Part 2:
The Essentials of Land Flipping
Table of Contents:
- Setting up your business
- Acquire Inventory
- Money to pay for inventory
- Selling inventory
- More to learn
Introduction
The hardest part of starting any business is the beginning.
How do you start?
What tools to you need to make your business a success?
What are the pitfalls that you need to know so you don’t fail right out the gate?
When I decided to make land my next business venture, I struggled with all of this. I knew a little about real estate, but the land business plays by different rules. I needed to know what was essential for me to start.
After watching hundreds of YouTube videos, reading more articles than I care to remember, and reaching out to a few people in the industry, I felt I had a good idea of where to begin.
I was only partly right.
I knew enough to get started, but I made so many mistakes in my first 5 deals.
Here’s the short list of all the mistakes I made:
- I picked the wrong markets
- I filled out the wrong paperwork
- I didn’t price my purchase price (or my sale price) accurately
- My letters were stock form letters
- I didn’t have an LLC so my wife had to sign too
In other words it was a mess.
Thankfully I was able to learn from my mistakes, correct them the next time, and create a thriving business.
I was lucky. None of my mistakes knocked me out of business. My hope is that you will learn from me and avoid all my mistakes, creating your business with less stress, less hassle, and fewer financial hiccups.
I’m going to show you how to set up your new land business from the ground up, how to acquire inventory to sell, how to pay for that inventory, and how to sell your land to eager buyers.
1. Setting Up Your New Business
Step 1: Know why you are investing
Why are you in the land business? I know that sounds like a dumb question, but it’s important that you start with your why. If you don’t know why you are starting any business, it’s much easier to quit when the business gets tough.
Your answer should be true to you, and don’t settle for easy answers. “I’m in business to make more money,” or “To make a pile of money” isn’t going to cut it. You need something more motivating because this will take time and effort, and at times you won’t want to continue.
So, why do you want to make more money? Is it financial freedom? Do you want more money because you don’t ever want an employer telling you where you sit or when to go to lunch?
Do you want more time with family? The ability to go to a child’s baseball game or play and not take vacation days? That’s motivating. That’s something you can remember when times get tough.
Step 2: Create an LLC for your new business
Stricktly speaking, this step is optional. But I highly recommend you take the time to do it for two reasons:
- Creating an LLC is a big step toward your dreams. You’re creating a new entity, something that exists specifically to make your dreams come true.
- You won’t have to have your spouse sign documents.
The first reason is the main reason you should get an LLC. If you setup an LLC, you are more likely to take the time to learn about investing in real estate. A new LLC is a big step. It’s a statement to your family and friends that you mean business and you will be successful at this.
The second reason is a small benefit. If you don’t get an LLC, you’ll have to get your spouse to sign all the documents when you buy and sell a property. That’s not a big deal if you are doing just a few deals , but if you are on your way to becoming a real estate investor, you’ll be doing 20 or more deals in the next few years. It will be easier on both of you if an LLC is in place. Better to plan for long-term success now, rather than wait.
Plus, it saves you time and family stress.
Disclaimer:
The rest of these steps are technically optional. If you are pressed for time or have severely limited startup funding, you can skip these and move to acquiring inventory. Be warned though, if you skip these steps, it WILL affect your bottom line and lower your response rates. In other words, skipping the next 4 steps will hurt your bottom line.
Step 3: Branding
You need a business name for your new land business. If you are taking my advice from step 2 and creating an LLC, they will require a business name. You will also need a business name for your mailers and emails with sellers and buyers.
Again, this is isn’t strictly required, but it’s a good idea to do at the start.
There are three things you need when setting up your business identity:
1) Business Name
2) Logo
3) Color scheme
Business Name:
Lots of new land businesses don’t give this much consideration. They pick a name that sounds cool to them and run with it. That’s not the way I’m going to teach you.
First, you need to think of a name. I’ve heard all sorts of terrible names from “Land Activator” to “Land Lovers” and more. When people think of these names, they are thinking in terms of what they think is cool or trying to be descriptive of them.
