JF1468: How To Create Passive Income Through Raw Land Investing #SkillSetSunday with Mark Podolsky
Mark has been on the show before and he always delivers great value to his audience. Known as The Land Geek, he specializes in raw land investing. For this interview, Joe and Mark are focusing on uncovering how Mark uses raw land investing to not only buy land at a discount and sell for a profit, but also use raw land to create passive income. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Mark Podolsky Real Estate Background:
- Owner of Frontier Properties, a land investing company
- Has been buying and selling land full time since 2001
- Author of new book, Dirt Rich which discusses step by step how he creates passive income in raw land investing and how you can too
- Say hi to him at https://www.thelandgeek.com/dirtrich
- Listen to his Previous Best Ever Advice at https://joefairless.com/podcast/jf915-how-to-buy-raw-land-at-20-to-30-on-the-dollar-skillsetsunday/
- Based in Scottsdale, AZ
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment called Skillset Sunday, where — well, by the end of it, you will acquire or hone a particular skill, and the skill we’re gonna be talking about today is how to create passive income through raw land investing. With us to talk about that, Mark Podolsky. How are you doing, Mark?
Mark Podolsky: Joe Fairless, always a pleasure to talk to you. I’m doing great, my pulse is normal, my respiration is fine… I’m just thrilled to be here. Thank you.
Joe Fairless: Well, I’m glad, because if it wasn’t normal and your respiration wasn’t fine, quite frankly I wouldn’t know what to do… [laughs] I would try and call someone in Phoenix, Arizona, or Scottsdale, where you’re at, and see if I can get you help that way. But you’re good, so we don’t have to worry about that.
A little bit about Mark – he is the owner of Frontier Properties, a land investing company, and he is the author of a new book that came out… You’ve gotta check it out, it’s called Dirt Rich, which discusses a step-by-step way for how he creates passive income in raw land investing, and how you can, too. He’s been buying and selling land full-time since 2001. His website is TheLandGeek.com, and he’s based in Scottsdale.
You recognize Mark’s name because you’re a loyal Best Ever listener; I have interviewed him multiple times, most recently in episode 915, “How to buy raw land at 20-30 cents on the dollar.” 915 – that was about 500 days ago or so, so it’s time we catch up again.
First, how about you tell the Best Ever listeners a little bit about your background, just as a refresher, and then we’ll get into your book?
Mark Podolsky: Sure, so I started as a very unhappy, miserable, overworked, overstressed, 45-minute commute to work and back, cubicle sitting in hell investment banker. I worked with private equity groups, doing mergers and acquisitions, and Joe, 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 really fast and having to be back on Monday.
So my firm hires this guy, and he’s telling me that on the side he’s buying raw land, pennies on the dollar, at tax deed auctions, he’s marketing them online, and he’s making a 300% return on his investment. So I’m looking at companies all day long, and a great company has 15% [unintelligible [00:05:42].17] margins, or free cashflow, a great company. Your average company is at 10%, and I’m looking at companies all day long less than 10%, so of course, I don’t believe him.
I go to New Mexico with him, I’ve got $3,000 saved up for car repairs, I do exactly what he says to do, I buy 10 half-acre parcels, an average price of $300 each, I put them up online, and they all sell for an average price of over $1,200 each. 300%, it worked. So I took all that money and went to another tax deed auction where I live, in Arizona; again, it’s $2,000 [unintelligible [00:06:16].12] I’m buying up lots, I’m buying [unintelligible [00:06:19].08] and on that one auction I made over $92,000. So I said to my wife, I’m like “Honey, I’m gonna quit my job and I’m gonna be a full-time land investor.” She was pregnant at the time, and she said “Absolutely not.” So I said, “Okay, fine.”
I worked land investing as a side hustle for about 18 months, and it took that long for the land investing income to exceed the investment banking income, and then I quit, and I’ve been doing it full-time ever since.
Joe Fairless: When I think of raw land investing, I think of the type of activity that a wholesaler would have to do… That type of work where they’re constantly having to jump from one transaction to another; I don’t think of passive income. When I think of wholesaling, I don’t think of passive income, I think of active income. So help me understand… Your book is called Dirt Rich, and the value proposition is the step by step way for how you create passive income in raw land investing, so how does that take place?
