How should I approach investor/land owner

Question

I'm still new to biggerpockets so please forgive if I'm posting in the wrong area or to often.

I made a post the other day about "sweat equity" scenario. I've slowly been making progress on figuring out how make this work.

Current situation is that I'm a small excavation company looking to use my skill set and knowledge(some money) to get myself more involved in the investing side of things. I have 2 situations I'm currently working thru so I'm going to make 2 separate post. I don't want to lose or cloud up information when people read this and switch gears from 1 to the next.

I found property owned by an investment company from out of state (several actually). The invesent company I'm assuming bought it for the timber value. Now that it's been cleared are selling it off. It's been on the market for the last year at least. It needs a significant amount of work to clean up and be ready for a house, pasture, farm etc. I'm wanting to approach this company to see about doing this work that needs to be done in exchange for a percentage of the profit. (Minus my fees for clearing.) 5 tracts total. A realistic estimate on the arv I would bring to the table in this market would be around 40k per tract. How should I approach the owner? How could I structure this deal to insure I wouldn't be cut out after putting weeks of work into the property? Ideally If I could purchase 1 of the smaller tracts, get it ready to build on, put it on the market and make the profit for myself. But I don't have that kind of money right now. IF I did, I'd risk losing the other tracts during this process. So I'd like to approach land owner on a deal for all the tracts available. The property owner/investment company has very little risk (I believe) with me doing this work. It's costing them nothing up front. And only makes their profits that much higher.

I'm extremely new to the R.E.I world and want to be able to talk smart when I approach them. Would like to be matter of fact when I purpose my offer. I'm OK with not landing the first deal I go at. I'll learn. And it will only help on the 2nd one I go after. But on this first deal I want to be as educated as possible before I make the jump.. So feedback is much appreciated.

2nd scenario coming soon.

Account Closed · Answer

When you approach someone in your situation you need more data on paper than words. You mentioned something in your other thread about the market being hot for building homes. It will be a huge plus if you can plop the data on their desk that explains every tiny detail from the first scoop of dirt moved to the amount of profit every party received. Otherwise, if you present your potential partners with only the fact that you will move the dirt fast then your wannabe partners will only tell you they need several months, or years to do their research and you will get blown off.

I am guessing that most developers you would like to do business with already have their plates overflowing with projects they are working on.

I am taking a wild guess that your best route will be to steer away from the big-time investors and look for individuals with less experience where you do every detail from start to sale of each home. I get approached by small-time developers at many real estate club meeting, but I run away fast because I will never give a person or a partnership the chance to control my money  nor to control my business adventure. Maybe, you will have better luck by going to real estate clubs.

I find that doctors, dentists and sometimes attorneys are the easiest to get venture capital from because doctors, dentists and attorneys have tons of money and they have a deep desire to invest their money, but they don't want to manage projects and they don't have the time to manage projects. Way back in 1972, I sold partnerships for a company by telemarketing, targeted only dentists and even though my telemarketing skills were near zero I did very well and I remember selling partnerships to two dentists in less than 30 hours of dialing phone numbers from a yellow page book.

Tanner Sherman · Answer

If you are going to move forward on this I would approach it as a proposal for partnership. The questions I would expect to receive would be how long would it take you to complete the work, and at what cost. Secondly, if your equity is in exchange for sweat equity, would it make sense to the owners to pay you a fee for your labor as well as equity? Why would it be more advantageous to them than to just hire you to do it for them.

Cameron Braig · Answer

thanks for posting the scenario. The thread was valuable and helpful.

Don Gouge · Answer

@Shane Ryan it sounds like to me you have a good grip on the value that you can add. Why not approach the owners with an offer to buy if they will carry the note? You say you are really busy now but you could use this project to fill in during the inevitable slow times and keep your equipment and workers busy. This way you get all of the profit for yourself and help out your excavation company with the fill in work.

Michael Frabotta · Answer

@Shane Ryan I do similar work as you and there definitely is value for you to work with them. I would stress to them that those properties would sell for a high dollar and fast if they were ready to build. Potential buyers rather have the land ready to build on then to worry about finding a contractor to do this work themselves especially since everyone is busy. I would feel these investors out and see what they think but again I see the value in you working with them. Good luck and don't let anyone put you down if your gut tells you to go for it!

