All Forum Posts by: Chris Newman

Thanks for the head's up, Tracy! I'm just up the road from you in Snohomish. 

I can see both sides of this new law but, however we feel about it, it is what it is and our need as landlords/investors is to figure out how live with it. For the newbie REI-er's, several strategies come to mind, some of which are obvious:

1. For each portfolio property, keep at least a month's mortgage payment cushion in an emergency fund, just in case a tenant blows up. If you can't afford to wait an extra 10 days for a repossession, that seems to be cutting finances too close in the original deal that you put together acquire the property. Or, at least make this a near-term goal. (And, don't forget that it will take even more time getting the rental unit back in shape for the next tenant.) 

2. The best time to solve problems is before they ever happen. Don't deal in marginal properties, which are going to attract marginal tenants, who have a much shorter distance to hitting bottom, if they're going to. It's tempting to pick up cheap buy-and-hold properties, but "There Ain't No Such Thing As A Free Lunch." What you may save on the front end, will cost you on the back end, and vice versa. (FWIW, if you have the resources, some of the best deals that I've seen over the years have been upscale fixers, which often just need a lot of cosmetics and feature motivated sellers (often heirs) who can afford to leave some money on the table to quickly get rid of a headache. The investor demand for these is usually much lower, since most REI-er's look for cheap workforce-level investments. Management-level housing also leases for a premium.)

3. Do a really heavy criminal and credit check of prospective tenants, and charge them for it upfront.  That alone will sort a lot of chaff from the wheat. And, be picky about your final choice, both financially and stability-wise: Don't be desperate for the next tenant. There's really only two things that you need from them: "Pay the rent and don't cause trouble." More often than not, the two issues go hand-in-hand. If they don't have any felonies and can show a stable income, that's mostly all you need. 

4. Unless you have a hard core disposition, as well as some landlording experience, consider hiring a local property manager. I see a lot of these offering their services here on BP. In the long run in a buy-and-hold investing strategy, you'll probably earn more profits, with far fewer headaches, by turning tenant stuff over to a professional. 

Anyone have any more ideas?

My experiences with non-ag uses on ag-zoned land, both as tenant and land owner, are limited to King and Snohomish county's, WA, but there seem to be some general attitudes with local regulators regarding non-zoned land uses. In short, they don't like it.

Rather, civil servant's #1 priority is their pension and the codes are explicit about zoning uses, so they're not going to be flexible about much of anything, which seems to be a universal. (On the other hand, if you stay within their comfort zone and treat civil servants with friendly respect, they're often quite helpful, if only for boosting their performance ratings. They can make your life easy or hard, so best to have good relationships.)

As for running a professional performance shop in ag-zoning, you might get away with it for a while. But, the first neighbor complaint will bring in the Code Enforcement pitbulls, who literally don't much care if you live or die, and you'll be shut down forthwith.  

As for the property owner, despite her confidence, there's no guarantee that she really understands all of the use codes for her land - few owners do.  She may have even been there before the current laws were passed, when local permitted uses were far more lax.  Best to do your own research on zoning uses. 

(FWIW, her highest and most valuable use in OR would probably be for a "farm brewery/tasting room." Agritourism is hot and the local governments usually love it.)

My recommendation is to determine the permitted zonings for your business - your local zoning department can help you figure this out, and it's a good way to start getting to know the folks there. Then look for properties where it's permitted, Round pegs fit more easily into round holes. 

Maybe look in unexpected places, like small local airports with hanger space available. Put the word out with your customers and friends that you're looking for new digs.  How about your local suppliers? They may haves shop space available or know of some. 

Or, since BP is all about attaining financial freedom through real estate investment, what about looking for some shop property for sale? I'd  be looking for property with multiple spaces to lease out, which will help to cover the mortgage now and be available to grow into as your business expands. If the seller is older, they may be looking for steady income, rather than a big chunk of cash, so they would be willing and able to carry a low-down contract. A five year cashout is often attractive. Since your business will be the main tenant and you can prove that you've been making payments, that should instill confidence in a private lender. 

Have you talked to your current landlord? He already knows who you are and you might be his perfect buyer. 

Hope this helps. Good luck

@Mike Staheli Sounds like you know what you're doing and have a solid plan. :-) 

Welcome to BP @Mike Staheli !

