\n<\/p>\n
Land flipping<\/strong><\/a> is an unusual real estate investment. Unlike all the rest, there are no utilities, renovations, or tenants<\/strong> to take care of. It\u2019s really as simple as buying a piece of land with high demand and finding a seller who either wants to build or sit on it. But can it be that easy?<\/strong> If land flipping is low cost, low risk, and high reward<\/strong>, why aren\u2019t more investors buying raw land? What are everyday real estate investors like us missing that land flippers like Paul Hersko<\/strong> and Willie Goldberg<\/strong> understand?<\/p>\n Paul and Willie, like many investors, didn\u2019t start out in real estate. Willie worked in investment banking while Paul was busy running an ecommerce business<\/a>. Both were feeling unfulfilled by their work <\/strong>and wanted to build something bigger and better on their own. After a casual skydiving session, Paul and Willie realized they\u2019d be perfect partners together, deciding that buying, selling, and financing raw land <\/strong>was what interested them most.<\/p>\n Now they\u2019re making massive multiples on literal dirt<\/strong>, selling plots online to investors and retail buyers who want to own real estate without the big banks, down payments, and high interest rates. Paul and Willie have built an entire business around these types of deals,<\/strong> and even though land is low-cost, you\u2019d be surprised by how much they make off of a simple land sale<\/strong>. This could be the best low-risk real estate investing<\/a> out there!<\/p>\n David: Paul: David: Paul: Willie: David: Willie: David: Willie: David: Paul: David: Paul: David: Paul: David: Willie: David: Paul: David: Paul: David: Paul: David: Willie: David: Paul: David: Paul: David: Willie: David: Paul: David: Willie: David: Willie: David: Willie: David: Willie: David: Willie: David: Willie: David: Willie: David: Willie: Paul: David: Willie: David: Willie: David: Willie: David: Willie: David: Paul: Willie: David: Paul: Willie: Paul: Willie: Paul: David: Willie: David: Willie: David: Willie: David: Willie: Paul: Willie: David: Paul: David: Paul: David: Paul: David: Willie: David: Paul: David: Paul: Willie: David: Paul: David: Willie: David: Willie: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: Willie: David: Willie: David: Willie: David: Paul: David: Paul: David: Willie: David: Paul: David: Paul: David: Paul: David: Paul: David: Paul: David: Willie: David: Willie: David: Willie: David: Willie: David: Willie: David: Willie: David: Willie: David: Paul: David: Willie: David: Paul: David: Willie: David: Paul: David: Willie: Paul: David: \u00a0<\/p>\n \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/em>sponsor page<\/em><\/a>!<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets Podcast Show 704.<\/p>\n
Every day I wake up and we\u2019re building this thing that, in my opinion, is providing so much value in this real estate space and we\u2019re providing a real service on the front end and the back end. We\u2019re helping fulfill people\u2019s dreams on the back end of owning their dream property. Maybe they don\u2019t own a home, but it\u2019s pretty easy for them to go and put their credit card in and pay $200 a month. And in 5 to 10 years, they\u2019re going to own this thing that they can pass down to their children. That\u2019s a story that we hear all the time.<\/p>\n
What\u2019s going on everyone? This is David Greene, your host of the BiggerPockets Podcast, here today with a fantastic show for you where I interview Paul Hersko and Willie Goldberg, two fantastic gentlemen that formed a partnership and put together a business model you\u2019ve probably never heard of regarding real estate. These two have figured out a way to buy raw land, package it on a website and sell it to people on terms where they can put usually a couple of hundred dollars a month of a monthly payment to buy land in a contract, like a rent-to-own, and it\u2019s been fantastic for them.
They currently own over 700 lots that they\u2019re selling to other people and counting. They\u2019ve got 15 salespeople alone as well as an entire backend operation. And a fascinating business model that if you\u2019re having a hard time finding ways to make money in real estate and you\u2019re open to something new, you might really enjoy this.
Before we bring in Paul and Willie, where we go back and forth digging deep into their business and a lot of the specifics of what they look for in a property, mistakes that they\u2019ve made, ways that they\u2019ve lost money, how they figure out where they should be buying, and how they\u2019re structured, I\u2019m going to give you a quick tip that I hope you never forget. During the show when we\u2019re diving deep to try to figure out why is their business working so well, it comes to the surface that they focus on solving problems and making the experience better for the consumer. And they actually refer to Amazon as a company that focuses on the consumer experience instead of the owner experience.
And it has me thinking, so much of life and success in life comes down to how much value do you try to bring others versus how much value do you try to take from others. It\u2019s very easy to look for something in life or someone in life that will give you what you want. It is much more difficult in life to look for what other people need or want and try to provide that to them. But when you think about the people that you want to do business with or you want to give the best version of yourself to, they\u2019re always the people that put your needs first.
Here\u2019s my challenge to you, think about how you can meet others\u2019 needs without worrying about your own and wait and see if the quality of your life doesn\u2019t improve. Living this life of faith will often help you in business, in life, in relationships, and many other areas. And as you listen to today\u2019s show, you will see this theme pop up over and over and over. All right, hope that helps. Let\u2019s get to Paul and Willie\u2019s story.
Paul Hersko and Willie Goldberg, welcome to the BiggerPockets Podcast. How are you two?<\/p>\n
Doing great. Thanks for having me.<\/p>\n
Yeah, I\u2019m doing super well. Glad to be here and excited to be on BiggerPockets. I used to listen to this podcast religiously when I was getting started and it really meant everything to me, so super excited to be on the other side, actually being interviewed.<\/p>\n
It\u2019s going to be really weird when you guys hear your voice on here for the first time. I remember when that happened to me, so just brace yourselves right out. It\u2019s a surreal feeling, but we\u2019ll make sure that we get a good show. We actually just learned that you guys live in an area where I\u2019ve been buying rental properties and visiting quite a bit in South Florida. That was pretty cool.<\/p>\n
Yeah. I\u2019m out in Pompano Beach. You said you got a rental nearby.<\/p>\n
Yep.<\/p>\n
If you ever need anyone to go check it out, I\u2019m your eyes and ears on the ground, so happy to help with whatever I can.<\/p>\n
And Paul, you mentioned you\u2019re in Boca Raton?<\/p>\n
Yep. I\u2019m up here in Boca Raton.<\/p>\n
Yeah, it looks like Florida looking in the background.<\/p>\n
Yeah, people ask me if it\u2019s a real or fake background because this is where I take all my Zoom calls. I\u2019m like, \u201cNope, it\u2019s Florida.\u201d<\/p>\n
If we\u2019re lucky, we\u2019ll see an iguana come running right across the road. They\u2019re very funny when they run. I don\u2019t know how to describe an iguana\u2019s run. Its feet go out. They don\u2019t just go straightforward. They go out and come in. It\u2019s hilarious to me every single time I watch them. Have you guys grown up in that area or did you move out that way?<\/p>\n
No, so we actually both grew up in Chicago. We moved about two years ago and we actually didn\u2019t know each other growing up. And maybe we\u2019ll get into it later, maybe we won\u2019t. But we actually grew up one town over from each other in Chicago, but never knew each other until we really started this business. It all crossed paths, but yeah, we\u2019re from Chicago.<\/p>\n
All right. Now, I understand you two met and you\u2019ve built a real estate empire after meeting, so tell me what\u2019s the origin story of your relationship. We\u2019ll start with you, Willie. Where were you in life when you met Paul and what happened when you guys met?<\/p>\n
Yeah, we were still both living in Chicago at that time. We both lived down there. Actually, first office was out there. I was running basically the same version of the business that discount lots, so we rebranded when we eventually partnered. But I met Paul at a party. I had a trolley. Trolleys are super popular in Chicago. One of my buddies was leaving town and one of my good buddies from growing up, he married Paul\u2019s sister.
