Episode 116: Set It and Forget It Real Estate Investing with Brad Warren – Transcript
Rennie Gabriel 00:10
Hi, folks, welcome to Episode 116 of the Wealth On Any Income Podcast. This is where we talk about money tips, techniques, attitudes, information and provide inspiration around your business and your money. I'm your host Rennie Gabriel. In past episodes, we spoke about how to understand the numbers from your business, how to measure the level of pleasure based on where you spend your money, how to track your money in 5 - 10 seconds, what determines how close you are to Complete Financial Choice®, and how to run your business without being in your business. Last week, we had Jackie Woodside, a four-time Amazon best-selling author, TEDx speaker. And today we have as our guest, Bradley Warren. Brad is a former real estate business coach for over 40 years. Brad got his real estate license in 2018, and became a land banking consultant. He also owns 11 parcels of land totaling almost 39 acres. And he now helps investors diversify their portfolios by investing in land strategically placed in the path of growth, and then selling to developers to build generational wealth. Brad, welcome to the Wealth On Any Income Podcast.
Brad Warren 01:29
Good morning. Thanks very much for having me, Rennie.
Rennie Gabriel 01:32
You got it. So we'll get right to it with some questions. Okay, you deal with land banking, which sounds like raw land. Why?
Brad Warren 01:41
Well, I've been investing in land for a little over 10 years, and I've been a land banking consultant - is what we call it - with my real estate license for four and a half. And the reason why is it's very simple and easy. We call it, "set it and forget it" real estate investing. You buy the land and then you just wait. The hardest thing with this kind of investing is to be patient. And you wait for the developer to knock on your door and say, 'Hi Mr. Warren, we see you bought land over here and we need it for a big project'. We're building a solar farm or an apartment building. And then your exit is just to learn to negotiate with that developer and get a really good price on the exit.
Rennie Gabriel 02:25
Got it. Generally, there's a question I ask about charitable stuff right now. But instead, I'm going to say, I had taken a class in 1985, so it was a long time ago, the instructor didn't believe in raw land, because he said, 'You pay the property taxes, you generate no income, if you had anything on it, that you could rent out, it least you're getting some income off of it to pay the property taxes'. I mean, how, how do you feel about that?
Brad Warren 02:55
Well, first of all, it depends on the zoning. If it's zoned non-residential, agricultural, which is the land that goes to the energy companies to build the solar farms, you can't put a building on it. You're just not allowed because of the zoning. The other thing is, there's no infrastructure yet, though, over the course of owning your land, other developer's money comes in, they start paving the roads, they start putting in electricity, but in a lot of cases, that doesn't exist right now. So you really can't do that. And I think what happens also is you if you did put a building on, it would raise your property taxes, because the assessed value would go up. So you're going to totally defeat the purpose. The whole idea of this, and proposition 13 is very helpful, because it keeps our taxes incredibly low. People don't believe you know, on some of my land, I pay 80, 90 dollars a year. That's my total property tax. So it's very, very, the carrying costs over time are extremely low. And we're very conservative. We tell people 7 to 10 years on average, but even $100 a year for 10 years, I'm only going to pay $1,000 over the course of the 10 years of holding. It's minuscule compared to the return that I'll get back.
Rennie Gabriel 04:13
That makes a lot of sense. Those exceptions, you don't have the roads, you don't have the infrastructure, you don't have the water, you don't have the electricity, the zoning doesn't allow it. So when he was talking about it, obviously he was talking about something that was in the city, and the property taxes would have been $1000s of dollars a year, not maybe $1,000 over 10 years. So thank you, Brad. Now, I'll ask the question. You may know, if you don't my listening audience does, that I donate 100% of the profits from the work I do teaching other people about money I donate to charity. So tell me if there's a particular charity that you support, and if so, what do they do?
Brad Warren 04:58
Well, when I got that question from you and started thinking about it, there are many., but one in particular that I like is Doctors Without Borders. Particularly because they save lives, they help people, they go into war-torn countries and places where there's a lot of conflict. And they don't think about the borders, they just go. And it's a humanitarian cause and I like to support them and I think they're a great group.
Rennie Gabriel 05:27
Thank you. And I respect the work that they do, the motivation behind it is overwhelming to me. Let's get back to the business now. Tell me who your target markets are for the investing.
