Land Investing in the USA - an interesting alternative to investing in pure real estate.
In this article, I want to share my personal experience about land investing. I will tell you my little story as a land flipper and why I failed.
Learn from my mistakes and do better.
What is land investing?
Land investing offers a variety of profit opportunities. Whether you invest in farmland, undeveloped land or raw land, there is money to be made in land. With the development of undeveloped land or the acquisition of agricultural land, real estate investments can create long-term and reliable income streams.
Truth be told, land investing sounds rather boring at first, simply because you are not investing in large apartment buildings or villas, but in vacant land. A show of hands would have everyone reaching for the ceiling when asked if they believe buying land is only for the rich. Wild West movies may come to minds of cattle ranchers driving their herds across the great big country. We imagine farmers growing crops on their huge fields, which are as big as the small European countries of Monaco and Liechtenstein. However, anyone with enough start-up capital can in fact practise land investing.
Types of vacant land
There are many different categories when it comes to land use. The five most common uses are recreational, transport, agricultural, residential and commercial.
- Recreational: When a piece of vacant land is defined as recreational land, it means that it is to be used for the enjoyment of the people who use it. This can be anything from parks and open spaces to sports fields, playgrounds and swimming pools. Cities include recreational areas in their development plans to ensure that the area has places that people can go to and enjoy. These are not essential to the development of a community, but help to attract both permanent residents and visitors.
- Transport: Transport land is provided for the structures that help people get from one destination to another. Transport land includes roads, airports, railway stations and metro stations.
- Agricultural: Agricultural land is used for growing and harvesting crops and livestock. These are, for example, ranches, farms and pastures.
- Residential: The purpose of residential land is to build houses. These can be mobile homes, single-family houses or even housing complexes. Depending on the local situation, the market situation and the type of housing planned, you may also need to consider other factors such as accessibility of the land, proximity to local amenities, local schools, crime rate, etc. There are some restrictions associated with this type of land use, such as the type of animals allowed on the property, (dogs and cats are usually fine, pigs and horses not so much).
- Commercial: This type of land is intended for businesses, warehouses, shops and other infrastructure related to trade. This type of land is usually used for office buildings, restaurants, shops and other businesses. In addition, although commercial land does not usually take up much space, it is vital to a community's economy.
I focused mainly on residential land, as I thought it would be a good starter subject for a beginner. I will reveal my story in the following paragraph.
My little story of land investing
How did I even get into land investing? It was the 14th of September 2019; I was at a German real estate exhibition helping a friend who had a stand and needed support promoting his coaching program to potential clients. He was a professional investor and coached people in trading options at the time.
Close to his stand was a real estate investor and investment coach from the United States. He was also German and he immigrated to the U.S. in the end of the 90s last century.
He shed light on investing in vacant land and how to generate a cash flow from the land investments. I was intrigued and I wanted to know more about land investing.
I watched his pitch at the exhibition and later sought him out to pick his brain further. He told me how he began with land investing and now bears no financial burdens; he is his own boss with 20 employees. That was amazing to me. I wanted the same. I was already investing in stocks and was searching for an additional income stream, allowing me to invest in more stocks and other businesses. I wanted to create my own Berkshire Hathaway J.
The first steps
The start was not good. My dad passed away and I was not in good condition to build a business from Germany. Of course, it was possible to work remotely, find all the necessary information online and call the necessary departments of the U.S. counties. Be that as it may the shock was somewhat overwhelming, for me and my whole family. Everything had changed. I still wanted to jump on the land investing business. I wanted to be a landlord. Unfortunately, I just could not do it. The pain was too deep.
Three months later, I started to feel a little better after my big loss. I spent more time at work as a start-up consultant and helped founders create their businesses. I booked the land-flipping workshop from the land investor I met last year, Jack Bosch. Jack had planned to come to Germany for a workshop weekend (The Land Profit Generator) in February 2020 and I was ready to participate. He illuminated everything on land flipping in the US. How one should start, searching land, how to finance, how to find buyers, and so forth. It was a plethora of information packed and taught in one weekend, but all participants had access to the online course where we could follow the instructions as often as we needed. The plan was to dive in with a good friend of mine, only he was uncertain about moving forward with it. Ultimately, I started alone.
Paper work and research
The dream of having a land investing business was still very prominent and thus, I founded my corporation in August 2020. Because of the Corona pandemic, I was not able to fly from Germany to Florida, so I hired an agency that helped me with the paper work concerning the foundation of my new business in the U.S. By the end of 2020 I had my tax number and bank account. I was so thrilled to finally start flipping land, I felt euphoric.
In the meanwhile, I followed all the instructions from Jack Boschs’ online course. (For my German workshop ticket, I also got access to his Land Profit Generator online course). I prepared the vital steps for finding the right state and county and I bought 10 or more lists of property owners from a list broker for USD 1,200. My target counties were located in Michigan and New Mexico because I wanted to buy land close to hiking trails or in the proximity of phenomenal nature. My future target group of buyers were people who liked to be in nature and enjoyed sports.
Before I sent out my letter, I had a small problem with my bank. They forgot to activate my bank account and I could not pay the subscription of the CRM system and mailing list service. Thankfully, it look just one phone call and a 15-minute wait for the problem to be fixed.
Mailing and Due diligence of the properties
I had done my research and called the bank so it was time to set up my CRM system and send out my first letters to 3 different counties in Michigan. I created a landing page where the seller could fill in a form, which would be helpful for me because I could get all necessary information with regards to the property. Furthermore, I used OpenPhone as my personal phone service. It cost only USD 5 per month - extremely cheap for a whole phone system.
I had to wait around for about a week until I received a response from potential sellers. Most of them called me at night or would send text messages. Initially, it was endurable but after a while, it became stressful, as I was not getting enough sleep.
