Ep 524: What Is A Good ROI

In this podcast episode, Daniel Martinez and his guest discuss various aspects of real estate investing, focusing on comparing house flipping to land investments. They highlight the benefits of land deals, including the ability to achieve higher returns with lower risks by using strategies like seller financing and subdividing properties. They also emphasize the importance of understanding market conditions, having multiple exit strategies, and securing strong deals to ensure profitability. Real-world examples are provided to illustrate these concepts and to show how investors can maximize their ROI in the real estate market.

Chapter 1: Introduction and Mindset in Real Estate Investing (0:00 - 1:48)

Discussion on the importance of understanding different investment approaches and the mindset required to achieve high ROI in real estate.

Chapter 2: Comparing Different Real Estate Investments (1:49 - 3:56)

Comparison between house flipping and land deals, emphasizing the higher potential returns and lower risks associated with land investments.

Chapter 3: Strategies for Maximizing ROI in Land Deals (3:57 - 6:10)

Detailed explanation of how to maximize ROI through strategic land investments, including seller financing and sectioning off portions of land for sale.

Chapter 4: Risk Management and Exit Strategies (6:11 - 8:02)

Discussion on risk management, various exit strategies in land deals, and how to ensure profitable outcomes by adapting plans based on market conditions.

Chapter 5: Real-World Examples and Final Thoughts on ROI (8:03 - 12:03)

Real-world examples of successful land deals, final thoughts on what constitutes a good ROI, and the importance of securing strong deals to ensure high returns.

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Transcript

a lot of people they they always

especially with like rentals I'm going

to on other people's real estate

real estate businesses today and this is

this is leave the junk collectors alone

man hey he the junk collectors needs an

depreciating asset all right all right

so we're we're very we're very prand as

you can see very prand slightly biased

slight slightly

biased slightly biased 100% but

everybody's everybody's chasing like

especially I think it's the funniest

thing cuz everybody's chasing like even

the best investors are chasing like

eight 15 to 20% Roi and they're like

it's so hard to get this and they're

doing houses and they they'll go buy a

rent to if we can get a 30% yield we're

good we're good yeah yeah yeah 30% yield

I can D my money every 3 years I'm I'm

I'm I'm killing it you know I'm killing

the game and then they invite us to

speak I love the land game because it's

you can create a crazy Roi very very

easily yeah and it's something like you

have to think about it right the deals

that you're going to sell is like a unit

per measurement so if you have a house

right or commercial building you know

some kind of facility it's by

everything's by the square foot right so

I'm going to buy 2,000 ft or I'm going

to buy 50,000 Square ft or 100,000

square ft right and you have to there's

like uh some kind of formula where you

can extract a certain amount of capital

per

unit well 50,000 ft house it's unheard

of a 50,000 ft building like log Logan

Fulmer level like damn that's pretty

significant right yeah but 50,000 ft is

just right over one acre yeah right so

when we go out and we contract or make

an offer on 200 Acres or 400 Acres or

500 Acres like I mean you don't have to

make that much per unit to have

significant returns so let's talk about

Chapter 2: Comparing Different Real Estate Investments.)

