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The Ground Game Podcast
Welcome to The Ground Game Podcast, where land investing meets real talk! Join your hosts, Justin and Clay, both 7-figure land investors and seasoned entrepreneurs, as they dive deep into the world of land investing, team building, and personal growth.
The Ground Game Podcast
Episode 28: Land Market Selection 101: Our Approach
🎙️ Welcome Back to The Ground Game Podcast! 🎙️
Episode 28: Land Market Selection 101: Our Approach
In this episode, hosts Justin Piche and Clay Hepler break down the fundamentals of land market selection, sharing their strategies and insights on how to choose the right markets for investment. They discuss the importance of understanding market dynamics and the factors that influence successful land deals.
Key Highlights
Personal Updates:
Justin shares his recent experiences in Durango, Colorado, where he’s exploring a property under contract. Clay discusses his significant entitlement deal involving a large-scale purchase, setting a relatable tone for the conversation.
Understanding Market Dynamics:
The hosts delve into the evolving landscape of land investing, discussing how market fluctuations and competition can impact deal flow. They emphasize the importance of focusing on core business operations while evaluating new market opportunities.
The Importance of Professionalism:
Justin and Clay highlight the necessity of a professional approach in land investing, stressing the significance of having robust systems and processes in place to achieve consistent results, especially when entering new markets.
Data-Driven Decision Making:
They discuss the critical role of data in empowering investors, explaining how access to information can influence pricing and negotiation strategies, ultimately leading to more successful deals.
Building Relationships:
The hosts share insights on the value of networking within the industry, emphasizing how strong relationships can open doors to new opportunities and collaborative ventures, reinforcing the importance of community in land investing.
Value-Add Opportunities:
Justin and Clay explore the importance of identifying and creating value in land deals, encouraging listeners to think beyond simple flips and consider long-term strategies for growth.
This episode is packed with practical advice, personal anecdotes, and actionable insights that can help you navigate the complexities of land investing. Whether you're a seasoned investor or just starting out, this conversation is essential for anyone looking to master the art of market selection.
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Clay Hepler (00:00)
and welcome to another episode of the Ground Game Podcast. This is your co-host Clay Hepler.
Justin Piche (00:06)
And this is Justin Piche and we're here to show you how to win the ground game.
right, Clay. Man, another crazy week. I feel like every week it's crazier just in my life. I feel like at one point I'm going to be and feel somewhat settled in some way. I always feel that way, but it never happens. I think that, I don't know, do you think that's just like a product of being?
an entrepreneur and being like an ambitious person.
Clay Hepler (00:52)
Yeah, this is really interesting. I think you as your friend, I think you want to have more and more challenges and bigger challenges. bigger challenges require more time per challenge, right? Like, you know, when you're starting out, you got your 50k flip and you're sort of like, oh, I didn't have the per test on this one. I lost big and I'm going to sell it for break even.
And the challenge is don't have the per test solution is just going to sell a break even or lose a little bit of money. But when you add more complexity, you had a couple of zeros, you had one zero. Uh, it's not like the guru say, dude, the adding an extra zero does not make it. It's not the same exact complication. makes it X much more complicated. Right. And, and there's more moving parts. And so as your friend, I see you and I know like,
Justin Piche (01:40)
you
Clay Hepler (01:49)
You want to add this, you want to keep going, dude. You want to keep going. And so you do this to yourself. let's just, you do it to yourself. It's cool, it's great, and
it's what's made you successful, but you can always click, you can always say no.
Justin Piche (02:04)
Yeah, I don't know. Maybe I can't. Maybe I just can't say no. I know you can. I have free will. I could say no. It's hard to say no. I enjoy deals. I enjoy projects. I've got two like interesting kind of crazy pieces of news that have happened recently. One is I put an offer in on my neighbor's house in Houston and it got and it got accepted yesterday. So I opened up title and so I'm really excited because we're building a brand new house.
Clay Hepler (02:25)
I was gonna ask you about this dude.
Justin Piche (02:34)
And the house next door, I had this incredibly wonderful neighbor for the whole time we lived there. She passed away last year. Her nieces and nephews inherited the property and they kind of worked with us to, yeah, to sell it to us. I put in an offer. I'm not going to say the numbers or anything like that, but I put in an offer and a builder, there's a builder who's building a brand new two million dollar house right on the other side of this lot. They put in a cash offer as well. That was
$90,000 higher than my cash offer. So I ended up. Well, no, no, no, no, no, I had to. Yeah, but I. But I had to. But I had to. I know I had to match my offer. My wife and I talked about it. We thought about it. We could have offered less than the builder and maybe tried to get it done, but it just didn't feel fair. You know, they don't owe us anything. They want to sell it to us, but they don't owe us part of their inheritance or anything like that. So we matched the builder offer and.