That’s the wrong way to think.
Instead, I want you to put yourself in the shoes of a seller. Try to imagine someone receiving your letter, opening it up, and seeing your company name and logo. What would make that person more likely to respond positively to your offer? What kind of name or logo would but them at ease?
Stay in the seller’s mindset, and look at these names. Which one of these would make you think that the company reaching out is more legitimate?
– Land Maniacs LLC
– Gotta Have Me Some Land Corp
– LandVest Corp
– Terria Land Company
When you look at the list, you either want your company name to stand out (That’s why I named my company “Done With Land, LLC” because it tells potential sellers the story in a phrase) or be so bland that it seems credible. You don’t need to get interesting or outlandish with the name. The whole point of a name is credibility.
Logo:
The same principles with the name apply to your logo. Do you need a logo? Yes, you need something that at a bare minimum visually represents your company, even if it’s just a stylized version of your business name.
Thankfully a logo doesn’t have to be expensive. There are plenty of places to get one including Fivver.com and 99designs.com.
Also, make sure your logo looks great in black and white as well as color. Often you will print the logo in black and white on your stationery. If it’s difficult to read or looks strange when it’s not in color, you should know that before you make a final logo.
Color Scheme:
Believe it or not, different colors evoke different emotions in people. The colors you choose will have an unnoticeable but tangible effect on buyers and sellers when they see your logo and collateral. Choose wisely.
A quick rundown of how different colors make people feel:
Blue – Stable, solid. Think IBM, Facebook, and Alaska Airlines.
Red – Caring, Passionate, Like fire. Think Nike.
Yellow – Supportive, Amiable. Think McDonalds and Best Buy.
Black – Eternal, Soothing, Royalty.
White – Trustworthy
Green – Trustworthiness, but also Reputation. Think Starbucks.
Brown – Comforting, yet serious
Gray – Sophisticated, yet polished
Colors also have subtle differences. Go with what you think will make your business stand out or represent who you are best.
In summary, make your business name sound legit by thinking about about a seller and how they would think about your business when first seeing it. Then apply those same principles to the logo and color scheme.
You might be tempted to skip this step, but you’ll regret it down the road if you do.
Step 4: Phones
An essential part of your land business will be through the phone. Buyers and sellers will need to contact you and many will choose to call you. While email will constitute the bulk of your customer contact, if you are running your business correctly, phone calls will run a close second.
My first tip is: Don’t want to use your personal phone. A land business is a business. You don’t want to use your personal phone. First of all, it can be hard to separate your personal phone calls from your business phone calls. That means it’s hard to know how to answer your phone when an unknown number calls you.
You don’t want to answer your personal phone as your business and you certainly don’t want to answer your personal phone with just a “Hello.” It’s unprofessional and you could quickly kill an otherwise great deal.
It’s best to separate your personal from the business. Purchase a separate number or a new phone for your business calls. At the very least you should have a different business number.
Now, what about when you need to answer your phone? Even if you have a separate business number, do you want to answer your phone at all hours of the day? That can lead to problems.
Imagine that you are out getting groceries at night and someone calls your number looking to sell you their land for a great price. It’s a bad first impression if you pick up the call in the deli and the customer hears the commotion in the background. Not only that, but if you don’t have your notes in front of you, chances are you are going to ask them to call back (or call them back) when you are more prepared.
This is a great way to lose deals.
Paying a professional answering service can help you ease the pain of taking a call when you aren’t prepared to receive it. PATLive is a great service that will answer all your calls, around the clock, and even forward the calls or take down the customer’s information per your instructions.
There is a monthly fee, and the alternative is letting the calls go to voice mail, but it’s much better to have a live person answer every call that comes through.
Step 5: Email and fax
Most of your communication with clients will be through email, so it’s important to have a quality email address that looks professional and matches the standard of service that you want them to associate with you. That means you need to ditch the @gmail.com or @outlook.com email addresses (I’m not even going to talk to you @aol.com and @yahoo.com email addresses out there).
