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Acre By Acre: Maximizing Returns Through Land Investing With Jon Jasniak

October 11, 2023

chrisseveney

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CWS 257 | Land Investing

 

Today, Jaz Land CEO Jon Jasniak explores the art of land investing, where every acre holds the promise of prosperity. Jon made his transition from a nine-to-five job as a petroleum engineer to a successful land investor. He discusses the intricacies of land subdivision, the magic of owner financing, and the art of creating and selling land notes. Jon’s business model enables him to provide investors with impressive annual returns, typically in the range of 15% to 20%. He emphasizes the importance of knowing your numbers and how shorter-term notes can be more marketable for investors. Jon doesn’t shy away from discussing the risks either, sharing the challenges and strategies to overcome them. If you’ve ever been intrigued by land investment or thought about creating a new stream of passive income, this episode is a goldmine of wisdom. Don’t miss out; your financial future could be just a piece of land away.

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Acre By Acre: Maximizing Returns Through Land Investing With Jon Jasniak

In this episode, I have a special guest. I have Jon Jasniak with Jaz Land. We are going to be talking about land investing. Jon, how are you?

I’m doing great, Chris. Thank you so much for having me. I’m looking forward to chatting with you.

I love talking about all aspects of real estate. Land has been something that has, over the last several years, piqued a lot of people’s interest because of availability, price point, and appreciation, like most real estate assets. With land, you’re not dealing with tenants typically, which is always a benefit to not having to deal with them. Why don’t you tell us a little bit about what you’re doing? We’ll then rewind it to talk about how you got into the space and the story of how you got to now.

Here we are, September 2023. It’s been several years since I first started this adventure. I’m doing these massive subdivide projects where I’m buying hundreds of acres at a time, creating lots, and selling them off to customers. There is a lot of owner financing and originating a lot of notes. I have started to embark on a couple of other crazy creative projects like buying a small and unincorporated town, trying to work with these big subdivides, and getting more difficult with the projects. It’s been several years since I’ve started buying one-off pieces of land and creating notes, $200, $300, $500 a month, and flipping them. It’s crazy to look back on it. Land has been peaking a lot of people’s interests. I’m seeing more demand for land than ever.

How did you get involved? Did you just wake up one morning or see something online? A little bit more background, how did you get into land?

I was a 9:00 to 5:00 employee. I was a petroleum engineer. I liked what I did but I didn’t like going into the office. I would listen to probably 10, 15, or 20 hours of podcasts a week and read a bunch of books. I was like, “There’s got to be something more to do,” especially to make some more money and passive income because I was tired of working at the office twelve hours a day. I wanted more cashflow.

I was listening to a podcast called The Side Hustle Show. Another land guy like myself came on. He was talking about the business, his course, and what was possible with land investing and land flipping. I bought his course and one other course. I started studying these two courses. After about a month or so, I was like, “I’m going to dive in and buy my first piece of land.” I had a little bit of bankroll to start with for my engineering salary. I bought 53 acres out in Hudspeth County, Texas for $8,500. It’s $170 per acre. I used to find land that cheap out there in certain places in Texas and Arizona.

I bought this piece. It’s already subdivided into 5 separate 10.6-acre lots. I started selling off these five lots and they all sold in a month. I doubled my money. I made $17,000 or $18,000 gross. I immediately started direct mailing, looking online, and trying to find more deals. I was buying 10-acre lots out in Texas for $1,500 or $2,000, turning around and selling them for $5,000, $7,000, to $10,000, and originating $150 for 72 months notes and collecting passive income. It has snowballed from there.

As a civil engineer, I’ve got 1,000 questions as part of this. When you’re buying 50 acres and subdividing in the 5 parcels, are you leaving the properties as is and not pulling in any utilities or putting in any types of wells, septic systems, or public utilities? Is that how you typically do it?

On the “desert square stuff,” which is more recreational land in the middle of nowhere, it’s not going to have utilities. It’s rec land. I’m not pulling in utilities. What’s crazy is a lot of pieces of land out there have already been subdivided. For your beginner, that’s how you’re able to go in and buy 1, 5, to 10-acre lots. With what I’m doing with these big subdivides, people did that back in the ‘80s and ‘90s.

They sold all these pieces of cheap land on the internet. You have folks who are starting to get into the land game and direct mailing, SMS, and cold calling people. They’re calling them on these little 5-acre lots in the middle of nowhere. They’re picking them up for $2,000 and selling them for $5,000. It has created this huge arbitrage and niche in the market.

I did want to jump back because I also heard you say that you’re looking at buying an unincorporated town.