Shane Ryan · Answer

@Don Gouge I'll come with the numbers. Show how other properties in the area have done simular numbers that I'm proposing. Have my realtor there ready to help are the property in the right places. Explain that their property has been on the market for x amount of months and show how the property 5 miles away sold for 3 times as much and only sat on the market a month or 2.

Just like I'm doing my homework now. I'll have all my i's dotted and t's crossed. When I sit down at the table I'll have the statistics ready to fire back with any question they may ask.

Not being arrogant. But I honestly think once I complete a few deals, land owners and investor will be reaching out to me. I'm pretty much offering to remodel someone's property pre sale and agreeing to get paid when it sells.

The only problems is. I make decent money doing what I do. If I can make 5k a week doing what I'm doing now. For me to get involved this way is going to have to make sense. I'm also not hurting for work. I'm booked up 3 months.(as are almost every other company in the area that's worth hiring) I charge $100 an hour for each piece of equipment I have on a job. For me to walk away from that kind of money it will have to either pay better or be less work for the same money. It's an odd feeling right now. I'm in such high demand right now. Have been for at least the last 5 years. People begging for my services and now I'm trying to sell myself.

Dee Hill · Answer

@Shane Ryan

To process this,  I have a couple Austin's....

1.  What's the current value of the property in its current state

2. What's the value after your improvements

3. What's the cost of your services you are proposing

4. What's the price per tract now

5. What's the market price per trace after improvements

6.  How long would it take you per tract

This info and I could make suggestions

Good luck with it

Don Gouge · Answer

The trick is going to be how you will prove to the owner how much your service will increase the sale price of the property. Sometimes raw piece of land that needs work will sell quicker than one in pristine shape that is priced higher to reflect the true cost of clearing the land.Why,you ask? Because many buyers won't have a clue as to how much land clearing costs or they just want to buy now and dream about their dream home for later.

Shane Ryan · Answer

@Tanner Sherman . No sir. I honestly appreciate your response. I refuse to allow anyone to make me feel attacked. If someone reading this doesn't see my value. That just means I'm not explaining it correctly. If I am I'm just not approaching it correctly. AND that's exactly why I am here. I'm not trying to land a deal with biggerpockets. I'm trying to prepare myself to land a deal. (Kind of like putting on a performance for my friends and family before I go live.)

I want naysayers feedback just as much as I want the go get ems. I was a naysayer. I watched my best friend go from sleeping on my couch to owning over a million dollars in real-estate during the collapse back in 07, 08. He bought some late night infomercial videos and told me he was going to become an investor. I watched him turn 10k into a 120k deal over 2 months. Then seen him traveling the country putting his own seminars on. Now he's off in the jungles of Costa Rica somewhere. We haven't spoke in a few years but I'm frantically trying to figure out where he is so I can pick his brain.

I did learn from him some wholesaler tricks. I also learned life is sales. If the sale isn't happening then your in the wrong room. You can't sell a horse farm to a preper or vice versa. He also taught me that there are plenty of deals out there if you can just be creative and find a way to make them work. It's not always about buying low and selling high.

All of that being said. What about a lease option type purchase. Not just approach this from a single side. Lay more options on the table. Approach this as a lease option. They get their asking price. I get control of the property to do what I think needs done. I sell within a few months. Double close on the land and everybody walks away happy.

I'm going to talk to Clayton homes Monday. See if I can't get some kind of deal going with them to sell them properties ready for their homes to be moved to. Present that to the land owner. Let them know I have buyers for cleared and developed land.

I will find a way to make this work. I just may have to take a few more steps than originally planned.

Thank you again for your responses. Come down on me as hard as you'd like.  It's just preparing me.

Tanner Sherman · Answer

Shane I hope you don't take my response as an attack, I'm simply asking questions in hopes that you will figure out how you need to pitch them. Because I guarantee you they will come at you with harder questions than I can come up with. So the fact that you have your responses prepped tells me that you already know how to pitch these guys.

If anyone is telling you this is a bad idea, ask yourself, are they where I want to be in life. If they are in the same industry then take it into consideration but if they don't understand what you are trying to do or are "behind you" in life then leave their criticism there. You might be onto something and you won't know until you try. I say go for it and the worst that can happen is you find out that there are flaws in your pitch and you learn from it and land a massive deal in the future because you learned from it.

How should I approach investor/land owner

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