The Complexity of Flipping Land

Today, we are joined by Pete Reese to talk about the complexity of flipping land as a business. He is the president of Real Vest Properties. He has successfully purchased and sold hundreds of pieces of real estate and he’s on track to earn over 4 million in revenue here in 2022. 

 

[00:01] – [07:22] How He Started Out

• He started out by buying and selling single family homes in the 2000s, and then transitioned into flipping bank-owned properties during the 2008-2009 recession
• Since starting his own business two years ago, Pete has been successful in doubling his investment every 60 days, and is on track to earn over 4 million in revenue by 2022
• Why one challenge Pete has faced is managing a large number of properties simultaneously

 

[07:23] – [11:30] Buying Land in the US for Recreational Purposes

• They focus on the East Coast or Southeast US because land values are reasonable
• Why some areas are active markets, while others may have less demand
• Why the company looks for properties that have a gentle topography, road frontage, and legal access

 

[11:31] – [21:29] Real Estate Lessons Learned 

• The process of buying land, including the use of in-house capital or money partners, and the percentage of returns on investment
• How a minor subdivision is taking a property splitting it into five parcels or less and how it can be a good strategy for beginning stages of a development
• How they will hire an engineer to draw up potential plans for what the subdivision could look like and list it with a commercial broker.

 

[21:30] – [23:13] Closing Segment

• Reach out to Pete! 
• Links Below
• Final Words

 

 

Tweetable Quotes

 

“Essentially in this land business, there are money partners available.” – Pete Reese

 

“I like buying and selling. Creating value it’s almost like a mini game.” – Pete Reese

 

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Connect with Jason! Follow Pete Reese on LinkedIn. 

Website: turningprofit.com

 

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Want to read the full show notes of the episode? Check it out below:

 

[00:00:00] Pete Reese: So we always send a photographer out and sometimes we’ve got a local broker agent that we’re working with too that’ll go out to the property for us as well. So we try to do that whenever we can. We always resell the properties with a local broker and we kind of use them during the due diligence process and get their opinion on what the value of the property is or what the area’s like. And then we re-list the property with them.

[00:00:34] Sam Wilson: Pete Reese is the president of Real Vest Properties. He has successfully purchased and sold hundreds of pieces of real estate, and he’s on track to earn over 4 million in revenue here in 2022. Pete, welcome to the show. 

[00:00:46] Pete Reese: Well, thanks for having me.

[00:00:47] Sam Wilson: Absolutely. The pleasures mine. Pete, there are three questions I ask every guy who comes to the show in 90 seconds or last, can you tell me where did you start? Where are you now and how did you get there?

[00:00:56] Pete Reese: Great. Well, I started like anyone else or a lot of other people, bought our single family home in the year 2000 and kind of got hooked because when we sold it, we made about 50 grand on it. And got into flipping homes a little bit before the giant market crash in 2007 to 2009 ish area. So we were flipping homes. We were really successful with that kind of transition into, you know, I had gotten my real estate broker’s license in the meantime, and when the market crashed, I really got heavily involved into selling bank owned properties for the banks. That’s what was selling at the time. So I kind of just went where the market was. So I did that for quite some time. Also focused on short sales for quite some time, like helping homeowners sell their homes through short sales. So I got really good at that.Through that area, I actually connected with a bunch of large investment companies and for a while there I just focused on finding them deals. Learned a lot, sold a lot of properties through them, and kind of got the itch eventually to get back into real estate investing. So about two years ago, I kind of stumbled into the model of land flipping and, we’re actually in our second full year of the business. 2021 was not even a full year in the business or March of 2021, we resold our first property. And now we’re finishing up 2022 and hopefully on track to do 4 million, maybe 3.7, somewhere in that range. But yeah, so things are going very well and we’re really having a good time with it, man.

[00:02:25] Sam Wilson: That’s impressive growth. I mean, you’ve been to this for two years and you talked about a lot of different aspects of the business you were involved in. I mean, going from short sales, R E O properties, even brokering to institutional buyers and people like that, like the complexity factor I would imagine into the land business has gone down dramatically.

[00:02:47] Pete Reese: Oh yeah. It’s great because it’s a very simple business in a way. I mean, the business model is just simple. Sending out direct mail offers essentially to landowners. Yeah. And you know, we curate these lists and we filled ’em down and everything, and then we get the phone either ringing or them emailing us back and we just work out a deal with the landowners and we buy properties at, you know, the price where it makes sense for us to then be able to put ’em on the market and then resell ’em quickly. So our average hold time is only about 60 days. So typically I add this vision that land takes forever to sell and certain models of land investing do take a long time to sell, but not in this model. It’s more of a quick, quick, quick sit situation and we’ll do minor development things to these properties. We might get ’em surveyed, we might get a perk test, we might do some clearing on the properties. So we do some of those things to kind of enhance the value for a prospective buyer. But ultimately we just try to keep moving really quickly.