Clay Hepler (03:08)
Well I know why you got it dude. It's the earnest money that I sent you. It was the earnest money that...
Justin Piche (03:34)
And of course we got it because they'd rather sell to us than the builder. But that's exciting. So now I'm like going through I've hired a couple of people on Fiverr to like design landscape and try to like get things laid out. I'm not going to do anything yet. It's a lot of money. So I need to just like buy it and like make some more money on some of these developments and then and then I can do something else with it. But that's pretty exciting. And the other crazy thing is I'm working on like a like an insane deal just
like orders of magnitude crazier than anything else I've I've worked on. I give a little teaser. It's in it's north of Durango, Colorado. A partner of mine, Buck and I are working together on this development of Borders Purgatory Ski Resort. And we're looking at putting in 300 units, townhomes, single family. We've got the property under contract. We're working through our due diligence right now. Flew up to Durango last week and spent some time with Buck meeting with the county.
meeting with the Purgatory Metro District, meeting with engineering firms, meeting with our design consultant, meeting with like this super connected broker who knows like the CEO of Mountain Capital Partners, who's the developer, the owner of Purgatory and all these other ski resorts. And then they sent us some interesting future plans that make our, property we have under contract potentially significantly more valuable. it's just, it's very interesting because
You know, I've done major developments before and I've gotten them approved through counties, but most of the time I do have them in counties like that are relatively developer friendly, right? You've got to do some engineering. There's some requirements to meet, but you knock all those things out in the process. It usually doesn't take that long. Usually takes about six, five, six, seven, eight months. But La Plata County, Colorado is notorious for taking an incredibly long period of time, 12 to 24 months to get something approved.
And something of this magnitude is pretty like large scale development in the area. And so it's going to require really it's interesting because usually when I'm raising money for projects, I already know generally like what's what's the exit going to be? And I've already gotten to a point at which I have a high level of confidence of entitlement approval. Like we've already gotten through probably preliminary at a minimum. We've had multiple meetings with the county and like
They're on board. just need to do these final things and get these final engineering things sorted out and boom, we're going to get stamped. It's already basically done. A lot of the risk has been removed. But on this deal, the approval process is so long and I don't know what the engineering cost is going to be to get the whole thing designed and engineered, but it's probably going to be a million dollars plus of just engineering work just to get the development, get all the things the county needs. So it's kind of interesting. I'm not.
sure exactly what I'm going to do in terms of like raising. Do I bring in investors early for the higher risk portion and they give up more of the equity on the GP side? Do I bite the bullet and sell some other assets and bankroll the whole engineering myself personally and take all that personal risk? But obviously to then have a fully entitled project at the end, that's a lot more valuable and then get a whole lot more equity myself. Like what do I do? So I'm kind of wrestling with interesting.
questions right now as we move through this due diligence and then initial design for this new development. But it's crazy. It's fun.
Clay Hepler (07:01)
Dude, that's
super exciting. I can't wait to talk with you about that.
Justin Piche (07:06)
Yeah,
it's gonna roll slow. I gotta give major props to my good friend and partner on this, And if the listeners take anything away from this, is, Buck worked on this relationship for more than a year. More than a year of talking to the seller, flying out to meet the seller multiple times. Persistence, persistence, persistence. He just didn't let it die. The seller is kind of an older guy, developed.
had basically had this development, platted conceptual development plan approved for kind of a smaller vision, but like an 80 lot residential development on this site. Back in the early 2000s, 2008, 2007, Marcus fell out. He never recorded the plat. He paid for all the engineering, got it all done, but he never recorded the plat, so he didn't have to pay all the taxes on those platted lots. But he's a wealthy, smart, savvy investor, developer.
developed strip centers and developed stuff in the Middle East. he's a very smart and sophisticated guy, but this just kind of took a backburner over the last 20 years. And so, mean, I think the power is the relationship that Buck built with him. he gave it. We actually submitted an LOI that was one one point five million dollars more than what we ended up getting the property under contract at. We submitted the LOI and he came back to us and he basically was like, hey, I want.
this vision that I had back then to be realized. Like I want this land to be developed really like well and beautifully. And so I know you submitted this 4.8 something million dollar LOI. I'm actually going to sell it to you for 3.2 instead. It's just nuts. It's really kind of I think it's God's hand by kind of guy just guiding this. I mean it's definitely something I've prayed for is just to make opportunities known. And anyway that's kind of how I feel about it. But I'm excited.
Clay Hepler (08:54)
Mm-hmm.
That's amazing, dude. I had an equally pretty incredible connection and relationship this week. And a dear friend referred an opportunity to me that is going to be a really incredibly, it's very much early in the work. So I don't want to go and expose it right before all the I's are dotted and the T's are crossed, but it's a really
Justin Piche (09:27)
Yeah, no, hear that.