If a long term passive return is your goal, your plan of rolling the land value into rental units via 1031 is what I'd do. With those kinds of property values, there's no way that any kind of agriculture will return a profit, except perhaps unless you turn it into a 20 unit "farm micro-brewery agritourism business park." I'm not sure if Utah has the customer base for this, though. :-)

However, you haven't shared much here about the resulting "rental units." Are you talking residential? Active management on your part or outsourced to a professional management company for about 10% of rents. Have you factored this expense into your projected ROI?

Have you looked into commercial real estate, or a combination, for diversity? Personally, I prefer commercial because it means that I don't have to deal with residential tenants. There are usually reasons why some folks are renters instead of owners and the landlord is the one on the front line of dealing with them. 

Where are you looking? Just locally? How's the growth rate there, which leads to escalating rents?

If you're going the passive ROI route, are you open to plugging some of the funding into high growth areas outside Utah? The Puget Sound region, for instance is undergoing explosive growth that's founded on new hiring by international tech companies and is expected to continue @ c. 10% for the foreseeable future. There are plenty of seasoned local BP'ers who seek joint ventures. This isn't my thing (I focus on "junk" rural acreage with hidden values), but I can hook you up with some folks in my group.

Anyway, please keep us posted on your progress. We'll all learn something valuable from it.

Chris

Hi @Angelea Weihs

I have to pretty much agree with the above opinions. You're looking for a simple 16.8% ROI and, in the Puget Sound market, even 12% (the 1% rule) is pretty much non-existent. The ratio between rents and property costs just doesn't pencil out. I wish that I could offer an easy solution.

However, while this isn't strictly a real estate subject, there's another consideration that you should get clear on: Medicaid's strict requirements. In addition to an escalating need for assistance care, medical costs can explode in the final years. If I recall correctly, about 90% of a person's medical costs occur in the last five years of life, ultimately to no avail. 

I went through a similar situation with my elderly mother back in the late 90's: She owned a F&C house worth about $175k at the time, where my wife (at the time) and I were living. Mom was in an assisted living center at a fairly ambulatory level and her $1,600 social security checks covered that cost. 

But, her condition slowly deteriorated and the facility notified us that she would have to be moved to a different section that provided a lot more help and that the cost was going to significantly exceed her SS income. Clearly, there was a financial pinch coming. Not wanting to lose the house, our first thought was for her to quit-claim it to us and let Medicaid pick up the final costs. 

But, that idea turned out to be a non-starter: Medicaid is onto this type of maneuver and they backdate financial resources - if I recall, it was for three years. Whatever type of financial arrangements had been made in that time period would have to be unwound or Medicaid simply would not pick up any costs. For Medicaid to step in , the patient has to be well and truly penniless and have also been so for the backdate period. We met with an attorney who specializes in this subject and he could offer no solutions, which was a complete waste of $250. 

Ultimately, we ended up doing the quit-claim, moving her back home and using her SS checks to hire caregivers to drop in several times a day for the truly gritty needs. The attorney never mentioned this option. This was risky in that, if her needs got much greater, we'd have had to sell the house. But, it at least forestalled that eventuality. 

Finding reliable caregivers was challenging, but we eventually landed a good private caregiver, who did daily rounds, for mornings and evenings, plus a student nurse who was exceptional for mid-days. (If I had to do this again, I'd start looking for caregivers at nursing schools.)

Ultimately, the timing "worked out" and, while exhausting to manage, we didn't have to sell the house. And, my mother passed peacefully in her home, with family nearby, about the best that any of us can hope for. 

This may not be an option in your case, but it's the only Medicaid workaround that I know of that doesn't require years of pre-planning that we don't know to do until it's too late. Your only option may be to give up on the idea of preserving the $200k wealth, spend it down and let Medicaid to its thing. 

Good luck!

Snohomish County has a fair "Permit, Planning, and Zoning" interactive map at http://gis.snoco.org/maps/permits/viewer.htm Be sure to check the  boxes in the "layers" frame on the left for what you're looking for. 

I especially like the "color aerial photo" box. If you zoom in with this enabled, you'll get the tax parcel number for any property. You can enter this number in the form at http://assessor.snoco.org/search.aspx and you'll get the ownership info, taxes, tax status, legal description etc. This is real handy when you're "driving for dollars" with rural acreage that doesn't have a posted address and want to dig into a property's info. 

