Episode 78 – How to Create Passive Income By Investing in Raw Land with Mark Podolsky

While raw land investing may not sound glamorous, it’s real estate investing with no tenants, no termites and no toilets. In fact:

• Land has fewer restrictions and codes than houses or buildings.
• No banks are involved, so reckless lending can’t cause a false value bubble.
• And, no one can steal it!

In this episode of The Agent of Wealth podcast, host Marc Bautis is joined by Mark Podolsky aka “The Land Geek.” Podolsky has been buying and selling raw land full time since 2001, completing over 5,500 land deals. He’s the author of Dirt Rich: How One Ambitiously Lazy Geek Created Passive Income in Real Estate Without Renters, Renovations, and Rehabs and hosts The Art of Passive Income Podcast. Listen in to discover how you can build a passive income model in raw land investing.

In this episode, you will learn:

• About the “the disease of solo economic dependency,” as Podolsky coins it. Or, the issue employees who physically need to work to produce money face.
• How to take the leap into diversifying your income, creating passive income or beginning a side hustle.
• The benefits to investing in raw land in the United States, including where to look for acquisition and tips to consider.
• Frontier Equity Properties’ business model.
• And more!

Resources:

Thelandgeek.com | Dirt Rich | The Art of Passive Income Podcast | Bautis Financial: (862) 205-5000

Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.

Welcome back to the Agent of Wealth, this is your host Marc Bautis. We have a special guest on today’s show, Mark Podolsky. Mark is widely considered the country’s most trusted and foremost authority on buying and selling raw undeveloped land. Over the past two decades, Mark has completed over 5,000 unique transactions. Mark is also the author of Dirt Rich: How One Ambitiously Lazy Geek Created Passive Income in Real Estate Without Renters, Renovations, and Rehabs. Mark, welcome to the show.

Marc Bautis, thank you so much for having me, it’s a pleasure and an honor.

I’m excited to talk about passive income and investing in raw land. A lot of people I work with have dreams of creating passive income — having that financial freedom — but usually aren’t sure where to start. I’m also seeing an uptick of people’s interest with alternative assets. So this discussion should be exciting.

Okay, fantastic.

The Disease of Solo Economic Dependency

In your book Dirt Rich, you started off by talking about the disease of “solo economic dependency.” What actually is that, and how do people overcome it?

Solo economic dependency means that if you’re personally not working, you are not making money. So think about anybody with a W-2 job. If you don’t show up at your job, you’re not going to get paid, right? 

We can also break it down into Robert Kiyosaki’s cashflow quadrants (see below). E = employee, S = self-employed. Self-employed people are financial advisors, doctors, lawyers and dentists. If a dentist’s hands aren’t in someone’s mouth, they’re not generating income. So they are solo economic dependent. 

Now, let’s look at the right side of the quadrant: business owner and investor. That business or investment that a person creates one time, can generate passive income for a long, length of time. For example, my business. I work about 30 minutes a week in Frontier Properties — my investment company — and that business generates income every single month.

Is any business completely passive? No. Even if I gave you a billion dollars, you would still have to deploy that capital to make it efficient. Although nothing is 100% passive, we can be more mindful about how we’re spending our time — and we can also make investments so our money works for us. 

We want to be on the right side of that quadrant. This way, we make more money and have more time. 

My purpose in life is to help people get out of solo economic dependency. Once their passive income exceeds their fixed expenses, they’re working because they want to, not because they have to. Plus, they’ll have time to deepen other relationships and move up that ladder of Maslow’s hierarchy of needs into self-actualization. Life becomes so much better.

“Work because you want to, not because you have to.”

— Mark Podolsky

What would you say to someone who is established? For someone who has had their W-2 job for a while, the consistent paycheck could feel like financial stability. How does an employee or self-employed person transition to the right side of Robert Kiyosaki’s cashflow quadrants?

Motivation to Take The Leap: Diversifying Your Income 

That’s a really interesting question. I think that if a person is happy and a job is fulfilling for them, they continue doing it. At the same time, be the pig that builds their house full of bricks and start a side hustle. 

I’d say that a person is taking more risk not diversifying their income, compared to somebody that’s starting a side hustle. You think businesses are risky, but I say it’s more risky to be an employee than somebody who is starting their own thing. The latter has total control of what they’re doing. Plus, building a side hustle protects yourself from possible changes or issues at your full-time job.

Yeah. Like you said, people think paycheck at W-2 jobs equal stability… but the reverse is usually true. Something I’ve encountered with Bautis Financial clients is one spouse wanting to quit their job. It’s come up in client conversations a lot over the past year and a half, probably having to do with the COVID-19 pandemic. Creating passive income is a way that couples can enable that. When people ask me, “Can I do it?” I do an analysis and there’s three outcomes: No, it’s not going to work; Yes, you can afford to do so; Or yes and no, because you’ll have to make sacrifices to achieve it.  

So creating passive income is motivating for someone looking to quit their full-time, in person job.

