Flipping Raw Land for Passive Income with Mark Podolsky – EP 197

Justin Donald: Hey, Mark, great to have you on the show.

Mark Podolsky: Justin Donald, it’s amazing to be here. Thanks so much.

Justin Donald: Well, this is fun. I got a chance to be on your podcast, I don’t know, not too long ago. And we’re back here for round two with having you on ours. And I’m excited to really share some of your story and some of the creative genius you have around creating passive income out of buying raw, undeveloped land, which I think for most people, they probably never thought was possible. I most certainly, have looked at tons of raw land deals and I’ve done a handful, but every time I look at it as like a long-term hold, probably not cash flowing. So, I’m excited to hear how you actually create passive income out of it.

Mark Podolsky: No, absolutely. I’m excited to educate you and have you at the end of this podcast, like yeah, you know what? This doesn’t sound so crazy.

Justin Donald: Yeah, it’s fun. Now, people call you the Land Geek because this is what you’ve been doing for almost 20 years, 6,000 unique transactions. I think you started back in 2001. Actually, if you started in 2001, we got over 20 years.

Mark Podolsky: Yeah, yeah.

Justin Donald: So, yeah, we’re getting closer to 25 years. And I know that, I’ve heard great things about you, over the years. So, go ahead, tell us, how on earth did you get into buying raw land?

Mark Podolsky: Yeah. So, if we rewind the tape, I was a miserable, micromanaged, 45-minute commute and back investment banker specializing in mergers and acquisitions with private equity groups and, Justin, it got so bad for me that I wouldn’t get the Sunday blues anticipating Monday coming around. I get the Friday Blues anticipating the weekend going by really fast and having been back at work on Monday.

So, my firm hires this guy and he’s telling me that as a side hustle, he’s going these tax deed auctions and he’s buying up raw land for pennies on the dollar, and he’s flipping them online, and he’s making a 300% return on his money. And I’m looking at companies all day long and a great company, great, has 15% EBITDA margins or free cash flow. Average company is 10%. I’m looking at companies all day long less than 10%. So, of course, I don’t believe him.

I’ve got three grand saved up for car repairs. I go to New Mexico. I do exactly what he tells me to do. I buy 10 half-acre parcels, an average price of $300 each. I flip them online, and they all sell for an average price of $1,200 each of worth, 300%. So, I took all that money and went to another auction. And this is in Arizona where I live. And again, this is like 2000, there’s no one in the room. And I’m buying up lots and acreage for nothing. And so, I saw all of that land. I made over $90,000 cash. So, I go to my wife who’s pregnant. I said, “Honey, I’m going to quit my job, become a full-time land investor.” She said, “Absolutely not.”

Justin Donald: She freaked out, yeah.

Mark Podolsky: She freaked out. So, I said, “Okay, okay.” So, it took about 18 months for the land investing income to exceed the investment banking income, and then I quit. And I’ve been doing it full time ever since and absolutely love it.

Justin Donald: That’s cool. Your story is very similar to mine. My wife would have freaked out about just jumping ship and cutting off the income that she would consider definite or safe income. And so, I kind of slowly did it, made sure that once I was able to cover that income, then stepped away, right? And in small increments. So, we replaced her income, and then we replaced my income. So, it sounds like you have a wife similar to mine that wants to make sure all the i’s are dotted and t’s are crossed. Let’s just play this safe, and eventually, it sounds like you probably got her on board.

Mark Podolsky: No, absolutely. Absolutely. And I think there’s a lot of wisdom in that. It’s just a very responsible way to do it. I’ll talk to people and then I’m like, “I’m going all in. I’m burning the ships. I’m quitting my job.” Like, “Well, let’s give it some time.”

Justin Donald: Let’s slow it down.

Mark Podolsky: Slow it down.

Justin Donald: Well, and it’s interesting because, I mean, in retrospect, I know for sure I could have jumped ship and figured it out, and we could have made the money and we wouldn’t have had to wait so long to do it. But I also know that probably would have been a rockier path. It would have created some angst and some uncertainty that probably just wasn’t worth it. So, for us, that was the right path. That was the safer play. It was the longer play, but it was right for our family. And I think for those of you that are thinking about how do I get out of the rat race or how do I pivot from this business that owns me, I like to tell people I own a business, but really, the business owns me.