Clay Hepler (09:30)
really interesting, incredible development opportunity with multi, multi, multi six figures, mid to high six figures of profit development deal. it's just because I was at the right place at the right time. I have a relationship with someone who trusts me and I was able to move quickly and I had the cash to do it. And those types of opportunities don't happen.
Justin Piche (10:00)
Thanks.
Clay Hepler (10:00)
If you're not high
integrity, you do what you say you're going to do and you're ready, man. You're ready. have the, you have the ability to bring in cash, bring in opportunities and you have the ability to execute. Right. Um, but for the listeners, this doesn't happen overnight. You know, Justin and I might be talking about our wins here, but man, like we've had plenty of losses. We've had plenty of opportunities where we had money that have gone, that's gone hard and we're $50,000 in the
in the hole, I'm flying out to a city next month to do a rezoning and I'm having, there's some serious money on the line, man. And it could just go face flat, right? And I'm shelling out cash today, right? For that, for that deal, that, that, that entitlement deal. And the reality is we've had the reps, man. We've had the reps and for those listeners that want to get to that position, don't, don't take where Justin and I are now.
Justin Piche (10:30)
.
you
.
.
Clay Hepler (11:00)
Focus on where you're at currently and do everything you can to build those relationships, to build the track record in order to execute these opportunities. Cause they will come through moving forward, being the type of person that sticks to what you say you do, high integrity, high trust, and the person that other people know that can execute. So dude, super excited about that opportunity. was Sunday night, Sunday night.
Justin Piche (11:25)
Yeah, man, that's fantastic. Sunday
night.
Clay Hepler (11:30)
and maybe it was Saturday, Saturday or whatever and we were getting everything inked up here. So just super, super pumped about that. Yeah.
Justin Piche (11:41)
That's awesome. Congrats. Congrats, man. I I just
I agree. I agree. think any and this has been true of so many things in my life, not just deals that have come across, but even when I was getting out of the military and going to work, you know, getting a job, right? My first job outside of government military work. It was all based on relationships like any applicant, any interview I got.
or opportunity that was presented was all because of relationships with people and not necessarily like luck. And I feel like in business so far, any kind of good, substantial, significant deal that we've worked on has been because of relationships. And if it's not the relationship that I have built with somebody else who trusts me and wants to work with me, it's because of the relationship my team or my acquisitions manager
or my sales manager has built with a broker or a seller or a buyer or whatever. It's all because of these relationships, this trust that has to be created and developed and then just having high integrity and again, doing exactly what you say you are going to do exactly when you say you're going to do it. It's amazing how far that goes. It really is.
Clay Hepler (12:55)
Yeah, one other just short aside, was on this podcast, Wealth Choose, really, really well-known podcast this week, and we were talking about sort of meaning, like building meaning and fulfillment in your life, and one of the final thoughts that we came to was the relationships a lot of time give us fulfillment and true meaning in our lives. And what I expressed is, there are a lot of people that,
maybe don't understand this, maybe we're hearing this sort of, we're talking about this arbitrary relationship building on this podcast, Justin, and they're like, yeah, yeah, works for Justin and Clay, like works. And you might be like, I'm just trying to get that bag, man. Like, I'm just trying to get that bag, and I don't care about relationships. I just want to set my family up for financial freedom, right? You might have a scarcity mindset, you might not, you might just want to get the bag. And here's the reality, whether you have an abundant mindset and you have a go-giver attitude,
or you wanna get the bag, it doesn't matter. Because being altruistic, helping other people, being a go-giver, being the type of person that does what you say you're gonna do and helps other people achieve their goals, if you're a selfish person, it still works. If you're a good person, it still works. It's like one of the only universal laws, It's amazing, right? The golden rule, right? Ten commandments, right? All these things that...
Justin Piche (14:13)
Okay.
you
Clay Hepler (14:23)
teach us how to live our life, right? Guide us in being the best versions of ourselves. They benefit everyone, they benefit ourselves. And so I just wanted to convince those in the audience that might be a little bit more like me, which, you I came from a environment, my parents lost everything in 2008, man, and I've been just trying to prove myself for a decade, over a decade, right? And coming from a real scarcity mindset and
Justin Piche (14:47)
you
Clay Hepler (14:51)
in almost a dark place, right? I need to make this happen. You might be in that spot and it's okay if you're in that spot and know that like being that person that people can lean on, that people can connect with, that you're the type of person that they can trust in getting something done. It's something that you can really, you'll benefit from and also it'll fill your heart. It'll fill who you are up. It'll fill your cup up and you'll realize that that's actually one of the main reasons.
Justin Piche (14:57)
.