Yeah, exactly. I know from first-hand experience. I started off in investment banking and hated it. There was a point where I wanted to quit, too. I went to my wife and said, “I want to quit and become a full-time land investor.” At the time, she was pregnant. She said, “Absolutely not.” I had responsibilities. So I methodically built up my land investment business to the point where that income exceeded the investment banking income, and that’s when I quit.

What is Raw Land Investing?

So when most people think of passive income, there’s a couple different asset classes that come to mind. A popular one is real estate rentals — apartments, multi-family properties, etc. Some others may think of stocks and dividends. What is raw land investing? And how did you get into it?

So I’ll start with how I got into it first. As I said, I was a miserable, micromanaged, high-stressed, investment banker working in mergers and acquisitions with private equity groups. It got so bad for me. I wouldn’t get the Sunday blues anticipating Monday coming, I’d get the Friday blues anticipating the weekend going by too fast. 

My firm hired a new employee and once we got to talking, he told me that as a side hustle he goes to tax deed auctions, buys raw land and flips them online. He said he was making a 300% return on his investment, and this was back in 2000. 

At first, I didn’t believe him. So, I saved up $3,000 and went to New Mexico with him. I did exactly what he said to do — buy 10 half acre parcels at an average price of $300 each and put them up online. They all sold for an average price of $1,200 each. 300% profit, it worked. 

I took all of that money, went to another auction in Arizona. There was no one in the room except for me, and I bought tons of acres for basically nothing. I made over $90,000 on that second auction. 

Then I told my wife I wanted to quit my day job, to which she said “Absolutely not.” So I decided to be more methodical. It took me about 18 months for the land investing income to exceed the investment banking income, and then I quit. I’ve been investing in raw land full-time ever since.

Frontier Equity Properties’ Model and Process

The way that I do it is a little different, but I’m going to walk you through it.

So Marc, you’re in New Jersey. Let’s pretend that you own 10 acres of raw land in Arizona where I live, but you owe $200 in back taxes. So you’re advertising two important things to me: One, you have no emotional attachment to that raw land because you live in Jersey, and two, you’re financially distressed because you’re not paying your property taxes. When we don’t pay for things, we don’t value them. As a result, the county treasurer is sending you notices warning that if you don’t pay your property taxes, they’re going to auction off the property to a tax lien or tax deed investor. 

All I do is look at your 10 acre parcel and look at the last 12-18 months of comparable sales. I then take the lowest comparable sale and divide it by four, which gives me what Warren Buffett calls a 300% margin of safety. Then, I will send you an offer.

Let’s say the lowest comparable sale on your 10 acres is $10,000. I would send you an offer of $2,500. Sometimes people accept that first offer because for them, $2,500 is better than nothing. Specifically, 3-5% of people accept my “top dollar offer.” 

Now that you’ve accepted it, the next step is due diligence. So go through a checklist:

1. Do you still own the property?
2. What are the back taxes?
3. Have there been any breaks in the chain of title?
4. Are there any liens or encumbrances?

And then I look at the purchase from a marketing perspective.

1. What’s compelling about the property? 
2. What’s my next buyer want to know? (I.e. How to get to the property, what the road to it is like, what the GPS coordinates are.)

All of this work is outsourced to my team in the Philippines, who I pay about $11 for due-diligence. They’re connected to an American title company. 

Now, if the land is in an area that I’ve never been to, I’ll pay $50 or so for someone locally to go to the land and fill out my property checklist, take pictures and shoot video. This way I don’t even have to go out and stomp on the property. 

The Built-In Best Buyer

Now, once everything checks out, I buy the property from you for $2,500. I’ve already got a built-in best buyer, do you know who it is?

Who?

The neighbors. 

I always send neighbors letters notifying them that they have an opportunity to protect their privacy and view by purchasing the raw land. Oftentimes, the neighbors buy it right up. If they pass, I go to my buyers list. If my buyer’s list passes, I go to Craigslist. If that doesn’t work, I go to Facebook. Then I go to landmoto.com, landsofamerica.com, planfarm.com, landflip.com, landhub.com, etc.

How to Price Raw Land

The magic, Marc, is in the pricing. All I’m going to ask for on this 10 acre parcel is a $2,500 down payment. It’s that simple: I get my capital on the down payment. Then we set up a 6-10 month payment term that looks a lot like a car payment… let’s say $449 a month, 9% interest over the next 84 months. 

So it’s a one time sale and I get my money out as fast as possible. Then I get $449 a month every single month on an automated basis. There’s no renters, no rehabs, no renovations and no rodents. Because I’m not dealing with the tenant, I’m exempt from Dodd-Frank, RESPA and the SAFE Act — all owners real estate legislation.

Well, the way you explained it sounds really good. Why haven’t more people done it? And why haven’t institutions come in and purchased raw land in masses? Has this all been flying under the radar?