This is, figure out your family dynamics because for some of you, you probably can just jump ship and that works out well. For others of you, you probably need to do what Mark and I did. So, how did you scale that up? You had 90,000 from, it sounds like that was the bigger transaction, but you waited. How long did it take from that point? So, you made a few thousand, then you made 90,000. How much longer from that point did you wait before you were able to walk away from the job that you hated?

Mark Podolsky: Yeah. So, it took about 18 months. And so, I was able to do a big deal in Nevada. So, I was buying 640-acre parcels. I was subdividing them into 40s. And I think at that time, I was paying $3 an acre, now selling for $500 an acre. And so, just that one transaction over five years, I made over $5 million just in this one deal.

Justin Donald: Wow.

Mark Podolsky: And so, that really helped sort of catapult. And then, when you say scaling a land business, it takes time to scale. I made lots of mistakes. I had to go through the Great Recession and actually, talked about this in my book, Dirt Rich, where I had Parkinson’s law of money.

Justin Donald: I like that.

Mark Podolsky: Yeah, yeah. So, the more money I made, the more money I spent. And even though the land business was profitable, I was sort of chasing this idea of, okay, this is what rich people do. They think of big houses and big cars, and they put their kids in private school and then, because I’m doing owner financing now, I kind of walk you through the model. It’s like 50% of my income went away. And that’s where I’m like, okay, I really need to treat this like a real business and be responsible and do some inner work and like, what is enough for me? Like, what truly does make me happy? And it’s not that stuff.

Justin Donald: Well, and it sounds like you’re buying land in a lot of different states. So, are there states that you definitely stay away from and states that have been more favorable? I would assume, that’s probably the case. I’m curious what your– for me in mobile home parks and multifamily, self-storage, I mean, there are states I will not make an investment in and...

Mark Podolsky: No, no, 100%. I mean, let’s just, it’s like nobody wakes up and thinks themselves, boy, I like some raw land today in Iowa unless you live in Iowa. So, I want to focus on the southwest, northwest, California, some parts of the Midwest and Florida, the Sunshine States. These are fast growing states. There is an abundance of inexpensive raw land in these inefficient markets. And so, that’s really where we focus.

It’s not to be said like– and when I walk through the model, like I can’t buy an asset of land 25 or 30 cents on a dollar in San Francisco or New York or Chicago. I’m just not. They’re going to go to the biggest, baddest land broker in town and they’re sold for 110 cents on a dollar. So, we’re looking for more of rural land an hour to three hours outside the major cities.

Justin Donald: And is this distressed land? Assuming some of it probably is, some distressed deals, but others of it, people just need liquidity.

Mark Podolsky: Yeah, they’re all distressed. What was once an asset, now it’s become a liability. They’re sick of paying the property taxes. They have this dream. They’re going to go out there and maybe they’re going to build one day. And they never used it. And it’s negative cash flow for them. And so, we’ll come in. We’ll make an offer. Oftentimes, I may owe back taxes. And so, we’ll solve that problem for them. And then we’ll sell it. We’ll try to owner finance it. So, if you have a job, you can afford it. And then we’re just being the bank. So, if you want just that, I’ll walk you step by step through the model, exactly what we do.

Justin Donald: Yeah. Let’s do it.

Mark Podolsky: Okay, so you’re in Austin, right?

Justin Donald: Yep.

Mark Podolsky: Okay, so you’re in Texas. So, let’s assume that you own five acres where I live in Arizona and you owe $200 of back taxes. So, you’re advertising two important things. Number one, no emotional attachment to the raw land. You’re in Texas, properties in Arizona. And number two, you’re distressed in some weird way financially because I’m paying your property taxes. As a result, the county treasurer keeps in. You notice they’re saying, Justin, if you’ll pay your property taxes, you’ll lose that property to tax deed or tax lien investor.

So, all I’m going to do is look at the comparable sales on your five-acre parcel. And just to take the lowest comparable sale and divide it by four. That’s going to get me what Warren Buffett would call a 300% margin of safety. So, just use easy math. Let’s say the lowest comparable sales is 10,000. I’ll send you an offer for $2,500. Now, you accept it. Why? Because for you, $2,500 is better than nothing. In reality, 3% to 5% of people will accept my “top dollar offer.”