like the types of capital that it takes

to move these deals now right yeah so

let's say you put a a deposit and you're

going to flip this house and you did an

Novation you gave a seller 10 grand

Grand and then at the end of the deal B

you make a whopping 60 G or 80 GS after

you flip that house so maybe like a you

know 4X multiple whatever 3x multiple on

your on your 20 grand but that that's

maximum you can't go you can't go above

that right there's no way to inject

100,000 into it and get a 5x multiple it

just doesn't work that way right because

there's not enough square foot in the

deal but there's a lot of risk too

because you got development cost time

waiting reh it's a moving Target right

so you're like man I papered it all up

perfectly I'm going to make 50 gs and

then bam you need a roof there goes

another 12,000 or something right yeah

so you got to think about things like

that there's very little margin for

error right very little room for there's

not enough profit in there no profit in

the beginning a significant amount of

capital outlay for very little return

right so let's say you bought the house

cash for 100 fix it up sold it for 100

made 50 right but but in in a land deal

like let's say you had 100 acres or 200

Acres you can cut off a very small piece

of it and extract a significant amount

of capital Y so one that we did recently

it was over 200 Acres we we we sectioned

off 30 Acres at closing we got 50 acres

free and clear and so the seller still

has a lean on the rest of the property

seller finan 0% interest y but we

extracted $600,000 out of the deal

within the first 30 or 40 days yep right

so not only did we you know we're not

restricted to making a small amount like

10 20 30% or 30 30,000 right we we pull

$600,000 out of the deal within the

first couple weeks and we still have 190

Acres left oh yeah and then wired

another 200 yesterday right so we pulled

8 $100,000 out of the deal in two months

three months two months we just started

most of it in a month okay so roughly

$800,000 in 60-ish days right and so how

do you think this project is going to go

now that the rest of the project and the

subdivide and everything else we're

going to do there the engineering has

already been funded by the deal and we

already put some cash in our pocket

right so let's talk about what a good

Roi is now yeah so a lot of people they

they think like it's almost like the

they have to physically produce that Roi

like I have to paint this like I always

Chapter 3: Strategies for Maximizing ROI in Land Deals.)

talk about I always make F of people on

Twitter like oh the best rois in fresh

paint on a new property or fresh house I

always laugh at that because I'm like

okay you might get a you might exit at a

higher price but what's the real Roi and

me and Anthony always say that you can

create a higher Roi with a pen and a

piece of paper yeah so instead of you

improving the property by painting and

putting on a roof improve the property

with with your pencil yep improve the

property with your pencil and improve

your deal with your pencil so ask better

terms ask for better terms in in the

front end and the back end have a have a

higher exit multiple of potential spread

on the back end if you buy a a 2,000t

house you can only sell it for 250

because of the verifying comps or 250

there's no Max Roi you can get out of

that you can only squeeze it so much so

let's talk about like now like what's a

good Roi from a lender's perspective

right as a lender and us as a borrower

if somebody lends us let's say $11,000

to flip a house and they they're

expecting a 10% return $10,000 $10,000

when you're only have 30 30% spread you

know on the in the best case scenario

right so you borrow 100 if you paid back

10 that's significant that that that

really hurts your deal that's 30% of

your potential Profit just to pay the

money right so let's say you know if you

borrowed 100 Grand and you had to pay

back 10 or 20,000 that's probably not a

deal anymore just based on what the

lender's going to give you and you're

hun you're hunting for the cheapest

Capital you're asking your friends and

family you're begging for money that

people would lend to you for nothing

yeah right but in the case if you get to

go out and get a bigger deal right with

more spread in it you can borrow

$500,000 and pay back

$250,000 and people were like there's no

way you could give a 50% Roi like not in

your world but in the land world it's a

fairly simple Target right yeah very

simple Target and like the other thing

too is like it's a lot more risk and

that's the underlying risk like Hey

we're willing to pay more because

underlying risk you might not what are

some of the risks some of the risk it

might the deal might not go well as much

as you will as much as you think it will

so this is one of the things where we

target like how do you comp land well we

comp land because if we know there's

comps for 100,000 an acre and we get

this deal for 20 how much you going to

make I don't know we might make 50 we

might make 80 but we know we're going to

make money so if you take a property

that has like let's say your target

profit in the deal is 500,000 to a

Chapter 4: Risk Management and Exit Strategies.)

million and instead of making a million

your your profit gets half down to 475

like you see you can still get out of

the deal in one piece you can still pay

that lender back 250 and you still make

175 or something yeah 200 200 200 yeah 2

no matter what you're completely

protected in the deal you're not going

to you're not doing it for practice yeah

right so if if you're looking for what a

good Roi is I think it really depends on

on the asset class yep the purchase

price of the property and then the

amount of exits that you have so if you

flip house you flip it you sell it you

put it on the market seller finance rent

it out whatever your magic number is but

if you think about it in terms of I'm

going to go after a big giant asset

there's a lot of different exit

strategies here right so we could do 10

acre lots we could do 5 acre lots we

could do 1 acre lots oh I I'm going to

dig into this one this is a good that's

a good one there's multiple exits in

land because you're buying at the bottom

so you can go to Lots SK you can add

paperwork to add buildings Apartments

mobile homes whatever you want you the

the the sky limit to potentially add to

that deal to make it worth whatever you

want so then you have multiple exit

strategies like do I do I exit out of 10

acre lots in 90 days or do I take it to

entitlements do one acre lots and and

profit at that point and then there's

different profit points and different

things of development and we're this is

we're at Chris roods event right now and

there's different phases of exit

profitability you can buy at a good

price you can entitle at a good price

you can build at a good price and then

you can create debt at a good price with

notes on the back end so you have multip

and then you can hypothecate the notes

out give yourself a free loan and go

again so you can you can exit multiple

times over and over again on land and

you can choose wherever you want to get

out so I think what's cool about land is

is exactly what Daniel pointed at is

that you can take a piece of property

right let's say you get it for a million

cash 100 acres easy deal and you're

going to do 10 acre lots our Target for

that thing we want to make 500 to a

million no matter what or we're not

going to do the deal looking for a 2X

Chapter 5: Real-World Examples and Final Thoughts on ROI.)

