The Science of Flipping - Episode 62: Justin Colby interviews The Land Geek | Real Estate Investing Podcast

Episode Date: March 16, 2015

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Welcome to the Science of Flipping Podcast. I'm your host, Justin Colby. Welcome everybody to the Science of Flipping Podcast. I am your host, Justin Colby. And do I have a treat for you guys today. I have an incredible special guest on the-time listener and you happen to just land on this episode, or maybe you've been listening to some episodes and trying to figure out what's the idea about creating this podcast, then it's all about creating the systems and organization in your real estate investing business so that you no longer need to focus on doing it yourself. Podcast in and podcast out, whether I'm interviewing someone or if it's myself, all of us at this level really have implemented the systems that we can go about our day-to-day flipping homes, wholesaling homes,

flipping land without actually having to do the work themselves. And so one of the things is I just got back from a road trip. I was gone for two weeks and we had five deals close in the last two weeks. And I didn't know the first thing about any of these deals. I didn't go see them. I didn't go contract them. I didn't negotiate with the seller. Nothing. It's because we have built the systems in our business that I no longer have to do any of that. If you don't

know my story, at this point, yes, you would probably consider me to be pretty darn successful wholesaling five homes in the last two weeks and flipping two homes and flipped well over 300 homes in our career. We're developing 79 townhomes out in Mesa, Arizona, but it wasn't always puppy dogs and rainbows. We went through a very long time, my business partner and I, of not getting a deal done and fighting through it and having to have the tenacity to keep pushing and to keep going. And that's really what this is all about, guys. I want to be able to help motivate you to keep going, to keep pushing, to create the systems in organization so you do not make a mistake in your business,

the same mistakes that I have made or many others have made. I want you to avoid that. And that is what the Science of Flipping podcast is all about. To do so, guys, if you want to talk to me a little bit further, if you want to pick my brain, if you possibly even want to talk a little bit more about mentorship or coaching, go to thescienceofflipping.com and put in your information. The best part about that, guys, is I'm giving you my book, not my e-book, not something I just created on a whim. My actual book that is selling on Amazon today for $13.

Each and every day it is selling on Amazon, and I'm actually giving it away. So if this is your first time to this podcast, if this is something that you just happened upon, get over to The Science of Flipping and download my book, which happened to be called The Science of Flipping. It is a full-fledged book that I put together with five of the key things that you need to know as a real estate investor, whether you're just starting and or you're already running and you just want to scale and grow your business, this is what this book is for. In fact, I get emails constantly saying, I just read your book. It's absolutely incredible.

These two things really changed my business from marketing to hiring a contractor whatever systems They were able to implement so make sure to get that the science of flipping comm and is absolutely free and get my free book Alright now that all that is over. I have an absolute special guest He is actually in my market here in Phoenix, Arizona Which is so funny because we've gone all these years without bumping into each other. But I am going to bring on Mark Podolsky, the land geek, onto my podcast right now. What is going on, Mark? Justin, thanks so much. I'm thrilled to be on the Science of Flipping podcast.

Yeah, hey, I know you are now flipping land, which we will get into, but I know you were a big-time flipper in the early 2000s. Yeah, I know, but I always just land, Justin. Never home. I flipped one home. You flipped one home in all that time. Yeah, I didn't like it. Yeah. There's a lot of minutiae to it, isn't there? Yeah. I mean the thing is, Justin, I can't even screw in a light bulb.

Sure. So for me, like I felt very uncomfortable not knowing if I was getting taken advantage of by the subs. And I didn't enjoy going to the house every other day. I made money. I made $100,000 on the flip. But when I factored in my time and I looked at all the time I was spending with land flipping, I'm like, oh my gosh, my effective hourly rate is so much better with land than it was with that one house. Now, that being said, there was no Justin Colby in my corner. I'd probably feel very differently about it if I had someone like you to kind of walk me through that process. But yeah, so I've always – I was just flipping land.