But now that you accepted it, I’ll go through due diligence or in-depth research. How can firm still own the property? Back tax is only $200. There’s been no breaks in the chain of title. There’s no liens or encumbrances. And I have this whole big property checklist. I’ll outsource this to my team in Jamaica. They’re connected to American Title company. They’ll get the plat maps, aerial maps, satellite maps, GIS maps, everything that I’m going to need for marketing. So, let’s assume everything checks out. I’m going to sell it three days or less, hopefully, and make a cash flow like a rental home. So, Justin, I have a built-in best buyer. Do you know who it is?

Justin Donald: No. Who is it?

Mark Podolsky: The neighbors. The neighbors.

Justin Donald: Okay. That makes a lot of sense.

Mark Podolsky: So, I’ll send out a neighbor letter saying, “Hey, here’s your opportunity. Protect your privacy, protect your views, know your neighbor.” So, oftentimes, the neighbors will buy. Now, they don’t buy. I’ll go to my buyers list. The buyers list doesn’t buy. I’ll go to a little website you may have heard of, called Craigslist, 15th most trafficked website in the United States. I’ll go to what I know you’ve heard of called Meta or Facebook buy/sell groups, the marketplace. And then I’ll go to lands, Land.com, Landmodo.com, LandandFarm.com, LandsofAmerica.com, Landflip.com, LandHub.com. These are platforms where people buy and sell raw land, but the secret is in the marketing of the pricing.

So, all I’m going to ask for is a $2,500 down payment. So, I’m going to get my money out on the down. I could go 6, 10 months out, and then I’ll make it a car payment. See? 197 a month and 9% interest for the next 72 months. So, I got this one-time sale. I get my money out as fast as possible, and then I get 197 a month and 9% interest in the next 72 months. Justin, no renters, no rehabs, no renovations, no rodents. And because I’m not dealing with a tenant, I’m exempt from Dodd-Frank, RESPA, and the Safe Act, all this owner’s real estate legislation. So, then it’s a simple game. Can we create enough land notes where a passive income exceeds our fixed expenses? And then we’re working because we want to, not because we have to.

Justin Donald: And just for clarity’s sake, for those of you that are unfamiliar, if you are in the rental business, Dodd-Frank, I mean, especially in mobile home parks, but in a lot of different rentals has really created some complications because you, unless you’re an official dealer, are not allowed to write notes, you’re not allowed to create these mortgages for people. So, there are hoops that you have to jump through, and it’s kind of like unintended consequences. They talk about how this thing’s going to go away however many times over the last number of years. But it still is here. So, give me an idea of what percentage of people complete the transaction versus how many default on it, and you take the land back.

Mark Podolsky: Right. So, we’re using land contracts. So, we really don’t mind default, which means that we own the underlying asset until they pay off their promissory note. So, I would say that in this current market, we’re at a 12% default rate. Now, what does that mean for us? Great. They’ve lowered our cost basis or the price that we paid for the property. So, if my initial cost basis was $10,000 and somebody made payments for a year, maybe now my new cost basis is $9,000 and now just resell that property. So, no problem there.

But I would say that in this market, we’re looking at about 12%. If the market heats up, maybe it’s 10%. And then if we hit a recession, it could go as high as 20%. In the Great Recession, it was like 50%. If people are calling me, saying, market’s between this land payment or food, I’m going to choose food.

Justin Donald: Right. That makes sense. So, you do this over how many years? Five years? Six years?

Mark Podolsky: It depends on the price. I would say the average is probably about five years.

Justin Donald: Okay. So, you do this over five years. Very similar to a car payment. When someone does default, is it generally on the front end of that? Or do you have data that suggests that it really can be any time? Because I would imagine the closer you get to paying this thing off, the better that percentage is, the lower the defaults. But in the mobile home park business, that’s not the case. I mean, you have people in 7 to 10 years that these notes are written that will default, like in the final year or two years or three years before it’s done.

