Are you looking for a new investment opportunity? Land investing might be the one for you! Today’s guest is Dan Haberkost, a full-time real estate investor with a land and development business on the active side and a portfolio of residential rentals on the passive side. In this episode, he joins Sam Wilson to enlighten on how profitable land investing can be. Tune in as he shares the ins and outs of the land business, and get tips that could help you on your first deal!
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The Ins And Outs Of Land Investing With Dan Haberkost
Dan Haberkost is a full-time real estate investor with a land and development business on the active side and a portfolio of residential rentals on the passive side.
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Dan, welcome to the show.
Thanks for having me. I’m looking forward to talking a bit about our business.
The same three questions I ask everyone who comes on the show. Can you tell us where did you start, where are you now and how did you get there?
My first experience with real estate was when I was a teenager. I was sixteen managing a portfolio of rentals for my boss at the time and his farm while he traveled the world. That didn’t make me want to invest because he had very low-end properties and a terrible dynamic with his tenants so it was a lot of ripping up nasty carpets on hot, humid Ohio days. That was my first experience at a very young age. Fast forward to college, I was running a landscaping company, going to school full-time. I had come from a very lower-middle-class, conservative, fearful with everything surrounding money background.
I saw my siblings, parents, uncles, aunts, everyone and I said, “I don’t want to live like that.” I’d already been working full-time for years as a twenty-year-old. I started reading about different forms of investing and businesses I could start. Like many others, Rich Dad Poor Dad was the one that caught my attention. Two months later, I bought a duplex before I graduated college. I ended up moving from Ohio to Colorado because I didn’t want to stay there. I bought another house here and quickly realized that if I wanted to scale any portfolio, I needed to figure out how to make a substantial income.
You hear about all the low and no money down strategies for getting started, which is great for a couple of properties but if you want a sizeable portfolio, you or a partner needs to have a lot of money. This is a cash-intensive business. I started the land and development company here, building houses, buying and selling land, depending on the parcel and then that feeds the passive investing.
I’m financially independent at this point. Along the train of commercial investing, that’s where I’m going in 2022. I don’t want to buy more houses or duplexes. I’m going to move into the commercial space because I’ve been able to scale my income with the active business and I haven’t scaled my investing quite the same way. That’s where I’m at.
I love the thought process for you on how you’re going to scale and where you’re going to go next in business. To make sure I understand, your next iteration is going to be what? Can you define that for us?
This is part of what I’m working on for going into 2022. I have quite a bit of cash ready to go. I’m narrowing down what asset exactly I want to go after in the commercial space. I’m thinking it’s going to be a mix of office and industrial because I know some people in that space who do very well. The shortest way to get where you want to go with the least amount of mistakes, in my opinion, is finding someone who is where you want to be and learning from them. I have to do a little more work to make that decision and set clear goals for 2022 but I don’t want to keep buying houses.
From what I understand, you’re not buying just houses. You’re buying the land and then building the houses on it. You’re doing ground-up builds. What about the land side of the business? Sometimes you’re holding assets, sometimes getting rid of them. What’s that about?
The reason land works so well is because it’s an inefficient market.
With the land some I sell for cash, notes and carry the mortgage myself and I build on the prime parcels. To put this in a way for your readers to think about it, there is the passive side, which is the rentals. There is the active side. Those are two different buckets. We’re talking about the active bucket. The reason land works so well is because it’s an inefficient market. I remember reading about this concept and it came from the world of equities in the ‘70s where they say, “When you’re looking at stocks, there are millions of rational players looking at the price all the time. The price will approach intrinsic value.”
There are a lot of faults in that theory because humans aren’t very rational but it’s more applicable to stocks than it is to real estate. Within the world of real estate, if you look at houses or apartments, it’s fairly applicable. You have a lot of money chasing those properties and intelligent people underwriting them. Whereas land, not a lot of people understand it. It’s not as exciting. People ignore it because they don’t know about zoning soil quality and building. It’s not a sexy asset the way houses or apartments are and because of that, there are huge mispricings.