Clay Hepler (15:20)
Justin and I always enjoy this podcast, man. I always enjoy jamming with you or jamming with other people and getting and looking at deals and making deals work. And that's like really what this is about, right? After the financial freedom, it's great being able to provide for your family, being able to buy that house next to you, being able to go to your golf trip, right? I should have said the golf trip. I should have said it, right?
Justin Piche (15:28)
.
Hey, my wife's going skiing this weekend at Steamboat. like there's a little bit of offset. man.
Clay Hepler (15:50)
Little premature
for the golf trip. Or Florida in September. No, Juliana, please, I'm sorry, Juliana, forget it. didn't say anything. Cool, man. So yeah, anything else to add or you want to jump into our topic here today?
Justin Piche (15:56)
I haven't, we haven't talked about that. We haven't talked about that yet.
I don't know if she's going to listen to this. don't know if she'll listen to this. Sometimes I think she does, but most of the time she's really busy.
No, that's
not, let's jump in the topic. Let's jump in the topic.
Clay Hepler (16:16)
So one of my private coaching, private clients was talking about, like, I'd love for you guys, you and Justin to kind of go into discussing market selection. As guys that have really high volume businesses, a lot of employees, does it change? Like does what you guys look at change for what someone that might be doing 5,000 mail or a month look at? And so I want to kind of understand, I want you to kind of take us through why you think market selection is important. Is it important as...
as people say that it is, is it just a hoax? Why does it matter? Why doesn't it matter?
Justin Piche (16:53)
man. Yeah, that's a, this is a great question. And I think I'm probably not the best like person to give really specific advice on market selection because of the scale of my business and how, how many, how many lines of data and how much marketing we send out night. So to answer your first question, I think that market selection is far more important when you're sending out a small amount of marketing than it is when you're sending out a really large amount of marketing.
When you're sending a small amount of marketing out, it's hard to see consistent deal flow. It's the biggest frustration with anybody who starts this business that doesn't have a large marketing budget is only sending out a few thousand mailers a month or maybe only texting if they're texting a couple hundred a day or code calling maybe a thousand a day or something like that. If you're doing really low numbers, I don't mean, we always say this, but truly, I don't mean to disparage anyone's business. Everyone starts somewhere.
Right. But it just means when if you're doing that type of a volume, you have to be better at where you're marketing to and clay you talked about this in another podcast, but stacking lists. So if you're if you're doing low volumes of marketing, I think it's really really important that you are buying in areas that have high demand that you are identifying characteristics about the potential sellers that are going to make them more likely to sell maybe out of zip out of state.
maybe some sort of tax, you know, delinquent type list, a lot of the things that the wholesalers, household sailors like to talk about of these, you know, high intent sellers or high need sellers. You definitely want to target those because they're going to be more likely to respond to your marketing and you're going to generate more leads than, than I will if I just blanket market, you know, huge geographic area. The other thing I would say is
The only real philosophy I have on market selection that we exercise is more of a geographic kind of nationwide demand and weather related slowdown market selection. So I don't like to market or do deals in areas where it's a super duper seasonal because of the weather areas that get impacting significantly by snow or by freezes or that kind of stuff. I don't typically market there. I want kind of more consistent.
all year round living type areas, which is why my main markets are kind of the Southeast for the most part. Those are my preferred markets, but that's not to say you can't have success in those other areas. I also know the Southeast because I've lived all across the Southeast and I grew up in the Southeast and it's just where I'm comfortable. And at this point in the business, I've built enough teams and local knowledge and local partners in areas that for me market selection is really just.
Do I want to or it's two questions. One, do I need the volume to make my team full and generate leads? If I need the volume, I need to go in a new market. Well, then I don't really have an option. I've got to build a new team in that area. But if I don't need additional markets and additional volume, then I'm happy to stay in the areas that I've had a lot of success where I've already built out teams of title companies, of attorneys, of surveyors, of dirt working, clearing guys and gals and of brokers and real estate agents and all of that.
You know, it's a lot of work insurance to generate new relationships when you you start a new market. So anyway, that's kind of high level and maybe some specific advice for someone doing low volume marketing. What about what do you think, Clay?
Clay Hepler (20:24)
Yeah. So I would break this down thinking about it from first principles. I would go comfort, context, cashflow. So one of my one-on-one clients is in a major city. And Justin, he is a current wholesaler that is, or he works for a current wholesaler. He's an acquisition manager for this wholesaler. He knows the market very, very well. It is a massive city.