If you do have an address, the same page also has a form for that option.

Summary:

This offering is for participation in the quick flipping of an unlisted aggregation of four entire city blocks containing 36 pre-existing, but not developable, ag-zoned micro-farm (sub-half-acre) lots near Everett, WA, just north of Seattle. Not suitable for housing, however these lots are absolutely perfect, and perfectly located, for “recreational agriculture“ individual ownership, which was only recently grandfathered back as legal. These lots, each about triple the size of a normal city house lot, are big enough for some serious family/small commercial gardening, yet not so big that it requires major economic and life commitments. There are fewer than 100 of this type of tiny undeveloped “small denomination farmland” lots in the entire county (pop: 700k) and these will be the first such offered for sale in generations.

The investment plan is simple: To buy this group of ultra-rare “small denomination farmland” lots for a wholesale price of about 25% of the total retail value and then resell them to people who want them, for the lowest per-lot price in the entire county. I know this property and this RE market very well and I’ll do all the work. In exchange, I want 25% of the deal, plus the TDR rights, and I won‘t see a dime of profit until everyone else has been paid first.

It's going to take a total of about $160k to swing this deal, not a loan, although still secured by the land, and I expect that the JV partner(s) (passive or active) will quickly at least double their money, with a zero downside risk. Minimum capital share: $40k, which buys 25% of the investor‘s 75% share of the cash return. Working with me now also opens the door to doing a variety of new high profit land deals together - I'm drowning in them.

     Next door to downtown Everett, WA

     Less than 30 minutes from Seattle

Backstory:

If this was the same old residential stuff in real estate investing, it wouldn’t require any backstory. But, the problem with the same old stuff is that it’s usually a lot of work and, relatively, not very profitable in the short run.

If this was an ordinary deal, instead of the long post that follows, I could throw out a few abbreviations and numbers and most BP Marketplace readers would understand the meaning. But, when it’s something even just a little out-of-the-ordinary, it requires more information to be able to make an informed decision.

For me, real estate investing isn't a hobby. It's about making good money as fast as possible with as little work and risk as possible - I have other goals in my life and REI isn‘t one of them, it‘s just a means to higher ends. One thing that I learned long ago is that there's very little connection between how hard you work, or how much you invest, and profits. But, there is a huge connection between profits and how smart that you work.

Some RE investing strategies are just far more profitable than others. I follow the money, wherever it may lead, even into slightly rarified territory like this deal, where there is almost no competition because nobody else knows about it. It’s the lack of competition that leaves the profits on the table. For instance, just because you may have never heard of “recreational agriculture lots” doesn’t mean that they don’t sometimes exist and that there isn’t a big market demand for the very few that are available.

A little about me: I flipped my first SFR back in the late 1970's and haven't worked for anyone else since the early 80's. I've always worked for myself since then. If you count everything that I've bought and sold over the decades, I've literally done thousands of successful deals. So, this current deal isn't my first entrepreneurial rodeo, both in REI and other businesses, by a long shot.

I'm a true believer that "The riches are in the niches." And, in my home turf of Snohomish county, WA, northern suburb of the exploding Seattle market, the riches sure won't be found in residential investing. Some people are satisfied making a 10% - 15% cash-on-cash ROI, for a lot of hassles and costs, then working hard to find the next deal.

But, I’ve found so many great deals in local rural land, in correlation with an ongoing series of major land use changes, that I won’t even consider any kind of deal that doesn’t hold the potential to at least quickly (as in less than a year) double my money, and preferably even more/sooner. Why chase nickels and dimes when there are $100 bills floating out there, just waiting to be picked up?

Life's just too short to "get rich slow" and the land deals are out there waiting, if you know what to look for and can expand your investment thinking at least a little outside of the SFR box. This is one of those deals and they don‘t get any simpler or quicker than this.

Over many years of research and exploration, the most profitable local REI deals are unquestionably to be found in local rural acreage with one or more "hidden values." Many people, because of their narrow perspectives, would call this "junk" land, but it has been a favorite of mine for decades. So far, I'm up to five different categories of hidden values and know that there are even more to find Often, the same piece of land will have more than one distinct value, for a nice double-dip in profits.