It is not difficult to buy land at $0.30 or $0.40 on the dollar. My business has been between $100 and $150 spent on mailers to get a $35,000 parcel at $12,000 to $15,000 on the contract. That’s the land business. It all starts with understanding that concept and then applying it to that asset with each parcel. “Am I going to flip this one? Should we build on it? What’s the move?” That’s why I like land. When I think about the niche where you have a mixture of industrial and office, that is a little bit more niche. It’s not like multifamily apartments or many other spaces. It’s still competitive but in some ways, that concept applies there too.
I own some land. It’s a compelling asset class. There’s not, “What’s it going to do? Flood?” You’re going to wait for the water to go down. I used to do that when we were in the parking business. We’d buy parking lots in central business districts. It was like, “What’s going to go wrong with this?” That was always my line. “What’s our risk here? It’s going to flood?” We have to wait for the water to go down and go back to the parking cars. It’s the same idea. Worst case scenario, you’re stuck with a piece of land that you can’t sell. Have you had that happen yet?
I’ve not lost money yet. I’ve had a couple where I made mistakes and we didn’t make much but no loss of money or nothing I haven’t sold.
How does someone take that model and turn it into something, not just pays the bills but produces a healthy income? What does that look like?
I would start with one thing. Don’t try and build a few houses and buy and sell land. I would start with buying and selling land because it’s very simple. I have done all infill lots. For those of you who aren’t super familiar with the development, you can take large tracts of land and buy and sell those but that’s a very different asset. There is a lot more due diligence that goes into it. What I’m taking is someone took a huge tract of land, brought utilities in, did the platting, subdividing so on and so forth where I have a shovel-ready lot that I’m buying and selling.
The key to these markets is they’re outside of growing metros where new homes are being built. Both builders and end-users are looking for land. The fact that it has already been subdivided and utilities are already there make the due diligence very simple because you have thousands of lots that are the same. I can send out letters like, “I see your lot at such address. I’ll give you $10,000 for it. If interested, call me.” That’s it. It makes it very simple. I would start with the buying and selling of land to generate income that you can then invest. If you want to get into building houses, you can but there are a lot of risks involved with contractors and that thing. I would have several cautionary tales for you there.
This is more of personal curiosity than anything. On an infill lot, you would think that the value has been extracted because the upside for the developer was getting utilities and streets on the upside. It was getting the plat maps put in place and getting all the entitlements done. By that point in time, how are you still finding value in buying individual lots?
There are three markets I’ve had success in buying and selling the land and they are all failed subdivisions from many years ago. The one I’m down south here at The Springs that I was telling you about was the same developer who did Havasu in Arizona, for anyone familiar with that, came and did the Pueblo Reservoir in Pueblo West in the ‘70s. I don’t know the details but he went broke, lost all the land, got 10%, 20% built out and it sat there very sleepy, not a lot going on for decades. Fast forward, Colorado has blown up in recent years for a long time.
People live in Colorado Springs and commute to Denver. It got so expensive even in The Springs that people are commuting from south of there, which is Pueblo and Pueblo West. The whole development is quickly getting built out. We have all these people that bought the lots many years ago that maybe they passed away or their kids own them. Maybe it’s a sunk cost in their mind. They are just paying taxes that bought these for a couple of thousand bucks, then they are worth $30,000, $40,000. There is an opportunity there because you’re looking at a failed subdivision that is getting built out.
You’re picking them up because the other people don’t know what they’re worth and don’t want to deal with it. You’re holding it and then what are you doing? Sell them owner finance?
Some owner finance some for cash. You’d be amazed how many people know exactly what they’re worth but they hate realtors or need quick cash or they’re rich, old and don’t care. It’s amazing. I’ve done over 60 of these lots. I’ve bought more from wealthy old people than I have from people who don’t know or who are poor.
