The Land Geek Podcast #12

Welcome to the Land Geek podcast, your resource for information and tips to making money by buying and selling land. Let the Land Geek show you how to make a passive income by working smart, not working hard. Learn strategies and tricks to make money buying and selling raw land today. And here is the man that's gonna help you do that. The Land Geek.

Hey, it's Mark Podolski, the Land Geek at the land geek.com and I am honored, privileged to have with us again. You know him, you Love him. Duran. Frasereserveland.com and now you better go there because we're gonna know if you aren't there. Rural property finder.com Duran It's 118 here today. Record heat. What's going on in San Diego? I forget.

I. Gosh, I can't tell. It's horrible weather. I think the last I checked it was 75 degrees in the air. And then I think the water temperature somewhere right around 70. So terrible, I can't even imagine. I mean, if I could just be in, in Scottsdale for one moment, I'd be excited.

I dislike you.

Thank you.

I mean that in the most loving way possible. I just feel nothing except envy. All right, let's get started. I know you don't have much time. This podcast, we are going to discuss the very esoteric subject of notes, notes, note management, everything that has to do with notes. I know there's a lot of things out there about buying notes, discounted notes. There's like making money on notes. Notes, notes, notes. Everyone has an opinion about notes. What is a note, Duran?

A note is something that you hold in place of payment for a property, such as a contract for deed, a deed of trust, anything, any kind of instrument that you're taking payment on that you will eventually convey or have already conveyed with taking back a deed of trust, which is basically a marketable piece of paper that you could sell to somebody in exchange for cash or trade or whatever you plan on doing.

Right? Right. So I love notes. I have quite the note portfolio. Not trying to brag, I just do. And the reason I started doing notes, and I think I started really getting big into notes about 2007, was that at some point I just thought, you know what, it's, you know, buying and flipping and buying and flipping is great, but at some point I'm going to get tired of this and wouldn't it be great just to have a nice passive income stream coming in along with the extra cash of flips? In 2007 I did that and now I'M at the point where my passive income exceeds my daily expenses. So if I don't want to work for a month, three months, a year, as long as those people keep paying on their notes, I'm in good shape. Now, they do fall out occasionally, depending on how you structure your note. So how do you do your notes?

Well, of course, every. Every deal is unique. In this case. Well, we touched briefly before we started this podcast, basically about a deal that I closed today, one that was very interesting, and the dynamic of sales and how you structure a deal so each one would be unique. So in my case, one of my note sales recently, or one of my notes recently was. It was, I want to say I sold 2,000 acres for, let's just say, $250,000 on terms for seven years or eight years with a 9% interest rate or whatever rate I charge them, and then a balloon payment. So at the end of seven years, which actually, I think I'm not 100% sure now, but I think now those are not allowed anymore. I'm not sure the balloon payments are allowed. I have to look into that a little bit more. But someone brought that to my attention. So in this case, I structured the deal, and prior to that one, I had something very similar, and that one fell out. But I ended up foreclosing or taking the land back and then reselling it. And it ended up being a very profitable situation for me. And today closed escrow on the sale of that note. So I sold the note.

How much did you get? Do you mind sharing?

The note was roughly, I want to say, let's just say $150,000 was the balance of the note. And we sold the note for right around 115,000.

So what kind of discount did you give?

About a 25% discount, 30% discount.

That's pretty good. Pretty good. Total profit in the deal, or roi.

Roi. Let's just see. It's kind of hard to put the mathematics together, but let's just say I probably made about 300% return.

That's not bad. It's not bad. So you were getting so much a month on that note.

About. About fifteen hundred dollars a month.

You're getting fifteen hundred dollars a month, but now you're gonna take all the cash and be out of it. You don't have to take the risk of that fifteen hundred dollars a month going away. You get your 115. So it's worth taking the discount on the note. And now you can take that 115 and, you know, buy Some land from me.

Exactly, exactly. And that's what I'm so excited about, is the opportunity to work with you again, Mark.

And I'm very excited about it too. So no one likes taking Duran's money more than me. Even though he negotiates ridiculously well. I always end up being like, did I just lose money on that deal with him? But that's okay. That's okay.