Unlike “forced appreciation,” which requires you to do something, usually costly and labor-intensive, in order to add value to an investment, these hidden values are already there. But the seller and the general real estate market don’t know about them, at least yet. Basically, this is arbitrage investing where the known profits are locked in at the closing, with little or no further development required.

Typically, it does take at least some effort to turn these "buried treasure" values into cashflow and sometimes, like wetland mitigation banking, this is very complex, but still well-worth the effort. At other times however, as in this deal, it's as simple as just listing the lots on the MLS and then quickly reselling them individually with no further development.

This is where my years of research and local experience, and knowing a fair amount about a lot of different things, pays off.

For more about me and my investing specialty, please see my recently-updated BP profile page.

But, enough background:

The Short-ish Version: I’m looking for a capital partner (or perhaps a small group), not a loan, to purchase four city blocks containing 36 pre-existing lots, totaling 14 acres, in western Snohomish county. As the photos above show, this site is literally next door to downtown Everett, WA (pop: 100k, w/ another 600k nearby). Lake Stevens and Snohomish are just a few minutes east and downtown Seattle/Bellevue are about 30 minutes south. This 4,000 acre river delta island neighborhood is a unique green oasis sandwiched between the city and the suburbs and there‘s no other quite like it in the Puget Sound region. A major freeway crosses the island and access to/from it in either direction is easy.

But, only a tiny fraction of the island consists of tiny (sub-half-acre) micro-farm lots like these, and there will never, ever, be any more created. To be specific, only .01% all the undeveloped farm land in this neighborhood is subdivided down this small. And, as near as I can discover, these 36 lots are actually about half of the complete supply for the entire county and none of the others are for sale

This property was recently foreclosed because of an unmet note balloon payment and the original seller/re-owner doesn’t want it. She doesn’t know about the new added value, which nobody knew about when the property was originally sold. She just wants to walk away, as whole as possible, which is about $160k.

I have an inside track on this acquisition, I’m in regular contact with the seller’s attorney and the seller’s side is ready to go. But, she’s not going to wait long before starting to get serious about disposal, so time is of the extreme essence here. A $5,000 earnest money deposit, payable directly to the seller’s attorney in Everett, will lock down the deal with 30 days for full diligence.

But, it’s going to have to happen very soon. This is no time for “analysis paralysis.”

The Plan:

The basic deal strategy is simple: Buy up this collection of pre-existing lots at a deep discount, then resell them individually at retail prices. It’s like any other land subdivision economics: Rare smaller lots are worth more per square foot than common big parcels - it’s simple supply and demand.

Many people make a living just buying big chunks of land, subdividing it and then flipping the individual lots. But, in this case, the subdividing, which can never be repeated, has already been done.

There may also be a way to fast-track a top-dollar resale of the entire collection to the local government, which I’ll describe a little further below.

It’s going to cost a total of about $160k to swing this deal, with a fast $5,000 earnest money required to lock in the deal, and it’s going to need to be paid in full at closing. Whatever the cost is will be the cost of 75% of profits. But, it should also conservatively give at least a 200% capital return to the partner(s), which isn’t bad for a simple passive investment (or active, if you wish) that’s well-secured by the land. All transactions will take place within attorney’s offices in Everett. All return cashflow goes to the investor, first, before I see my 25%.

As for the investment group ownership structure, there are two options here:

1. This land is already owned by a WA LLC. So, the simplest and cheapest way to go is to just buy the LLC and the land comes along with it. Most group real estate investments are held as LLC's. This route will save both real estate sales taxes and the trouble and expense of forming a new LLC. Any agreements between new partners can be easily locked in through the LLC's new bylaws. This is also simplest because the entire transaction can be handled by the attorney.

As the individual lots are sold, it will take the signatures of all LLC Members to release each sale. So, that's the legal protection and how the investors can be certain where the funds will be going at closing.

2. Buy the land in the ordinary way. This will trigger at least several thousand dollars in taxes, plus require the formation of a new LLC or another form of tight partnership agreement. I don't see any advantage to this "ordinary" approach.

The Long Version:

Since many BP-ers won’t be familiar with the basics of raw land flipping, at least the kind that isn‘t some sort of Arizona desert land seller-note scam, more information is required to understand it. You’ll need to know this information in order to make an informed decision, which I always encourage:

This will be a 25%/75% split, with me doing all the work and the investor keeping 75% of the cash return, and I'll pledge my share to guarantee that the JV partner will not lose money.