I've done over 5,000 flips. Really? Well, let's just kind of jump into it. Guys, for all those listening out there, my podcast traditionally is about residential real estate. Every so often we'll have a special guest come in and maybe talk about, you know, multi-units or even commercial. And so this is the first time, you know, me and Mark have been talking for some time now and I actually jumped on his podcast, which I'll let him talk about a little bit as well. But he has a model that I truly feel is a rather incredible model. And I wanted him to come on this podcast specifically for you guys to

hear out why it's such a greater return on your investment, why the residual income is there, and how you possibly can take what you're currently doing in your residential real estate business and model it the same way he's been able to do for land. So Mark, let's just kind of jump right in and kind of start out by giving all the listeners what your business is all about. You know, start at the high level that you're flipping land and kind of bring it down and start to get a little bit more granular on how this makes sense and why you started with land and how you went from flipping one home made $100,000, which I know there's people on here right now that would beg for a $100,000 flip. But now how you brought it all the way down into why it makes sense for you with the quick paychecks, with the good return on investment, so on and so forth. Right, right. So I started out in 2000.

I was working at a little boutique investment bank here. We were specializing in mergers and acquisitions. So, Justin, I'm looking at companies all day long, right? And I'm working with these private equity groups. So we hire this guy, and he tells me that he's going to tax deed auctions. He's picking up land for pennies on the dollar and he's flipping it online like the next week and he's making on average 300%. 300%.

Yeah. So I'm from St. Louis. I'm from the show me state. I'm like, come on. I don't believe you. Now, Justin, remember, I'm looking at companies all day long. A great company, earnings before interest and taxes or EBIT of 15%, a great company. Your average company has 10% and a lot of companies have below 10%, just free cash flow.

And I'm looking at all these companies. I'm like, 300%, there's no way. So I go to an auction with him in new mexico and i brought you know i had like three thousand dollars saved for car repairs so i tell my wife look i'm gonna spend this money and buy some land she's like no you're not i'm like look the worst case scenario i own land i've got an asset i don't have to do anything with it you know just pay the taxes she's like, all right, fine. So sure enough, I do exactly what my buddy tells me to do. I buy up 10 half acre lots for $300 each and I flip them online. And sure enough, a week later, I've got $9,000. And then so I take the $9,000. Mark, let's take a step back. Where in God's green earth are you buying land for $300?

Yeah, so this is at a tax deed auction in a small county in New Mexico. Have you ever heard of Deming, New Mexico? Of course I have not heard of that. Yeah, so it's outside of Deming, and these properties are going for nothing. Nothing. Now remember, this is 2000. And so I went to another auction in southern Arizona. You've heard of Cochise County?

I have. All right. We're buying up properties there for $3, $5, $10. I spent that $9,000 at that auction. This is my second auction. I still don't know what the hell I'm doing, Justin. And I flipped all that property within six months. I made over $90,000.

Now, I'm miserable at my job. I've got a 45-minute commute there and back. It's high pressure, you know, micromanaged. And I wouldn't get like the Sunday blues for Monday morning. I'd get like the Friday blues, anticipating the weekend going by really fast and having to be at work on Monday. But I was still scared. I didn't want to just quit my job and do this full time until I was really, really certain. So for 18 months, I worked land part-time while I was working my job. And then once the land investing exceeded my investment banking job, I quit. And I've been doing it full time ever since. And I love it.

Well, let's get back to, there's two things I want to talk to you about. A is going to be, where do you find these deals? How are you going about finding deals? Because I can tell you right now in the residential real estate market, every one of my listeners, every one of my students have always been the biggest complaint right now is I can't find enough deals or I can't find one deal, right? So let's start with that. But also I want to then, once we get the kind of the answer on how you're finding these land deals, I also want to take a step back to what you just mentioned, which was, you know, I didn't have the confidence to leave my job yet until I could replace my income full-time and I left. And I think that's a lot of people out there right now where they might have a job.

They might have that security blanket, which I like to call it. But they're just not willing to take the risk until a certain dollar amount. So I want to talk to you a little bit about why you left, when you left, and things of that nature. So let's start with where are you finding these deals? How can the average Joe go find these deals? So here's my secret sauce, right? I look for people who live out of state and owe back taxes. Then we send them a direct offer. They actually calculate a pennies on the dollar offer. Now remember, if they don't pay their taxes, they're eventually going to lose this property anyways. So these are highly motivated people.