That's. That's so untrue, Mark. It's disgusting. But just so all the listeners know, Mark and I went into business together. I want to say 2002, 2003. And Mark, I let Mark do all the negotiating because this man, I'll tell you, there's no one that does it better. Mark is the, you know, and he's known. I'm trying to think they had a title for him recently and I just heard it and I'm not sure what they called him, but he's the ultimate negotiator. So if you guys need some tips, don't talk to me, talk to Mark.

Yeah, I'll create a new, a new type. Of course, for that, it's Mark and Duran's negotiating 101. Actually, you know what's funny about that though is, you know, back in the day I think you could do old school negotiating and, you know, you could do sort of like this win, lose type negotiating. Today I don't, I think it should just be win, win, you know, I don't really negotiate that hard. It's like, okay, you know, because I really see it more like this is someone I'm going to work with long term. It's not just going to be a one off transaction. So why should I, you know, kill myself and kill that relationship for the last dollar, you know what I mean? How do you feel about it?

I totally agree. Relationship based negotiating is the way to go. I mean, I've, and it's funny, I tell people every day when I'm working on different startups or different concepts or ideas that the way I do business is basically through relationships. I don't do it through trying sell somebody or meet someone I've never met before and try to sell them on an investment or anything else. For me, it's all about relationships. So if I have an idea that I think is going to work, I'm going to go into my Rolodex, I'm going to find someone that I believe can either help me with the idea, would invest in the idea, and that's how I basically do business.

Great. Okay, so let's talk about our notes. So I buy a piece of land for, let's say $10,000, 40 acres, and I'm going to sell it for $20,000 cash. Okay. But I know that there's only a handful of people that would like to spend $20,000 cash on that piece of property. But there are tons of people that could afford, say, $1,000 down and $250 a month. Let's keep it at a car payment, usually 249. $250 is always a magic number. If you go over that number, you can. It's just your buyer pool gets a little bit smaller. Would you agree?

100%.

Okay, so then, okay, so we advertise that property and we say, you know, we'll give them two choices. You can do the cash price or do the terms price. Now, the terms price, because there's something called time value of money, right? Which basically means that today's dollar is worth a whole lot more than tomorrow's dollar. Right. And why is that, Duran, my economics student?

Inflation or hyperinflation, sir?

Inflation. Exactly. You're really good at this now.

Thank you. Thank you. Taught me well.

I'm trying to put you on the spot. Okay? Right. Inflation. 20 years from now, today's dollar is worth a lot less than that dollar is going to be in 20 years. Nevertheless, the value of property is also going to be worth a lot more too. Right?

Yeah, correct. You said less, but yes, more. Today's dollar obviously is worth more than tomorrow's dollar. Correct?

Right. So that way. So we can't sell that property on a note for $20,000 like we would cash. We might want to say $60,000 or $50,000 on a 20 year note. Correct?

Correct.

Because in 20 years, that property could be worth $100,000. So again, we're getting back into win win. Right. We've got an increased buyer pool that can afford the note. They don't mind paying the higher price because they can control 40 acres, enjoy it, improve it, do whatever they want on it for the next 20 years. And they're betting that in 20 years it's going to be worth a whole lot more than just $50,000. Correct?

That's correct. And I think if you look back at what we did in 2003-2004-2005-2006, when the market was hot, you remember that it didn't matter. What if we had price notes at 30 grand? We were getting 30 grand cash for some of these properties. So the dynamic is totally different now. And of course, like you said, you open up your buyer pool at a certain dollar amount, like, you know, 199 or 249. And certainly I think it there, obviously, the less you go, the more people can afford. And so there is an interesting dynamic of what happened in 040506 to a market like today where the cash isn't there anymore.

Right, Right. And unlike housing. Right. So let's say we buy a house for $150,000, and our mortgage on that house is, you know, $500 a month, and then we start renting it out at $700 a month. Well, we've got a tenant, right. And they can kind of mess up our house. So we've got to do a lot of due diligence on that tenant. We want to make sure they have the ability to pay $700 a month. So we do credit checks. Right. We do a criminal background check because they're going to be inside our asset and who knows what could they could be doing inside that house. Right. So that's why, you know, renting homes. Not for me. I rather sell land where what can they do to the land? They can't do anything to it. There's no maintenance, there's no tenants, there's no termites, there's no toilets to fix. Right. So I don't do credit checks. Do you do credit checks on your buyers?