[00:03:45] Sam Wilson: Wow. So gimme an ideal purchase for you guys. What’s the ideal property look like that you wanna buy?

[00:03:53] Pete Reese:  Well, first of all, we try to double our money in all of our investments. So for the most part, we’re using our own cash. So right now, try to stay on the minimum side of a purchase price as say 30,000, try to sell it for net 60,000 was. You know, I actually like at this point I’m trying to gravitate towards the bigger and bigger properties, you know, like a hundred thousand dollars purchase price, $150,000 purchase price. But many times the goal is the same to try to double our money. And, you know, if we could do that every 60 days, then it starts multiplying very quickly. 

[00:04:27] Sam Wilson: Have you ever figured out the annualized return on, like, say a single dollar invested and just sat down and tried to do the math just for kicks and gig?

[00:04:37] Pete Reese: Oh yeah. Yeah, it’s, it’s insane. You know, some of the deals, you know, you know, I’ve had deals where we hold it for 21 days only, and that’s including a resale escrow period and everything. And you know, maybe triple our money and then it’s just astronomical in terms. It’s like thousands of percentage if you multiply that out, you know, keep that money moving.

[00:04:56] Sam Wilson: Right, right. Oh, that’s hysterical. I love that. You know, and, and I think one of the things that I would find challenging in this model, and tell me why I’m wrong, is that at 30,000 bucks a pop, say on an average size 30 to. and you’re gonna do 4 million in revenue. I’m not gonna try to do the math on the show here, but that’s a lot of parcels of property. It’s a lot of moving pieces. How do you manage all of that in a meaningful way? 

[00:05:21] Pete Reese: Yeah, I’ve got a great team around me. That’s how I’ve, I’ve uh, you know, made it happen. I’ve got, I’ve got, uh, kind of everyone to sort of help me with every aspect of it, and at this point I’m kind of planning out our mailings, you know, like where we wanna send mail to and our outreach approving the deals and you know, working on the resale side of things, a lot of the negotiations on offers that come in. So that’s kind of where I do most of my stuff. But I’ve got a great team handling all the different aspects. I’ve got someone that does all the phone calls with the, any, any of the sellers or any of the communication to get things under contract. I’ve got a transaction manager that handles it from contract to closing and yeah. I’ve got a property analyst that helps me review all these properties and dig into them deep and kind of do our due diligence and well, a number of other team members as well that have along the way. 

[00:06:14] Sam Wilson: There’s parcels of land you can buy in the United States that aren’t worth acquiring. I’m thinking like you get out, you got in the Western states and it’s like, oh, hey, there’s this giant parse tracked land. A hundred acres in Arizona, in the middle of absolutely nowhere.

[00:06:30] Pete Reese: You know, yeah. There’s people that focus on that in the land investing side of things, you know, the desert Squares, we call ’em. You know, personally, I don’t see the peel too, but it’s kind of a different model that a lot of ’em do. They’ll buy these things for ultra cheap, you know? Right. Maybe a hundred dollars an acre or something, and then they’ll sell it to people on terms, you know, for a much higher price. So that’s, that’s a whole different thing than what I’m doing because we’re, we’re buying them for cash and then we’re cashing out when we resell them. We’re not holding any of the notes on any of these properties, and the properties that we’re buying are generally within an hour to two of major metropolitan areas, but rural areas. And for the most part, we’re kind of buying 10 acres plus parcels at this point. Although we have done smaller, but that way that the properties could either be used for recreational purposes or potentially a home site.

[00:07:23] Sam Wilson: Right. How have you selected where, I mean, the United States is a big country, so how you selected, where is ideal, an ideal target market for you guys? I know you mentioned a couple things, but within a couple hours of a major city but that still leaves a lot of land to buy. 

[00:07:27] Pete Reese: Yeah, yeah. Most of our stuff has been East Coast or SouthEast. And just like those areas, because land values are actually somewhat reasonable. There’s a lot of vacant land, so there’s a lot of potential deals to make and they’re active markets in the land as well. Some areas you’ll notice, you’ll do your research and you’ll see, you know, there’s a ton of listings, but not a lot of sales, right? So either there’s some sort of imbalance between what the sellers want and what the buyers wanna. or maybe that it’s just land that is not, you know, not too desirable in a certain area, those areas still work. You just have to be able to put it on the market at just such a cheap price to, to really gain attention.