Overall, I was very happy to get responses and prepared to make an offer on all properties. Nevertheless, I needed help for the due diligence from a local title company. I mailed a few in Michigan and at the same time, I sent further mails out to New Mexico. Two weeks went by and I could not find the right title company. No one wanted to help me because I was not in the country. However, I was getting more and more messages from sellers in Michigan and New Mexico. I felt lost.
I sent all in all 3,000 letters and got 22 answers from sellers that were interested in selling. In sum, 22 potential deals were ready to be finalized in my CRM system. The problem was I could not make an offer because the title companies did not want to work with me. I had to do all due diligence by myself but I had no experience, not to mention the ticking clock and the bleeding wallet.
The last hope
Unfortunately, after a month, no title company had agreed to work with me, even though my company was registered in Florida and I told them I could not travel to the United States because of the Corona pandemic. I would have thought that would be understandable but it turns out I had hit a wall.
My last hope was to get in touch with a workshop participant. I found out that I was not the only one facing this problem. Some of my companions had given up a long time ago and lost 5 to 6 figures in dollars. However, one business-savvy person wanted to help me. He was able to do 10 deals in the first year and had made USD 20,000 profit.
He gave me some tips on how to convince a title company, but unfortunately, they did not work for my chosen one.
By the way, Seth Williams, the founder of REtipster created a nice graphic about the land flipping lifecycle. Check it out!
The end came faster than I thought - Why did I stop?
A full time job and a full time land flipper was not a good combination. Moreover, I was doing everything by myself. I came to realize that juggling both would not work for me. At first, there was the huge time difference between Germany and USA, especially in the states I had picked (Michigan – 6 hours difference; New Mexico – 8 hours difference).
Second, I was alone and that was arduous. I got calls during the night from sellers who wanted offers or had other queries, but I could not fix the problem of finding a title company that can help me. I had no chance to move forward with buying vacant land to sell it and earn money from it.
Last but not least, my budget dropped to zero and I did not want to make the same mistake again and sell huge amounts of my stocks for this business. I told myself if I spend the entire USD 15,000 and in return not get a single deal, I will stop this project and close the corporation. This is e what happened. My personal deadline came faster than I thought and I decided to close the whole business.
The 3 reasons why I failed in land investing
There was not only one reason for my failing in the land investing business. Actually, there were a number of things that I did not do right. First of all, I had to search for partner; a co-founder who can help build the business; someone who already living in the United States who has experience with real estate investing and knowledge about the local market. This I missed. I was asking a few friends to start the business together but all of their answers were: “NO, it is risky.” Or “I have no time”. As a result, I started alone.
In hindsight, I think I should have done more research. Sure, I learned a lot during the workshop and through the online course, but in my opinion, it was not enough. I had also estimated the expected costs far too low. This may have been because I had no experience with this kind of business model. Again, I can see myself that I had to delve into the subject matter more before directly setting up the business so to and start on good terms.
It is due to these reasons, that I lost more than 50% of my cash reserves. That is truly hard to digest and I learnt the hard way. Now I know that I have to stay stick with my passion – stock investing – and focus on finding good company and in which to invest my money. Back to my roots – the stock market!
What I take away from land investing
Honestly, I could never forgive myself if I had not tried land investing. I would have regretted it all my life, because from my point of view, not trying anything is far worse than trying and failing.
As Paul Allen once said:
“In my experience each failure contains the seeds of your next success – if you are willing to learn from it.”
So, what did I learn from it?
The following 7 points delineate what I learnt from my land investing journey:
- If you start a business that you are not an expert in, search for a professional partner who has expertise in this sector and start the business together. You can share the tasks and learn from each other. In my opinion, a team of 2 or 3 people can finish more tasks effectively than if you were to work alone.
- Be physically present in the country where you operate. This is also an important insight. At the very least, you should be there for a certain amount of time. For example, until the business starts generating revenue and you can manage it online.
- Expect a higher cost than planned. I planned with too low a budget, which forced me to give up. Include an extra buffer in your budget to protect you from unexpected costs.
- Do your homework, especially if your business operates in a foreign country. Get to know your target market and study the strategies of other participants. Exchange ideas in your industry and keep learning. However, do not start until you have acquired enough knowledge about your business and the market.
- Have your emotions under control. Try to ward off any outside influence, be it family-related or professional. If you do not have a clear head, you cannot act wisely.
- Take some time out too. Enjoy life and fill up your tank again. That is the only way you will be able to build a successful business. Work-life balance is important for you and your health.
- One big and final learning was, above all, that you should only focus on one thing. During this period, when I was active with land flipping, I worked as a start-up consultant during the day and on the land flipping business in the evenings and at night. This was not a great experience, as I quickly lost energy and could no longer concentrate.
Of course, I am always motivated to build a business as well as continuing to invest in stocks to get more out of my money and my life.
Is land investing still a good business model?
I can indubitably answer YES to this question with a clear conscience. I still believe that land investing is a great opportunity to make a lot of money. However, you should have more experience about it and not do it alone. Search for a partner who is investing in real estate or better yet, who is investing in real estate in the USA. The business model works, although it involves a lot of hard work. After all, in what business do you not have to work hard? If you want to be successful and financially free, the only way is through hard work. You do not get any gifts; you have to work for your own success.
In this sense work hard, play hard!
Do you want to know more about my land investing journey? Let me know in the comments below.
Further resources for land investors
REtipster - highly recommend blog about land investing. Seth Williams, the founder of REtipster offers a lot of free information on how to start land investing. Furthermore, he is offering a coaching program, too.
Land Flipping Generator by Jack Bosch – This is the product that I bought.
REI Pebble – This is the CRM system that I used for my mails and it gave me a perfect overview of the status of my mailings and documentations.