And he's done already kind of pseudo type of the deals that he wants to do. And so he was looking to go in the upper peninsula of Michigan in order to target this specific area. Cause he's like, man, I've actually gone vacation here my whole life. really understand this. And so the comfort that I usually walk people through and just think about logically from first principles, you have a competitive advantage. If you understand the market, there are people that make all their money.
surprisingly, in land in New York City, in the island, like the little island of New York City. There are people that make money just in specific areas. And so the comfort level, especially when you have lower cash, I think is something that you can really benefit from in knowing which street is which street. And it's kind of having that home field advantage. The context is the second thing that I would think about, right? So,
Justin Piche (21:29)
Yeah.
Clay Hepler (21:51)
If I'm trying to build a big, very big business and I want to do a volume game, which is a lot of what Justin and I do, the context is important. So you're going to have to go to a bunch of different markets and you might have to be more lax on your market selection because you're going to be hit. have so many lines of data that you use, right? How do you make up for that? You make up for that with sales, really good sales. And so the context of that is I, I am looser on my market selection. Inherently, I have to make up
Justin Piche (22:02)
.
Clay Hepler (22:20)
for that and so more. And the way I would make up for it is in sales. Like I have to have a really good sales team, really good sales process, because on the front end and the back end, we've talked about dispositions and acquisitions, it matters more, right? Land is in a liquid asset. But if you buy a property for 20 % of market value and sell for 40, you're going to sell it. Of course, those deals really don't come. But the the the metaphor matters. And so the context is really important. Now, of course, what Justin was saying earlier is the context within
Justin Piche (22:28)
Thank
Clay Hepler (22:50)
If you don't have a lot of money, you have to be incredibly precise in your market selection and your data selection, whether it's through list acting, whether it's through what we talked about earlier, the comfort of a specific market that you're in or you're going after high sell through rate markets, which we'll talk about here in a second. And then the last thing is cash flow, of course. Right. So if you want less competition, you go through markets that have less sell through rate, right? Of course. Right. Because inherently
Justin Piche (23:21)
.
Clay Hepler (23:21)
They move slower. They're going to be fewer people targeting them. but if you need that quick cashflow,
right. And you're, you're, you're comfort, you're in your city. You might have an understanding of your city. You might have the context, which is I don't have a lot of money. And then the cashflow is I need cashflow quickly. So I have to go after high sell through eight markets. I can't, I can't go after low sell through eight markets. Cause I need my money, dude. I need my money to go out and I need to come back in really quickly. And so I need to choose these markets that are moving much quicker.
And so that's how I think about it from a very first principles perspective around how do I actually target a market, for example.
Justin Piche (23:58)
Yeah, no, I like that. The answer is always it depends. You know, maybe something else would be what's your what's your what's your acquisitions and dispositions strategy? Because my answer would be different for somebody who has the capital or capital partners to take inventory and take advantage of being able to hold properties to see them to full disposition versus somebody who doesn't.
have that capital or capital partners or funding available for them and is required to do some sort of contract assignment or double close. Those would be two different markets. I mean, you could be, you could play in the same market, but the person who has to double close, they have to have the demand. There has to be significant demand in their market to be sure that they're not just going to lose a contract because the timing doesn't work. Maybe they have a fantastic deal. And I've done this, man, I've done some deals in some really slow markets like Louisiana, for example, Louisiana is a
There are some places where it moves quickly, but there's a lot of rural places in Louisiana that move incredibly slowly. I bought this property, man, pretty quickly after starting my business, maybe the first year. It took me over a year to sell. I still, I doubled my money on it. It was a great deal on paper in terms of like how much money I made on the property. I was the best. I was the best price priced property in the area of that type for over a year.
Clay Hepler (25:12)
Right.
Justin Piche (25:17)
before we finally found the right buyer. And it's not because I didn't get the property at a good value or I just, it's just because the market was so slow. If you're trying to double close in that market, good night. Not gonna work.
Hey guys, this is Justin interrupting your podcast to say thank you.
Clay and I would really appreciate a rate, a review, a subscribe. I don't think we joked about it this podcast, but you can definitely write J-U-S-T-I-N is the best in your comment and Clay will definitely get the message. So I hope you guys enjoy the podcast.
Clay Hepler (25:41)
Hahaha
Right, yeah, and again, it's very context specific of how you should do this for your business, but of course, there's a ratio that is a reverse ratio adjusted. More higher sell through rate, more competition. Lower sell through rate, low competition. You can get properties for lower dollar value, and you could probably have higher margins. You might have lower margins on your properties that are
in more competitive markets, but your absolute margin, your absolute return could be similar or more because even though you have a less of a margin, your velocity of your capital is faster. And so there's this interesting ratio that is high velocity of capital, high competition, lower margins, low velocity capital, low competition, higher margins that you have to make. That's your business decision.
There's no one, like you said, there's no one size fits all. And it's all about like taking your own context into consideration and then using that to define, should I target this market? Maybe I should do half this market, half this market because I want to have a little bit of both. Yeah. And just we're talking about businesses that have, for example, like more like our businesses, the standard flip module.