They're out of state. There's no emotional connection to the land. And we pick up tons and tons of property this way. So we have a 3% to 5% response rate with our direct mail offers. When those come back, we can close on 1% to 3% of those. Okay, so you're sending direct mail. Let's get that clear. Sending direct mail to tax lien pieces of land, correct?

Tax deed or tax lien, it doesn't matter. We want people that owe back taxes. They're advertising to the world they don't value this property anymore or in some situations they're distressed. And is there a place that you can go to find a list of those people? Absolutely. Absolutely. There's lists everywhere. I mean, I like just go straight to the county, contact the treasurer, ask for the tax delinquent list. Got it. And then you send out these offers, they come back, you do your

due diligence, you make sure that they actually own the property, chain of titles clean and then you close on it and then you go ahead and you flip it online 300 on flips and we make over a thousand percent on what i love even more than cash flips is actually creating cash flow on a promissory note with owner financing because with the land right i can get my money out on the down payment and then as long as they continue making their payments, it's all profit from there and I don't have to worry about foreclosure because I do it on a land contract, not a deed of trust. Does that make sense? Yes, of course, of course. So you actually buy the home though. You're never wholesaling the, or I'm sorry, the land. You're never actually wholesaling the land.

You're always taking it down. Right. Now we may option it because we may not – we may want to test the market first and pre-sell it. Now in some situations, if we do need quick cash, sure, we can wholesale it out and assign it. But most cases, I like to control it and not wholesale it out and I like to just quickly sell it and get my money out on the down or get at least most of my money out within six months on the payments. And then there you go. I mean I've got the perfect – what I call the best passive income model in the sense that it's a one-time sale with recurring revenue. But I don't have to deal with renters.

I don't deal with repairs, renovations, or rodents. I have nothing to protect. I have nothing to maintain. I don't have to deal with RESPA, and I don't have to deal with Dodd-Frank because there's no tenant to deal with. Land is exempt. Right. Right. No, I think this is the whole reason why you're on this podcast, bud. I think you have a great model here, but I want to make sure that any Joe Schmo can go do it, right? That's the whole idea about wholesaling or flipping homes. You can teach anybody because there's that many homes out there to go do it. It's how to get the homes and so on and so forth. So knowing that you do it with direct mail, and what type of message are you using on your direct mail? So we're just sending out an offer. It's just a straight offer. You're not even going with, Hey, I'm interested in buying. It's here's an offer for $500 for your piece of land. No, no. I, yeah. In fact, a lot of my students are like, is this really what you send out? I'm like, yeah, I'm like split tested. Send out your warm, fuzzy letter introducing yourself and your company and why you're making that offer and send out mine.

Mine gets more response because it just cuts to the chase. And you have a cover letter, I'm assuming, explaining why there's an offer? No. I just have them big bold. You're getting an offer for your land that owes back taxes. And is the offer in the envelope? The offer is in the envelope. We handwrite the envelopes and stamp it so they can open.

This is great, Mark. This is great stuff. So you find me and I owe back taxes on two acres of land here in Phoenix. Right. And you say, all right, well, I know Justin Colby owns this piece of land here in, let's just say, Fountain Hills. And I think I can get that piece of land for $5,000. Exactly. You would put together your offer.

Right. And say you're receiving this offer based on your delinquent taxes for $5,000. And then there's how many pages is your offer? Two, three, four, five, one page or one page.

And there's the offer. And Justin Colby, I opened my mail and I see it and I say, Holy crap, I could get out of all my trouble. I can get it out. And from under this, I won't have to ever owe it.

And I will make a little bit of money on top of it all. I'm going to take this offer. Is that what happens? Yeah. Because they have all these offers accepted, and then just like you did, we built the machine. So then it just goes to the machine. So then we have the due diligence machine. We have our acquisition manager, and then we have the due diligence machine. We have our acquisition manager.