return on cash out of pocket minimum but

if you want to make that property worth

5 million right then you invest 500,000

into the deal now it's worth five and

then if you want to go a little bit

further than that you throw in 2 million

into the deal now it's worth 10 right so

you can continue to increase the price

of the property based on the the the

cash outlay and then the time investment

right so it could take 12 months uh 24

months 36 months you can't do that with

a house you can't put on a copper roof

and put aluminum gutters and do all this

crazy amazing stuff and marble and all

that it doesn't bring the property you

hear the term of over remodeling yeah

over remodeling oh they put they put a

granite granite countertop and in a

regular basic flip and doesn't even like

you yeah and it didn't bring up the

property enough for you to make that

profit up right so people lose so I what

do we call rentals oh uh I don't know

what failed flip

oh it's a fail somebody got the property

they put too much money into it and now

they can't afford to sell it they need

to rent it out for a couple years to

soften up that damage right um so but

with l you just continue to inject time

and capital into it and continues to

increase in value in and and

exponentially and then even then if you

can afford to sit on it you could just

sit on it we talked to a guy here he

bought 15 infill Lots 6 years ago and

he's been sitting on it he's like I pay

the taxes every year I don't really know

what to do with it I built I built three

houses on on the 15 Lots I still got

like 10 left I sold two and I still got

10 Lots left I'm just going to sit on it

like it is what it is then what we tell

him how to how to extract the ROI like

dude get paid to sit on it if if you

don't need the money he's like I don't

need the money why not sell her Finance

it get a dumb payment collect interest

on that deal where he was paying 2,000 a

year he can make 2,000 a month on one of

the Lots you know it's a different ball

game and then if property comes back to

him guess what they'll get it back and

sell it again like it's a like if you

don't need the money this game is very

very easy and for everybody here like if

you're experienc find some good land I

always make the joke think is one of my

my phrases now the easy way to make 10%

on your money is to buy a property full

price

and sell it for 10% car dealerships do

this all the time they buy the car from

the financing they already build in

their margin they'll Finance you and

then they'll charge you

18% they're just a they're just a bank

more than they're not a car dealer right

they're riding mortgages so if you think

about in terms of right to wrap up the

video what's a good Roi it really

depends on what are you after what's

your risk tolerance and how long how

much do you have to invest and how long

do you have to invest it so if you

invest any amount of capital into an

asset that has like a a a fixed price in

the marketplace hard to get a strong Roi

right some of our lenders are getting

5050 to 100% gain so if you think about

it you know if you if you're dealing in

a space that has those kinds of returns

what do you think the the developer the

investor is going to make right if we

can afford to pay that back so I think a

good Roi is something that you feel safe

and secure in probably something that

you understand very well or you're

partnered right with or with somebody

that understands what they're doing at a

very high level to kind of protect you

through the deal but in my mind a good

Roi is a 2X multiple so if you put in

100 Grand you should be able to pull out

100 Grand and if I can't pay that to

that lender then I'm probably not

interested in the deal anyway because

it's probably not a strong deal right so

and and you always want to get a strong

deal to secure it makes your ra secured

and and also we don't always pay one for

one it does doesn't make sense you know

in a lot of deals but it's very very

possible very very possible that's not

that's not exactly a unicorn deal that's

a very possible deal and I'll give you

an example so we hey No Cap guys No Cap

you guys aren't wearing caps you're

wearing cboy head is a let's say it's

again like let's say it's a million

dollar property we get seller financing

0% interest we borrow 100 from our

lender we give that to the seller we say

hey we'll pay you out in 12 months 12

months we cut it up into 10 acre lot

sell it Target of 500,000 to a million

return and we promis that seller 2x with

there goes 100 to the to the lender

another 100 for the two he borrowed now

we're up 3 to 7 yep plenty of room

abolutely plenty of room plenty of room

to create good Roi so yep there you go I

think finding finding a limitless

properly and lending on that that's the

way to do it well I hope you like this

video like share subscribe you know what

to do we'll see you next time thanks

guys

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English (auto-generated)

Ep 524: What Is A Good ROI

Daniel Esteban Martinez

Anthony Gaona