I did buy it. It’s been a whole project. It’s in the same area, Hudspeth County, Texas. The town is called Cornudas. It’s got a motel, cafe, RV park, and a few mobile homes on it. It’s 28 acres. That’s why I got back a week out there. We redid the roof of the café. I spent almost $100,000 on electrical, HVAC, and mini-split systems because it never had any air-conditioning in any of these buildings. They use space heaters and swamp coolers if you know what those are. It created a lot of problems out there.

Could you incorporate the town, create your government for the town, put a school in, put your subdivision or town rules and regulations for zoning, and do whatever you want? I’m curious about what you can do with that.

I could. One day, I would have to buy more land around it, start subdividing, and create lots and infrastructure. Anything is possible. That’s one thing I like about land. We were chatting about this before. We hopped on all the different aspects of real estate. Some are dying off. There are some hot razzes and some things are going away but land has never gone away. You can do about anything with land, whether it’s building a town or an assisted living complex, doing short-term rentals, or building an RV park on it. What I love about it is its ground floor. There’s always a demand for it. The earth is not getting any bigger and it’s always going to be there.

I love talking land and am fascinated by how it’s such a niche, especially if you can buy up these parcels, which you’re doing, and turn around and subdivide them, which can enhance your returns even more. Let’s say you buy 10 acres and 10 lots, each 1 acre per lot. You buy it, turn around, and sell it. I’m guessing you’re probably doing a seller financing owner carry with some of these borrowers or are they paying cash?

I’m doing a lot of things. When I buy the land, I’m buying a lot of it with seller financing, doing wraparound notes, and owner financing it off to my customers. What you’re getting at is when I go to sell the land, 90% of my sales are owner financed. I sell those notes to investors and cash out if and when I need to. I hold a giant note portfolio, all self-managed. I have a handful of good note buyers whom I work with. When I need capital, I’ll sell them a well-performing land note.

How many notes roughly do you have in your portfolio out of curiosity?

150 to 200, it varies.

Do you self-service those or use the service there?

I self-service. I use the mortgage office as my loan servicing platform. We have ACH processing. I’ll take the monthly payment. I have a small accounting team that helps me on the back end, keeping track of it all. A lot of it is myself. My ops manager and I will send notices and foreclose people. We have a foreclosure coming up. We’ll be at the courthouse steps in Texas, taking some land back and reselling it for more, hopefully.

It’s interesting because we invest in notes and distress notes. We use the mortgage office. It’s the same software. It doesn’t matter which type of loan you’re doing. Whatever type of note you hold, you’re the bank, which I prefer being the bank because you can control everything. Even in court cases where you do have a foreclosure here and there, you’re going to take that property back. You can turn around and resell it on a new seller financing note. It is what you’re going to do.

We’ll collect another down payment. I like to keep my down payments relatively low because the lower the down payment, the more people can afford to buy it. It does raise your default rate a little bit. Not a lot but for sure, a little bit. As long as that’s a good asset that you can resell for the same, if not more money, why not? It’s an ATM in my mind.

The lower the down payment, the more people can afford to buy it. Click To Tweet

If I were financing a $25,000 property from you, what are your typical terms and interest rate payments? Do you have a secret sauce that you like to structure these things with? Does it vary depending on the borrower?

I have a proprietary thing that I like to keep in mind. I don’t like to go longer than a ten-year note. I’m sure you know, as a note buyer, the longer term your note is, the more discount applied to it upfront if I were to ever go to sell the notes. Ten years or less are the most marketable notes. The lower I can shorten that term, the better because I get my money back quicker and also less of a discount to a note buyer at the end of the day if and when I go to sell that note.

I found that $500 a month to $1,500 per month is the sweet spot as far as what sellers can afford. If I can get it over $500 per month, the default rate goes down. If I can get it up to $1,000 to $1,500 per month, it’s even better. As you go over $1,500 per month, fewer people can afford that. When I’m selling a piece of land, I’m saying, “You got to pay me $2,000 per month.” Not a lot of people can afford that. At that level, they’re probably going to the bank and getting their financing.

That’s how I think about it. I always charge 7% interest. I don’t think of it in terms of interest as much. I get this question a lot. My deal is the face value of the note. That’s what I’m marketing at the end of the day. My marketing process when I go to advertise this land is I advertise like, “You’re paying me $500 a month for 60 months.” That includes interest.

If I were to charge more interest, my principal would drop. It would even out in the wash when I went to sell the note. If I charged more interest, the note buyer would discount it less and buy it for more. However, if I charged more interest, I’d probably be lowering my face value for that same monthly payment to a potential buyer of mine. It’s getting in the weeds but that’s how I think about it. Less in terms of interest, more in terms of total sales price.