And then we have our marketing machine. And it's just a quick process. So we typically flip these properties or put a note on them within 30 days. And, Justin, it's a huge market and there's not a lot of competition. In fact, there's hardly any competition because everyone wants to flip homes. You don't go on HGTV and see a show about flip this land. It's not sexy. It doesn't show well because it's not cool at all.

It's a very unsexy niche. No, I tend to agree. It is very unsexy. However, it is very, very profitable. And your return on your investment is incredible, especially if you take the land down and do a lease option to a tenant of some sort. You're just making all your money back because just like any other lease option, you return your money immediately based off their down payment. And then you don't have all those other rules

that we would have with residential real estate. I think it's, uh, I think it's great. So let's, let's walk through the process one more time. You send them the offer. Now what happens? You obviously have your information on it so that they can contact you. Um, what's the next step that they take once they receive your offer? Right. So they receive the offer. They either accept it or they don't accept it, right? But let's say, for example, they accept it. They send it back to us.

We contact them. So we received your accepted offer. Over the next week, we would like a copy of your recorded deed to help us with our due diligence. But if you don't have it, that's okay. We'll get it. And to help us with our due diligence. But if you don't have it, that's okay. We'll get it. And then we go through our due diligence. And the great thing about today, Justin, as opposed to when I first started out, is crowdsourcing in Google Earth. So I can basically do 95% of my due diligence online anywhere in the world. And my VAs can do it online anywhere in the world, right? And then I can set up a Craigslist gig or use a company like WeGoLook.com and actually

just make sure someone stomps on that land, takes our pictures for our marketing, sets up a video, right? And this way I know what the neighbors are like, ingress and egress as far as legal access. And I just want to make sure that we're not buying a swamp, right? Yeah. And that's the last piece of it. And then we know definitively because we've bought it so low that we're going to make our 300 percent on a flip or over 1,000% on a note. So give me some numbers here.

I'm a numbers guy and I'm tracking our numbers on marketing. How many offers do you need to make before you get one accepted? So you've got to make at least, well, let's say it's a 3% to 5% response rate. So I tell everybody, just make 100 offers a week. And you'll have more deals than you could literally handle. Is there enough land? Do you do this in Phoenix, I'm assuming? I do it in the Southwest of Florida. I like to go to places where other people in the country want to be. So I don't really focus on the Midwest or the East Coast because people in the Midwest and East Coast, they want to be here with us, Justin, in Scottsdale. Right. Right. Or in Florida. So I go

to the places where people want to be. So I really like California. I like Nevada. I love Texas. Texas sells great. Florida sells great. And in those areas. Yeah. Great. Okay, so 3% to 5%. So you send out $100 a week, you're going to have way too many deals that you don't even know what to do with. So if someone is listening to this and says, well, I don't even have the $1,000 to buy that land, how does that person run this deal? Can they get into land flipping without having the money? Yeah. In fact, my buddy, Juran Frazier, he started out with $800, right? I started out with $3,000.

If you literally have no money, right? All you have, you've got to have money to send out offers. That's really what you need money for. Because once they accept the offer, you can then say, hey, look, you know, I'm not that comfortable with the market right now. And I'd like to option this property for 95 days. So you buy yourself 95 days. Now remember, Justin, there's no other offers down the pike for these people. You're the only game in town because there's no competition. So they

say, okay, I'll give you 95 days to market that property because they want to get, they're fine. There's nothing else to do. So you go ahead and you can contact me and wholesale it out to me, and there you go. Boom. Well, let's give everybody your information. Let's say Johnny right now is listening to this podcast and like, oh, my God, you're telling me, Mark, I can contact you and you can get it done?

Absolutely. So where do they do that? Where do they find you? They can email me mark, M-A-R-K at thelandgeek.com. Now that's a great name. Why did you call yourself the land geek? Or why did you name your podcast, which I want to talk about here, the land geek? Right. So yeah, I've got two podcasts, The Land Geek and then the Best Passive Income Model Podcast. But you've seen me on Skype. I am a geek.