Mark Podolsky: Joe, where do you live?
Joe Fairless: Cincinnati.
Mark Podolsky: You’re in Cincinnati, okay. So I go on the tax delinquent lists on this county in Texas, and I see “Oh, there’s Joe Fairless. He owes $200 in back taxes on his 10-acre parcel in Texas.” But you’re advertising two things to me; number one, you have no emotional attachment to that raw land. You live in Cincinnati, the property is in Texas. And number two, you’re distressed in some way, because when we don’t pay for something, we don’t value it. Maybe you’ve just lost your job, maybe you’re going through a divorce; maybe you inherited the property and you don’t know what to do with it. Maybe you just are sick of paying taxes, who knows… I don’t know. But essentially, you don’t value it.
So what I’m gonna do then is I’m gonna look at the comparable sales for the last 12-18 months on similar 10-acre parcels, I’m gonna take the lowest comps, and all I’m gonna do is divide by 4, and that’s gonna get me what Warren Buffet would call a 300% margin of safety. So in our example, let’s say that the comps are 10k; the most I’m gonna pay for your property, Joe, is $2,500. You get the offer and you accept it. Now, in reality, 3%-5% of people accept this “top dollar” offer.
So now I’m gonna go through due diligence, I’m gonna make sure you actually own the property, I’m gonna confirm that back taxes are only $200, I’m gonna make sure there’s ingress and egress, there’s legal access, I’m gonna get the GPS coordinates… I’m gonna go through this whole property checklist, and the way that we do it is all of this is automated with software. The offers are automated… Basically, the business is 90% automated with software. Our due diligence is outsourced to the Philippines, it costs us about $11 to do due diligence.
If it’s in a new area, we’ll crowdsource and have somebody actually physically go out with our property checklist, look at the property, take pictures, shoot video. So we physically don’t have to be there… But this is where the passive income piece of it comes – it’s a one-time sale, and then we get recurring income every single month, but we don’t have to deal, Joe, with any renters, rehabs, renovations or rodents.
Essentially, I buy that property from you for $2,500, and then I have a built-in best buyer to buy that property. Do you know who it is?
Joe Fairless: The neighbor.
Mark Podolsky: The neighbor.
Joe Fairless: I’ve talked to you before; I wouldn’t know that if I hadn’t interviewed you before though.
Mark Podolsky: Right, so I’m gonna send out neighbor letters and I’m gonna stoke a little fear, I’m gonna say “Hey look, before I go to the open market, here’s your opportunity. Protect your view, protect your privacy, expand your holdings.” And then the way I’ll sell it – and this is where the magic happens – is I’m gonna try to get my money out on the down payment. So I’m gonna ask for a $2,500 down payment; I might go six months out… And then, Joe, I’m just gonna make it a simple car payment. Let’s say $449/month, and 9% interest over the next eight years. So essentially, I’ve created a $449 passive income stream for the next eight years, without any of the traditional headaches of real estate, and I’ve got my capital out on the down payment.
My average return on investment on a seller-financed piece of property is 800% to 1,000%. So the game that we can play then is can we create enough of these land notes where our passive income exceeds our fixed expenses? …and then we’re working because we want to, and not because we have to.
And as far as passive income is concerned, I’ll make the argument nothing is passive. If you inherit a billion dollars tomorrow, you still have to actually expand some effort to efficiently invest that money to get a return on it. You just have to. So nothing is completely passive.
Joe Fairless: Yes, I agree. It would be irresponsible for someone to do nothing with the money, and not spend any time overseeing how it’s being invested, so I agree. There’s varying degrees of being passive.
So in the ideal scenario you go to the neighbor, they say “Yeah, I wanna buy it”, and your down payment equals what you paid for, and then the payments thereafter on a monthly basis is all cashflow and profit after that.