And so just happened to be that he brought him to the party and we met on the trolley and headed off right then and there. And not soon after that did we form our partnership. But at that time, I was basically running the land business on my own. Paul had a very different experience and skillset than me and we recognized that when we first met. And that\u2019s how it all started.<\/p>\n
All right, Paul, what was going on in your life at that time that you met Willie?<\/p>\n
Yeah, so I had Amazon eCommerce business. At that time, it was super hot when I started. Basically 2015, I was thinking about starting a business. I was like, \u201cI\u2019m either going to go into real estate,\u201d because I was listening to BiggerPockets at that time or I\u2019m going to go into Amazon. That was when Amazon was super easy, 2015, 2016 era where you could just put a product up and it would sell super well.
And I was like, \u201cYou know what? I\u2019m going to start with Amazon,\u201d because the barrier entry is lower than real estate. And so, I went down that path and I guess Willie went down the other path. I had an Amazon business with one employee and I was feeling pretty unfulfilled at the time. I wasn\u2019t really enjoying what I was doing, I just felt like I was taking things, putting on the internet, making a profit and just not really providing value. That\u2019s where I was. I was seeking at that time something new and it just happened that we crossed paths.<\/p>\n
Was it working out? Was the Ecommerce business profitable?<\/p>\n
Yeah, definitely. I think at that time, we were probably doing maybe $2 million in revenue a year and taking home a couple of hundred grand. It was nothing crazy, but it paid the bills and let me travel the world and do whatever I wanted, but it wasn\u2019t like I\u2019m rich or anything.<\/p>\n
Was the problem that you wanted to make more money or was there something else about real estate that was appealing to you when you came across it?<\/p>\n
Yeah, so it\u2019s more so that it was about the fulfillment. It wasn\u2019t really about the money. It was about providing value in the world. And I grew up around real estate. My dad growing up, he had all kinds of Section 8 housing in Chicago. That was his niche that he was doing my entire life. That wasn\u2019t his main thing, it was his side thing. As a kid, he used to take me to all these Section 8 buildings and I would help him.
Actually, I would go with my grandpa, too and collect rent and that was my earliest memories of real estate. And then my dad sold his first business and he was flipping houses when I was in second grade for a year or two while he was in between his next thing. So, I\u2019ve really grown up around real estate, but I never really did anything with it until 2019. But I\u2019ve been around it my whole life.<\/p>\n
I had a similar experience where I had a mentor, Tim Rhode, when I was 18, 19 years old. We\u2019ve had him on the show before. He was an agent that bought houses and flipped them and I worked with him for a little bit, but I didn\u2019t stick with it. I went off and I got into law enforcement and I just bought a handful of rentals and I never really took real estate investing seriously. I think there was something about that seed being planted though, that when I did come across an opportunity to get deeper into real estate investing, it was just pouring water on a sea that was there versus a lot of people that haven\u2019t ever had that seed planted. They first get exposed to it and it takes a while to germinate.
Willie, was it a similar experience for you? Did you already have real estate on the brain or was it when you met Paul that you first got introduced to this?<\/p>\n
No, so my story, I come from a financial background. I got out of school and got out of college and started my career in investment banking. So, I had the financial investment banking, like analytical experience and background and skillset. That was my background. And for me, it was I was just looking to find something. I didn\u2019t originally know what I wanted to get into.
For me, it was BiggerPockets is what piqued my interest. Just Googling around listening to different podcasts, found BiggerPockets. And basically, what interested me about it was I was looking for a way to get out of the profession, investment banking, finance. The culture is super tough and hard to sustain over a long period. I was pretty sick of it and just trying to find something I could do that I could make a good amount of money comparable to my salary. I wanted to obviously exceed where I was.
And for me, I saw the people that were really doing well in scaling and crushing it in real estate were the ones who were thinking about it at a high level. Thinking about it differently, thinking about it from an analytical and intelligent perspective and building systems and scaling. That\u2019s what really interested me about it was the numbers aspect to it. And I thought my experience from finance was super relevant. Not quite from looking at a deal standpoint, but from a analytical and system standpoint.<\/p>\n
That\u2019s really good. Now, when you two met, I\u2019ll start with you Paul, how did you meet? What was the relationship like when you guys first crossed paths?<\/p>\n
This is a good story actually. Met Willie at the party. We\u2019re drinking on this party bus. And my brother-in-law is like, \u201cHey, come meet my friend, Willie.\u201d Because at that time, I didn\u2019t have hundreds of entrepreneur friends that lived in Chicago. He was like, \u201cMeet my friend, Willie. He\u2019s another entrepreneur. You might like him.\u201d So, we started talking or whatever. And I think, we exchanged phone numbers, become friendly.
And then the second time we hung out, I was actually going skydiving with one of my friends. I like to do high-risk things. I have a lot of fun with it. And I texted Willie. The first time we hung out outside of this party, I was like, \u201cDo you want to go skydiving?\u201d And so, we went skydiving the second time we hung out. It was me, him, and another friend, so that was the first time we hung out outside of this party. I thought we just started this thing with a bang.<\/p>\n
Did you guys each have another dude strapped under your back or were you experienced skydivers to where you could do it on your own?<\/p>\n
We had grown men strapped to the back of us. It was hot.<\/p>\n
Yeah, that will actually create a bond between two people. I\u2019m sure that just massive crazy dopamine rush of jumping out of a plane is going to shake you out of your comfort zone a little bit. And then you look over at that person and they just went through the same thing. And you lock eyes, and you\u2019re like, \u201cThis is the beginning of a bro-mance.\u201d
Now, how did you realize that your skillsets were going to be complimentary? Willie, from your perspective, it sounds like you\u2019re very comfortable with numbers, models, even a degree of risk. I\u2019m sure if you\u2019re working in the financial industry that you weren\u2019t like a typical W2 worker who says like, \u201cAh, you mean I don\u2019t get a paycheck guaranteed,\u201d and they just can\u2019t get out of that? You are probably used to dealing with mitigating and analyzing risk as part of an overall model. So, you\u2019re almost bred to be ready to be good at that form of real estate investing. What was it like when you met Paul? What was appealing about him as a partner?<\/p>\n
Yeah, so I obviously have a very different background than Paul, so financial modeling systems, analytical. Paul comes from a sales, eCommerce, marketing background, so he\u2019s super strong from this. What I found is when I started the business is like I got started in land investing and then listing property on a website, so that\u2019s the origin of where it started. I tried to sell a lot of properties cash. And then realized that once I created a website and offered owner financing, that\u2019s really when things started cooking and doing really well for us or well for me. And then the eCommerce aspect is super unique to our niche and what we built. I don\u2019t know if there\u2019s any other real estate niches eCommerce and marketing heavy as what we\u2019ve built.
So, just seeing it from that aspect and just meeting Paul at that party and him just talking about marketing sales ideas that he had. I mean that\u2019s really what interested me in working with Paul because he had that experience and that skillset of optimizing listings, marketing, paid ads, that background in Amazon. It wouldn\u2019t have worked if he had come from a finance background because that\u2019s where I come from and that he wouldn\u2019t have been able to provide any value from there. But the fact that he used to do door-to-door sales, he used to go door-to-door, I think it was B2B pharmaceutical sales. And coming from the eCommerce Amazon background, that\u2019s just high-level entrepreneur doing big things from a very different perspective, that\u2019s really what made it work. So, the complimentary skill sets is the only thing that really made our partnership thrive.<\/p>\n
Now, how did you two decide on raw land? Was that one of your proposals or did you both come into that decision together?<\/p>\n
No, so the story is that Willie was doing this, he had I think one or two VAs at that time. He was doing this for two or three years before we crossed paths. And then he was telling me about what he was doing and as soon as he told me, I was like, \u201cThis is the coolest thing I\u2019ve ever seen or ever heard of.\u201d And then I started looking into it and I was like, \u201cWow. There\u2019s so many opportunities for me to take my knowledge and skills, combine it with what he\u2019s doing and really build a true brand.\u201d
And really take this thing to levels that we today can\u2019t even fathom that we\u2019re at already. But it was just seeing this opportunity because he\u2019s doing the same thing in the space for many years and I never even heard of this thing. And then I look at it, outsider looking in, I\u2019m like, \u201cWhoa, there\u2019s a lot of things we can do here.\u201d And that\u2019s how I got started. So, he had a lot of experiences before I jumped in the mix.<\/p>\n
So, Willie, what was it about raw land that caught your attention to the first place?<\/p>\n
I was originally working in Boston and I was listening to all these podcasts with house wholesalers and flippers. And so, that was the original angle that I wanted to go down because it just seemed like the natural path. The only way at that time of what I thought to make active income in real estate rather than buying a property, sitting on it, earning some residual income. So, I started looking down the wholesaling flipping path. But for me, I was in Boston at that time working and I knew that that\u2019s not the market that I wanted to be in. And I was also listening to a lot of people struggle with the marketing side of it.