This is all secured by free-and-clear ownership of the land, and first cashflow will go to the backer(s) until they’ve at least broken even, and that’s only selling seven lots. So, the downside risk is essentially zero. But, I’m willing to put my money where my mouth is; I won’t see a dime of profit until the land is sold and the investment partners have first been paid.

Micro-farms:

The main quick-flip hidden value on this land is that it is already subdivided into very rare “small denomination farmland,“ plus the big bonus of being located very close a large main population center. Just a few minutes, in fact, from downtown Everett, where many100’s of new condos are selling as just fast as they can be built.

For some value context, just one mile away to the west, commercial land in Everett is selling for $1 million/acre and small suburban house-building lots to the east, if you can find them, start at around $100k. The fastest growing city in the state is Marysville, just a few minutes north. Thanks to the explosion in the Seattle market, the long-awaited local gentrification is finally happening, it’s getting crowded around here and that’s just the beginning of heavy urbanization that is expected to continue for at least the next 20 years.

This rapid urbanization matters because it’s these city folks who are going to want these micro-farm lots for recreational gardening and, the more crowded that the cities become, the stronger will be the demand for a nearby peaceful, private place on which to escape them.

This is farmland in every sense, both zoning and the exceptional “no-irrigation” stone-free soil character. But what’s rare and different is, again, that it is already broken up into relatively tiny small lots, ranging from 7,000’ - 21,000’. These undeveloped lots are over 100 years old and they haven’t made more of them in many decades.

Ordinarily, local farmland cannot be broken up into lots smaller than 10 acres (435,600’). But this farm was subdivided back in 1909, and just recently (2009) the lots were grandfathered back as individually ownable. Prior to 2009, when some little-known new land use codes finalized, and for many years before, they could not be individually sold or owned in less than 10 acre chunks, no matter what. That’s why this group wasn’t broken up long ago.

Again, there is no further subdivision required: Each lot already has its own legal description and you just sell them off.

I’ve already verified this with county Planning and Development Services. You can find the county bulletin on legal lots here: http://snohomishcountywa.gov/DocumentCenter/Home/V... These lots qualify under the conditions at the bottom of the first page. The Formal Plat/Subdivision was created in 1909 and I have a copy of the original filing.

One other significant hidden value here is that each lot is also permitted to hold one occupied off-grid RV from Spring through Fall. $3,000/year isn’t an unreasonable value for this extra RV pad value. So, one other good buyer demographic is retired Snowbirds who want permanent summer quarters to grow food, preserve it and then cart it back to Phoenix.

There are fewer than 100 of these undeveloped “small denomination” “micro-farm” lots in the entire county and I know where they all are. All are groups of lots and there are no “singles,” or other groups, for sale. So, this one property is close to 1/2 of the entire supply. There will never be any more and, with a population over 1 million within a 30 minute drive, 36 recreational agriculture lots isn’t very many to sell.

Buyer profile:

The kind of buyers for these lots are hard core gardeners and/or folks who want an escape from the city. Not quite a “vacation home,“ but in that same direction at a much lower cost. With the ag zoning, farm animals are also permitted, too. If you want to raise chickens, you’re not limited to just four hens and no roosters. A lot of pigeon fanciers have been here at times. This is a classic “little place in the country,” except that its literally right next door to the city, with freeway all the way, and you don‘t have to buy 10 acres.

In a way, these lots are like giant privately-owned p-patch gardens. While Everett only has a couple of dozen individual spots, which never become available, Seattle has about 90 neighborhood p-patch groups with a formal waiting list of 1,800 impatient gardeners, and with a typical wait of 1 - 2 years for a spot to open. The advantage of owning your land, besides a MUCH bigger garden than any p-patch, is that any soil improvements and berry bush/fruit tree plantings etc. that you do, which take years to bear much fruit, remain with the owner.

I know personally that there’s local demand because people regularly stop by asking if there is land for rent, which is not a good holding strategy, BTW, for many reasons.

As for buyers, there are literally no micro-farms for sale around here, and haven't been in local memory, so buyers don't yet know that something like this even exists. I've lived here all my life and I'd never heard of this small land niche, until I started doing deep research into local land use laws. But, the buyers will know as soon as these lots hit the MLS and they'll quickly recognize the advantages that ownership offers. Just 36 lots is a sellout.