These email addresses are free, but they look very unprofessional. Ask yourself, which company would you trust more, one with landsalestoday@gmail.com or sales@terrialand.com email address?
This means you need to pick a domain and pay for an email service. The best place to buy a domain is Namecheap.com and the best service to host email is Google.
The next issue you need to solve is a fax.
I can already hear you, “Really? A fax?” Yes, you need a fax. This is nonnegotiable. Not only will clients try to fax you their documents but some title companies still use faxes.
Thankfully, there are services like eFax and myFax that make this easy. I use a service called faxage.com (as of 2022) that works the same.
They will set you up with a number, receive faxes, email you the documents in a PDF form, and also send scanned copies to the other party as faxes.
Step 6: Website(s)
If you aren’t on the web, you don’t exist as a business anymore. Not only will customers research you on the web, but having a website gives you a way to establish credibility and relationships right away.
It’s important to have a website geared toward sellers first. You can have a duel sellers/buyers website, but just beginning it’s more important to have a site that speaks to seller’s needs, wants, and desires. You can expand your site to buyers later.
Your site should look professional and also should be easy to update. You don’t need all the bells and whistles in the beginning but it should have nice photography, clearly explain what your company does and how it does it, and have some way for the visitor to contact you should they want to sell their property.
At a minimum you should have an email address and phone number where they can reach you, but having a form on the site is another good way to look credible and allow the seller to contact you.
There are a lot of great sites that can be built for free or very inexpensively. The two that I recommend are WordPress.com and SquareSpace.com. WordPress takes more work but allows more freedom to customize. Squarespace is more of a hands off solution, though you still have to add content.
Step 7: Staff?
You might think that you are a one-person operation, and that might be true in the beginning of your business, but eventually you will need to hire staff.
Do you need staff to start with? No, you don’t need a staff to start your land business, but if you have the budget it’s a great idea. Hiring a staff member or two can take away some of the mundane and simple tasks that will slow you down.
I have to be honest, I love virtual assistants. They have supercharged my business and taken it to levels I couldn’t have imagined just a year ago.
BUT you need to have 3-5 deals under your belt to know what to tell them. You can’t learn with your assistants, you have to know what you are doing in order to train them to do the job.
There’s so much more I have to tell you about staffing up to build your business, but the short answer is that you shouldn’t staff up for your initial 3-5 deals. Learn the business hands on, make your own mistakes, and pay attention to the process.
Then, once you have some practical experience, you can look to find virtual assistants and other staff that can handle your day-to-day tasks.
More about that in a later lesson.
How much is all this going to cost me?
Every new business has startup costs and investing in land is no different. There’s costs for setting up your LLC, for getting a separate business phone line, for a new logo and brand, for a URL, an email address and fax service, and for a quality website and hosting. That seems like a lot. Thankfully, this is all a good to have list but not completely necessary to get started.
Here’s the good news: you don’t NEED any of this to start a land business.
I highly recommend a business license (a sole prop at least, but an LLC is better), but everything else is technically optional.
You can run your business on a shoestring and still be a massive success.
2. Acquire Inventory
Once you’re done setting up your new land business, you need to acquire inventory. The first thing you need to do is select the market you want to first pursue, then pull the data for that area, price the data, send out letters to land owners, respond to people who contact you, do your due diligence on the property to see if it’s worth buying, negotiate the price, then once you agree on a price, you go through title and escrow and a purchase.
Easy, right?
Don’t worry, we’re going to walk through each step so that by the end you will know exactly what you need to do to confidently buy your first piece of investment land.
1. Selecting the right market
First, you need to pick a state. There’s no right answer here. A good place to begin is your home state since that is the location where you have the most experience and knowledge.
Then find out the local state laws. Whether it’s your state or another, some states require an attorney to close on land deals, others just require you to work with a title agency.