I continued to listen to podcasts and find different avenues in real estate that could potentially work. And so, I stumbled upon land and what attracted me towards land compared to houses is the fact that it can all be done virtually. You can analyze a property all behind the computer screen looking at Google Earth. I could buy a property in California, Florida, Texas, wherever, all from Boston. That was the original thing that attracted me. I didn\u2019t have to go onsite to a home, inspect a home, make offers in living rooms with sellers.
And the second thing that attracted me towards land was the margins of what people were able to buy it and sell it for. So, I heard of people selling lots or buying lots at $0.10, $0.15, $0.20 on the dollar and flipping it for 100 cents on the dollar and $0.90 to 100 cents on the dollar. And I just from my background return on investment from, even though the numbers were maybe a little bit smaller than houses, it\u2019s just the total return and the low barriers of entry. You could buy a lot for five grand, sell it for $25,000 for example. So, lower barriers of entry, lower capital commitments, all done remotely and the ability to scale it as well because again, it\u2019s all behind the computer screen. It seemed a lot easier to scale than maybe some other niches because of the virtual aspect to it.<\/p>\n
What is it about land\u2019s margins that are so favorable?<\/p>\n
Yeah, so I can get into why our business model exists because it leads into the margins. But basically, we\u2019re able to acquire lots from sellers, like I just alluded to $0.10, $0.15, $0.20 in the dollar. And so, the reason we\u2019re able to do it is, and we play in a price point that\u2019s typically less than 50,000 bucks, so where we\u2019ll sell a property. We play in generally on the lower end of the land market. For one, it\u2019s a lot harder to get deals in metro areas, but two, the margins are way better at the lower price points.
Sub-50,000 bucks, a buyer will not be able to get a loan from a traditional bank. Banks are unwilling to land on vacant land. They don\u2019t like the collateral. Administratively, it\u2019s very difficult. If there\u2019s a default, they don\u2019t know how to resell it.<\/p>\n
Let me interrupt you quickly. Yeah, I need you guys to come up with the name for the moment when the newbie investor first realizes they can\u2019t use a 30-year fixed rate Fannie Mae loan to buy raw land. There\u2019s always this moment like, \u201cWait. What?\u201d The assumptions, I mean, \u201cOh, I could buy it for 15 grand and put it on a 30-year note.\u201d And then when they realize it doesn\u2019t work like that, it\u2019s always heart crushing. Do you come across that very often in your experience?<\/p>\n
Yeah. When I first got starting real estate, I thought banks would just give you money. You show up with a pen and your driver\u2019s license, that was my impression of banks when I first got started. Turns out, it\u2019s just not the case.<\/p>\n
Not the case, right? That\u2019s exactly right. Okay, go ahead with where you were. I know there\u2019s someone listening to this like, \u201cOh, man. I could buy a land for a 30-year and they\u2019re doing the math in their head, their mortgage.<\/p>\n
\u201c$100 a month, 30 years?\u201d<\/p>\n
There you go.<\/p>\n
But yeah, banks are unwilling to lend in the space. And at the price point that we operate in, title companies charge significant costs and realtors also charge significant costs as a function of the purchase price because realtors have minimum.<\/p>\n
Yeah, they\u2019re not going to work for 3% on a $15,000 lot.<\/p>\n
Right, so realtors are forced to charge a higher price as a proportion of the sale price and then, also, title companies do the same. And also, just to add onto that, realtors are not incentivized to market and sell property at the price point as well. One, it could be far for them to drive out to compared to a house that\u2019s in town that\u2019s closer to where they live. And then just also, they\u2019re not incentivized to do so because the commission is so much lower.
The market from all sides is just fairly broken. Sellers are willing to part ways for a property at a fraction of what it\u2019s worth. We deal with a lot of people who inherited properties, don\u2019t know what to do with it as well and motivated sellers. But in addition to that, the industry being fairly broken from a financial standpoint, from a incentive standpoint, from realtors, sellers and title companies allows us to hop in there and purchase property at major discounts.<\/p>\n
Walk me through briefly and I\u2019ll have you answer this, Willie, then I\u2019ll get to you Paul. What is the process like at a 30,000-foot view of how you go from buying land to how you\u2019re going to go to sell it? I\u2019m sure there\u2019s some developing that\u2019s taking place in the middle, right?<\/p>\n
Yeah, so the process is we buy property from traditional marketing that you\u2019ll see in most other real estate niches, so we\u2019ll do cold calling, We\u2019ve got a team that does cold calling. We send out a lot of direct mail as well to get offers in front of people. We actually send out, offer prices on the purchase agreements that we send out in the mail. And so, we\u2019ve got a sales team, the acquisitions team that closes the deals, negotiates deals, get good prices. And then we\u2019ve got a due diligence and closing team that closes the transaction or works with title companies to close the transaction.
Once we own the property, we list it on our website, discountlots.com. And from there, we basically run paid ads. We do a lot of marketing. A lot of paid marketing, organic marketing to drive traffic to the website. And then, we\u2019ve got a sales team of about 15 people that basically just, they\u2019re calling the leads, working the leads and closing the sale. From there, they generally enter into a contract to buy the property.
Again, the problem that we solved is that there\u2019s no financing available for lots at the price point that we operate, so we actually offer the financing. We unlock this unlimited demand of buyer base of people who want to own property, but haven\u2019t been able to afford it and pay cash. We offer it on low down payments, low monthly payments over a period of seven to eight years on average. And yeah, we\u2019ve got a customer service team that handles the customer after the point of sale.<\/p>\n
Okay, so once you close on the property though, what are you doing before you\u2019re going to sell it?<\/p>\n
That\u2019s the beauty of our business is the value that we\u2019re adding is the financing piece, so we\u2019re not a finance company. We sell on installment contracts, 0% interest. But the value that we\u2019re providing is we\u2019re fixing up the property. Not that we\u2019re adding a fence or cleaning up or paving in roads. We\u2019re not doing any of that. The value that we\u2019re providing is from the installment sale contract.<\/p>\n
Yeah, let me simplify it. In the simplest form, I guess for the audience and for what we do, is basically we buy properties off market from landowners at major discounts because of these market inefficiencies. Grandma died. Left you a piece of property in Joshua Tree, California. You\u2019re paying taxes. You don\u2019t want anything to do with that. You live in Chicago. You\u2019re paying a couple of hundred bucks in taxes. You don\u2019t want 40 acres in the middle of the desert, but there\u2019s a lot of people that do.
So, we\u2019ll buy it from them. Make it really easy for them to sell their property to us. We\u2019ll buy it from them for cash. And then we have our website, which we consider almost a platform of traffic and people come to the website. They find a property they like, so that 40-acre property. Come to our website. It\u2019s as easy as putting their credit card into our website. They can check out a full eCommerce experience. Work with a salesperson, not work with a salesperson. They check out and as soon as they check out we\u2019ll start billing their credit card on a monthly payment and they can use the property while they\u2019re making the monthly payments.