I look like a geek. I have geeky interests. I love technology. Right? I'm not a cool guy like you, Justin. Oh, come on. You're very cool. What are you talking about?

You've built a business that no one else can, or no one has been building. So in my world, that is as cool as it gets. Right. Right. But you know, for whatever reason, I mean, I'm just, you know, like I'm that guy who's looking for that new app. I'm always looking for some kind of new process. I'm really into automation. And I mean, I'm just geeky that way. I'm not really, I don't love real estate in the sense that I don't get real emotionally involved in the actual land itself. I get emotionally involved in the processes

and in the business model. I love the business aspect of it. And just, you know, what I call Kaizen, you know, just incremental improvements in my business every single day to get better and better. But could I tell you what that five-acre parcel of land looked like that we sold yesterday? No, I can't tell you.

Sure, sure. And so, again, I think everybody, everyone listening out there is so used to me talking about residential and bringing people on that have their own niches in the residential real estate market. I wanted you to come on here to give this opportunity to all of our listeners about how you can take a model like this where there's such limited amount of sharks, so to speak, or people in this space. And you can really create your own business because as you know, here in Phoenix, I'm one of probably 10 huge sharks that are fighting over the same properties day in and day out. And then there's all those little sharks everywhere else, right? So this is an opportunity where people can say, man, I don't need a lot of money to do it. I'd go to the county recorder's

office to find all the tax liens. I send out the offers. Now, how do they, let me take a step back about the offers. How do they actually figure out what to offer on this land? Okay. So that takes a little bit of research. There's this little website that I like to use called Google. So you go to the Oracle and you type in the legal description of the property. So I like to batch out these offers, right? So I want to make 100 offers in one subdivision or one area, right? And I'll just take five minutes and I'll look at some comps or I'll call the assessor and I'll get some comps. And then I'll just do my backwards calculation. So if I know I want to make a minimum of 300% on a flip, and I see that the properties are selling for $10,000, then the most I want to pay for that property is what? $3,000, right?

Right. Yeah. So I just batch those offers, send out everybody about that amount and get it done. How are you comping the properties? You're calling the actual assessor's office? Yeah. So we either go online and have the assessor information online or we'll actually have a VA call and get that information. We might, if we don't have a lot of, if the comps are all over the place,

we'll just take the outliers out, real high, real low, we'll take those out, and then we'll just come up with a median on the low end and make those offers that way. Yep. I have some students, they just take 30% of the success value. I was just going to say, the easiest way to probably do it is take 30% of the assessed value and just send out that offer.

Yeah, and that is – I mean it's a quick and dirty way to do it. I don't love doing it that way just because I don't always trust those assessed values. Sure. values. But if I've got a list right now of 15,000, am I going to do the research or have my acquisition manager do all the research on 15,000? No. We're going to do the assessed value way. And then we can see what comes back. And then 90 days later, we'll hit that list again and we'll tweak our offers. So how do you blow through 15,000? Do you hand it to a VA or do you just – how do you get through that volume of – So we're real geeky over here.

Okay. So we use a program called iMacros.net or Mozenda. Okay. And we'll scrub our list for what we don't want. So we were going to get – Industrial, right? And we're going to then sort it through assessed value because if the assessed value is real high, we're probably looking at a house. We don't want the houses.

And then we can then go from there and drill down further with the land use. And then we're really, you know, trying to get the vacant land, right, with those land cuts. And then we'll take that and then we'll really trying to get to vacant land with those land cuts. And then we'll take that and then we'll just batch it out and we'll just automate it. We want to send out 100 a day, 100 a day, or whatever it is, and work that way. So we're not going to send out all 15,000 at once. Right, and who's sending out those offers? Our acquisition managers.

Got it. So they're writing a hundred a day, every day. Well, they won't be doing, they'll, they'll be managing their, uh, VA to do.

