to offer to buy.
- Cost – The cost to rebuild the same structure from the ground up.
- Income – How much money the item makes the owner.
- Sales Comparison – What similar items have sold for in the area.
Each of these their benefits and shortcomings but will help you know how much they are worth to you as an investor.
Tell us about your first property, the steps you took, and how you sold it.
Seth lives in Michigan. His first property was in a county north of him and it was a half acre parcel of land. It was owned by a man who lived in California who bought it years ago and hadn’t seen it since. He didn’t want it anymore.
Seth offered him a few hundred dollars for it and it was better than having to pay the taxes on it, so the owner sold it to him. The owner was overjoyed to sell the land.
It was a very simple transaction. Seth mailed him a cashier’s check and the owner sent him the deed.
Seth sold it 11 days later for $1,900. It was as simple as taking a few pictures of the property, writing a few paragraphs about it, and listing it on Craigslist.
Within a few days, a serious cash buyer bought it.
How do you continue to build your business? Do you need to have a lot of deals every month?
There are a number of different ways you can approach this business in how to invest in land.
One of those ways is to go after lots of little deals. You can’t quit your job, but it is a nice paycheck. Your cash moves pretty quickly, but you have to keep pedaling, or the cash stops.
Another way to approach this is to not pursue the small deals, but go after the larger ones that will make $10,000 a piece or more.
Beyond that, you can look into seller financing. There are a lot of advantages that come into the picture if you are willing to offer it.
Passive Income in Raw Land Investing
Imagine if Seth bought a property for $500 and turned around and sold it for $5,000.
Instead of taking cash for it, he would take $500 as the down payment, charge the buyer 10 percent interest, or no interest, and then the buyer makes payments over the next 12, 24, or 36 months. You are acting like the bank and you collect monthly payments.
You can structure these deals where you get most, if not all of your investment, in the down payment. After the down payment, it is cash flow.
There are people who do hundreds of these and make $10,000 to $20,000 a month from the financing income.
It isn’t 100 percent passive, because there are a few things you need to do here and there to maintain the books, but it is much more passive than having to sell for cash.
These notes will expire at some point. Either the land will be paid off or the buyer will stop paying and you will need to repossess it and re-sell it.
For the most part, it does smooth out your income and gives you predictable cash flow each month.
The market is really high right now. What is the business model now versus 2008, when the market was on the decline?
The business model how to invest in land is still similar to how it has always been.
The biggest difference is there is a little bit of competition. When Seth first started, there was no competition. Once in a while he would bump into another buyer, but usually not on the same land.
It is probably one percent as competitive than purchasing houses. Competition is still very, very low.
There are still people who have land they don’t want. They don’t think of it as an investment.
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Sometimes the owners need the cash now and they can’t spend the time to sell it themselves. Some just want an easy button. It is a matter of finding those people, because they will not seek you out. Direct mail is a good way to find these opportunities.
A lot of Seth’s opportunities now are coming through his website, not direct mail. He has a website where he offers to pay cash for land and people seek him out. There are a lot of people who own land and don’t want it. It isn’t that hard to find them.
How else can we find these properties?
There are opportunities all over the place, but there are some Seth tries to steer away from and toward.
Seth is usually looking in a rural area. Statistically speaking, if you look at a major metropolitan area and look at the counties that surround it, you are usually going to find a lot of good opportunities. He finds a lot of success doing it that way.
Some people do this in cities and they are finding a lot of opportunities there too.
Pick a state and county where there is job growth and tourism. There is a big difference if you compare Maine to Florida. There are a lot of people who love Florida, and it is easier to sell there, because of the weather and tourism.
Take time to understand which places others want to be.
Seth has done a lot of deals in Michigan. He has found that Michigan is kind of in the middle, where it is not the number one spot to be but it also not that bad either.
Delinquent Taxes On Land
Once you pick a state and county, get the delinquent tax list.
When Seth first started, he worked exclusively off of the delinquent tax list from the county. Every county in the country has one of these. It is the way they keep track of who is current and who is late on their property taxes. There is a set period of time where owners have to pay their taxes, and if they don’t, they will lose it.
The nice thing about the list is, although it is a pain to get, everyone on the list has something in common — there is something wrong with their property. For one reason or another, they haven’t paid their taxes.
There is usually a lot of motivation for owners on that list to sell.
Now, more often than not, Seth uses a service called Data Tree (use this link for a discount). It is a great tool for researching properties, but it is also great for getting these lists in a spreadsheet or CSV file.
You can take the information, along with your mail piece, and upload it to a service to send your direct mail. Seth has been using letterprinting.net. Another service is www.click2mail.com.
Once the direct mail is sent out and someone contacts you, what is the next step?
Initially, Seth had a two-minute long, pre-recorded voicemail. If they made it to the end, they could leave a message with their name, their property information, and contact information. That system worked, but it wasn’t the most efficient way of doing it.