It\u2019s almost I think like rent-to-own, so they\u2019re making monthly payments and then our average note, so we\u2019re holding all the notes. That\u2019s what our big value add is. We have a huge portfolio of people making these monthly payments and we\u2019re charging their cards on this monthly payment. Then, it\u2019s almost like a rental portfolio, but the rental portfolio ends. There\u2019s an expiration date on that unless they stop paying and we sell it again. But we\u2019re basically collecting. We\u2019re collecting passive income on vacant land. And then once they make that final payment, then they have full ownership of that property. Does that make a little more sense?<\/p>\n
Let me see if I understand. I think I do. You guys go find properties and buy them below market value, so that you can own them free and clear from your perspective. Maybe you raise money to do that but your company owns this lot, right? That you bought with OPM of some type. Then you sell it to somebody, marked up from what you paid for it, but still probably less than they would have to pay if they went to go try to find it on the open market.
And it\u2019s easy for them because they go right to your website. They don\u2019t have to go to whatever realtor in town happens to sell land and try to figure it out and go through that process. Then you make it even better for them because they can pay buy it on terms, in a sense. Is there a down payment they\u2019re going to pay or is it just?<\/p>\n
Yeah, it\u2019s really easy. Basically, it\u2019s a low down payment like the lower priced stuff. It\u2019s $1 down, $300 document fee, so 300 bucks to get started. In our average contract, price is around like 250 bucks. I think our lowest is 180, so we\u2019ll just charge their card 250 bucks for average eight years. Some of the terms are 10 years and it\u2019s just on a recurring payment. And then they can go and use the property.<\/p>\n
Now, they can use the property or are they buying the property and they\u2019re taking title to it?<\/p>\n
They don\u2019t get title. It\u2019s a land contract, installment contract, so they can use the property while they\u2019re making the payments. If they wanted, for example, go and build a house on it today, those buyers are going to come to us and they\u2019ll probably get a traditional construction loan and then take it out from us. Because it doesn\u2019t make sense for them to start building if they don\u2019t have ownership of it, because from the buyer\u2019s perspective, it doesn\u2019t make any sense.
We\u2019ll get people that want to go dirt biking or shoot guns or want to just put their airstream out there, camping, you name it. Our plethora of stuff people do with the lots will bend your imagination. People want to have horses and they want to have a stable for their horses, all kinds of stuff. And it\u2019s as easy as just charging the credit card.<\/p>\n
That was my next question is, I assume this was for real estate development, but if a lot of them are not actually developed real estate?<\/p>\n
It\u2019s the opposite, opposite.<\/p>\n
This is some land that you could be hunted on that you guys buy and somebody wants to, whatever we\u2019re going to call this, buy it, for lack of a better term, lease it from you, and then they get the right to use it for hunting or for whatever they\u2019re going out there to do. Camping, putting their RV on, and maybe they can run a business that way. They make it into like they put several RVs there and then they turn them into glamp sites or something. Is that the idea?<\/p>\n
Yeah, more or less, exactly.<\/p>\n
Awesome. So, first off, I\u2019ve never heard of anyone else doing this. You guys might be the only people in the world that thought of this, so kudos to you. Because Brandon Turner and I used to say it a lot when the market got hot and hard, you don\u2019t find great deals, you make great deals. Now, it\u2019s very hard to make great deals. Now, you got to design great deals. You have to be creative in the market we\u2019re in now because resources are so scarce and interest rates are so high. You have to find a creative way to help people make money rather than just like, it used to be super simple. Go buy a house, make a cosmetic rehab, sell it for more.
And then it became buy a house, make a cosmetic rehab and a deeper rehab and add units and then rent it out. And just as this has become more and more competitive, it\u2019s becoming more and more difficult to figure out ways to make profits. So, you guys are doing something that\u2019s awesome here. Once you figured out this is what we want to do, what were the first steps you took in scaling what the system would look like? I\u2019ll start with you, Paul.<\/p>\n
What we were talking about before, we\u2019re not the first people to do this by any means. I just think that we do it better. We\u2019ve created better systems and we\u2019ve scaled it much larger than anyone else just because we\u2019ve built this really strong infrastructure and we treat our business like a brand. And so, that\u2019s a little bit, you know. I don\u2019t want to take credit like that, we invented this business model. It exists. I think we\u2019ve just fine tuned it to a really high level.<\/p>\n
How did we think about scaling? Started the business first couple years. Did basically 150 something deals before, 150 deals a year before Paul and I started. And then when Paul and I started, it was just myself. I had basically one full VA and a few part-time VAs who were helping with the administrative side of it. Once Paul and I started working together, we really thought about scaling from a people standpoint and a system standpoint and taking the business super seriously. So, I think we, at that point, like 150 deals to at this point we\u2019ll try to finish this year around 1500 deals, so basically, 10X the business in the past three years.
The way we did it is largely by plugging in a lot of people into a system that works. I think one thing that we did that really changed the game for us is building out a sales team. Before, it was mostly myself handling a lot of the sales calls and then we built out this team. We started running a lot of paid marketing, getting a lot more leads in the door, driving a lot more traffic to the website. And we basically made a big mess and so we needed to start thinking through how to scale smartly, intelligently. We\u2019ve hired a few business coaches at this point and we\u2019ve implemented EOS.
We manage our business with a lot of KPIs and we manage over 250 KPIs that we track on a weekly basis to make sure that each person in each department is hitting the numbers that they need and so that we can oversee and understand reporting at a high level. At this point, we have over 60 employees that run all sides of the business. And so, it\u2019s really the people in the processes that allowed us to scale from where we were at when we first started, 150 deals a year to around 1500 deals a year. I think that that\u2019s primarily what happened.<\/p>\n
What\u2019s some of the risk involved here? If you buy a stinker and just nothing happens with it, what are the stuff you got to look out for? What\u2019s some of the risks that someone might not think is associated with buying this land?<\/p>\n
Man, before Willie and I started, he had a lot of good war stories. We don\u2019t really miss very often anymore just because we\u2019ve gotten so many reps in. When you buy 1500 properties a year and you sell 1500, so call it 3000 deals on the front and the back a year, it\u2019s like rinse and repeat at this point, but there\u2019s a lot of stuff you got to look out for. I got to see Willie smiling over there. Maybe you want to share some of those good war stories\u2026<\/p>\n
Yeah.<\/p>\n
\u2026 before I was around.<\/p>\n
Paul had it easy because I basically figured out all the mistakes and things not to do before he came on. I had bought property all over the country, I can\u2019t even tell you how many different counties and just learned that some property just doesn\u2019t sell. Some property just sits and sits and sits and you really need to go to where there\u2019s actually deals happening. The biggest mistake that I first made when I started was buying a ton of property in New Mexico, so I don\u2019t touch that. We don\u2019t really touch that state anymore, but we really got to go to where there already exists demand.
That was probably the biggest mistake that I\u2019ve made. But from a due diligence standpoint, this niche is super forgiving because we buy these properties so cheap. If you buy a property you didn\u2019t realize there\u2019s a flood zone, you buy a property that doesn\u2019t have an easement, that doesn\u2019t have any road access, you\u2019re still going to be okay because you bought the property so darn cheap. And since we\u2019re able to solve a problem by offering owner financing and there\u2019s not a lot of offers in town, the product market fit is just so strong that you\u2019re going to be able to find a buyer for almost any property. There\u2019s only, I could probably count the number of properties on one hand, maybe two hands that I\u2019ve lost money on.<\/p>\n
I think we lost $3,000 or $4,000. It was the first time that we\u2019ve, together, in three years lost money. I think it\u2019s $3000 or $4000. We had this agent working for us, sorry, acquisitions guy that worked for us. This was his only deal. He didn\u2019t make it at the company very long, but this is the one deal and we were working with a real estate agent actually to help us comp it out. It was a higher dollar property. Not one of these cheap ones. I think it was a $87,000 purchase price.