Mark Podolsky: Yeah, that does happen as well in the land business. And sometimes it’s just heartbreaking because, in those situations, sometimes we’ll just deed them the property. We’ve made our money, and it’s like a way to surprise and delight. But sometimes if they put their head in the sand, they don’t tell us their situation, we can’t do a work out with them, then yeah, we do take it back.

Justin Donald: Yeah. Now, give me some horror stories. How can this go totally wrong? How is this, like, give me the stories of, like, we mess this up so we never did this again? We did have good legal, so we’re under a real contract.

Mark Podolsky: Right, right. I mean, because we’re paying cash, there’s smaller deals, there’s not a whole lot of horror stories in that sense because I’ve made mistakes in due diligence. Like, I bought property on the side of a mountain in New Mexico for $2,500. And I’m like, no one’s going to buy this property. It’s like 40 acres, $2,500. Hard to access. And I’m like, oh, this is a huge mistake. So, I literally put it up on eBay and I was like, oh, maybe I’ll just get my money back out. Well, it got bit up to like $32,000.

Justin Donald: Oh, my goodness.

Mark Podolsky: And I’m freaking out. I’m looking at my listing. I’m like, is the map clear? Like, you can see the mountains. So, I called a guy after he won the auction. Like, you saw the listing. He was like, realize this is on the side of a mountain. You’re going to have access to five of these acres. And he’s like, “Yeah, it’s perfect.” I’m like, “What do you mean?” He’s like, “I’m a film director in L.A.”

Justin Donald: Oh, nice.

Mark Podolsky: And I don’t want to have to deal with the county getting permits to film out there. So, this is cheaper than dealing with the county.

Justin Donald: Oh, that’s awesome. Yeah, there’s a buyer for every type of situation, every type of asset. Yeah, that’s good.

Mark Podolsky: Yeah. So, in all these years, I’ve never been stuck with a piece of raw land. I would say that the...

Justin Donald: It’s impressive.

Mark Podolsky: Yeah. The nightmare scenario for me is when you’re dealing with someone crazy. And those are always no fun, right?

Justin Donald: Well, it happens in every industry. And sometimes people have a screw loose and there’s no rationalizing anything. You can’t rationalize with them. So, how many active deals do you have right now, approximately?

Mark Podolsky: So, we have hundreds in inventory and we have thousands of notes that we’re managing. And we’re constantly buying and we’re constantly selling. It’s just a machine now.

Justin Donald: Okay. Now, I mean, you’re very open, sharing all your trade secrets. What prevents someone else from just doing the strategy versus investing with you?

Mark Podolsky: Well, they should do the strategy instead of investing with me. So, really, my mission in life is to help everyone solve their money problems and their time problems. Similar to you, right? Because once that’s done, then you can move up Maslow’s hierarchy of needs and self-actualization, like live your best life. So, this market is massive. You, me, a million people could go in the land business. We’ll all run out of money before the deal flow.

I mean, I think 6% of the US is actually developed, so it’s just a massive, massive market. And you couldn’t think of a more boring real estate niche, like you won’t go on HGTV with a DIY network and say flip this land, the before pictures of raw land, the after pictures of raw land. So, for me, I want to help everyone along the economic spectrum. So, if you have no money but a lot of time, I’ll teach you this for free. And we have tons of content. If you’ve got money and a little time and you want to do this yourself, we’d do it, done with you. And if you’re an accredited investor and you’ve got lots of money but no time, and then we’ll do it for you.

Justin Donald: Yeah, that’s cool. Well, I like that. All right, so I guess there’s a number of things. So, I’ve done land deals before. There’s a lot of hair on a lot of these, especially if you are going to develop it. If you’re going to try and entitle it, a lot of hoops to jump through. If you need to kind of go through, getting everything done with mud and all the different things, it is not easy. It is very costly. And I’m curious if you kind of went through that strategy first and said, “Oh, man, no way. I’m just sticking to raw land.” I mean, it sounds like you got into raw land first, but did you try and evolve into other things and just say, “Hey, this is my sweet spot. I’m just going to keep doing this as we do it. No entitlement”?

