Road
#5: Becoming the Land Barons
1.
What
it takes?
a.
Strategic
vision of successful firm founders.
b.
Ability
to create a realistic and actionable business plan.
c.
Overcome
the debt fears. Learn to leverage.
d.
A
super salesman. Able to sell the idea to investors.
e.
You
are a scout, an entrepreneur, a builder, a buyer, a borrower, a salesman, and a
monetizer.
Guidelines:
2.
Learn
to love leverage.
a.
You
cant make decent land baron returns unless you lever up.
3.
Monetize
it.
a.
Find
a good value no one wants, and trump them by filling it with tenants.
b.
By
filling it with tenants, you immediately have cash flow and leverage for your
next deal.
c.
Lower
purchase price is good. However, terms are as important as price. Terms mean
how much of the price is cash, interest rate on any noncash offer, a deposit to
go with the bid, whether or not the seller keeps the deposit of the bidder
backs out, and what legitimate reasons might let you back out.
d.
Find
a building, find someone with tenants and find financing. Put it together in a
deal that creates wealth.
4.
Don’t
fool yourself.
a.
Beware
of considerable cost in owning real estate, and it cuts into your return.
b.
A
good land baron is daring, but doesn’t self-delude.
5.
Don’t
be a flipper.
a.
Flipping
is inherently a short-term game and a dead-end road.
6.
Find
a vibrant market.
a.
You
just need an area likely to remain or become prosperous.
b.
Look
for business-friendly communities with low taxes. The best places are business
and employee-friendly, where future growth continues.
c.
Concept:
Jobs pay for everything. Land barons need tenants, renters, or buyers. People
go where jobs are, and jobs are where prosperity us – where folks want to shop,
work, live, lease and rent.
d.
Research
state income and sales tax rates.
e.
Then,
incorporate. Create an LLC to bear the risk.
7.
Start
small and unsexy.
a.
First,
start small and bootstrap. Buy a decrepit duplex, fix it up, live in half, and
rent the other.
b.
Then,
leverage that cash flow and buy a rundown4-unit vacant apartment house. Fix it
up a bit so you can rent it at higher rates.
c.
The
key: Find tenants, and buying based on vacancy and creating value by filling
it.
d.
Do
this several times, and you’ll have cash flow and a track record and can
convince investors to give you capital infusions for bigger buildings – may be
condos or office buildings.
8.
Create
a pro forma.
a.
Create
a business plan to get investors. It must be compelling but attainable.
b.
First,
include every detail nicking your bottom line. Example: interest costs,
construction, depreciation, permitting, upkeep costs, water and electricity
bill, property taxes, appreciation and income rate.
c.
Then,
run different scenarios.
d.
Finally,
distill everything to a likely IRR on investor cash. This is the piece of the
action you’ll offer investors in exchange for the down payment and a safety
net.
9.
Know
the code.
a.
Know
what arcane building codes and zoning regulations you’ll be hit with.
b.
If
you don’t have political clout you must be in a business-friendly place.
10.
Location,
location and location.
a.
Environments
worse for employees and employers are worse for you.
b.
Select
state friendly to economic prosperity, i.e., states with no or low state income
tax.
c.
Higher
taxes will cause the higher income people leaving. As a land baron, follow the
money. Better yet, get there before the money does.
d.
If
top income earners flee, economic prosperity sags, as do property values,
rental, and lease incomes.
e.
The
higher the proportion of rich people in an area, the better it will be for land
barons.
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