For your first deals, try to stay away from states that require the assistance of attorneys or real estate agents.
Once you select a state that’s easier to purchase property, it’s time to gauge whether the state is economically a good place to purchase land. It’s time to gauge the hotness of the state.
What do I mean by hotness? I’m referencing a hot or a cold market. Generally a hot market is one where the current supply of property would last less than 6 months if no other properties came available. A cold market is one where more than 6 months of properties are available.
You can see if a state is hot or not by searching Zillow or Redfin. Pick a state and filter out just the land properties. Then adjust the sales price to the level you can afford. That means if you only have access to $5000 in investment capital, then adjust your search to properties that are selling $25k and lower. Note the number of properties for sale in the area of your search.
Then look at the number of sold land properties in the same area in the last 12 months.
What you’re looking for is the general idea about how hot the market is. If 250 pieces of land sold in the last 12 months, and 130 pieces of land are for sale currently, the market is slightly cool. The 130 parcels represent more than 6 months worth of inventory if no other pieces of land sold, so this market might be harder to sell a property but easier to purchase it.
2. Pull data from DataTree for the county
Once you select a county you need to pull the property ownership data for the county. There are plenty of places to get housing data but the best one I’ve found is DataTree. They are well priced, their data is accurate, and the site is easy to use. If you find one that you like more, feel free to use that one, but DataTree is my recommendation.
When you log in to DataTree and sign up for an account, you first search for the county that you selected before. Then choose an acreage size, start with the smallest allowed, about .1 acres, up to 40 acres. Then select the living sq footage as 0, remove people on the do not mail list, and all improvement percentages as 0.
Once you get comfortable with the software, you can add filters for land uses, assessed values, and market values.
You have the option to remove corporates from your data, but I chose to Keep LLCs because lots of people put land into LLCs. I do plenty of deals with corporate entities.
This should give you a good list of landowners for the county. Once you have your list, download it into a .csv file.
3. How to price data
Now that you have your data, how much do you think each property on your list is actually worth? This is the controlling idea, the key to your business. If you price the properties correctly, and make decisions on those metrics, you will always make money. If you price properties incorrectly, it will throw off all your other data and ensure that you lose money or break even at best.
Pricing is crucial for when you are making your letter, so it’s best to price in an intelligent way. You will include a price on the form letter that you send out to prospective sellers, so you want to make sure that your offer is enough to be interesting but not so much that you will lose money.
There’s two ways I’ve found to do this; the dumb way (but fast) and the smart way.
Option 1 – landsofamerica.com way (dumb but fast)
Go to landsofamerica.com and search for your county. Select all the sold properties based on the acreage size you think you want to buy and then take a median amount. That median amount is about how much you can expect to make on your properties. Alternatively, you can take the lowest sold that’s a comp to your property or the average of 3 lowest sold properties.
Once you have your number, simply divide by 3 for your offer price.
Option 2 – Assessed Value Pricing (slow but smart)
Your property’s value is determined largely by a county assessor. Whatever the county assessor says the property is worth, the retail price is often based on that amount. It’s crazy how much power these assessors have. That’s good for you though, because it allows you to dive deep into how much an assessor over or under values properties. Once you have your data from DataTree, you can sort the data by zip code and find ones in similar counties. Select several properties in that county. Then go online to the county assessor’s website, take the assessed value of each property and compare it to the market value. The difference between the assessed value and the market value is your County Multiplier.
If pieces of land in this county sold for $100k but only assessed for $50k, then your County Multiplier is 2. Apply the County Multiplier across all the properties in county and then divide by 3 to get your offer price.
Being the nerdy guy I am, I made a tool that does this for me and it’s made my life SO much easier. I also included a few bells and whistles that allow me to make some very interesting offers related to financing. It’s just a Google Sheet, but man is it helpful.
One tip: Make sure you use sold comps, NOT listed comps. The listed prices will almost always be higher than the sold prices and will give you bad numbers. Remember, garbage in, garbage out.