Mark Podolsky: And we automate that using a program called GeekPay.io. Essentially, that money flows out of their checking account every single month, and if the checking account bounces, then it’ll charge their credit card on file as a backup. And it automates the notifications, they can log in and they can see their current balance, and they can make a pre-payment anytime… So I don’t even have to spend any energy managing the note. That’s a one-time set it and forget it as well.
Joe Fairless: Yeah, that’s smart of you to build that out, and helpful for you, as well as the people who use that program. This approach – you’re having a conversation with a different neighbor, depending on where you’re buying it… So you’re talking to a whole lot of people for each deal, and I imagine there’s a decent amount of negotiating involved, and them validating that you actually are who you say you are, as well as you actually making sure that they can deliver on the payment… Is that also what’s done in the Philippines?
Mark Podolsky: We have an acquisition manager that handles that piece. We also have an intake manager that we automate using RingCentral for the buyers and sellers to qualify them. So we do have a process in place, so that I don’t have to personally handle that piece. But when you first start, there’s not a lot of negotiating that actually takes place. You’ll have to talk to your seller for about five minutes and explain to them your offer, and it’s a take it or leave it offer, because we don’t wanna be in the appraisal business. We don’t say “Hey, I’m interested in buying your land”, they’re like “Oh, I’m interested in selling my land”, and now we’re in a negotiation. We actually send them a real offer.
And then as far as the neighbors are concerned, they typically know they’re getting a great deal because of the pricing involved. So there’s not a lot of negotiation with that too; it’s more like “Hey, how do I get you the money?” So those are actually more anomaly type of events, or edge cases, where we actually have to do any type of real serious negotiating.
Joe Fairless: What percent of the transactions are purchased by a neighbor?
Mark Podolsky: I would say that at least 50% are neighbor transactions, and if the neighbor passes, then we’ll go to our buyers lists. These are people that have already indicated to us in some type of marketing format that they’re interested in buying raw land. If the buyers list passes, we’ll actually go to Craigslist, and we use software to automate our Craigslist postings. So I can put out like 100 ads by just pressing a button. That’s just PostingDomination.com/thelandgeek. It teaches people how to do that for themselves.
Then we also automate that as well to Facebook Buy/Sell groups. So Joe, in 30 days I’m gonna sell that property, one way or the other. Now, if it doesn’t sell in 30 days, then either I’m going to have to raise the price; maybe people think “Well, there’s something wrong with it if it’s too low”, or I might have to lower the down payment, I may have to extend some terms, lower the monthly payment, raise the monthly payment… I have to play with the pricing in some way, but essentially, we need to make it irresistible to the market.
Joe Fairless: Each of those three approaches – first is neighbors, second is buyers lists, third is Craigslist – are they equal in profit margin, or do they increase or decrease?
Mark Podolsky: The pricing stays the same. It’s equal.
Joe Fairless: Okay.
Mark Podolsky: Yeah.
Joe Fairless: I don’t know, I guess you could make an argument for each of the three that they would pay more or less for the land.
Mark Podolsky: Yeah, the reason we don’t play with the pricing to different platforms is simply because often times those people will be like “Hey, why is it more expensive here?” or “Why is it less expensive there?” and now we’re sort of losing credibility in the marketplace, with all the different pricing advertising. Because I could go to a site like Landmodo.com or LandsofAmerica.com, and probably get more on those platforms, but I don’t. What’s the old saying – pigs get fat, hogs get slaughtered… We just try to be piggish about it.
Joe Fairless: [laughs] Fair enough. First off, congrats on your book, Dirt Rich.
Mark Podolsky: Thank you.
Joe Fairless: It’s a step by step process for how to create passive income. Did you basically just walk us through that step by step process, and if not, then what additional stuff can you tell us about that?
Mark Podolsky: So the book gives you a lot more detail as to that step-by-step process. It also makes it come to life with stories. Then I also tell my own story about what happened to me through the real estate cycle, so that you don’t have to make the same mistakes I did, and live vicariously through me.
The people that have actually read the book and have reviewed it, they know land investing and they’re still getting value out of the book.
