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.