Definitely no credit checks.

Right. And the reason can be is because our marketing is strong and we know that if that buyer ends up defaulting, we can quickly resell it. Where with a house, it's a little bit more difficult because now you have somebody who actually is living in that house and you have to go through a whole process to evict them. Correct. Because they're in a home. And emotions aside, I mean, nobody ever wants to have to go to somebody's house and kick out a family of four and a dog because they can't pay their rent. That is going to be an unpleasant situation. However, all the parties involved understand that if you can't make your payments on a piece of raw land, well, it still stinks. But no one's life is going to be really affected. You know, the kids don't have to change schools and, you know, no one's really affected. Would you agree?

Totally. 100%.

Yeah. So we don't have to do credit checks, which is. Which really makes our buyer pool much larger because we don't have to. We can work with everybody now when we do that. What's going to happen? Inevitably.

We'Re going to have defaults. I don't know.

We're going to have a lot of defaults. Yeah, there's me a higher percentage of defaults. I think in 2008, 50% of my note portfolio went bye bye. That wasn't fun. What happened to you in 2008? Were you doing notes in 2008?

Very, very limited amount of notes, but I did have, I probably had maybe 15 notes in place. And of those I think I lost about 50%.

Right now, on a deed of trust, you have to go through a foreclosure process even on a land note, Correct?

Correct.

That is expensive and time consuming. So we don't do deeds of trusts. We do something called a land contract. What's the difference between a deed of trust and land contract?

I think we touched on this on an earlier podcast. But a deed of trust.

Yeah, I'm sorry. That's all right.

We can talk about it again. I mean, I'm sure we have new listeners all the time. So deed of trust and land contract are basically different in the sense that a deed of trust is the property's deeded over and that deed of trust is an instrument in place that if the buyer defaults on payment, you can foreclose on the property. A land contract is the current owner stays the owner of the property and deeds the property over when that deed, when that contract is paid off. So whether it's a 15 year contract for deed or a 7 year contract for deed, whenever the last payment is made and the property is paid in full, that's when the transfer is made.

Right?

Right.

So it's much easier to get your property back on land contracts, and that's why we use land contracts. And I believe because the property stays in your name, that you can do a lot more land contracts than you can deeds of trust. With the new Dodd Frank Bill, I think we discussed that in the last podcast, so no worries there. All right. Okay. So let's get back to structuring our notes. Okay, so, you know, we buy the property for $10,000 and now we're selling it for $50,000 on a note. And what interest rate do you typically pick? Do you have a formula? Do you light board plus two or, you know, something like that? How do you do that?

To be honest with you, I'm very creative in the way I do it. It all depends on the property. Sometimes I'll charge 0% interest. Because what you can do is, let's say that you bought it for 10,000 and you could sell the note for, and you could sell the property for 35,000. But if you charge 50,000 and you charge 0% interest, it may be as, what's the word? As enticing to a buyer as charging 35,000. And again, depends on the competition, how many people are selling the same piece of property. But if there's no competition, if you've got a piece of land somewhere that no one else has and there's no real price, I mean, sure, you may be able to get some comps from two, three, four, five years ago, but there's no real comps. And you're sort of determining the price of the property and seeing, you know, throwing out the fish, fishing hook to see if anyone bites and you get a bite and they're willing to pay 50,000. They like the interest rate. That's great. Well, you look at it, you do the numbers at 35%, at 35,000, at 9% or 8%, it ends up being 50,000. So it just, it sort of depends on the property, if there's more out there. I try to sort of. I'm just, I look at the. I'm a numbers guy, so I look at every property, I look at the numbers I look at. I do sort of an. I have an algorithm formula that I basically look at all of the properties, what they're priced at, where I think I can get from a target perspective, price wise. And what I see is enticing to a buyer, which would be interest rates, terms, etc.