He tuned up his script and offered sellers to leave a voicemail or go to Seth’s website. They could submit everything on a form, so it took none of his time.
He could see what they thought the market value was. If they said it was worth $50,000, he would send an email back offering $5,000. A lot of people say no, but some people say yes and it doesn’t cost him anything.
Is that email automated or do you get those forms and personally email an offer?
The response is automated, but that is a fairly recent thing.
Before, Seth used a form email and send back an offer.
Now, offers are going out whether he sees them or not.
Is this something you are providing to your students?
There is a WordPress plugin called REI Land Leads. Seth is currently writing a review of this plugin.
Assuming you are running your website through WordPress, if you pay for the theme it also comes with a plugin called Automated Offers.
This plugin does all of the work. It takes in the email, waits 60 minutes, then sends an offer back to the seller.
Seth was able to work with the theme developer to come up with all of this.
Once the owner has the offer, and you agree on a price, what is the next step?
The next step depends on the value of the property. If Seth thinks the value of the property is less than $10,000, he will close in-house, which means he doesn’t use a title company. This means he does his own title search to make sure it is clear and he writes a deed.
He used to do this a lot to save a few hundred dollars and to speed up the process. It isn’t that complicated of a transaction, because there is no loan involved.
When Seth is buying, he wants the seller to sign a warranty deed. When he is selling, a quit claim deed may be what he uses, but it depends on the state. Sometimes that messes up the chain of title.
He usually defaults to a special warranty deed, which basically gives him a warranty for the time he owns it and doesn’t go back to the beginning of time.
If you are on a shoestring budget and the sale isn’t a lot of money, processing the deed in-house may be a good idea, but you need to learn the process and it can be a little complicated.
If Seth is doing a deal that is more than $10,000, it is a no-brainer for him to work with a title company. The process will be slower and will cost more, but he will make more on the deal and the title company is less likely to mess it up.
Do you actually write up a contract before you go to the title company?
Sellers sign a one-page contract.
There are about eight or nine clauses on it that explain the basics: price, closing date, when the deal expires, etc. This is a typical contract.
If sellers get a ten-page contract, they are less likely to go through with the deal.
Do you pay the title company or does the seller pay?
The title company acts as an intermediary. They are an uninterested third party that takes the money and deed and makes sure everyone does what they are supposed to do, before money gets dispersed anywhere.
The purchase agreement specifies who pays for what. By default, Seth pays for closing costs, delinquent taxes, and things like that. This makes it clean cut. These are distressed sellers that want out and this incentivizes the sale.
A downside to self processing the deed is that you don’t have a title company making sure everyone is doing the right thing. The seller has to trust you. They have to send you the deed and then you send them the check.
Be ready for people who don’t trust the self-processing piece. In that case, you will either need to go through a title company, or you can use a mobile notary who shows up at the seller’s home with your check in hand, notarizes their signature, and gives them the check afterward.
This is a pseudo title company — an uninterested third party.
Once you get the deed and record it with the county, how do you find the buyer?
Seth has sold most properties to a retail audience, where the buyer is actually going to use the property.
He mostly uses Craigslist, Facebook Marketplace, and Zillow, which are all free. He sells about 90 percent of his properties on Craigslist, but Facebook Marketplace is becoming a much bigger deal.
Some people are selling to other investors or builders. Seth has a friend who mostly sells to builders, and they are waiting to buy from him.
Having people who are ready to work with you like that can ease the burden of the selling process.
Is there anything else outside of a title company or mobile notary?
You can accept payment by credit card through a company called Heartland Payment Systems. It is great for property that is around $5,000.
You cannot do this with any real estate other than vacant lots.
A downside is that a buyer could go to their credit card company and claim that the charge was fraudulent, but it is a convenient option for buyers to pay.
Once you have someone who is ready to buy and ready to pay, is there anything else to watch out for?
When Seth gets the deed signed and notarized, he mails it directly to the county for recording.
He is responsible for taxes on his properties until ownership transfers and sending it directly to be recorded speeds up that process.
Seth also sends a notice to the township, which, in Michigan, it is called a Property Transfer Affidavit. Often times, counties do not talk to townships.
In your course, do you show your students how to record the deed?
This is included in the course.
It is really important to use the legal description for the land.
In the course, there are templates, videos, and examples showing the process step by step and where to go to get the resources you need.
Tell us about REtipster.com and why you started it. What are you doing right now with it?
Seth had been running a land investing business for a few years and investing in rental properties. He knew a few things and learned lessons along the way by messing things up. He learned as he went along and decided to add valid solutions through his website.
It crosses over to other parts of real estate, but he wrote it specifically for aspiring land investors. You can find it at REtipster.com/gettingstartedguide.
There is a blog post Seth wrote and he made it into an e-book. It can be found at landflippinglifecycle.com.
Let me know your thoughts about land investing below by leaving a comment! 🙂
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