Brad Warren 05:40
So I like to say I need people who are nice, patient and have a minimum of $25,000 liquid to invest. And that amount to invest, that minimum 25 by the way, our range goes up to 2 million, so I can handle anybody inside that range. But it has to be patient money. In other words, you can't need it for a hip replacement, cataract surgery, a Lamborghini, an around the world cruise, kids college education, this has to be patient money that is something that you'll not have to touch for 7 - 10 years, or maybe more. Could be, could be earlier, the exit, sometimes it could be later. So most of my clients, the majority of my clients will use retirement funds, some kind of 401 K or an IRA, they have to transfer it into what's called a self-directed IRA in order to be able to purchase land, but that money is going to sit there in some cases, my clients in their 30s, 40s, that money is going to sit for 30 - 20 or 30 years anyway, might as well sit there and be appreciating over time. And it makes it a great way to invest in this kind of land, this kind of investment.
Rennie Gabriel 06:54
Yeah, that makes a lot of sense. Especially if when the sale comes, it's 3, 400% of the purchase price that all those taxes are deferred, if it's in a 401k or a regular IRA, if it's in a ROTH IRA it's even better because those taxes ended up never getting paid. You get the distribution without the taxation.
Brad Warren 07:16
Yes, and of the 11 properties that my wife and I own two are in my regular SEP, because I didn't have time to get it into the ROTH, but 9 of our 11 are in ROTH's so when we get 100, 300, $800,000 return, it's all tax-free. And that's the part we like - tax-free.
Rennie Gabriel 07:36
Yeah, yeah. Tax-free is good. Tell me if there was a business failure that you had and what would have been the insight you learned from it, if you did?
Brad Warren 07:47
Well considering, Rennie, considering that I'm 71 years old, there are a lot of those. One in particular that I can think of back in 2007, 8, 9. Just before the big kerflooey happened. We had, we had invested in a brick and mortar photocopy store. And the first ones did very, very well and it was on track. And we hadn't gotten our initial return back yet, but it was on track to do that. And then the guy running it convinced us to open a second location in a nearby city. And that was a disaster - we wound up losing . . . I don't remember the exact number, but it was 150 to $200,000 total over time, because we had to keep putting more in and more in. And it was a complete disaster. Thanks for bringing it up and reminding me because I've managed to, you know, exercise that out of my brain when I saw your questions, that was the one that immediately came to mind.
Rennie Gabriel 08:45
And so what would be the insight you learned from that?
Brad Warren 08:48
Do your homework, look at the numbers, don't just trust what somebody has said, you know, trust, but verify. And all those expressions come to mind. If we had really dug in and looked at the numbers and gone over the books, you would've realize that opening a second business at that time, was not a good idea. Also, you want to look at what's going on around you. You know, it was the beginning of the downfall or the great recession or whatever they're calling it. We should have been more aware of the external circumstances that were occurring that were affecting businesses, because most of our clients were business owners that were making copies. And when the you know what hit the fan, they started to pull back. We should have seen that coming in. We did not.
Rennie Gabriel 09:34
Exactly it's to pay attention to the stuff around you. And I don't want people to think you who are listening that you know, all my investments have been perfect because as a great example, if someone were to come to me and say my daughter wants to open a restaurant, she got this business plan and this that and the other I would say, Don't do it. Bad idea. The failure rate is too high. So that's the advice I would give someone who came to me. And so I invested $400,000, in a restaurant my daughter opened and have nothing to show for it. It did fail after 18 months. Believe me, I've been there, and I have not forgotten how much money I lost. Now, I'm going to guess a lot of my listeners because I talk about investments, whether it's, you know, stocks, bonds, mutual funds, apartment buildings, triple-net leases, you name it, they're going to say, 'Hmm, this sounds interesting. I want to talk some more with Brad.' Is there some valuable resource that you could provide for free to my listeners?
Brad Warren 10:40
Well, the best thing for them to do is obviously contact me, my information is right there on the screen. And for the listeners, it's just my email, firstname.lastname@example.org. We get on a Zoom call, because if we're going to be basically in business together for maybe a decade, remember my first thing? They have to be nice. So I want to check them out, they're going to check me out. And after that initial conversation and some discussion about land banking, if they say, 'Wow, Brad, this sounds incredible, I'd like some more information. What do I do next?' I send them a link to a one -hour presentation that my business partner, Marcela Silva has put together. We call it, Land Banking 101, and they watch that for free, with no obligation. They watch that entire one hour because our belief is you must be educated first. We don't . . . In fact, we're not, I'm not even allowed to take people's money until they see that. So it's a prerequisite to investing with us. You have to watch that one-hour video. Once you've seen that, and then you still want to move forward, we do some more due diligence, We ask you a lot of questions. Where's the money coming from? Is it patient money and can it sit there? What's your past experience with land, if any? What other real estate investments gave you got into? Blah, blah, blah . . . We grill them as much as they grill us, because I would rather turn away somebody than take on an inappropriate investor, who is going to call me, you know, after three months, 'How's my land doing? How's the land doing?' I said, '7 to 10 years. It's been three months. Oh, by the way, it rained last night, your land is wet - but by this afternoon, it'll be dry. That's how it's doing. So have a nice day. Don't call me for another six and a half years'. So I need people to really understand what they're getting into. Is there no risk? Of course not. You can never say that about any investment anywhere, even in United States bonds backed by the government. We don't know about Uncle Sam sometimes.