Right, right. What I do is much more primitive or basic as far as my analysis. I'll do what Dran does. I'll look at the unique attributes of that property, let's say, and the competition for that property. So if it's completely unique, then I'll price it accordingly as well as the terms, because I don't have any pricing pressure in the marketplace. That being said, because of velocity and I want to sell quickly, I will typically use my pricing as a marketing platform and keep my interest rates low and my prices very competitive just to get it sold quickly and turn over that property as quickly as I can. But that's me. And because I'm doing this full time as opposed to part time or the way Duran does it, two hours a week, you know, I want that activity, but, you know, everyone's situation is different. And depending on what you want to do with your piece of property.

You.

Really have a lot of flexibility in latitude in how you structure Your note, which is fantastic.

Yep. And I'll mention one thing, too, Mark, and I'm not sure if you do this, but one of the creative things that I try to do is when I list a property, I'll give discounts. So if somebody pays it off within five years, I give them a discount. So let's say the property's 10 grand over 15 years. If they paid off within seven, let's just say I give them 10% off that. So I give them 1,000 bucks off the property purchase price. So I basically cut the note down for the years. That makes sense. I haven't seen that done. I haven't seen that being done before, but it kind of came up recently in my thought process of whether it would be something that would entice buyers. I don't know if it's working. So it's sort of like one of those things where I've got to test enough. I've got to test enough sales to figure out whether it is good or not in terms of. And you get feedback from your buyers to find out, why did you choose this property? What makes you tick? So that's the things where it takes a process of selling 10, 15, 20 before you really know whether it's effective or not.

Yeah, you're generous. I don't do that. I do. Yeah, I do. 24 months, 25% discount. You want to just pay cash, a 30% cash discount, but after 24 months, I don't offer discount now, you know, that being said, you know, I'm not. I'm not crazy, and I don't stick, you know, to the letter. If it's the 27th month and someone else to pay off their note, I'll give them a discount. But I don't contractually obligate myself that way.

Yeah, no, I see what you're saying. And that's sort of you and me and our dynamics. Like, I'm kind of like the giver and you're the taker in the business relationship here. But, no, I'm teaching you, Mark. I think, honestly, I think it's one of those things where we just have our own process of how we do it, and we just try to change things up and see which works better.

All right, great. I know Duran's got to go. Duran, quick. Tip of the day.

Oh, dude, don't put me on the spot like this. Jeez Louise. Tip of the week. Why don't you start first? Let me think.

You know, I'm going to say, if you want somebody to Manage your notes. There's a great company out there, evergreen notes, servicing notecollection.com. if you're doing just a few notes, it's a great service. I think they charge like 75 bucks to set up the note and then it's like 10 bucks a month. And those fees, obviously you get passed on to the buyer, so it doesn't cost you anything. But it's nice. They keep track of all the math for you. And at the end of the year, they give your buyer a nice 1098 so they can deduct the interest from their taxes. And it's just a nice service if you don't want to get into note management.

And another little tip for me, I just thought about it. A little site called mortcare.com and that came from a generous person by the name of Mark Podolski.

I've got my hands up.

Mort Care, mortcare.com and the only dilemma with Mort Care is I'm a Mac guy and it does not have an application for Mac. It's only for for Windows, which is a bummer. So.

Yeah, but you know what I do? I have a little Windows PC I bought on Craigslist for 200 bucks. All it does is run Mordecare. And you know what? And I'm so against working on that computer. I actually go into logmein.com the computer is right next to me. I won't go on that laptop. I'll go on to it virtually from my Mac. That's quite the Mac snob. Should I be ashamed of that? Is that publicly?

Yes. Yes.

All right, Duran, thanks a lot. Hey, if you want to learn more, go to reserveland.com and ruralpropertyfinder.com Duran, thanks a lot. And if you guys want to learn more about me, go to thelandgeek.com that is t h e landgeek.com Download the passive income blueprint. If you want to buy some wholesale land, go to frontier propertiesusa.com www.frontierpropertiesusa.com in fact, we can talk about domain forwarding for another podcast because having somebody spell frontierpropertiesusa.com not the best thing in the world for marketing, but you know, the land guy would be easier to spell or something like that. Anyways, I want to thank everybody for taking the time out of their busy schedules to learn more land tips and tricks and how to make money with land notes. This is quite a vast subject and we can talk more about it. So thanks again. This is Mark Podolsky, the land geek. Thelandgeek.com signing off. See you next time. Bye bye.

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