There is nothing wrong with that. I love the idea that you’re getting niched. You said, “I’m going to buy land but I’m only going to buy infill lots.” It’s a very different game to say, “I’m going to buy infill lots or parcels no smaller than 5 acres within 3 hours of any major city.” That’s a very different ballgame. You have that figured out. Do you intend to scale that down too as you move more into commercial? Will your land business continue to fund your commercial operations?
That’s the plan. I’m looking to move into another market. I’m looking to double down on the market I’m in and I’ve been able to do that by hiring people. I have two acquisitions managers and realtors that sell everything for me. The value of building a personal brand has been shown to me. I have a software engineer who wants to build a system to scrub public records and get all the data that other people can’t get.
Every county’s nuanced as far as how these records are posted. I want to double down where I already am doing well in the land, add another market, which I spent quite a bit of time looking into and have been doing some research there and scale my income. Keep building a few houses, take all that money and move it into long-term investments.
Start with just one thing. Don’t try and build a few houses and buy and sell land.
How much money did it take for you, in the beginning, to get your land business off the ground? You got to pay people down payments. I’ve had a couple of other people on this show that got programs and not to knock any of those guests that came along because they’ve been very successful in it. They’re like, “It doesn’t take any money to get involved in land.” I’m like, “It always takes money to get involved in something.” Talk to us about that.
It was only a couple thousand bucks because I started even further down I-25 down the Front Range to an even more rural sleepy town, Colorado City. I was buying lots there from between $150 to $1,000, depending on whether there are utilities and selling them from 4 to 10 times or what I was purchasing them for. It costs me marketing. I was spending about $600 a month in mailers and then buying the lot.
If you have $5,000 or $10,000, you can get this done. If you find a similar market like Pueblo West, that was a failed subdivision from the ‘60s. It’s the same thing. That one is growing. Prices have gone up and I’m building a house down there. It doesn’t take much but the less money you spend, the more effort you need to put in and vice versa.
You’re going to pay for it one way or the other either in sweat or dollars. That holds true in real estate and everything else. You can squeeze more out of the grape if you are an active investor but it’s going to cost you time and money or you can be a limited partner or passive investor and your returns aren’t as good as if you were the active investor. Hopefully, it’s a passive investor. You get paid. The returns aren’t maybe as high as they could be. Although, I’ve had some passive investments that have done well. I can’t complain about that either. What are some surprises or pitfalls along the way that you’ve experienced?
In the land business, when I was doing it before I had an acquisitions manager, I’m a little bit sloppy with details. A couple of times, I forgot to check back taxes and ended up getting hurt because of that. That was one thing. Contractors, if you go the route of the building but this is also applicable to rehabs, do your due diligence. Don’t give them money upfront unless they’re highly recommended by a bunch of people you trust and get solid referrals from multiple people you trust when dealing with contractors. That’s probably one of the biggest things.
On the side of investing, the importance of management and operation is often underappreciated. Everyone talks about the deal and making money on the buy. That’s great and extremely important. If you get a great deal, have constant turnover and poor management, it’s not going to be a great deal for long. Whereas, if you get an okay deal and have the same tenants for 10 or 20 years, that’s going to be quite profitable.
Whether you’re managing yourself or you have a property manager, in this context, I’d imagine most of your readers have property managers, make sure you vet them as thoroughly as the contractors. They need to be highly recommended by people you trust. Check the reviews online. Think through how you would do it if it was your business because it is your business and ask them about their screening process. Ask them, “How do you handle this?” With different problems you’ve had come up, how do they handle that? The due diligence up front will save you a massive headache down the road.
What’s one of the biggest challenges that you face in your business?
Not getting shiny object syndrome. I tend to go in a million different directions, sticking to what has made me money and will continue to make me money and scaling that. I can be sloppy with systems, processes and hiring people so I need to get better there. Thankfully, I’ve got good people and they have picked up where I have slacked. I need to be better about processes and systems explaining them to my acquisitions managers so that they can properly do what they need to scale this. I can be weak on the integration side. That’s it.
