23. Real Estate Investing – Land Buyer Q&A

Video Transcription

Adam: You called earlier, and we didn’t get to talk too much, but remind me what your question was, and we’ll go through it.

Jeff: Okay. I had a realtor call me and so far we hadn’t used any realtors for six purchases, and we just signed another five acre contract, it’s over finance. She brought a couple that wanted to buy six acres and I’m asking 210,000 or 35,000 an acre, and their offer in written form was 180,000. I countered that with 34,000 an acre and they countered that with 200,000 and then added in 2% for the realtor.

Adam: Okay. Let me-

Jeff: My question was, would you hold out for full price of, just forget this deal and hold out for thirty five thousand an acre, which is what it’s worth. That was our last sale, and the fact the five acres we just got a contract on, it has almost an acre of floodplain, and the six acres that this couple want has no floodplain. It’s clearly worth more than the five acre piece. I want to know, would you hold that? Get the cash now and we could reinvest it now or just wait and not stifle any future possible sales.

Adam: Yeah. Just to catch everybody up that may see this, Jeff is one of our buddies, he’s also a real estate investor. He invests in land and has been doing that off and on for a long time. He’s got a pretty big piece of land up North of Dallas, Fort Worth, what would you call it?

Jeff: Anna.

Adam: Anna. He bought the property with a partner and is cutting it up and developing it and then selling it off as lots. What’s your average lot size up there? Is it five acres?

Jeff: Six acres.

Adam: Six acres. Got it. Okay. What’d you buy? What was the total size of it again?

Jeff: 74 acres, almost.

Adam: 74 acres. He’s right in the middle of converting those and selling them off. This is the question that he had with a current contract he has. Let’s run back through it again. You had it for sale for 210 which is 35,000 an acre. They, the buyer with a real estate agent came back and encountered you at 180 and then you negotiated and you’re basically sitting at, did you say 204?

Jeff: No. I’m at 204 they are at 200 thousand plus 30% commission.

Adam: They’re basically trying to get you down to 196. Is what it comes down to. At 196 and how big is this piece of property that you’re negotiating?

Jeff: Six acres.

Adam: Six acres. Basically they’re trying to buy it for 32666 an acre. You like it and you’ve sold them at 35,000 an acre. What I would do Jeff, if I were you in… you guys have sold these other parcels fairly quick, right? What’s your… how long have you owned this property?

Jeff: We bought it in August 2018, but we didn’t put a road in it til March of last year.

Adam: In one year you sold how much?

Jeff: Last year we sold 1,039,000.

Adam: How many acres does that translate into of the 77?

Jeff: Let’s see, it will be 26 acres.

Adam: You’ve sold basically a third of it in one year. Which is pretty good for land. You guys are pretty quick. You said you guys have had a ton of activity even with, all of the COVID 19 stuff going on, you guys have still had plenty of interest in it, right?

Jeff: We’ve been getting… I’ve been showing 10 or more a week the last three weeks.

Adam: Are you literally driving them around the property? Is that what you’re doing?

Jeff: Since the COVID 19 they just follow me in their truck or vehicle. Some would come out when it’s pouring down rain and we’d get it out and look at it and they’d get out with her umbrella. Nothing discourages those buyers.

Lance: I don’t have a lot of experience with land, but I think it’s very similar to a new built neighborhood. Where one of the things those builders have to protect is that sell price, because the one time they make a concession to sell this one house, now there’s a lower comp in the area and that sets a precedent for future sales. Right.

Jeff: Right.

Lance: I would assume it’s very similar here. We’re not… that deviation here of 196 to 204 is really a lot larger than the eight thousand we’re looking at here because it has set a precedent for future deals too.

Jeff: When somebody does the comps, since it’s with the MLS agent, it will show up all the other ones before don’t show up because there was no realtor involved listed with MLS.

Adam: Jeff if you take away this property, they were talking about the six acres here, how much do you have left to sell? It’s still available to sell.

Jeff: About 20 acres.