Once you have your County Multiplier applied to your data, you have a clear list of offers and people to send your letters to.
4. Send out letters
Until you send out a letter, you aren’t in the land business. You are just dreaming of being in the land business. You got to send out letters.
I know what you’re thinking, letters? Yup. It’s old school but it’s still the most effective way to connect with land sellers. If I find a better, cheaper way, I’ll let you know.
Even my marketing guy had to admit that other marketing channels would be a waste of time.
The company I recommend is Rocket Print. It’s super easy to send out a mailing. You sign up for an account, upload your data, making sure the row headers are the same as your excel file, then they give you a proof and you pull the trigger.
But what should a letter look like? Thankfully, I will give you an example.
Click here to see an example letter
There’s a better option than this, but you’re not ready for it yet.
This is the biggest moment, but also the scariest because there’s real money on the line now. But unless you send out your first letters, you won’t get any responses, you can’t buy any properties, and you will won’t sell anything at a profit. It all starts with your first batch of letters.
Bonus: A warning about feeding the beast
Once you send out your letters and start getting some responses, it’s natural to put a pause to your business and see what happens.
Don’t make this mistake.
Once you send out your first batch of letters, it’s time to start the process of selecting a new county all over again, pull the data, price the data, clean the data, and send out more letters.
You need to keep the pipeline of leads full by sending out letters on a regular basis.
This will require persistence, money, and a good system.
5. Due diligence and Photographer
Dig into the demand. What’s the supply and the demand picture and how conforming is your property to the other sold properties.
Can you build on it? Find out from the county. Call the county and act like you are building on it. “Hi, my name is , and I am buying this property what do I need to know to build on it.” The idea is to ask the same questions as your future buyer would.
What if the property is in a floodzone? It’s not necessarily bad if a lot of the other sold properties are also in a flood zone, also has to do with wetlands.
You can find a photographers on Zillow, Craigslist, or a simple Google search. It’s important to find a photographer who’s local and have them walk the property like a buyer. They are a substitute for the buyer.
6. Negotiating
If you know your numbers, you should be confident in your asking price. Most of the responses you get will be negative. I’d be embarrassed to let you see some of the letters and faxes I’ve received (but some of them are truly funny). Don’t let a hostile or combative response move you off your well-researched price. You know the numbers and will work for your business.
Here’s the truth: there are 150 million pieces of land, theres’ a always another deal to be made. If the seller won’t budge or make the deal work for your budget, you can always move on. Always deal with them from a position of strength; be willing to walk away if the numbers simply don’t work.
7. Title and escrow
When purchasing raw land, you still need title and escrow. The process is simple but you will need to set aside money for the title company and escrow. In some states you can even close on your own, but unless paying for title and escrow will eliminate your profit, this is hardly ever worth the effort.
Just find a title and escrow company in the county you are planning to do business in. It’s important to price out the companies. Call them to price out a hypothetical or a real deal. Find ranges from $700 to $3000 in some states.
3. Money to pay for inventory
Once you find willing sellers, how do you buy the land from them? Do you pay out of pocket? Do you get out the credit cards? What about finding investors? There are some great options to fund your first deals.
1. Use your own money or credit
When you are first starting out, I highly recommend that you try to fund your first 2-3 deals. For one, you have skin in the game and makes you more aware of what you are doing. Secondly, you don’t yet know what you are doing. It’s hard to get investors to buy in on your business if you don’t have a track record of success.
After your first deals however, self-funding could hamstring your growth. While it’s much easier to use profits to fuel other deals, you can only fund one deal at a time in the beginning (unless you are sitting on a huge pile of cash).
You can also use credit cards and take out loans, but that’s tricky and requires special knowledge to do correctly.
2. Use a money partner
Finding an investor is a great way to take your young land business from start up to empire. While you might have to offer a bigger cut of the profits to the investors initially, it’s well worth it. I began by offering up to 50% of the profit to my investors, and as they learned to trust me (and I built a reputation for getting their money back) my terms became more favorable.