[00:08:19] Sam Wilson: How are people financing the acquisition of it? Or do you require that your buyers all have cash? 

[00:08:27] Pete Reese: Yeah, we just put it on the list. We lease it with a broker, just like a house or, you know, a commercial property. And then the buyers figure it out on their end. So some of them. It’s cash and some of ’em are using a HELOC on, say, a primary residence. I see that happen a lot, you know, to get the, to get the cash for this deal. Mm-hmm. . And then there are some land specific lenders that sometimes the buyers use. 

[00:08:51] Sam Wilson: Okay. Okay. So that option is out there. Have you seen, and I kind of feel like I’m wandering all over the place here, but I’ve got just some kind of building the picture. Let’s say that there is, you know, there’s talk of recession, there’s talk of things slowing down. How does land perform in an economic downturn? 

[00:09:12] Pete Reese: Yeah. You know, some of these rural areas, they didn’t really skyrocket and, you know this kind of last jump in the real estate market. So they’re a little bit more stable. They’d have risen some, but I’ll tell you that there seems to be demand for good parcels. Now, that’s one thing that I’ve learned, you know, over the second year in the business. Even if a property is cheap but it’s just not a great piece of land. I don’t buy it in the first place. There’s a lot of, like you said, there’s a lot of pieces of land that you really wouldn’t wanna buy at any price. And a lot of the deals we turn down after they come across our desks because it’s just, it’s not a good piece of land. You know, when you look at like, as a buyer, would I want this property? Mm-hmm. and if it’s got major issues, like it’s all swamp or on the side of a mountain or if it’s landlocked. I mean, a lot of these things, even if they’re ultra sheep cheap, I don’t wanna buy ’em cuz it’s gonna be tough to resell. So Right. Sounds like a good piece of land and you can offer it at a good price. That’s slightly B below market. Those buyers are definitely there. 

[00:10:13] Sam Wilson: Got it. So what, so what are some things that define a good piece of land? I know you mentioned 10, you mentioned 10 acres. Obviously now we know not to buy on the side of a mountain or a swamp. People of those beams

[00:10:27] Pete Reese: I mean, you know, they’re buyers for those things too, but it’s just not what I prefer to sell. Yeah, yeah. Like I said, you just have to get some of those things ultra cheap. I like the properties that are, have kind of a gentle topography, not too slow. I like properties that have road frontage and sometimes we buy some properties that have easement access, you know, where you cut through a neighbor’s property. But as long as it’s deeded and legal access and it’s well defined, then, then I don’t have a, uh, problem with it. Um, I also like, you know, properties that. You know, no wetlands or no FEMA flood zone. That’s another consideration. Right? So, yeah, so those are kind, that’s kind of the major checklist. And we try to, we try to buy properties that at least have the potential to build on. So we go through a whole checklist, you know, we’re calling the county, the city, whoever it is, and, and just going through a whole checklist of questions that we ask them. We try. As much of a assurance from them that it, it’s a potentially buildable property or we’ll close on it,

[00:11:30] Sam Wilson: Right, right. That makes sense. What’s your typical cycle from under contract to when you officially buy it? How long does that take? I know you said Holden for about 60 days, but what’s your due diligence cycle? On the front.

[00:11:44] Pete Reese: Yeah. I mean, we try to buy ’em as quickly as possible, but the main holdup that we normally run into are the title searches. So it’s the title company or the attorney that’s doing the title search on the property. Those generally take a little bit of time, I mean, probably on average it’s about 30 days. I would love to close ’em in two weeks if we could. Right. But you know, we’re just waiting for that title work to come in most of the time. And you know, as soon as we get a property under contract, we’ve got this whole chain reaction of events that happen. You know, we get a photographer ordered to go out there or order this extra due diligence, you know, calling the county and the city and just a number of things that start happening. And then we compile that data as soon as we have ’em and just make sure everything’s good and then move forward if it does. 

[00:12:27] Sam Wilson: That was gonna my question, do you guys site visit every property? It sounds like with a photographer you do, but obviously you personally don’t site visit every property.

[00:12:35] Pete Reese: Yeah. Personally, I’ve only been to a few of the properties that we’ve ever owned and that was a road trip that we did last year. Is kind of a fun experience. But yeah, for the most part, I never see any of these properties on the ground. 