Justin Piche (26:48)
Yeah. Yeah.
Clay Hepler (27:15)
model, which is going to a bunch of different markets. Like, of course, if you're like in one market, then you just take this, what we're saying here, and then you just zoom it down on a micro level. So if you're like, you know, you're on a County and I'm in Houston County or whatever Houston County is, and there's a, it's a big County and I have these little neighborhoods that I'm hitting for in-villots and I them at different times. And I know that certain neighborhoods have certain sell through rates. You can take this macro to the entire country.
Justin Piche (27:16)
Okay.
Clay Hepler (27:42)
or you can go all the way down to micro.
Justin Piche (27:45)
Yeah.
So, so for the way that I market, which I've probably alluded to is really broad, like entire states of data for certain properties sizes and up. And the reason why we go so broad is because we do all of those strategies like we buy and we hold and we're comfortable with a high profit percentage, low sell through rate, longer hold time deal. We own our finance. So we're comfortable being able to
hold a note and not recover all of our capital. We've started to double close this year, which is a variety of things. Usually when I say double close, what I'm actually doing is I'm transactionally funding my own deal and just closing it like a day or two later, not necessarily doing a, know, A to C and I get my money out in the middle type of a transaction. But we have the opportunity, we have the ability to do that if we get the right title company and kind of work the deal that way. We'll do novation contracts, we'll do subdivides, we'll do large major developments.
We can work on all these different types of deals. And so for me, it doesn't make as much sense to really niche down in all these different areas. Instead, it's like, hey, let's just send it out to everything. And when we get something in, we will just we'll figure out what's the best way to dispose this property. And that's how we're going to pursue that that deal. But that only comes with scale. So I'd get really good at a niche kind of market and list stacking at first until I had the capital to go broader. If I was starting over again.
guess.
Clay Hepler (29:13)
Yeah, I think about it a lot like your capital sources, right? So there's this really interesting like starting out in the land business, which you're at one side of the circle or you're one side of a line. The one side is I'm using equity funders, right? Because I don't have credibility to raise it from family and friends because I want to help the consulting from an equity funder. And then I eventually say, hey, equity funding is a little too expensive. I'm going to mix in half equity, half debt.
Justin Piche (29:39)
Thank
you
Clay Hepler (29:43)
or whatever, and then that's kind of the middle ground, then the end is only equity because I'm going after big development deals. You go from equity to debt, to debt equity to equity, eventually you always go back to equity, right? Because the risk adjusted return for equity is oftentimes lower than debt, for example, especially when you're going after larger properties.
Justin Piche (29:48)
you
Clay Hepler (30:09)
I think it's the same exact thing with market selection, right? So you start out, you're more niche, you know, because you can't go after a ton of different markets, you're more selective. In the middle, then you blast out a ton, right? You blast out a ton of marketing. And then everyone ends up being a specialist, right? You end up saying, I'm only going to go after some people, obviously, there are exceptions to this rule. I'm just, this is just a perspective. I don't profess to say this is the only way to do it. But
Justin Piche (30:21)
you
Clay Hepler (30:36)
Then you niche down, like you said, you niche down and saying, I'm only going to hit these types of properties in these areas, development deals, multifamily development entitlements, subdivides in, you know, West Texas or Montana or whatever. And then you, niche down and that's how you kind of get your alpha. So first alpha is just targeting good, good markets, high competitive rate, kind of what most people talk about, which is sell through rate alpha in the middle is better volume, better.
you know, higher volume, better sales, and then alpha at the end is more selective like what you did at the beginning, but with higher dollar value property. your ROAS goes, goes up like crazy.
So Justin, I want to just quickly interrupt the show here to go back to our team building tactics. I think we like forgot about this after the new year. We're kind of like, new year, new me, new team building tactics. Right, right, right, right. So we're going to do team building tactics. The team building tactic today is around approaching a bank.
Justin Piche (31:26)
We were trying some new podcast formats, you know.
Clay Hepler (31:37)
for getting financing. What are the things that you need to do in order to approach a bank in order to get financing on a smaller property? What are the kind of things generally that you should give to a bank in order to increase your likelihood of getting financed on a rural recreational deal? Justin, you can take it away.
Justin Piche (31:55)
Yeah.