And we all misread, like in Florida, certain parts of Florida, they have this thing called a DEP study, which is a Department of Environmental Protection and these studies will tell you how wet or not wet the property is. And this agent who we had done a good amount of deals with told us, \u201cOh, this is a great property, super dry.\u201d And looks at the study and she\u2019s like, \u201cYeah, this is a winner. You\u2019re going to sell this thing for 150 grand.\u201d And we\u2019re like, \u201cAwesome. This kid working for us is doing great.\u201d
Well, after we close on it, a couple of weeks later, she goes, \u201cOh, my God, guys. I\u2019m so sorry I misread the study and it\u2019s actually 87 or 85% wet. This is going to be a problem.\u201d And I\u2019m like, \u201cWe trusted you. Now, we don\u2019t.\u201d I think we had to take a couple thousand dollar haircut. It took a really long time to sell it, but we sold it. We closed on it. That was really in recent history where we took a little bit of a haircut. But Willie has got a lot of great war stories from back in the day.<\/p>\n
Willie, what are some of the big mistakes that were made that you just learned a painful lesson?<\/p>\n
Yeah, so one property, I remember when I was first getting started was the property, I was looking at it from an aerial view and you can\u2019t see the back of the property but it just dips, like dips. It\u2019s like a ditch. I bought a property. It only had the front 20% of the property usable. You can\u2019t build on it.<\/p>\n
The rest was just-<\/p>\n
The rest is just, it goes down.<\/p>\n
That\u2019s such a good point because when you look at surveys or you look at the titled company or a GPS satellite image, you\u2019re like, \u201cOh, look it\u2019s a really big trapezoid. This is a really big property.\u201d And you can\u2019t tell the actual, I don\u2019t know what the fancy word is for speech here.<\/p>\n
Elevation.<\/p>\n
Yeah, the elevation of the property. And I did the same thing buying cabins in the mountains where I\u2019m like, \u201cThis lot is huge.\u201d And I\u2019m all excited to go see and then I go and it\u2019s like, \u201cOh, I have 12 feet of driveway and then a house and there\u2019s nothing but complete drop off underneath it. It\u2019s completely unusable land.\u201d So, I can see how that\u2019d be very easy to do when you\u2019re buying out of state.<\/p>\n
Yeah, so that happens. And it actually happened a few times before I learned my lesson that Google Earth Pro actually has topography. You could actually look into it. Bought some lots that were in flood zones that you couldn\u2019t build, too wet. I bought a number of properties without road access. Those actually can be okay from time to time if you buy them right. But those are the primary issues that I\u2019ve had.
Usually, land is super simple. The inspection is nothing crazy. Unless you\u2019re buying lots for few hundred grand that you need to make sure you don\u2019t have any setbacks beyond X point.<\/p>\n
Septic issues. We learned a lot of lessons in Virginia and North Carolina. Those are states where\u2026 for example, you go to Texas or California and Florida. Florida, you got to look out for wetness. But perking and all this stuff, it\u2019s not that relevant to the properties. It\u2019s not really an issue. We\u2019ve tried to do deals in, I remember, Richmond, Virginia and Raleigh, North Carolina, for example, and we got our butts handed to us in terms of buying dogs. We still, at least broke even or made a little money.
But we buy it and then the real estate agent is like, \u201cThis thing doesn\u2019t perk.\u201d I\u2019m like, \u201cHow did you know that?\u201d He\u2019s like, \u201cWell, if you go to this page on this website at the county level, they have all the perking information. And this is makes it a not buildable lot.\u201d And we\u2019re like, \u201cHow the heck were we supposed to know this?\u201d As we\u2019re built this thing, you just get those scars and you learn. It\u2019s similar probably with houses and all that, but we learn it just, so now we\u2019re like, \u201cDo we really want to put a lot of effort into these areas where the barrier to entry is so high?\u201d Not always, because there\u2019s a lot of things that you could miss.<\/p>\n
Yeah, there\u2019s one more thing that is common to miss that we\u2019ve missed is properties can be in HOAs, Homeowners Associations and there\u2019s big fees and back liens on the properties. Taxes are easy to check, back taxes. Liens are a little bit harder because you\u2019re not always certain a property is in an HOA unless you investigate the area a little bit closer. I\u2019ve had some properties that I\u2019ve just had to let go to basically, go let properties go to tax auction because there have been big back liens on them.<\/p>\n
What I like about the story so far is you guys have freely accepted, \u201cWe\u2019re going to make mistakes. We\u2019re not going to bat a thousand.\u201d You don\u2019t know what you don\u2019t know. Part of running a successful business is getting your teeth kicked in, especially in the beginning, but it never stops. There\u2019s always a new thing that pops up or an employee that made a decision where they hadn\u2019t seen that before. They made a mistake. There\u2019s so many mistakes that happen in any good enterprise and a lot of investors have this, I don\u2019t know what it is that makes us think investing in real estate or running a business in a real estate environment will be different than everything else in the world.
Where like, \u201cAh, mistakes shouldn\u2019t happen here and you should just buy a property and you should go really smooth. And someone else should have been there to tell me every single thing that I would\u2019ve needed to know. And if one thing goes wrong, they think I shouldn\u2019t get into this.\u201d Where you guys are like, \u201cOh, no, no. We could write a book about all the things that we had to learn the hard way.\u201d But what I love is you figured out a way to mitigate that risk. You\u2019re like, \u201cWell, we make sure we buy at a certain price or we make sure that we have enough of these really solid ones in our portfolio to make up for some of the dogs.\u201d
So, what are some of the things that you\u2019ve implemented into this EOS system that you know are KPIs in your business? You\u2019ve got to get this thing right and if you do, the rest of it will probably be okay?<\/p>\n
I wanted to add one thing you were going to say and then I\u2019ll let Willie go into KPIs. We got business coaches. I think he\u2019s out of his mind for the amount of things that Willie tracks. We have a high level executive coach and he was like, \u201cWhat the heck are you guys doing?\u201d And Willie is like, \u201cWe\u2019re going to keep tracking these.\u201d He\u2019s very numbers driven.
But what I wanted to add to what you were saying is about failing and taking risks. One of the things, the way that I\u2019ve run my life and the way that I do things and Willie is the same, is I\u2019d rather learn by doing and trying versus reading about a theoretical thing. And we\u2019ve implemented that culture into our business. So, now that me and Willie are not necessarily in the weeds on any of these deals, we give our employees a lot of freedom in terms of like, \u201cI\u2019d rather have someone go out and try some stuff and mess up,\u201d versus having to have everything perfectly aligned and have every question answered. I\u2019d rather let them make a mistake, learn from it.
We give our team members a lot of freedom to do stuff, so that they can try things instead of this rigid system. And I think that\u2019s been a little bit of our secret sauce is, you know. And we also seek to hire people that are of that same mindset, not super rigid and more, they think entrepreneurial. Maybe they think like a business owner. That\u2019s actually one of our company principles is thinking like a business owner and taking some risk. Not crazy risk, but having that company culture. And that goes hand in hand with not having this like, \u201cOh, my God, it has to be perfect.\u201d And that\u2019s when people get scared and they don\u2019t act.
And for the people listening, it\u2019s like some people don\u2019t want to act or don\u2019t want to get started because the stars have to align. When the reality is you could just jump in there. And if you take a calculated risk, okay, maybe you\u2019re okay with losing $500 or $1000. It\u2019s probably better to lose that $500, get that education, and learn and pick up and go again versus, \u201cOkay, this has to work and da, da, da, da, da.\u201d That\u2019s the piece that I wanted to add there. And I think it\u2019s really important that\u2019s just how we think and I think the results are there to prove that it works.<\/p>\n
Yeah, I don\u2019t think that it could be denied at this point that the \u201clearn by doing\u201d model is overall, you\u2019re going to learn more and you\u2019re going to learn faster than when you want to analyze something for six years before you take a step because you don\u2019t want to make a mistake.<\/p>\n
It\u2019s like people trying to time the market. You can\u2019t time the market or stocks.<\/p>\n
Exactly.<\/p>\n
When\u2019s the bottom? When\u2019s the bottom? Well, if you would\u2019ve just jumped in there and you average it out, you would have won anyways.<\/p>\n
That is a great point. Willie, what are some of the KPIs that you focus on from your end?<\/p>\n
Yeah, so basically, the way we break it down is we have 60-something processes in our business. And each process, like I think of a process like lead comes in, how does it work through the system? Or we buy property, what are the steps needed to close through a title company? What are the steps needed to close a property without a title company? Those are just some examples. We have 62 processes and each process has multiple steps. And at each decision point, and now, I\u2019m getting a little technical and I\u2019ll talk high level in a second. But each process has a decision point that may or may not be a KPI.