That was my follow-up question. What’s one thing you’d like to change about yourself or your business in 2022? It sounds like that’s going to be the same answer.
I’ve gotten better. I make decisions more slowly. I think through them more and I’ve written SOPs but it’s a constant work in progress. I’ve gotten much better at saying no. Self-awareness goes a long way. It’s a bit of introspection.
I always say that no is more powerful than yes for those of us that struggle to say no. I used to say that my yes button was big and my no button was small. I’m trying to peel the stickers off and change them out where no is big. It takes a lot for me to say yes. With that, I’ve not suffered any. I’m with you. Learning to say no more often is a powerful skillset. What does it mean for you if you were to say, “This is when I know that I have achieved success?” What does that look like?
Part of the reason I’ve slowed down a bit this quarter is that I was trying to buy a commercial property by the end of 2021. I felt a bit of anxiety about it and was overwhelmed. I thought, “All of the whys that initially caused me to start a business have been solved so I need to step back, think about what I’m trying to accomplish from here on out and then align goals that fit that in question what I’m doing.” I spent quite a bit of time doing that.
The first step, which impasse is being financially dependent myself, not having any reliance on a job or someone else for income. Number two, I want to help a couple of people in my family. There are some things I want to do there for my parents and siblings. My little sister is disabled. I want to be able to help her. The next milestone for me is there are some things I want to do for them and once I hit that, re-examine and think through what I want to do next.
Can you define the word impact for us? Tell us what kind of impact you believe or want to have on other people.
My quick definition of impact would be causing a meaningful change in someone’s thinking or life, causing someone to think or act differently because of something you taught or showed them. I have found I enjoy developing good people. I’m going to meet with my acquisitions manager and she is sharp. She is not from the US. She immigrated. She had a hard life and showed a lot of promise. I enjoy helping, developing and seeing her make more money than she’d expected.
That’s something I want to do more of in the future. I host the real estate group in town that helped me when I moved here. I’m doing it there as well. I enjoy helping good people. At the same time, if you’re telling me you’ve been looking into it for three years and not sure what to do then we probably won’t have a very fun conversation but if you’re willing to take action, I like helping good people.
Dan, I’ve enjoyed this. Let’s jump into the final four questions. What is a resource you find you can’t live without?
PropStream is the software I use most as simple as that is and also the county assessor’s website.
If you could help our readers avoid one mistake in real estate, what would it be? How would you avoid it?
That goes back to screening your contractors and property managers. Those are two rough jobs within the world of real estate. A lot of times, people in them aren’t doing so well. Screen your property managers and contractors thoroughly. That’ll save you a lot of headaches.
I can attest to that. I owned a flooring company. This would have been 2004. At the time, we had 15 or 20 subcontractors. We were always having new subs come in and got off on our paperwork tracking. We didn’t get the workers’ comp exemption forms from some of those self-employed guys. Throughout the yearend, we got a $15,000 workers’ comp bill.
Dealing with paperwork and contractors, God bless you. I’ve done too much of that. I’m not going back. For those of you who are thinking of development, knock yourself out but you and Dan could have it all. That’s fantastic. When it comes to investing in the world, what’s one thing you’re doing to make the world a better place?
Impact is causing someone to think or act differently because of something you taught or showed them.
It’s hosting and spending time with new people the way people did with me. That would be the biggest thing.
Dan, if our readers want to get in touch with you, learn more about you or your company, what is the best way to do that?
Dan Haberkost on Facebook or Instagram. I’ve made some videos that answer questions on YouTube that I get asked all the time so I could send them to people.
Dan, thank you for your time. I do appreciate it.
Likewise, Sam. This was fun.
Important Links:
- Dan Haberkost
- Rich Dad Poor Dad
- PropStream
- Dan Haberkost – Facebook
- Instagram – @DanHaberkost
- YouTube – Dan Haberkost
About Dan Haberkost
Dan Haberkost is a full-time real estate investor with a land & development business on the active side and a portfolio of residential rentals on the passive side.