Okay. I mean, most people have had some interaction with a bank. you know, a bank is not, they lend on land, you know, a lot of banks lend on land period. So this is not something when I first started in the land space, I didn't even think about it. It's like, I already had owned my house. I bought a couple other houses. I'd used banks for all of them. And I didn't even think, this bank will probably lend me a hundred thousand dollars on this property purchase. I was just like, I got to buy cash. I've got to double my money, you know,
But they will, they absolutely will. The thing with banks is first, let me just take a step back and say, if you're looking for a bank, generally you're not going to find a Chase or a Wells Fargo or a Bank of America or whatever, these large national banks, they're not the ones who are gonna give you these land loans. The banks that are gonna work with you are gonna be smaller community banks. Think a couple branches, a credit union. If you live close to a bank, that is a local bank, that's a great bank to approach.
for loans on land. Now, what do you, what do they need? Honestly, they are looking for, most banks have a charter and they're looking for a couple of things. One, they, they, these local community banks, they want to serve their community. living in the community or living adjacent in an adjacent County or something like that gives you a huge advantage. If you don't and the bank is out of state, it's not insurmountable. The next kind of tier would be the land that they're going to be lending on.
should be in their service area. You want a bank that, if you don't live in the area, the next thing would be find a bank that is in the local area of the property that you're purchasing. A lot of banks will lend to you if the property is near them and in the area they serve. You're unlikely to get a bank loan from somebody who is out of state and the property isn't near where they are. It's just probably not gonna happen there. It's not gonna be within their charter to serve.
For local banks, it's really about finding that banker and building a relationship. For every bank that I work with, which there's probably six or seven of them now, I have a contact. have like a VP of commercial lending or a president of commercial lending or something that is my person that texts me and has my phone number. like we talk on the phone every other week or something on some of these loans that we have. It's relationship building. Some other things that banks really want. And I'm just going to like throw out all these things and somebody can
Maybe look at a transcript, throw it into chat GPT or something and generate a list of what do need to do when I'm getting a bank? But they want to see deposits. So if you're doing a development deal, a small development deal or something like that, telling them, hey, I'm going to bring my cash and capital and deposit it at your bank. And then I'm going to fund the loan or fund the down payment from the loan. And then I'm going to use the capital that's remaining to do all the capital improvements on that project. That's another thing that they really like to see.
Those are really the big things that pop into my mind. might also need to call like 10 of them. Don't stop at one. Call every single small local community bank in the area and see which ones you can work with.
Clay Hepler (34:53)
Yeah, yeah, yeah, yeah.
Have you
found ag lenders to be
Justin Piche (35:07)
Yeah.
I'm sorry, finish the question. Have I found them to be?
Clay Hepler (35:11)
Well, ag
lenders to be good lenders for a subdivider development like a role or subdivider development track.
Justin Piche (35:17)
You know,
I don't know yet. OK, so here I've used I've used AG South Credit Union in North Carolina for several properties. They were all rural farm style properties. They were all had legitimate AG uses at the time that I purchased them and after the first one was more of a flip. It was a great, great deal. Fifty five acres I bought for one thirty sold for two seventy or something like that. And I got an eighty a 15 percent down.
loan on it from AgSouth Credit Union. It had a lot of timber on it. It had pasture land that I could lease to a farmer if I ended up holding it. And they were really easy to work with, but it wasn't a subdivide. So when I sold it, they released the whole lien. I made my money and it was done. And then I used them again for a property down in Richmond County, North Carolina. was 30 acres that I surveyed and split into three 10 acre tracks. And then I listed those tracks.
And I ended up selling all three of them to one buyer. So I bought it for a hundred K 15 % down loan, got my survey, did a little bit of clearing work. And then I sold it for one 95 a few months later to, um, to somebody who bought all three lots. And so I was actually looking forward to selling one single lot just to really find out what their partial release criteria was is or was. I don't know if they have it. Like I didn't look into the fine print to determine does egg South have a partial release criteria or do I need to pay.
the entire remaining principal balance on the loan when I sell the first lot. And in this loan's case, the loan was only 85k. So I would have very easily been able to just pay the whole loan off no matter what I sold one of the lots for. But I didn't get to cross that bridge, unfortunately.
Clay Hepler (37:02)
Yeah. Well, I think it's kind of great high level overview of how to approach a bank. A lot of times they're looking for personal financial. So, you if you don't have a good financial profile, it's hard. It's hard to qualify for a bank. Justin, know we're kind of running out to the top of the hour here. I want to summarize our key insights.
Justin Piche (37:10)
Yeah.
Well, me just you brought
real quick. You brought up one point and I just want to go into tiny bit more detail before we worry hop off in order to originate a loan. The bank is going to need a minimum of two years of tax returns personal and business and in some cases they need three years of tax returns personal and business. They're going to need a recent personal financial statement, which is a summary of all of your assets and liabilities, your cash flows, your income, everything like a complete picture of all of that.
If you don't and the big challenge with banks is, and this is something that as I've scaled my business, I'd run into and it's less of an issue now because we've had a couple of good years. But at the beginning, it was really hard is they take the previous two years of your income and they basically average them and that's what they underwrite your income at. So if you started your business like me, my first year technically of business was 2021. I started in September and I just had a loss. So I had a negative income in 2021.