So, lead comes in, did we call them? Did we call that lead? What are the number of called leads versus uncalled leads? How many of those leads converted to an opportunity? And this is just from the acquisition side or sales side. How many of those opportunities converted to an appointment and how many leads converted to appointment to a sale? Just from that, we had X amount of leads come in, we had X amount of opportunities created, we had X number of appointments set and attended, X amount of deals closed. That\u2019s just an example. Each side of our business has a process until we manage a lot of those KPIs.
For me, I review the KPIs once a week. Again, we have over 250 KPIs and most of them are not important. So, I think a lot of your listeners should realize that there\u2019s only a handful that can do most of the work. For us, you can\u2019t oversee an entire 60-plus person company by listening. You can\u2019t listen to all the calls from sales, acquisitions, customer service, transactions, finance, et cetera. In order to just oversee and make sure that everyone is being held accountable, I just like to look, to see, \u201cOh, there\u2019s been three delayed closings this week that its closing date has been pushed.\u201d That\u2019s one of the KPI examples.
So, just managing a business from a high level, looking at all the numbers from all the processes is for me, it gives me a little peace of mind being able to manage the business and understand what people are doing. And what numbers, where the numbers are trending to make sure that we\u2019re going in the right direction. For me, it\u2019s the only way to manage a company at scale and be able to understand and hold people accountable and responsible for what they\u2019re supposed to do.<\/p>\n
If you had to sum up, \u201cIf we get this part of it right, we can make mistakes and the other parts will be okay?\u201d What are the most important parts of the business?<\/p>\n
I think and this is applies to anyone that\u2019s in real estate, and it\u2019s a clich\u00e9 saying, but if you buy the property, you can\u2019t lose. If you buy it at the right price and you buy it at the right location or whatever it is, it\u2019s in my opinion, if you do the work upfront, you\u2019re going to probably be safe. It\u2019s doing it right in the beginning versus trying to fix it on the back end or you\u2019re going to sell it because you got better marketing. No, you bought it at such a low price and your basis is so low that it\u2019s hard to lose.<\/p>\n
That\u2019s a great point. Just buying it right. If you buy it in the right area where there\u2019s demand, every other mistake can be figured out and your business is going to be okay, right?<\/p>\n
I guess. Everything will be okay.<\/p>\n
Yeah. The key to our whole business is that we\u2019re buying land at discounted prices. The product is good. We\u2019re buying good land at good prices. And so, a lot of our mistakes are going to be forgiven because we did the only thing that mattered.<\/p>\n
It\u2019s a mistake that not just forgiven, but it doesn\u2019t collapse the entire business if you make that mistake. Whereas if you pay too much for the land and you can\u2019t sell it that would collapse the whole business. The whole thing would freeze. I\u2019ve just noticed there\u2019s certain mistakes that you\u2019re going to make. And a lot of people put their attention on that part. They just focus on the wrong thing. They try to get operations perfect or they try to make the experience as smooth as it could be and they don\u2019t actually buy the properties right or they don\u2019t buy the right areas.
And so, that\u2019s why I\u2019m asking that question because every business has a thing, you get a better return on for doing well. And many people focus on the wrong part of that thing or even worse, they end up just following someone else\u2019s blueprint that is completely unrelated to their own skillset and their own strengths and then it doesn\u2019t work for them. So, with you two, what would you say each of you has to do well for the business to thrive? Paul, I\u2019ll start with you.<\/p>\n
I think for me on my end, it\u2019s changed over time as we built a team. When we first started, it was doing the marketing, doing the sales, and making sure that all that\u2019s running smoothly. And now, that we have a sales manager and we have a whole team for marketing, it\u2019s shifted. So now, it\u2019s more like being the visionary. I\u2019m more of the visionary. Willie is the integrator. So, where\u2019s the company going? So, we decide, it\u2019s going this way. Willie is the one that\u2019s going to make sure as the operations, that the operations are going there.
My primary role is visionary and figuring out where do we need to march towards as well as, \u201cOkay, we want to march towards this.\u201d What relationships do I need to create outside of our organization that will help us get there? And who do we need to be networking with? Where do we need to be going? Who do I need to be reaching out to help us get to that destination? That\u2019s what my primary focus is.<\/p>\n
And Willie, when you get to that destination, what are you doing?<\/p>\n
When we get there? Doing a little dance. No. What do you mean when we get to where? Like hit our goals or how do we get to our goals?<\/p>\n
The story that I heard Paul saying is basically you have this army and he\u2019s going to go like survey, \u201cWhere should we move the troops? Where\u2019s the opportunity? How am I going to speak with the locals when I get there? What alliances do I need to make?\u201d It\u2019s like, \u201cThis is where the biggest opportunity is.\u201d And then it\u2019s identified and he\u2019s going to figure out, \u201cHow do I get us from where we are to there?\u201d
And then when you get there, Willie, you jump in and you\u2019re like, \u201cAll right, I\u2019m going to make sure that when we\u2019re here, we\u2019re doing things the right way. We\u2019re buying the right properties. We are getting enough stuff in the pipeline. We\u2019re selling them at the right margins and we\u2019re tracking what\u2019s going on.\u201d Do I have that wrong?<\/p>\n
Yeah, well, I guess the getting there is a journey in itself, so I think making sure that we have the right data systems. I also handle finance. Making sure that everything is we\u2019re well-capitalized, our reporting is good. Just making sure that our CRM is what we needed to do. Right now, a lot of my time is spent dealing with, we\u2019ve got three to five developers working on our CRM at one point. So, making sure that we\u2019re building it, making sure that we\u2019re hitting our KPIs, making sure that nothing gets lost. There\u2019s a ton to do and a ton of organization that\u2019s needed for us in order to just keep building and keep chugging and keep growing to hit the goals that we want to hit.<\/p>\n
All right. We\u2019re going to move on to the next segment of our show. It is the Deal Deep Dive. In this section of the show, we\u2019re going to dive deep into a deal that you guys have done and learn the specifics of it. So, question number one, what property is this?<\/p>\n
Sure. I just pulled up a random property that I think we sold right before this show. One second. This is a property in Southern California and this is Los Angeles County. I\u2019m just pulling it up on my scree, so I can look at it. I have the numbers in front of me though. This is a property in California that we purchased for $6,300 and we purchased it with cash. It is located in a\u2026 let me see, I\u2019m just pulling it up. It\u2019s on a paved road in California. It is two and a half acres.<\/p>\n
And how did you find this particular property?<\/p>\n
This property, for example, is in one of our areas that we just have been doing deals in for probably five years. It\u2019s just an area we know super well in basically, outside of Los Angeles, California. The way that we run our business is we have different areas. We treat our business, properties like inventory, like as of a store was stocking it. California is our main markets in certain areas, and so, this is an area that we \u201crestock.\u201d We look at each property as like a stock. This is just an area that we do business in regularly.<\/p>\n
Okay. And then you mentioned you paid $6,500 for it?<\/p>\n
$6,400. That\u2019s great.<\/p>\n
Okay. And then is there a story how you negotiated or did someone on your team do that?<\/p>\n
Yeah. This property, I think we probably sent out a mailer and then our mailers go to either a live acquisitions member or it will go to our answering service. And then from there, we basically have a system to review the deals and if we like the deal, someone will go and call them and negotiate. And so, it\u2019s probably negotiated by someone from the team.<\/p>\n
And then you\u2019ve already mentioned you funded it by being cash. So, what did you do with it? How did you exit this property? How did you sell it?<\/p>\n