Market value:

As for market value, the local farmland broker says that around $25,000 for a sub-half-acre farm lot is reasonable to expect. But, that was 5 years ago and local real estate values have since gone up more than 30% (w/ local RE appreciation currently running @ 12%/year). So, starting off with an asking price of $29,950 isn’t unreasonable. With this fat profit margin, there’s room to maneuver on pricing, depending upon how much demand shows up.

For a market value comparison, I recently did a RedFin search for any kind of existing lots between 6,500’ and 1/2 acre and priced under $50,000. The total return was just five lots in the entire county. One of them, right next to a flood-prone river, was priced at $25,000 and the rest were priced between $37,500 and $49,950. But, none of them were excellent farm soil and all of them are at least 30 minutes further out in the country.

A $25k - $30K selling price will make these lots the cheapest in the county. Factoring in only the 28 large lots, the cost per lot is just $5,700 each. So, even an $11,400 selling price is still a cash doubler.

If you take another look at the plat map at the beginning of this post, you’ll see another 8 tiny lots, of 7,000’ each, along the bottom edge. Partly for simplicity, I’m not factoring them into the profit calculations, but they should be worth at least $12,500 each, or an additional $100k or so.

So, here’s the group investment offer:

In exchange for capitalizing this deal, I’ll do all the work through the final sale, on top of the cash and years of work that I’ve already invested, and the capital partner keeps 75% of the lot selling prices. It’s really just that simple.

Once acquired, the basic plan is to quickly list these lots for sale on the MLS @ $29,950 each, both looking for buyers and to set a market price for a type of land/size that nobody today even knew existed.

First cashflow:

The first lots sold should be the seven large lots in the east block. These will be the easiest lots to “colonize” because each has its own roadway frontage. The rest of the lots are interior and not as easy to get to in the winter months.

But, when these first seven lots sell, assuming a $25,000 lot price, that’s $175,000 back in, more than repaying the $160,000 investment. After that, you’re playing on house money and your original capital can be put back to work on your next deal, while waiting for the rest to sell.

The only way to find out for sure is to buy the land and list it. If only one local county citizen in 1,000 buys one of these east block lots, that’s all it will take to go into the black, with plenty more upside to come.

The next lots to sell will still be the investor’s in the center two blocks, until they’ve all been sold, too. Only then do I get title to my 25%, which is the West block of seven large lots.

Fast Track Sale:

However, there may be a shortcut to selling the whole package at once, to the county government, for top dollar. But, again, this will require first having the lots acquired and listed on the MLS.

The county has the money, already earmarked for things like this that promote tourism. In fact, in the past few years, the county has spent $31 million buying important resource land. Purchasing this one-of-a-kind “gateway” site would certainly be in the best interests of the citizens and future generations. However, when dealing with any government, good sense doesn‘t always carry the day, so there are no guarantees.

But, all things considered, I think that there’s a pretty good shot at this package sale. If it doesn’t work, the original plan of just reselling the lots still works. Both options will be marketed at the same time.

The county should be the owner because the highest and best use for this property is as a “regional gateway.” Essentially, Snohomish county’s version of NY’s Liberty Island. This site is literally the only option for such a gateway installation.

All of the local traffic between the central eastern county, and all the way over Stevens Pass, chokes down to the large raised trestle (Hwy 2) that runs for 1/4 mile along the south edge of the property.

This is a very high-profile site, with 70,000 vehicles per day passing by 40‘ up in the air. As such, it should be “developed” as something that reflects the heart and soul of the community in a welcoming fashion.

I won’t get into all of the details here on the why’s and how‘s to sell to the county, but the right elements are all lined up: The new county executive has been driving past here every day for more than a decade and is the only elected local leader who actually cares about rural lands. He also controls a dedicated “tourism development” fund that comes from a local hotel/motel tax and can only be spent on tourism development projects. And, doing something like this, at no cost to the taxpayers, creates a lot of political capital for the next election, and that’s always the key consideration.

At the moment, there has been $1.8 million in this hotel/motel fund that‘s bee gathering dust for years, with no plans budgeted to use any of it at least through 2018. Normally, this fund is only visited for consideration twice a year, but there are provisions for “emergency” actions when time is tight and the loss from inaction would be big.