Right. Yeah. But they'll give them the list. Got it. Okay, great. Yeah. Well,

good. Well, that's definitely the, the ins and outs. I know it's a lot more than that and you can go a lot more in depth. I'm happy to give everyone your information. Where can anyone find you who go is the website, which is www.thelandgeek.com. And then they can download for free our passive income blueprint, get our e-book, How to Avoid the Three Fatal Land Buying Mistakes, and then start getting the podcasts delivered each week to their email inbox. There you go. Absolutely. Absolutely, which would be incredibly valuable for anyone that's interested in flipping land, which is, again, a great way and a great niche to make a ton of money without needing a ton of money.

That's the big thing there. Right, exactly. And my goal for everybody is to have their passive income exceed their fixed expenses so they can live like Justin Colby. That's right. Then you're free. Then you're free. Then you are free. That's the light. You know, what I like to say is that's living your life by design.

So, you know, being able to be on the road and gone for two weeks and not even know that we're closing these five deals is a pretty awesome thing. And lastly, Mark, I brought this up in the beginning, but, you know, there's so many of our listeners, so many of my students, and I'm sure you've seen it as well, they're ready. They're ready to get started full-time, but they have a job. And they just are scared to death to jump out on their own. And you brought it up in the beginning, and I wanted to make sure to touch on it before we jump off here.

But how did you handle that? What was your mindset? What was going on within you that said, you know what, now's the time? And I know you can always say I was able to replace my income, but there's still got to be a certain amount of faith that, yeah, I might have replaced my income this year, but am I able to do that year in and year out? So I want my listeners to kind of get into their head the ability of, you know, there's a risk involved. But without risk, there's no reward, right? And so talk a little bit about that decision that you made, Mark.

Yeah, I mean I was really scared. I'll be honest with you, Justin. I'm a little anxious. I have a little anxiety disorder anyways. I'm always thinking about, you know, what's going to happen with the market or are we doing this right? Can we make this better? And just kind of always paranoid about getting better. But at that time, before I quit my job, I mean, I was literally sick, right?

Because I didn't know. And so what really kind of motivated me was I remember when I was in Kansas City, I was actually working with Dennis at that time. And this most successful guy that I used to work out with, I mean, this guy was like, you know, he was driving a Bentley successful. And it took me like a while to, you know, get up the courage to ask him like, what was your secret to success?

And so he told me the story about Alexander the Great. He's like, you know, do you know about Alexander the Great? I'm like, yeah, I've heard of him, but I don't know him. He's like, okay. So Alexander the Great was the greatest conqueror ever. And what made Alexander the Great so successful was he would gather his armies. They would sail their ships up to a land, and they would get out, and Alexander the Great would then promptly burn all the ships. So he said, that is the secret to my success.

He's like, when I do something, I burn my ship and that's full commitment. There is no going back. And that really stuck with me. And I thought to myself, well, if I'm going to do this, I'm not messing around anymore. I'm really going to do it. It just took me 18 months to get the confidence that I could do it enough times where I felt like, okay, I can really quit my job because there was no guarantee that the next year I was going to replace my income.

Right? And so I think you have to have that faith and you have to have that. Stop. You're not going to quit when things get tough. You're just going to go and you're just going to figure it out and figure it out. And you know, absolutely.

Yeah. I do. I like that a lot. I like it a lot. I use the reference of burning your boats quite often. So I'm glad that we're all on the same page. Mark, listen, I've used up enough of your time. I greatly appreciate you coming on.

You've given an incredible amount of knowledge. Again, where can everyone find you one last time just to make sure that they know where to find The Land Geek? Right, www.thelandgeek.com. Right on. All right, guys. Well, that's all we got for today. Mark, again, a special thanks to you for coming on, spending your valuable time here with us at The Science of Flipping.

I greatly appreciate it, buddy. Thanks, Justin. I appreciate it. All right, guys. That is it for today's episode. I've been your host, Justin Colby. Again, go to The Science of Flipping and grab my free book. It's not an e-book. This is an actual book that I wrote about the five to six steps that it takes to build a true business

in the real estate investing sector. It is absolutely free. It's the same book I am selling on Amazon. So get over there. And if you'd like to talk to me a little bit further about consulting or coaching, please email me at info at thescienceofflipping.com. That is all I got today, guys. I will see you next week. Peace.