Sure. We sold this property for owner financing terms, so like we talked about before. We posted it on our website and maybe it was featured. Maybe it was a featured property of the week, I\u2019m not really sure, but property was posted. Someone, a sales agent, helped the buyer find this property and they went to the website, put their credit card in and started making monthly payments on it. So, we sold it on owner-finance terms.<\/p>\n
Okay. Awesome. Now, I see the outcome there. Was there any lessons that you learned from this deal?<\/p>\n
This particular deal, no. This is just a cookie cutter deal for us. This is a little bit higher of a purchase price than our average. So, just I\u2019m sure you want to go over the economics of it.<\/p>\n
You mentioned that okay, you bought it for $6400.<\/p>\n
I only told you what I bought.<\/p>\n
That\u2019s true. What did you sell it for?<\/p>\n
Sure. This property, the person checked out and the terms were, had it in front of me, I think it was 269 x 120. Sorry, $269 for 120 months, which is $32,000.<\/p>\n
They bought on a 10-year note, basically?<\/p>\n
Exactly. They\u2019ll make the monthly payments.<\/p>\n
And that\u2019s 0% interest you said you guys are doing?<\/p>\n
Yeah.<\/p>\n
That\u2019s pretty cool. So, we\u2019re done with the deal deep dive, but I want to ask you, how big of a concern do you guys have with inflation when you\u2019re selling most of what you\u2019re selling on terms?<\/p>\n
Inflation, in what aspects?<\/p>\n
Like if you\u2019re selling it for $32,000 but they\u2019re paying it over 10 years, the money you\u2019re collecting 6, 7, 8 years from now could be significantly less than what it\u2019s worth today if inflation continues to get bad. Is that something you guys are taking into consideration when you\u2019re doing these deals or are you just, \u201cNo, we\u2019re going to make our money back in the first two years, so anything on top of that is just icing on the cake?\u201d<\/p>\n
Yeah. That\u2019s actually great. We talked to investors and all these people, no one has actually ever asked us that question before. It\u2019s a great question, so maybe Willie has a different answer because we\u2019ve never been asked it. But my response to that is that we look at it like, \u201cOkay, we\u2019re going to make our money back in one and a half to two years on average, and then every payment after that is profit.\u201d I wouldn\u2019t say it concerns me very much and I\u2019d love to hear what you have to say about it, Willie.<\/p>\n
Yeah, so I think mean there\u2019s two sides of it. We carry the note, yes, the value of the note decreases with inflation, so that is a consideration. But one, like you said, we do get our cost back super quick. On average on our whole portfolio, we\u2019ll get our cost basis back in about 16 to 18 months, so we\u2019re de-risked from that standpoint. Margin is super good. Everything after that is profit.
And the second thing is, the other side of it is that, and we can get into how we\u2019re financed, but we carry a lot of debt. So, you can think of us, our model is that of a finance company. We raise debt and then we issue basically credit. It\u2019s an installment contract, but we\u2019re holding notes in a portfolio, so the value of our debt also goes down with inflation. It\u2019s two sides of it. And the one thing that always goes up is the value of our inventory, the land that we own. Right now, we\u2019ve got 700 lots that we own that as inflation happens, the value of those properties are only increasing.<\/p>\n
Which decreases your risk in the case of someone stops paying and you have to go, \u201cTake it back.\u201d<\/p>\n
Right, so from that standpoint, I could also talk about that and touch upon it. But we don\u2019t take on really much credit risk at all because we own the property while customers are making payments. We keep the title. Like we said, it\u2019s a rent-to-own type contract, so in the event of a default, we already own the title. There\u2019s no foreclosure costs, there\u2019s no legal fees. Maybe some operational costs, but nothing substantial. We retain the payments and a lot of times the property has appreciated in the timeframe, the buyer has been making payments.<\/p>\n
What you\u2019re basically describing is you don\u2019t have to go to court and go through a foreclosure proceeding to take title away from the person who owns it because they stop making the payments. What is the process like if you actually have to? Do you just file paperwork and you immediately take it back if you can show that they violated their contract by stopping their payments?<\/p>\n
Right, so I just want to be clear, by all means, we want people to continue making payments. It\u2019s better for us, it\u2019s better for them. We want everyone to start to finish the contract. But for us, operationally, we send out a certified letter in the mail once they\u2019ve missed a payment or they\u2019ve entered into a event of default and then they have a cure period. After that cure period, we can remarket and sell the property if they haven\u2019t finished making their payment.<\/p>\n
Yep, but the point is it\u2019s super easy to do, so I like what you\u2019re saying. It\u2019s, \u201cYeah, inflation might hurt us on the upside, but it protects us on the downside because the money that we\u2019re borrowing from other people we\u2019re paying back with cheaper dollars than what we borrowed.\u201d And in a sense, you\u2019ve tied the risk, like every smart personal finance manager does. No shock, Willie, that that\u2019s what you did. You\u2019ve tied the upside and the downside to the same place. As one goes up, the other does and as one goes down, so you keep your risk low and that\u2019s very nice.
Plus you\u2019re doing so much volume. I don\u2019t think it matters as much as you guys thinking, \u201cHow much can we scale? How many of these properties can we buy and how many can we sell?\u201d As when you\u2019re only getting six or seven properties, how much inflation hurts you is very significant. But when you\u2019ve got 700 lots in counting the impact of that on your actual personal financial situation is not nearly as prevalent. So, it\u2019s very, very smart. I\u2019m impressed with what you guys are doing and I\u2019m also impressed with the creativeness of it.
Part of me is feeling like some of the secret sauce might be the website you\u2019ve created where it\u2019s actually incredibly easy for someone to just go in there and buy land with a credit card. I didn\u2019t ask you about that, but do you guys feel that\u2019s part of your advantage?<\/p>\n
I think there\u2019s not one single point of advantage. I think it\u2019s just probably just the reps that we\u2019ve put in and the stuff that we\u2019ve tried. And the finance piece of it, the platform piece of it of how we treat this a brand and this robust website with a full eCommerce team. And I really don\u2019t think it\u2019s one single thing. It\u2019s all of these things combined together and our drive to improve it every single day and have the best possible experience and people ask us about it.
And coming from the Amazon background, Amazon, when they started Amazon, their most important thing was the customer. For us, we\u2019re always thinking about the customer. How can we make this easier? How can we make it better? How can we provide better properties that people really want? And so, it\u2019s like if you look at it from there and then walk back versus \u201cHow can I make the most amount of money?\u201d Then you\u2019re going to make bad decisions that aren\u2019t good for the customer versus doing what the right thing is. And then if you do the right thing for the customer, it\u2019s going to make you infinitely more money than only worrying about driving profits.<\/p>\n
That\u2019s how life works. It\u2019s just what questions are you asking. Are you asking, \u201cHow do I make this easier for me?\u201d or are you asking, \u201cHow do I make this easier for the customer?\u201d And that applies to every business or vocation anyone can be in. If you\u2019re the title officer or the real estate agent or whoever who\u2019s like, \u201cOh, this guy is always asking for something else. How do I make it easier for me?\u201d No one wants to work with you. When you\u2019re the one that\u2019s always trying to figure out, \u201cHow do I make this easier for someone else?\u201d All the business comes to you and you can actually scale it like you guys have. So, I wanted to highlight that because I wish more people would hear it.
I really think that\u2019s the number one cause of most people that are frustrating economically is they\u2019re taking the wrong approach to how to make money. They\u2019re looking for a solution that does not require them to serve other people or so.<\/p>\n
And that goes back to my origin story of not being fulfilled or providing value. Every day, I wake up and we\u2019re building this thing that in my opinion is providing so much value in this real estate space. And we\u2019re providing a real service on the front end and the back end. And we\u2019re helping people that want to that maybe they have land and they just don\u2019t know what to do with it, or they\u2019re having a hard time getting rid of it.