[00:12:46] Sam Wilson: Wow, that’s wild. So up until the point when you get it under contract, you’ve never actually physically set a site, or you know, if you can, I’m sure you can Google map it, but even then Oh yeah. A lot of your rural properties, maybe even that’s not widely….

[00:12:59] Pete Reese: Yeah. We use a tool called map. Right. Which allows us to really get a lot of data on every parcel in the United States. I’m sure there, there are exceptions, but we get to see all kinds of satellite image data. We get to see overlays with fema, flood zones, wetlands and topography and a lot of other things. We could see the road frontage, so we could see a lot of that. It does. It’s no substitute for sending someone out to the property and getting the boots on the ground. So we always send a photographer out and sometimes we’ve got a local broker agent that we’re working with too that’ll go out to the property for us as well. So we try to do that whenever we can. We always resell the properties with a local broker, and we kind of use them during the due diligence process and get their opinion on what the value of the property is or what the area’s like. And then we re-list the property with.

[00:13:48] Sam Wilson: I would imagine that you would want to use a broker or agent that has experience selling land, cuz it’s a different thing to sell than, you know, a house or even, you know, warehouse or anything else. 

[00:14:00] Pete Reese: Yep. We look for the top land brokers in the particular areas that we’re working on and we try to work with them and we try to get as many deals as we can with them to make it a, you know, kind of a win-win deal.

[00:14:11] Sam Wilson: Right. No, that makes a lot of sense. So lemme ask you this, Pete, you guys do all of your own transactions with in-house capital or do you guys use outside capital as well? At times? 

[00:14:22] Pete Reese: Yeah, that’s a really good question. For the most part, we do it all with our own cash. Now I have done two properties in the past where I’ve closed them with a partner. Mm-hmm. . And essentially in this land business, there are money partners available. And it’s a situation where, you know, it’s tough to get a bank loan for something like this. Like maybe it’s available as an investor, but it’s pretty tough. So what you do is, there are money partners out there and you bring the deal to them and they see the numbers and see how it’s gonna work, and then they bring the money to the table. And then we split the profits when it all is said and done. So, I’ve done that on two properties so far out of about a hundred or so that we’ve completed flips on. And, it was a large dollar amount, it was $315,000. It was like a 600 acre property. So we ended up, Not quite doubling our money. We sold it for 5 95, but after closing costs and everything like that and a couple of other expenses, we netted, each of us netted about $108,000. 

[00:15:29] Sam Wilson: Right. So, so you, so you could afford to take your wife out to dinner once at least? 

[00:15:34] Pete Reese: Yeah. They’re happy. My family was happy when I closed that one. I was excited too. But you know, when you look at the ROI on that, I mean, I brought the deal for sure. But I didn’t, actually didn’t put any of my money. Ended the deal at all and it still made hundred $8,000 on it. That’s an infinite return on the infinite R O I

[00:15:53] Sam Wilson: Right. Absolutely. Tell me about a deal gone bad deal gone bad.

[00:15:57] Pete Reese: Well, knock on wood, I haven’t lost money on any deal yet. Hmm. Any of these properties I bought, so. Okay. Kind of the worst percentage return on investment was right around 20. And that’s how I howled it for, you know, something I had to hold for a while too, to get that 20% like 180 days, which is way longer than we normally do. But, you know, I guess a deal gone bad would be one that just took a lot of effort and I made hardly anything on it. And it was the first and only, uh, property that I bought that was landlocked 12 acre property. I thought this was such a great deal and picking up for $3,000 and I was like, how can I lose on this? I could sell it for 20,000, no problem. I tried to list it for that and tons of buyer interest, but no one understood the fact that it was landlocked and I explained it to him, put it, you know, it was a listing that way and everything, and, uh, so just a bunch of activity. Had to sort through the fellow of escrow a couple times. I think people just didn’t really understand what it was and the limitations of what you could do with the property. Ended up selling it for, you know, five or six grand, something like that. So made money on it, you know, but it was just such a hassle and it was such a small amount of money. There was really kind of lesson learned, I guess.

[00:17:14] Sam Wilson: Yeah. Yeah. And it just sounds like you’d never make the time back. The hassles, I mean, going with a couple times, monkey with the paperwork, going back and forth, I can only imagine. I know. Dozen, couple hours, thousand dollars. Yeah. You know what, but I’ve heard of, I’ve heard of a lot worse stories. You know, in the end, so let, let’s assume it was a net wash even in the end, right? Like once you calculate your time, it’s like, I’ve still heard a lot worse stories of like, oh, this is bad. And I lost, you know, half dollars. So I’ve heard that, oh yeah, yeah. That’s it . No, no, absolutely no, and I think that’s really, I think it’s valuable though. I mean, to learn those lessons and to say, , you know, here’s what not to buy, because I mean, that’s, at some point you’re gonna make those mistakes along the way. What about that property? I guess there was no easement to it. There was no deeded easement. There’s no actual way to get to it.