The basic idea, again, is get this property quickly listed on the MLS both to establish a market price and, especially, to create an "emergency" to spur the executive and council into quick action. It will be presented as now-or-never, which is the literal truth.

The upside of acting will be a gateway of which we can all be proud, and which also boosts both tourism and local agriculture.

The downside from not acting will be a “chaotic unpermitted RV park eyesore.” This is certainly plausible, but by the time that it becomes apparent, it will be too late to do anything.

That's the selling plan to the county government. But, I can't pitch the county exec with any degree of manufactured urgency without first listing the property on the MLS and that requires owning it.

As I mentioned in the beginning, a part of my profit will also be the county TDR credits that the land holds. It may be years before a market for these ever starts up and nobody knows what the final market price will be. In any event, “clipping off” these credits will have zero impact on the market value of the land. There’s a county process to get these credits certified, which I will do, and it shouldn’t take more than 90 days to complete.

We can still start the sales efforts immediately, but the final closing will have to take place before the lots are broken up. After they’ve been split up, they will no longer qualify for TDR credits, so it’s now-or-never here, too.

I’m certainly open to the idea of a possible split investment with up to four partners, with a minimum $40,000 buy-in, secured by land that’s worth a lot more. At a bare minimum, I can’t think of a single reason why the investors won’t quickly break even and, not long after, at least double their money. The partners can be completely passive or they can be actively involved and, possibly, eventually learn to take over this land investing business, so that I can start semi-retiring.

If you have questions etc., please PM me. 

(Public trolls will be publicly flamed.)

Thanks!

Chris Newman

You can file a new LLC online at https://www.sos.wa.gov/corps/LimitedLiabilityCompa...

The normal cost is $180. But, unless you're willing to wait 25 days, best to pay the extra $20 and get it in 5.

One advantage of an LLC is that it separates your business liability from your personal wealth. All things considered, especially how sue-happy things are getting, that's probably a good idea. If something goes wrong with your rental, and they do, the most that you'll lose is the house.

Another advantage is, if you get into financial trouble and can't make the payments for some reason, the ding doesn't go onto your personal credit score. Then again, if you're going with normal mortgage financing, you may have trouble getting qualified with a new LLC that doesn't already have a good credit score.

LLC's are especially good if there is a group of investors working together, with the equity divided up via Memberships. All of your operating agreements are done within the LLC bylaws, which can be anything that you want and don't have to be public information. If one Member wants out, for instance, all they have to do is to surrender their Membership under agreed terms/price etc. (all written up and notarized) and there's no need to make changes in the public record of who owns the property etc. Likewise, if you want to take on a new partner, they'd buy a Membership, rather than changing the property's public record.

For that matter, if you later sell the property to another investor, if you sell them the LLC instead, and you both avoid the RE sales taxes, which are much higher for the seller than buyer.

This is not a complete list of pros and cons. But, there's ongoing paperwork so, it might not be bad to hook up with a Registered Agent who receives the paperwork and let's you know what needs to be done for a small yearly fee. More info and choices: https://www.google.com/search?q=llc+registered+age...

It certainly wouldn't hurt to speak with an attorney who knows this stuff to get a full rundown

In any event, before you make a decision, do your homework until you really understand this stuff and dig a lot deeper than online opinions. That's good advice for any business endeavor. 

That said, why Snohomish? It's one of the more expensive areas in the county and I haven't seen a lot of great values there. While the appreciation over the next few years looks good, starting with positive cashflow immediately might be a problem. 

But then, this is pretty much the case anywhere within an hour of downtown Seattle. That's why I short-term "treasure hunt" for hidden values on raw rural SnoCo land, instead of going long with residential. Far better profits with far less hassle, and, especially, no tenants.

Good luck!

Some quick context:

I invest in Snohomish county, WA rural junk land with hidden values. I started off with Transfer of Development Rights Credits and then discovered Small Denomination farmland from Ghost Plats. I love junk land and this kind of high-profit treasure-hunting!

My latest discovery is on 10 off-market acres of river waterfront for about $75k and everything is now lined up to buy it except the purchase capital, which needs to be all-cash. The first hidden value here is that the TDR credit that it will yield is worth $176,000, once I can get it sold. 