It also depends on the value and everything. The way it popped into my head when you’re talking is you try and make it roughly about what a car payment is. Interestingly enough, from what we have found, I’m curious if you have found this with some of the notes that we have bought. If you have loans that are only $200, $300, or $400 per month, those have a higher default rate than the ones that have $500 to $600 because I find that the people who are in those don’t have the affordability and balancing their checkbook down to the dollar every month.

I had a borrower once who could balance his checkbook. Every month, he finished with $3 in his account. I’m like, “I should hire this guy because he knows how to manage his money well, where he finishes every month with $3.” The other thing that I’ll tag on to what you said for people reading is a lot of people do get hung up with the interest rate but you had a huge point that people need to take away.

A note buyer or when you’re originating a note, I would buy a loan that is at 5 to 10 years at 7% a hundred percent of the time than a 30-year loan at 10% or 12%, or 15 years. When you look at your velocity of money on that, the difference on a $30,000 to $50,000 loan a percent here and there is $500 a year but that principal payment and that total monthly PNI payment is going to be significantly higher, which will juice up the return.

This is something that I highly recommend to people. Download a good loan calculator. There are a few out there where you can lock inputs and adjust everything else. I’m on that thing daily. You get to know your numbers and get familiar with it all. Back to your point with the monthly payments, the lower you go, the higher the default rate is going to be.

That’s why I moved away from your Hudspeth County 10-acre lots in the middle of nowhere because the people who are buying that only want to spend $100, $200, or $300 a month on that piece of desert. They care less about it. They got less money invested every month. They’re not as savvy financially. They’re probably going to default 25% to 30% of the time. It is that high of a default.

I could reshuffle the paper and resell that land again. It does become an ATM but you get to a certain level like me where you’re managing 200 notes. If they were all notes like that in the desert, it would be a nightmare. It’d be like a full-time job for me or multiple people trying to resell those and spending money on marketing. I’m sure you know as an investor. We want our money and the people who are paying us to be happy, whether it’s with their house, car, or land.

As investors, we just want our money, and we want the people who are paying us to be happy. Click To Tweet

You sell these notes. If somebody was an investor and said, “Jon, I read that episode. I’d be interested in learning a little bit more about buying a note from you.” What is your prototypical note buyer of land? What’s that avatar that you’ve seen?

There are two avatars. One is your average person who wants monthly cashflow. They’re working from 9:00 to 5:00. They have some money saved up. It’s getting 5%, 7% to 8% interest in a money market account or at the bank. It is a lot less before interest rates increase. They want some monthly cashflow. They have $30,00, $50,000 to $100,000 to spend. They buy some performing land notes and get their monthly cashflow.

The second avatar is the savvy investors. They know that they can get a slightly higher rate of return on land notes versus house notes or some of these other assets. There’s a lot of opportunity in the land space when it comes to notes because you have a lot of good land being subdivided, creating good paper lots.

As long as you trust the operator, the operator being myself in this case, as long as that investor trusts the operator and they’re doing a good job with their projects, there’s a huge opportunity to go in, either buy a portfolio of notes and multiple notes and offload $200,000, $500,000 to $1 million and get a note portfolio that is performing for land. I’m going to ask you. What do you target for your IRR or yield when you’re buying a note? What do you want to make annually as an investor?

CWS 257 | Land Investing

Land Investing: As long as that investor trusts the operator and they’re doing a good job with their projects, then there’s a huge opportunity to go in.

 

On the performing side, we want to be in the low double digits. We’ll find a target. In the non-performing stuff, we want to be in the low twenties on the non-performing stuff because of the risk and the time but it varies depending on everybody. If you’re using your capital or other people’s capital, what’s your cost of capital? One of the things that you mentioned that I want to touch upon, and I’ll let you jump back to your follow-up question, is the sponsor and the person writing this paper.

For people reading, that is one of the biggest and most important things to take away for anybody who’s buying notes real estate. It doesn’t matter what you’re buying. Who is on the other side of that transaction? You want to make sure it’s somebody experienced and ethical. There are people out there who are writing papers on many different aspects that don’t have experience or ethics. They’re selling this thing and it is a lawsuit waiting to happen sometimes.

They’re not following subdivision regulations or not putting easements where they need to. There are a million different things that could go wrong with a land project. They’re selling those notes off to investors. You mentioned low double digits on performing land notes. This is touching back to my point. When it comes to land, I usually see 15% to 20% of what I’m giving investors for their annual returns. It’s a little bit higher on the land side, which is why it’s attractive to a lot of folks. I’m more than fine with that.

I’m giving people, on average, 16% to 18% annualized rate of return on my note buyers. I apply my discount to the principal value from there. Back to interest, I’m not focusing as much on interest rates. My yields on these projects and IRR are over 100%. I don’t touch a subdivision project unless it’s over 100% annualized rate of return for Jaz Land. I’m more than happy to give an investor 18% to 20% if it’s going to move some notes, get some capital flowing, and allow me to do more projects. It’s a win-win for everybody.