Adam: 20 acres. If you take a discount now, on the one hand the good side is you’re getting the cash, because you said, how did you say, are they going to finance it themselves or are you going to finance it? You’ve done some owner financing here.

Jeff: They’re going to go through a credit union and I would get all cash.

Adam: It’s external financing. You’re not involved in the financing. On one hand you’re getting the cash and if you need the money or if you guys are… you have something right now that you need the cash for that’s a good option. What I think is a better option if you don’t need that money right away, is hold out for that 35 and you’re basically taking a discount of 23,34 per acre. If you multiply that by your last 20 acres that are still for sale, you’re talking about $46,000 that you’re leaving on the table potentially by giving, like Lance said, giving the real estate market a lower comp.

If it were us and if it were me and you didn’t need that money right now, I would let it sit back out of that and say, “listen guys, I don’t need to take a discount. I’ve got other people interested. I’m going to continue to show the property and see what happens.” If a month goes by and you don’t see something else come through that’s there and the market has changed a little bit, then maybe you go back to them or maybe you have to discount it a little bit. That’s what I would do.

Jeff: Since it’s the springtime, it’s the hottest season for selling real estate. Green. Especially out in the country. Everything’s blooming. The wild flowers are out. It’s perfect time.

Adam: When did you… the last contract that you sold at 35. When did you sign that deal?

Jeff: Today?

Adam: Today. When did you get under contract? When did you start that process with him?

Jeff: You mean the 35 acres? It’s probably been less than two weeks of probably ten days. We’ve been talking and negotiating and working through all their questions.

Adam: You’re coming into the prime season for selling and buying. The next six months I’ll give you a real good indication. I think I would sit on it and see what else comes. See if you can… you might even be able to push that number up a little bit. I wouldn’t take a discount for sure.

Lance: One other thing to take my example earlier about builders and kind of how they need… this is going to be a comp on the MLS. You need it to set a precedent. One of the things, and I’m just thinking out loud here, trying to be more creative than… obviously devices is whole true every… for the sake of being creative and being on this call using that same example as builders, which I have more experience with just the retail side. In those scenarios the builder will say, “Okay, here’s the deal. If you’ll let me show 220,000 sold, I will throw in these incentives.” Sometimes it’s many blind, sometimes it’s TVs, washer, dryers, whatever.

That’s all under the table. No one realizes the builder gave away $20,000 worth of crap. It just, it just looks like a $220,000 sell. Are there any other, any things that you could do? I mean obviously you’re in the business to get rid of this property and move on to the next opportunity. We still think you can do that by holding true and just saying thanks, but no thanks. Is there anything in the land game, any types of incentives? Maybe another piece of land where some of the… if that’s their heart, they’re like, “Hey, I can’t do it on this land, but there’s three acres in floodplain over here.” Is there some things you could do that would benefit you and still, get that good comp or get that it’s where everyone wins. Maybe not the, prime six acres or whatnot something else?

Jeff: The five acres, we just got the contract. It had almost an acre of floodplain on it. Whereas the six acres that they’re trying to chew me down on, it doesn’t have any flood dime.

Adam: Is there anything in your road or utility construction that you could throw in that’s not already done?

Jeff: The one thing that I always tell them since we put in a 15 foot wide flex space road for access to all the lots. Once all the lots are sold, I told them that we’re going to just come back and see if everybody’s still on board with asphalting it. You don’t have the dust or all the mud and your car won’t get need to be washed every time it rains. It’ll just be a lot nicer. It’ll just be a cost split between all 10 or 11 owners. It’ll probably come out to like around 10 grand a piece to get an asphalt road.

Adam: That almost offsets your discount there. Your discounts basically $14,000. You’re almost offsetting it there. That may be something you could do. You can say, come up four thousand and when we put this asphalt road in, it’s taken care of. That’s something. That’s all we got Jeff. We appreciate the question. We are Lance and Adam from… We buy houses fast in Dallas we the DFW house buying guys. If you have any other questions out there for us, definitely let us know.

Jeff: All right. Thanks guys.

Lance: Thanks Jeff. Great talking to you.

Jeff: You too Lance.

Adam: Bye.