[00:18:04] Pete Reese: Yeah, exactly. Yeah, it was, it was kind of in a really populated area.12 acres or so, kind of all these subdivisions and apartment complexes and things built all around it. I mean, you could easily walk onto the property, like through these lawns from these apartment complexes and stuff, but there was no deeded legal access to the property. So, you know, I was trying to market it as like, well start your own, you know, Frisbee golf course or , you know, like I don’t know what you’re gonna do with it, but it’s 12 acres of woods, so I don’t know.

[00:18:39] Sam Wilson: Who knows. Wow, that’s wild. Well, at least you unloaded that. Talk to me about entitling land and the term, as you put it, minor subdivisions. I’m really curious what a minor versus major subdivision is.

[00:18:50] Pete Reese: Yeah. Well, there’s two different things really. There’s a minor subdivision, which is taking a property, splitting it into five parcels or less. In most areas, they consider that a minor subdivision. And a lot of these areas, it’s pretty simple. You hire a surveyor, they’ll survey the property, split it up. Five parcels and then you record it with the county, right? And that’s it. So then we take a larger property and then we sell it off individually because you know, say we get. 50 acre parcel and we split it up into five 10 acre parcels. Then we sell off the 10 acres individually to individual buyers cuz we can get a higher price per acre and a higher return on investment. So we do that. Sometimes that’s a good strategy. Doesn’t take too long. Then there’s another entitlement, kind of land major subdivision type thing that we get into sometimes. So some properties are perfectly positioned. They would, it would be perfect for a residential subdivision. So generally what we’ll do, cuz kind of the beginning stages, just to kind of enhance marketability. So we know it’s zoned, right? We know it has the right utilities, it has everything available for a subdivision, but we don’t wanna actually, you know, get the bulldozers out there and put in this, the roads and the site. We don’t wanna do any of that stuff. So what we do is we hire an engineer, they draw up potentially what it could be. You know, how many potential lots here based off of the zoning. Where the roads would go in this community, and then we list it with a commercial broker and we’ll just position it as what could be. Right. You know, and a lot of times these developers or builders, they’re gonna have their own ideas of what they want to do with the land. They’ve got their own teams to do all this stuff, so, We just generally kind of market it as like, Hey, this, this could be a great subdivision for your company. You can move forward with that. So we’ve done that in a number of cases and uh, it’s worked out really well. 

[00:20:35] Sam Wilson: So you’re not actually going through the entitlement process. You are just simply giving up or not giving up, but producing potential. Hey, that’s right. This is, this is what this could look like. Do what you want. But I wanna let you know that the possibility exists on this parcel to do something like this.

[00:20:52] Pete Reese: Exactly. It helps the commercial broker kind of present it to the market, right? So they can, you know, talk to their potential buyers as well. And, you know, it actually is a different way to create value. 

[00:21:05] Sam Wilson: Absolutely. No, that’s really cool. Pete, I have thoroughly enjoyed the show today. Thank you for taking the time to come on and share with us your journey. It sounds like, you know, you’ve done a lot of things in real estate over the last 22, going on 23 years, But it sounds like this is the one that you’re having the most fun with, I would imagine.

[00:21:23] Pete Reese: Oh yes. A lot of fun. A lot of fun. And you know, I like deals, you know, I like buying and selling. Creating value it’s almost like a mini game, right? It is a game, you know…

[00:21:34] Sam Wilson: Absolutely. Very, very cool. Pete, thank you for coming on the show today. If our listeners wanna get in touch with you and learn more about you, what is the best way to do that? 

[00:21:41] Pete Reese: Yeah, that would be heading over to turningprofit.com and that’s a website. I’ve got monthly income reports where I share everything that’s going on with our land business, how much profit we made that month. Each deal, we break down individually and show you what we learned, what went well, what maybe didn’t go as well. And maybe if you’ve got any interest in land flipping, that’s a good place to start. 

[00:22:06] Sam Wilson: Fantastic, Pete, thank you again for coming on today. I do appreciate it. 

[00:22:10] Pete Reese: Well, thanks so much, Sam. Really appreciate it here.