Questions about starting out with land flipping

[Ryan Miller]

Hi everyone - 

So, I'm new and looking to get into RE investing. I'm intrigued by land flipping for multiple reasons: low $ barrier to entry, overall simplicity (vs dealing with leases and tenants and property management, etc), and ability to do it while working a full time job. My initial goal is to develop enough passive income to pay my monthly mortgage payment, and then grow from there, depending on where things go and how scalable I can manage to make the workflow. I've been researching the process and digging into different ways people execute on how they do land flipping (such as listening to @Seth Williams interview several years ago, and reading the trove of information he has on his webpage, retipster.com), and determining what works for me vs what isn't really my style. However, my technical background compels me to dig into some of the weeds of the process, and there are a couple things I have been wondering that I haven't been able to find answers to.

To that end, I figured I'd start by asking some of them here, and see what sort of luck I have with filling in those knowledge gaps:

1) How much do other land flippers worry about things like land perc'ing? Obviously of a piece of land passes a perc test, that can influence the value of said land. Is this something that other folks screen for, or just not give a crap about? Or perhaps it depends on the area? (ie, some areas are virtually guaranteed to perc, whereas others may not be such a sure thing)

2) Do people identify the parcel on the letter/postcard that goes out, so that when the seller calls in or visits the website, they have the pertinent identification info handy? I wouldn't imagine average American Pat having that kind of information right at his/her fingertips. Or do you just do a cross reference of the name with the list that you've pulled so you know which piece of property they are calling in reference to?

3) One of the benefits of dealing with land is that it's simple, and I'd assume far less likely that anyone would get litigious at all - there are no living conditions that have to be maintained, promises about timely repairs, etc. So has anyone had any issues or heard of anyone having any issues with getting sued when flipping land? If so, what sort of issues could come up that could result in a lawsuit? (It's not like land gets broken or anything..) I ask this mostly to determine how necessary a RE attorney is after the first few deals, once I see how the process works - especially when the paperwork for each deal is 98% the same as other deals. Fortunately, my neighbor is a RE attorney, so I do actually plan on enlisting her help and paying her for writing up contracts and guiding me through the first few deals - but I'd imagine that after that, it's fairly cookie cutter and a full on attorney wouldn't be necessarily be needed.

4) Following on question #3, just to get a general idea - is the process and language used in documents pretty much the same regardless of state? I'm still looking at what area I want to start out in, and I'd imagine that when it comes to paperwork for a deed, its pretty standard across state lines, but just curious if there is something else that can be incredibly state dependent.

5) Is it fairly standard to use a loan servicing company when doing seller financing? If using one, does it matter what state its in? Like, could I use the same loan servicing company for all deals, regardless of whether they are in FL, TX, AZ, CA, etc - or is it better to find one for the state that the property is in?

Thanks for any information that can be provided!

[Linda Hastings]

Welcome to BP, @Ryan Miller!

I recently started getting into land flipping, so I don't have concrete answers to all your questions, but can pass along what I do know or have observed so far.

1. I think a lot of that depends on what area it's in. If other pieces of land nearby already have houses on them, then there's a fairly good chance the land you are looking at won't have problems perc'ing. I would also think that the bigger the lot or the more building site options there are on the lot, the more likely you'll be able to find at least one place that will work for a septic system. Some lots may not perc in lower areas, but if there is an elevation change, the higher areas may be ok.

2. For postcards, unless you are doing a mail merge version, you won't be able to add a custom field like a parcel number. In those cases, you can just match up the seller's name (and mailing address, if necessary) with the list you pulled and get the APN that way. Another option is to use mail merge when ordering postcards or letters so you can add in custom pieces of information like the APN. Taking this a bit further, I've also heard of people using a custom numbering method in their blind offers so they can easily identify when the letter was sent out and anything else they want. Something like having a small number in the upper or lower corner of the letter that might be coded like "mmddyycsapn", where mm=two-digit month of mailing, dd=day of mailing, yy=year of mailing, c=county, s=state, apn=assessor's parcel number. Or maybe just a couple of digits to indicate that it was the nth mailing of the year, or any number of other things that you might want to encode to make it easier to track which mailing it came from and which property it was for. 

3. Not sure on this one. I haven't heard of any lawsuits related to the sale of vacant land, but I'm sure in our litigious society, they are out there somewhere. Perhaps if you do your own title search and end up missing something that the buyer finds out about later they might come after you for not selling it to them with clear title. To avoid this, you could pay a professional to do the title search and pay for title insurance, or sell with a Quit Claim Deed or Special Warranty Deed (instead of a general Warranty Deed). If you think you'll end up holding onto the land for awhile and it's a bigger or more expensive piece of land, you might consider getting insurance on it in the event that someone gets hurt while on your land.

4. Deeds can vary from state to state (and even county to county, I think). Some states/counties have specific margin requirements (so they have places to stamp for recording) or specific verbiage that must be included. Also, in some states, an attorney or title company must conduct the closing and draw up the deed. In states where you can do it yourself (and want to), one way is to look at the existing deed and use that as a template.

5. I haven't done any seller finance deals for land, but I have researched and dabbled in note investing. Personally, I would definitely recommend using a loan servicing company. It's not that expensive (maybe $25/mo), the cost can be passed off onto the buyer if you choose, and then you don't have to worry about the hassle of keeping the numbers straight and up-to-date, sending statements/invoices, etc. As long as the servicer you use is licensed in the state in which your property is located, it doesn't matter where the servicer is physically located. Most servicers I've seen are licensed in multiple states.

Hope that helps!