Mark Podolsky: Yeah. I mean, I’ve been very lucky. I had a mentor, and he was just like, just go and just be an inch wide and a mile deep. He’s like, don’t get shiny object syndrome. And he’s like, it’s basically like a different business. So, why not just get good and become the best at what you’re doing instead of competing and trying to do this or do that? And so, I’ve really stuck to that. And we’ve really stuck to this model with very little deviation for over 20 years.

Justin Donald: Okay. So, one of the things that I love in passive income, and we worked really hard to have our asset income exceed our expenses, exceed lifestyle expenses. So, you’re a true lifestyle investor. That is one of the things I talk about all the time. And then, everything above and beyond that is surplus income. And that can go to consumption and consumerism, which a lot of people do. I like having that surplus going towards investing and impact, right? So, how do we do things in the world that are going to impact the world in a positive way? And then how do we take that surplus that’s not being used for impact and create some great returns on it?

But you have this flip-flop that happens, like, your whole life, you’re working hard to save 10% or 15% or 20% of what you make. And now, all of a sudden, you’ve got 100% of surplus that now can go to compounding net worth, compounding even more passive income, compounding just your financial situation and the impact that you want to have on the world. For you, it sounds like it took about 18 months. I’m curious, how it ramped after that, and it sounds like you got into a little consumerism. I think that’s the normal path, right? You just buy stuff and you’re like, “Oh, man, now my possession’s on me, what was I doing?” Or economic crisis comes along and you’re like, “Uh-oh, I didn’t anticipate this.” And we’re not flush in cash right now. So, how did you learn that lesson? It sounds like you’re much more mature and responsible in those dollars in the way that you’re growing your financial situation.

Mark Podolsky: Yeah, absolutely. I mean, I should have joined your mastermind in 2008. I would have avoided all of this. So, I had to learn the hard way. And that’s why I talk about it, that’s why I write about it so other people don’t have to. And there’s that great book by David Brooks, The Second Mountain.

Justin Donald: Yes.

Mark Podolsky: And so, the first mountain is where you’re going. And I think it’s an important model, an important mountain to climb, but it’s more in your 20s when your identity and your hustling and those types of things, and then you realize, oh, wait, if you’re lucky, you get to the top of the mountain, you’re like, okay, this is very empty. And I went through that. But while I was going through that, I had the unfortunate economic circumstance hit me at the same time. And so, it was quite the ego blow where it’s like, okay, none of this stuff matters. None of it made me happy. None of it really helped deepen any of my relationships.

What’s that second mountain? That second mountain is vocation and community, faith and spirituality in your relationships. And it’s a harder mountain to climb, but it’s a way more fulfilling mountain. And as you’re discussing, that’s what you can do with your surplus. And that’s what I want to do. So, you go big to give big, essentially.

Justin Donald: Yeah. That’s awesome. I love hearing that. I’m curious what other major mistakes you’ve made along the way. It sounds like you have figured out a great way to make money. You’ve doubled down on one niche, one area that you can be best in class at. And for me, I’m a little different than you in the fact that I get really bored doing the same thing over and over. So, I had to kind of diversify away from mobile home parks because I needed a new challenge and new thing to learn. And I’ve had all kinds of learning opportunities and mistakes because I keep going from expert to novice, expert to novice. And I’m curious what– I would imagine the mistakes are a lot less when you do one thing all day, every day, and you do that really well. But I’d love to know other mistakes you’ve made.

Mark Podolsky: Yeah, I think the other mistakes that I’ve probably made in the land business was early on not getting a mentor and just having very little humility. So, I made a lot of money very quickly. And luckily, I mean, at the time, it wasn’t fun. The Great Recession hit. I was like, “Okay, I really need to treat this like a business, I need help.” So, I think that was a big mistake. I mean, every day I’m making mistakes in some part of my life or my business and have to adjust in some way or another.

And I just sort of think about kaizen, this continuous improvement. Can I get a little better? Can I learn something new in every interaction and do that? So, in my investing life, I feel like, okay, we’ve got AI now. How can I get better? How can I utilize that in systems and processes and become more efficient? How do we just do what we’re doing and do it better and bigger and help more people and provide more impact on the investment side?