That’s a great return, especially for both parties. It’s a win-win. A question I always have to ask when I hear great numbers is, what are some of the risks involved in this?

The biggest risk for someone buying a note or even for myself is that the payer stops paying. I had one like that with a note buyer of mine here. The thing with me is I always try to sell what I think are my highest-performing notes. It creates more of a headache for me because I’m stuck managing the less quality performers and the payers but my reputation is on the line. I don’t want to sell you a bunch of junky notes and I lost investors in the future.

My investor bought a note from me and the person stopped paying. I will help folks resell them. It’s easy for us. We hop back into our CRM or Facebook and blast off a message like, “This land is still available. It came back on the market.” It was funny. With this one, I was able to resell for him the next day. He hit me up, “So-and-so stopped paying.” I sent out a message to 100 folks. Someone was like, “I want it.” On the next day, we had paperwork cooked up and a down payment check to him within a week. He hit me up. He’s like, “You resold this in a day?” I was like, “Yes, sir.”

When you generate the notes, are you creating a traditional deed of trust and note or land contract? What’s your path?

It’s a deed of trust, notes secured and recorded at the county clerk’s office. It depends on the state and situation. The only time I would recommend using a contract is on small desert squares, small notes in the middle of nowhere. There are advantages to that but there are a lot of disadvantages. The main one is that a lot of investors do not like buying contracts for deeds. I saw my note on the buyer’s contract for deeds. They don’t want to touch it or apply a huge discount. It is a deed of trust with a prom note.

CWS 257 | Land Investing

Land Investing: There are a lot of disadvantages with contracts. The main one is that a lot of investors do not like buying contracts for deeds.

 

Years ago, I got into a note space on the residential side. Land contracts were a hot thing because of a lot of the paper that originated right after 2008. There was a lot of what was happening. There were three major companies that went in and were buying from Fannie Homes thousands at a time and turning around and selling them, not even doing anything to them. They turned around and sold them to borrowers on land contracts.

It was great years ago but as the state started catching up on the land contracts and treating them like a traditional mortgage, it gave no incentive at all to have them. It’s a hindrance. I’ve got one borrower performing but he doesn’t live in the property and it’s vacant. We’re getting violations for cutting the lawn and the gutters. I’m getting notices that show up in court. I’m like, “I’m not the owner.” They’re like, “You are in the deed.” I was like, “It’s a land contract.” They’re like, “We don’t care. It’s yours. It’s your problem.”

Do it once and do it right, in my opinion. If you can create the right paperwork and solidify with a deed of trust and the investors like it, it’s a win-win.

As we wrap up this episode, a question I’ll ask is, where do you see your company in the next several years?

My goal is to be the most known person in the land space and help as many people as I can to buy, own land, originate notes, and make money from land investing. I want to have a $100 million land business. It’s around the $10 million mark. We have a lot of big projects in the work. I could 10X this thing over the next several years. That’s where my mind is focused. That means a giant note portfolio working with a lot of investors and doing a lot of monster subdivides.

When people talk about that, put the plan in place and it’s attainable. In notes, the interesting thing with our portfolio was I maxed out at 300 notes at one point in time. I’m down to about 150 but the size of my portfolio is 4X because the size of the note has gotten larger. It’s something that the note space is extremely scalable from that standpoint. If you do want to grow, the next question is, if people want to learn more about your business, how they could invest with you and buy notes from you? What’s the best way for people to reach out?

It’s @JonJasniak on any social media. Hit me up. I answer all my DMs, messages, comments, and any of that stuff. It’s Jon@JonJasniak.com. If you have a land project and you want to send it my way to get a quick look, opinion, or feedback, I love looking at deals. I tell this to people all the time. I’m obsessed. People send me a land deal. They were like, “What do you think about this?” I’m like, “This is a perfect project. Do it this way. Subdivide it like this.” I’m addicted to this stuff.

Are you only in Texas or do you go to other states?

I do most of my investing in Texas. I have done other states but now, it’s all Texas. On some of our folks in the groups, we got going on. They work nationwide. I help them with that. For me, I love Texas.

Jon, thanks for coming on. For our readers, thanks for reading.

Thanks, Chris.

 

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About Jon Jasniak

CWS 257 | Land InvestingJon Jasniak is a land investor and entrepreneur who has bought over 8,000 acres of land and completed over 750 land deals. Jasniak purchases and sells land and most recently bought a small unincorporated town in West Texas. Jon is passionate about teaching others how to flip land notes and create wealth through land investing.

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