Land Investing: Passive Income or Not? (CFFL 503)
Transcript:
Jack Butala: Jack Butala with Jill Dewit.
Jill DeWit: Hi!
Jack Butala: Welcome to the show today, in this episode Jill and I talk about land investing. Is it passive income, or not? Let's get to the bottom of that today. Before we get into to it, let's take a question posted by one of our members on the www.landinvestors.com online community. It's free.
Jill DeWit: Okay, Jason asked, "I'm talking with a man who owns a 3,015 acre ranch in Edwards County, Texas. Land in this area is listed for $1650 per acre." Whoa-ho-ho-ho, these are big numbers, I like these.
Jack Butala: Yeah.
Jill DeWit: "This could be a big deal, but I'm not sure how to handle it. I'm thinking about proposing an option agreement for each section of the ranch that is divided up by five different APNs-"
Jack Butala: That's really good.
Jill DeWit: "... and market each of the 600 acre ranches separately. I'm not sure what price will sell fast on such big properties. Any advice is appreciated."
Jack Butala: These are great deals. I love these kind of deals. These are the things that, at this point in our career, Jill and I look for all the time. 3000 acres cut up into 5 APNs is a great situation to be in, especially if they are all contiguous, because you're either gonna find who wants to buy it all ... You're doubling your chances of selling this property if it's all cut up. Find somebody who wants to buy it all or maybe find somebody who wants to buy just one of the sections. A section technically is 640 acres or one mile by one mile and we're gonna assume that it's got pretty good access. In fact, I'm sure, well I'm not sure but, it's be hard to go 3000 acres without finding a county road somewhere.
Jill DeWit: I'm doing the math. It's a million, by the way, each of these.
Jack Butala: Yeah, so, the price per acres really widely vary based on size. So when you say an acre goes for $1650, I bet it's not the same price for one acre, five acres, twenty acres, six hundred and forty acres, or three thousand acres. In general, the larger the property the cheaper the price per acre which is what you want.
Jill DeWit: Exactly.
Jack Butala: That works in our favor. You want to get a low price per acre buying a lot of property and then subdivide it or split it down.
Jill DeWit: Mm-hmm (affirmative)- And sell it for more.
Jack Butala: It's called the case to bottle method, you know? If you buy a case of beer and it's, for sake of argument, it's $24. $24 in a case and you sell them for $3 a beer you're tripling your money and that's the same idea here. You need to talk to an expert about this, because you don't want to make a mistake. The real money and if this is in an unincorporated area, which I bet it is in this county, Texas state law governs that you can subdivide it. You might have to jump through some county hoops, but I'm telling ya, people retire on one deal like this.
If you buy it for $300 and acre and sell it for $5000 and acre when you've got it all split down and there's roads to every property and stuff, that's millions and millions and millions of dollars. You could spend the next ten years of your life doing this deal and getting incredibly rewarded and that's one of the reasons Jill and I chose this question. We get a ton of questions and this is a really good one.
Jill DeWit: Yup, I love it. If you have a question or you wanna be on the show, reach out to either one of us on www.landinvestors.com.