Joe Fairless: When you take a look at a deal that you thought was gonna be this passive deal, but became very active – can you tell us a story about one of those circumstances?
Mark Podolsky: Yeah, I did a deal in an area of Western Pennsylvania called Treasure Lake, and I fell in love with it. I flew out there – that was the first mistake, by the way. So I flew out there and I started negotiating with the Property Owners Association, and the county… The reason I fell in love with it is this gated community, and there’s two PGA-rated golf courses, there’s three lakes, there’s million dollar homes in there… But it was over-developed, so there’s like a thousand lots just sitting there, not earning the county any tax revenue, the Property Association is not getting revenue, so they can’t make any improvements to their own community…
So I said, “Look, fellas, you have dead money here. I could sell these lots for a dollar, and as long as someone pays their taxes this year and their POA fee, you’re going to be ahead of where you are now”, and that actually took years, Joe, of negotiating. I ended up buying up a thousand lots for nothing, but essentially, when I’ve factored in my time, I made only $100,000 on the deal, because the deal went south in 2008, and I bought it in 2007… But when I factored in my time, I actually broke even on that deal, going back and forth with negotiations… So today I won’t do any of that.
Joe Fairless: What’s the last deal you bought?
Mark Podolsky: The last raw land deal – I don’t even know, because just managing… Actually, tomorrow is my team meeting, when I would look at it. Do you have a second for me to open up my spreadsheet?
Joe Fairless: Yeah, sure.
Mark Podolsky: And I can tell you here… Let me just go into my software, and open it up… I should have known you were gonna ask me this. Okay, here we go. I see what we just bought – we just bought 1.76 acres in Arizona, 10 acres in Texas, 11 acres…
Joe Fairless: Where in Texas?
Mark Podolsky: In West Texas.
Joe Fairless: West Texas… What area?
Mark Podolsky: Culberson County. Do you know where that is?
Joe Fairless: I’ve heard of it, I don’t… I went to school in West Texas, in Lubbock, so I was wondering…
Mark Podolsky: Oh, okay. It’s a couple hours from Lubbock. It’s near where Jeff Bezos owns a bunch of property.
Joe Fairless: Huh, okay… I didn’t know he owned property there. Okay, got it. What were the terms on that land in Texas?
Mark Podolsky: On that deal, it looks like we paid $1,200. Let me look at the taxes… Oh wow, taxes were $175, and we sold that for $11,200. That was the last deal; that was one we just did.
Joe Fairless: That’s great.
Mark Podolsky: We’ve got a $150 monthly payment, we’ve got a note fee, we’ve got a late fee on there for $15, and we got a $300 down payment.
Joe Fairless: That’s cool. I’m glad that you gave us some examples. That brings it full circle. How can the Best Ever listeners get in touch with you and learn more about what you’ve got going on?
Mark Podolsky: I think the best place to go is TheLandGeek.com. If they go to TheLandGeek.com/DirtRich, they can actually get the book on Amazon, along with over $500 worth of bonuses. There’s a great blurb in the book, Joe.
Joe Fairless: I heard that you were bragging about that… I didn’t know [unintelligible [00:20:28].27] I’m grateful that you asked me to check it out and review it. I assume you’re talking about mine… Are you talking about mine?
Mark Podolsky: Only yours, of course…
Joe Fairless: [laughs]
Mark Podolsky: Of course.
Joe Fairless: Absolutely.
Mark Podolsky: This week, Joe, I’m actually sending out the paperback copies to the people that did review it, so be looking for yours as well.
Joe Fairless: Sweet. Yeah, digital gets me a little bit of a headache, so I’ll be glad to check out the paper one, as well. Mark, thanks for catching up with us again, talking about investing in raw land, talking about some case studies, how you do it, the approach that you take… And I agree there is no true passive income, but there are varying degrees of passive income, and it’s just irresponsible to completely just put money somewhere and then never look at it. I’ve gotta check up on it every now and then.
Thanks again for talking to us about your approach of what you do, and congrats on the new book. I hope you have a best ever weekend, and we’ll talk to you soon.
Mark Podolsky: Thanks, Joe. I really appreciate it.