Always Leave Money on the Table; Never Go for the Highest Sale Price.

Always Leave Money on the Table; Never Go for the Highest Sale Price.

This is a recent question I received and I’ve converted it into a blog because I think it can really steer new investors in the right direction.

Q: I have a seller who has delinquent taxes on an acre land at about $4k.

Comparison values are at $13k to $16k based on a couple of other lots that have sold in the area within the last year.

I have yet to touch a piece of land with back taxes.

How would you seasoned land investors acquire this deal?

A: I've done thousands of these types of deals and I think I can help.

Sell it before you buy it.

Here is our 4 point (abbreviated) check list:

1) Make sure the county eliminates the taxes AND FEEs that are accumulated on the property so when it's deeded to you, they reset to zero. Believe it or not, sometimes the taxes come with the land (seen it in FL)

2) Take a look at whether the property is governed by an HOA or LOA - an association. If so, get the full financial report on the back fee situation.

3) Call the county zoning person (not the recorder or assessor or mayor, etc.). Ask them about this deal. They will tell you the truth from their heart. There are areas in the county they love and they hate. They have been through every square inch.

4) Look at comps for the lot in four places: Zilliow/Trulia, Landwatch.com, Landandfarm.com and the MLS. Find the lowest comparison value that is listed. I mean a real comparison value in the same subdivision, if possible. This can be tricky if it's not comparable but simply close to the lot in question. Don't average the listing price out or justify in any way a higher comp than the lowest one. You should market the property for half of this value. In this case it sounds like around $7k for the sales price. Always err on the side of caution. If you question this at all, find another market where the comps are super clear.

Why so low? Don't we want to maximize price and get as much as we can out of this deal?

No. This is a huge misconception in real estate. While it works for houses and office buildings and other RE types in general, this is what works best in land:

You want to double your money ten times in the next few months, not wait around for a year to get top dollar for one property (like everyone else).

Like this:

Month 1 $ 1,000 (seed capital - sell it for double)

Month 2 $ 2,000 (double again)

Month 3 $ 4,000 (double again...)

Month 4 $ 8,000

Month 5 $ 16,000

Month 6 $ 32,000

Month 7 $ 64,000

Month 8 $ 128,000

Month 9 $ 256,000

Month 10 $ 512,000

Month 11 $?,000,000

This is why you need your property to be the cheapest in the market by half price (not just the cheapest). All of our property is sold long before we buy it. Or we would not buy it at all.

Example: Cheapest comp: $10,000

Target Sale Price (half of cheapest comp): $5,000

Target Purchase Price (half of cheapest comp): $2,500

Make sure you intentionally leave money on the table. The person who buys it from you, will be your customer for life. They need to make more money than you do, for this to work.

This is how you set your purchase price long before you send out a direct mail campaign or whatever method of sourcing you choose.

In this situation you never ask yourself if you are doing the right thing or paying too much or making a mistake.

-So your "all in" purchase price should be half of $6K or $3,000 and it sounds like there are more accumulated taxes than that. I personally would look at more deals to find one that super works well.

You can accomplish a jam-packed-full acquisition pipeline with a well planned direct mail campaign for just a few hundred dollars and never look in the MLS again.

Hope this helps. You clearly have what it takes...