In my personal side, well, how do I do it so that I have a life and so that it can be the self-managed company and I can go and live my best life, but also not be bored? I have no interest in being on a beach or playing golf every day either. Like, I want to help people, but I want to live this sort of marathon lifestyle where, what I’m doing is going to sustain me for a very, very long time, and yet, work in these sprints where I do what I can only do best. And that’s really all I do. And then empower my team and lead my team and help them accomplish what they want in life and help them solve their money and time problems as well. And sort of be that pebble in the pond and have ripple out. So, that’s really, in a long way of saying, I make tons of mistakes, but the North Star is always there.

Justin Donald: That’s great. So, when I think about, I guess, life in general, I think most people have a hard time just making that first move, right? I remember for me, I dragged my feet for a while. I was scared, I was nervous, I didn’t want to lose money. What’s your recommendation for people that are like, yes, I love what you’re talking about, but I just don’t know where to start? Like, what is that starting point?

Mark Podolsky: Yeah, that’s a really interesting question. I’d be curious what you think. I think you have to get educated. I think you have to listen to podcasts like yours and kind of get exposed to a lot of different models and also do a lot of soul-searching. It’s like someone like me, I shouldn’t even own a home. Like, I can’t fix anything. I don’t like meeting subcontractors. I’m not interested in it. So, for me, to be a house flipper would make no sense, right? So, I’m very analytical and very data driven. I like that part of the business.

And I’m a deal junkie. I like getting a good deal. So, those are things that sort of appeal to me. I don’t like anything physical. So, the idea of just shuffling paper and making money for me is great. But for other people, multifamily, mobile home parks, FBA e-commerce, Amazon might be more appealing. And where can you have a competitive advantage based on your current skill set and/or where do you want to embrace the sock? Like, where can you just be like, okay, I’m a suck at this for this long, like I’m going to give myself three years to become better at it. And in the meantime, if I make money, I lose money, that’s really not part of the equation. The game is getting better and I know I’m going to learn something, so I might as well take some action, make a small bet, maybe diversify my bet, right? I mean, and do something like that. So, that’s sort of like what comes to mind for me. I would love to know what comes to mind for you.

Justin Donald: That’s a great answer. I enjoyed your answer, Mark. I think I’m probably really similar. I mean, I think the best place that you can invest money is in your peer group, is in yourself, is in mentorship, just books, podcasts, relationships. And then I think, at a certain point, you just have to jump in with both feet because the majority of what you’re going to learn, you’re going to learn on the job, so to speak. You’re going to learn it because you’re forced to learn it. There’s no more procrastination.

And I end every episode with the same question to our audience, which is, what is that one step you’re going to take today? So, we’ll talk about that here in a second, but I just think you have to take action. You have to make some moves. And maybe the move is that you just read up and learn about it. Maybe you take someone to eat, take someone out to breakfast, lunch, dinner, coffee, whatever. I mean, that for me was huge. I did that for 20, I’m still doing it, but I’ve done it for over 20 years where I’ve taken someone out, at least once a week. And that has paid huge dividends because I’ve learned a lot and I’ve met some really incredible people and I’ve developed some great relationships. And that came from being intentional, making a decision, and then creating a cadence that I could stick with. So, I loved your answer as well, and I couldn’t agree more. So, where can our audience learn more about you? And where can they find your book?

Mark Podolsky: Yeah, TheLandGeek.com, and I gave your assistant a link so they can get the book for free. Just pay shipping. And see if this model is one that might resonate with them.

Justin Donald: I love it. And I’ve really enjoyed our time here today, really enjoy learning your unique style. And I’m excited for people to make a decision. So, thank you for sharing your wisdom, sharing your actual strategies, and giving people a chance that, for the go-getters, they can just take it and use it. And for the people that are not, they can learn, they can research, they can wait for a few lights to be green before they move forward, but they can start making some moves.

Mark Podolsky: Yeah, thank you so much, Justin. Really appreciate you hosting me.

Justin Donald: Awesome. Well, I like to end with a question, as I mentioned before. So, here’s the question I ask every week. What is one step you can take today to move towards financial freedom and move towards a life that you truly desire, one that’s on your terms? So, again, not a life by default, but a life by design. So, I challenge you to pick one thing that Mark shared with you today and put it into action right away. Thanks for joining us, and we’ll catch you next week.