So, we\u2019re helping people there and we\u2019re helping fulfill people\u2019s dreams on the back end of owning their dream property. Maybe they don\u2019t own a home, but it\u2019s pretty easy for them to go and put their credit card in and pay $200 a month and in 5 to 10 years they\u2019re going to own this thing that they can pass down to their children. That\u2019s the story that we hear all the time. And we\u2019re making those dreams a reality all the time. And we have awesome reviews. People leave us awesome reviews just about fulfilling their dreams.
And for us, I think that\u2019s super powerful. It\u2019s not about the real estate. It\u2019s not about making the money. It\u2019s like we\u2019re literally helping to change people\u2019s lives through real estate. And as corny as it sounds, it\u2019s really true. And we\u2019re providing a product that is super easy to have an impact on someone\u2019s life. Maybe they\u2019ve been a renter their whole life. Well, now, they have an opportunity to own something. And maybe, they don\u2019t have the financial acumen to buy a house, but they could buy this property. And now, they have something that they\u2019re proud of. They\u2019re fulfilling their version of the American dream.<\/p>\n
All right, we\u2019re going to move on to the last segment of the show. This is the Famous Four. In this segment of the show, I\u2019m going to ask each of you the same four questions we ask every guest. Question number one, we\u2019ll start with you, Willie, what is your favorite real estate book?<\/p>\n
Favorite real estate book I would say is, Am I Being Too Subtle? by Sam Zell. He\u2019s someone I\u2019ve looked up to for a long time. Great investor, maybe the best real estate investor of all time. I thought that book was super valuable, super inspiring story.<\/p>\n
All right. How about you, Paul?<\/p>\n
I don\u2019t know if this is weird, but I\u2019ve never actually read a real estate book. Is that that okay?<\/p>\n
Yeah. Of the people you network with, what\u2019s their favorite book?<\/p>\n
I don\u2019t know. I know what podcast people like. I know what YouTube channel is. I know all that stuff. You want to talk business books, I\u2019ve read a lot of them, but I\u2019ve actually never read a real estate book.<\/p>\n
Not a problem at all. You guys are writing your own book right now, so that\u2019s fine. The second question, you\u2019re going to like this, so Paul, what\u2019s your favorite business book?<\/p>\n
I like the business book, The Hard Thing About Hard Things by Ben Horowitz, who\u2019s from Andreessen Horowitz. Because there\u2019s a lot of books that I\u2019ve read that are maybe business, but they\u2019re like how to change your life. This is a hardcore business book of what\u2019s it like running a multi-thousand person company. And you\u2019re going public and then your stock prices tank and how do you manage that outcome? So, that\u2019s my favorite business book.<\/p>\n
All right. Willie, same question. What\u2019s your favorite business book?<\/p>\n
I was thinking about that one, too. That was definitely a good book. I like that a lot. I\u2019ll go with Made in America by Sam Walton, the story of Walmart. I guess I like these stories of super inspiring people doing cool things. It was very well-written and another inspiring business book.<\/p>\n
All right. Paul, what about your hobbies?<\/p>\n
Hobbies? I am an avid tennis player, so that\u2019s one of my hobbies. My other hobbies is doing any water sports. I do a lot of wake surfing and jet skiing and stuff like that. That\u2019s one of the reasons why I moved down to Florida, so I could do more of that.<\/p>\n
All right. How about you, Willie?<\/p>\n
I have a few. I like playing chess a lot. I probably played chess every day after the Queen\u2019s Gambit. My uncle started playing, my dad started playing and they got me hooked, so I\u2019ve been playing a lot of chess.<\/p>\n
Do you have a score? Was it the Elo score?<\/p>\n
Elo?<\/p>\n
Yeah.<\/p>\n
I don\u2019t know what Elo is, but my chess.com score is just above 1500. So, good enough.<\/p>\n
I\u2019m going to smile and nod like I know 1500 is good or not. I have no idea. I\u2019m assuming it\u2019s pretty good because you seem like a smart dude.<\/p>\n
It\u2019s good, it\u2019s good. Yeah, so I like playing poker as well. I like playing tennis, being active, going to the beach.<\/p>\n
Do you guys play double\u2019s tennis like you play double\u2019s business?<\/p>\n
I\u2019ve actually only played tennis with Paul once, surprisingly.<\/p>\n
What would the strategy be if you two were playing tennis together? How would you be attacking the other team?<\/p>\n
I would just be demolishing Paul. Trying to shove the ball on his side of the court.<\/p>\n
No, no, no. You\u2019re on the same team in this.<\/p>\n
Oh, we\u2019re on the same team?<\/p>\n
Yes.<\/p>\n
I don\u2019t know. I feel like Paul has got a good serve.<\/p>\n
I think Paul would probably be distracting the opponents, talking to them, finding out what their goals are in life, what they\u2019re interested in. And you would be a cold calculated, anticipating the trajectory of the perfect shot and putting spin on the ball and finding their weakness and exploiting it, while Paul gathered the intel that you needed to do. That\u2019s how I see this relationship working.<\/p>\n
You\u2019re not wrong.<\/p>\n
All right. In your opinion, Paul, what sets apart successful investors from those who give up, fail, or never get started?<\/p>\n
Yeah, that\u2019s an awesome question. The big difference between that is just I think what we talked about earlier is the willingness to try things. The willingness to be okay with failure. And I won\u2019t go into super clich\u00e9 like a thousand, every shot you miss is a shot in whatever that quote is. But the biggest difference is like I said, is like you can go out there and you\u2019re willing to lose money or okay with the outcome of failing. But just taking every single opportunity that\u2019s put in front of you and treating it as a learning experience, whether it\u2019s a win or a loss. It\u2019s at the end of the day, it\u2019s something that\u2019s going to get you closer to your goal in the future. So, that\u2019s what I would say sets people up differently. It\u2019s just mindset.<\/p>\n
All right. Willie, same question to you.<\/p>\n
Yeah, I mean, I think it\u2019s pretty similar. Just when you have an idea or opportunity to take something on, just if you\u2019re educated enough and think it might work, just take the action, do the thing, and then learn later. I think one of the best things that Paul and I do is we have an idea and then, or how do we do the idea? And then we don\u2019t put too much thought into it. I think just execution without too much thinking. Don\u2019t overthink things. Being persistent.
Having courage. I think making good decisions while things are hard, while you\u2019re in the trenches and things might not be working right now and you still have to turn the corner to figure things out requires a lot of courage. So, I think having courage. Knowing that things are going to go wrong and embracing it. And just having the mindset and the opportunity to overcome it, I think that\u2019s how you get through things.<\/p>\n
All right. Paul, where can people find out more about you?<\/p>\n
I made a little website, paulhersko.com, and it\u2019s one of those link tree things. And there\u2019s a link to our fund if you want to do investing or there\u2019s a link to my Calendly if you want to chat and my LinkedIn. And I\u2019ve made it simple. Just go to that and you can contact me. All my info is there, paulhersko.com.<\/p>\n
All right. Willie, same question.<\/p>\n
Yeah. Same answer. You can go to williegoldberg.com, W-I-L-L-I-E-G-O-L-D-B-E-R-G, williegoldberg.com. We do have an investment fund if you\u2019re interested in investing in discount lots. We have Sunny Capital Group. If you\u2019re a credit investor, schedule a call with me. Go there. You could also shoot me an email. My email should be on there as well, just click the link. And look forward to connecting.<\/p>\n
I\u2019m curious if I\u2019m going to get more link clicks or will Willie get more link clicks?<\/p>\n
You\u2019ve got a competition. I can tell you guys might be lightweight competitive based on the tennis. All right, so if you would like to ask a question about raw land, now that we\u2019re going to be having Willie and Paul on scene Greene, go to biggerpockets.com\/david and ask your question about raw land. We will pick the best one and we will bring back Willie and Paul to answer it and then we will see who won the Click Wars.
All right, guys, thanks a lot for being here. I\u2019m going to let you get out of here. This is David Greene for BiggerPockets, signing off.<\/p>\n