Rennie Gabriel 12:46
Brad Warren 12:47
So I just tell people, best thing is to take your time, get a hold of me, we'll set up a time to talk and then you'll get educated first, before we take any moves to have you put your money into this kind of investment.
Rennie Gabriel 13:02
So that's perfect. I will have it in the show notes as well. And if they want to get a hold of you, I know I have your LinkedIn page URL as well. I'll have that in the show notes. Let's see what else? Well, is there a question I should have asked you and what would be the answer that would also give some additional value?
Brad Warren 13:21
The one big question that we get all the time is, What's the rate of return? What's the ROI? You know, when I do sell, what can I expect? We tell people now there's no guarantees, I can't use the G-word, but we have found over the 42-year history of this company that I work for, that generally speaking returns are between 3 and 7x. So even at the minimum of 25,000 that you put in, you're looking at 75 to 175 back on that small investment. You put in a larger amount, I have a client that's actually closing this week, on a $250,000 property, she will exit probably no less than a million on that one at least four times. Because of the kind of zoning. There's five different kinds of zoning for land. And the higher the zoning the usually the longer it takes but the higher returns - like mixed use. They can build hotels and shopping centers and big, big projects like that. So 3 to 7x is a good range to be considering. And by the way, we offer free negotiation coaching. When you get an offer and you have no idea what your land is worth, it's hard to find comps sometimes, you call me. I call the COO of our company and he gets involved on any and every negotiation that I would ask him and he'll help me help you, or the investor, figure out the right questions to ask the development company to show them that first of all their first offer was a lowball. You're just fishing and if you start asking them questions, 'Well, you know, what's the name of your project? Where is it located? What are the boundaries? How many acres is it all together? When are you breaking ground? When will it be finished', blah, blah . . . Then they go, 'Oh, this investor is not stupid, we're not going to, we're not going to be able to steal this'. And they immediately up the price and it's still too low. And when we do this it goes, the company that wants to buy the land, to the investor, to me to the COO, to me, and back. And we'll do this for as long as it takes. Some negotiations can take one or two years.
Rennie Gabriel 15:31
Brad Warren 15:32
They're buying up . . . Well, if you want to, let's say you want to build 1000-acre solar farm, you're negotiating with me over by one acre. Well, guess what, that leaves 999 other acres out there. Now, some people own 5 or maybe 10, but the vast majority might be an acre, acre and a quarter, two and a half. That's a lot of people you got to negotiate with. So it can take a very long time just to negotiate. Meanwhile, by the way, that's not bad. Because as more land disappears, the value of the land that's still available goes up.
Rennie Gabriel 16:04
Brad Warren 16:04
While you're negotiating the value of the land is increasing. So it's actually a good thing. But again, remember, I said you've got to be nice. You've got to be patient. That was my second quality. And then you got to have the 25,000 that you're not going to need for anything else. That combination of characteristics makes great investors.
Rennie Gabriel 16:26
Fabulous. Brad, thank you for being on the Wealth On Any Income Podcast, and this goes on YouTube as well.
Brad Warren 16:34
You're welcome. And thank you, and thank all your listeners. I'll put it out to my database and post it on my Facebook page and my LinkedIn page. And hopefully, we'll see what happens. Give me a buzz.
Rennie Gabriel 16:48
Terrific. And to my listeners, thank you for tuning in. You can listen to the Wealth On Any Income Podcast on your favorite platform. And please rate review and subscribe. And if you'd like to know how books, movies and Society programs you to be poor, and what the cure is, then log on to wealthonanyincome.com/TEDx. You'll hear my TEDx talk and can request a free 27 Page, 9-Step Roadmap to Complete Financial Choice® and philanthropy. And if you'd like to see how you can increase your wealth, and donate to the causes that touch your heart, check out our affordable program, Wealth with Purpose. Until next week, be prosperous. Bye bye for now.