I had a W-2 at the time, so I made a good bit of money, but that obviously didn't exist anymore when I was applying for my first loans with the business. And then 2022 was good, but I had a negative year and I had a good year and they averaged those two. it's really tough. It's tough when you're an entrepreneur and you don't have a W-2. So that's just something to be aware of. If you're getting a bank loan on a property, I always would recommend if you can't qualify yourself to talk to somebody who you know that has a solid W-2,
and talk to them about partnering, co-guaranteeing or guaranteeing the loan. If they're guaranteeing some sort of personal asset that you're not going to sell for an income, I can totally understand a lot of apprehension. But if you offer them a piece of the deal to help you personally guarantee the loan or a fee for personally guaranteeing the loan, it's not uncommon to offer 1 % of the principal value of the loan as a guarantee fee to somebody. So if you originate a $500,000 loan giving that person
$5,000 to originate that loan as a fee. that's normal, very normal, it happens all the time. So, just, even if you can't qualify, there may be somebody that loves you or trusts you that is willing to work with you to help you get that bank loan.
Clay Hepler (39:33)
Right. Awesome, man. Well, we're kind of getting to the top of the hour here. So I want to just kind of hit us with one last question. I think this is a running question that I hear all the time before we sign off is as we scale up, the one big question I hear over and over again is should I expand into new markets or should I go deeper into the markets that I'm currently in? And yeah, right. Like
It's not that simple. I approach that question is how many different marketing channels are you using? Because different marketing channels will solicit different responses from sellers. Number one. Number two, are you cash strapped? Do you need to hit these markets multiple times because you can't buy more data? Do know these markets? Do you the relationships like Justin was talking about earlier that you can call on? And so it actually makes more sense from an operational perspective because it is actually operationally expensive.
Justin Piche (40:14)
Thank
Clay Hepler (40:32)
and difficult to go into new markets, right? Cause you're constantly having to call new brokers. And if you have a smaller team, then there's a, there's a real operational drag to moving constantly into new markets. and I also would say it's, it's more, it's more about philosophy than it is about the right answer. So that's my philosophy around it. there's not really an answer here, but what would you have to say, Justin?
Justin Piche (40:37)
you
you
Yeah, I mean, I would make sure I'm fully hitting the markets that I'm in and not missing things before moving into a new market. I don't love moving into new markets. I agree. There's a lot of learning when you move into a new market. There's a lot of additional relationships that you need to build. Here's a perfect example. I love Alabama. I work a lot in Alabama. When I hit teal, come across my desk in Alabama. At this point, based on where it is,
I've got a really good feeling about how much money it's worth. Like I don't even without looking for comps, just looking at the size of it, looking at the proximity to what's major city or minor town it's around, whatever. I know because I've worked there for years and I've done, a lot of deals there, but many, many deals there. When I go into a new market, perfect example is I went into Missouri. I decided that Missouri was a good market for some reason. And we just had very little success in Missouri.
A couple of reasons. it's tough. It's a tough state. It's a non-disclosure state. Valuing property is pretty challenging. And we found a lot of pockets of just really rural, undesirable land where people wanted to sell in the desirable places. We just didn't get a great foothold. Maybe our sales skill in the area weren't great. Maybe that local market has more aversion to out-of-state buyers. I don't know. I don't know what the reasons were. We didn't have a ton of success.
But I do know we didn't have a lot of success there. And so we stopped marketing there, but I probably spent 30, 40 K of marketing in Missouri. And maybe I think I did one or two deals to offset that cost, but nothing crazy, not, not high profits, not good. And it just took a lot of time and churn on my team to build new relationships and figure out that it wasn't a good fit. And I just say that to say, you don't know what the challenges are of a new market till you go into that, into it.
And if you can get more out of your existing market by maybe segmenting your market a little bit more finely and doing different types of targeting to different segments of that market, maybe it's infill or higher dollar, smaller properties versus larger subdividable properties versus the kind of middle market recreational or residential land. then I would probably start there before choosing a new market.
Clay Hepler (43:20)
Yep, dude, I'm with you. listeners, long time listeners, you know this part of the podcast is when rate, review and subscribe. Let us know how we're doing. It really helps us. Just as shackling really helps us get off the algorithm, right? Keep, keep giving you guys this, content for free every single week. And we really appreciate it. Right? This is a, a give back for us. The gentleman's agreement is we come in and play full out every week and we, we appreciate you guys giving us rate, review and subscribing.
on any podcast platform you're listening on or on YouTube. Thanks. Anything else, Justin, before we hop out here?
Justin Piche (43:58)
That's it. We'll see you guys next week.