The second hidden value is that the land has about 700 full size Asian Pear trees. Working this as a commercial orchard is, clearly, not worth the hard effort, even if you process it into hard cider. However, it looks like these incredibly prolific  25' trees are worth at least $600 each, when professionally transplanted into the yards of wealthy gardeners. This price is just for the trees, with the cost of transplanting (including a one year guarantee) added on and outsourced for a total cost of about $1,500. For upscale gardeners, that's cheap instant gratification. 

The math is simple: $600 X 700 = $420,000. It may take a couple of years to sell them all, but the breakeven is fast and the unsold trees will just sit there until they're sold. So, not a bad total return on $75k invested, without having to sell the land, which still has even more remaining value higher than its original cost, still without selling it.

But, I'm just discovering that highest hidden value, at least on certain kinds of junk land, which is usually the cheapest of all, is Wetland Mitigation Banking. 

The basic idea with MB is that when developers and government infrastructure projects etc. unavoidably must destroy natural "habitat," they must either restore it or else offset the damage by purchasing credits in certified mitigation banks to preserve multiple acres more of habitat than was taken out. I've known about this niche REI market for a couple of years, but didn't pay a lot of attention to it because I didn't know the market value of MB credits and the paperwork is really complicated.

If you'd like to read WA's MB "manual," you can download it here:  https://fortress.wa.gov/ecy/publications/documents...

One of the interesting things is that the "Interagency Review Team" that makes the decisions on credits is charged to be entrepreneur-friendly. They actually bend over backwards to help the investors to succeed. That's rare for a government agency. 

However, a few months ago, I had a long conversation with the program manager for both TDR and MB in King County (home of Seattle) and he clued me in on the current free market value of WA MB credits: $2.2 million each! 

Depending upon a wide variety of factors, it takes between 1 and 10 acres of $3k/acre land (that's already paid for itself through TDR) to create one MB credit, so that got my attention. Shortly after that, I had the great good fortune to hook up with an environmental engineer (a fellow BP-er) who not only understands this complex stuff, but who is also a highly-ambitious real estate investor who wants to hit the Financial Freedom level ASAP. 

So, we've begun working on the certification process for our first MB project, which is 80 acres near Marysville with a 15 acre undeveloped trout lake right in the middle. In fact, I just made the offer yesterday: $3 million. But this is only going to work if the landowner is flexible, which he certainly can be. He owns the land debt-free, so he can do anything he wants. And, he's been trying to sell this property for many years, so he's plenty motivated. We'll know soon but, if this doesn't work, there is no shortage of other nearby qualifying sites available. We're particularly interested in this site because it should be a slam-dunk for fast-track certification with a high credit count and there's no construction required at all. 

Oh, and it also has about $600k in TDR credits and an extraordinary waterfront home, the only one on the lake, that's actually a top/bottom duplex with a daylight basement that will easily AirBnB for $1,000/weekend. But, those are just deal gravy.

One of the big reasons why there are such eye-popping profit margins in lWA Mitigation Bank Sponsorship (as it is formally known) is that there are only two MB players who supply these credits in the entire state of Washington, and only one of them is actually based in-state. So, it's a supply and demand situation, with neither company wanting or needing to cut their prices. We're going to be the third and, since our land cost basis is far lower (thanks to the TDR credits that had already paid off the land), we can afford to be very aggressive in our pricing without sacrificing profits.

So, that's what's going on locally. 

A little further research determined that mitigation banking is a national real estate investment niche, with only a few dozen players in the entire country. But they have already formed their own trade association, complete with conventions. So, that makes mitigation a good moderate-barrier REI option for Bigger Pockets investors and I'm starting this thread to see if anyone else in BP-land is curious or already playing the MB game or has something to share on the subject.

I also just discovered that someone wrote a book on this exact subject back in 2006: "Green Wealth: How to Turn Unusable Land Into Moneymaking Assets" My business partner has been reading it and says that it's filled with great information on "how-to," which is always better than reinventing the wheel, as we've been doing. I just ordered a one cent used copy from Amazon and am looking forward to the read. There are another couple of dozen used copies there: https://www.amazon.com/gp/product/075700282X/ref=o...

Looking forward to everyone's thoughts.

Hi @Jessica S.

Thanks for reading. I'm doing this short post so that you'll get an email notification that I've done another long post on TDR and mitigation banking, just below yours.

I look forward to further communications.

best,

Chris