There’s two reasons. Number one, most of the general population has never even heard about land investing. If you go on HGTV or the DIY Network, you’re not going to see “Flip This Land” playing. There’s no before and after pictures. It’s boring, right?

Yeah.

Also, many people think buying land creates a negative cash flow, because there’s property taxes involved. So the typical land investing strategy is land banking, which is a hockey stick model: it’s really flat and then all of a sudden, when development comes, it goes up tremendously. So there’s very few people who want to have negative cash flow on a piece of raw land. It’s very non-traditional.

Your second question is why aren’t private equity groups, hedge funds or big money institutions in this? Because it’s too much money for this niche.

My average deal is $2,500-3,000. A billion dollars is too much money to deploy on this. When you think about Ted Turner, Warren Buffett and John Malone… they’re buying billions of dollars of acreage — but it’s productive farmland. They’re making 8% of their money, which they’re very happy about. If you want to make 300-1000% doing what I’m doing, having a billion dollars is too much, you can’t deploy it.

That makes sense. You mentioned that the average cost is around $2,500. Being from the Northeast, from New Jersey, it’s hard to visualize land being so cheap. How are you investing geographically? Do you look for raw land all over the country?

I focus on Arizona, Nevada, Colorado, New Mexico, Texas, Washington, Oregon, California and Florida. These are areas that have tons of inexpensive raw land, an hour to three hours to the nearest city. There are few environmental issues in those areas. We avoid the East Coast. 

I’ve done deals in Tennessee, Arkansas, Missouri, Oklahoma, but again, our biggest buyer pool is going to be in the Southwest, Northwest, California and Florida areas.

To take it one step further, after you’ve picked your geographic locations, how do you then start identifying what pieces of raw land?

I tend to look where other land investors are. To get started, I would follow somebody like me and make offers.

How many offers would you get? I know you mentioned 3%…

3-5% with a 1% close rate after due diligence. So, for every 100 offers, you’re going to do a deal. We do 20 offers a day, that’s manageable for us. When you’re starting out, if you make 1,000 offers a week and those deals close, you don’t have the systems, people or software in place to handle the volume. You want to manage your growth. 20 a day is a really good starting place.

I know you mentioned you have a formula in place. That was one of the questions that I thought of as I prepared for our conversation, how do you value raw land? 

Yeah. So basically I look at the lowest comparable sale and divide by four and that’s it. If I can’t get a good comparable sale, the quick and dirty way is to look at the excess value and divide by two.

The Raw Land Market and COVID-19

How has the land market changed over the past year and a half, during the pandemic?

It’s just unsustainable, I can’t keep anything in inventory because everyone wants assets. Cash is trash. What I was paying a year and a half ago is now 25% more. So I have to raise my prices 25%. The ratios have stayed the same, so we’re still making just as much money, but we had to raise our offers. We know that the 3-5% guides us, because if my response rate is less than 3%, I know I came in too low to the market. If it’s over 5%, I came in too high and I have to re-trade. So we use that metric really seriously.

In summary, right now it’s very tough to buy, but it’s super easy to sell. It reminds me of 2006, it’s white hot. I don’t know how sustainable it is, and we’re due for a recession. Land is a traditional inflationary hedge, so many people want to acquire it.

So it’s like every other asset, it’s inflated, right?

It’s inflated right now but it’s still selling, it’s still cash flowing.

That’s good. And so how do you help people with this? Are you a coach/trainer? Do you help people implement systems? Where do you come in?

We can help everybody in every stage. Start at thelandgeek.com, we have free courses. There are three course options: Do-it-yourself, group training and one-on-one coaching.

How does the busy professional get started?

We ask all our clients — when they first start — to devote two focused hours a day. If you don’t have that, it’s probably not a good idea to get started. Keep in mind that you’re building a business. If you don’t have time to hire virtual assistants and learn software, then you probably don’t have time for raw land investing. But if you have two hours you can devote a day, you can start building up the machine. As time goes on, you should be able to travel around the world doing this business.

And is it scalable, right? A person can devote less and less time per week as the business model is implemented?

Yes. I work for 30 minutes a week in my business. You, too, can get to that point. Start with building your team. Over time, an acquisition manager will replace you and manage the virtual assistant team. We help people implement it step-by-step. Right out of the gate, you can automate 90% of this business with software and inexpensive virtual assistance.

Yeah. Like you mentioned, nothing is fully 100% passive.

That’s true. But once you’ve built the systems, you’re just managing them for little to no time a week.

Cool. I appreciate you being on the show, you gave us some really good information about investing in raw land. This is a topic that we’ve never covered on The Agent of Wealth, so I definitely appreciate your insight. How best can someone reach out to you if they want to find more information?

The best place to get started is thelandgeek.com. And I think the best way to learn anything is to do it, so try our free course — you’ll learn how to double your money in 30 days or less.

Great, thank you. We’ll link to all that in the show notes. Again, I really appreciate you being on the show. Thank you everyone for joining today’s episode.

Thanks Marc.