For instance, when a find an amazing property that I think can sell for $50k and can buy for $10k (this isn’t usually the case, often it will sell for $20-25k these days), it makes sense to me to tell an investor that I will split the profit of $40k with them. I’m still making $20k without having to use any of my money and they get amazing returns just for cutting me a check (or pressing a button to transfer money). It’s a win for everyone!
Your options are far broader than just self-funding and money partners. There is also bank lenders as well as buyer and seller financing. Unfortunately, those are far too complicated to dive into with a basic course. We will tackle each of those topics later.
4. Selling inventory
You are almost done! This is the last, and honestly the most important, step of the land flipping process. Without a sale, all you have is a piece of land. It’s your job to match this land with a willing buyer.
1. Determining the retail price for your property
How much is your land worth? The first way to determine the retail price for your property is to look at the comps (sale numbers for similar properties). You should have already done a majority of this work in your due diligence process to know if the land was worth buying in the first place.
This is where you check your numbers. Look at historical sales, average listed vs average sold ratios in the county, and make sure the numbers still work. If there are major deviations from your previous numbers either you added something wrong or a major event has happened and you should look at the news reports for the county and surrounding areas.
Most of the time though, your numbers should hold up and the retail price will be the same as when you were researching.
2. Who is a good buyer for your property
What makes a good buyer? A lot of that depends on what would the buyer would want to do with the land? Are they using it as an investment? Will they build on it? Are they buying it as a buffer for an adjacent property? Who your best buyer would be determines how you market the land. Think about what kind of buyer would pay the most for this piece of land.
Once you have that ideal buyer in mind, think about where would they find the advertisement for this land? On Facebook Marketplace, Craigslist, MLS, Zillow, Redfin? Sometimes the numbers don’t support posting to every platform, so it helps you to think about where the most effective place to post your ads or listings will be.
Another good way to find buyers is sending out letters to neighbors. I have a killer letter and process that I’ve used to close 25% of my deals. It’s a cheap and effective way to find very motivated buyers that are already familiar with the land.
3. Talking to buyers
Once you find a buyer that’s interested in buying the property, make sure they see the property before getting under contract. It’s important to determine if the buyer is serious before going under contract. You don’t want to tie up your land while someone is just browsing because you might miss out on a serious buyer. You want to make sure they are serious before you go under contract.
The first step to this is getting them to see the property if they are in the area. Have them go out and take a look for themselves. If they are serious, often they will take the trip out and look at the property with their own eyes. Next, find out what are their plans for the property. If they aren’t willing to see the property in person and don’t have any ideas about what they would do with it, they probably aren’t a serious buyer.
One quick shortcut to all this, if they have an agent typically they are serious.
One final thing to consider, do they have the money to buy? This can be tricky to ask, but there are ways to do it without sounding like a jerk. You are just trying to make sure they are serious about the property.
4. Negotiating buyers
Once you are under contract, it’s important to know that your retail price might not be the price they offer. Sometimes that works out, but often they will try to negotiate with you.
If you have your numbers right, you will know what price you can sell your land that makes sense for you and your investors (if you have them). Stick to your guns and politely decline very low offers. Let them know that the numbers simply don’t work for you.
Once you get an offer that works for your numbers to give you a healthy profit, it’s time to close and sell the land.
5. Contact title and escrow
Unless the profit potential is very low, it’s almost always a good idea to contact a title and escrow company to handle those services for you. You will save hours of headaches if you do.
There’s more to learn
That’s all you need to know to get started but there’s so much more to master the land flipping business. Thankfully, I have an extra free email course that will teach you:
- How to avoid beginner mistakes (because I already made them for you)
- How to triple your responses from letters
- How to spot problem properties before you buy them
- Why acreage or size of property doesn’t matter
- How to finance your first 3 deals fast
- The one idea that will separate you from 99% of all land investors
If that’s interesting to you, just click on the button below!