This is episode number 2152. Jill and I are talking about the hidden costs of land investing and how to avoid them. What I’ll do after we talk about the question here is list the costs.

Good, because I have a lot of questions.

They’re all published. Each day on the show, we answer a question from our Land Academy member Discord forum and take a deep dive into land-related topics by popular requests.

Ben wrote, “Do you guys have a general net profit percentage you work off of total revenue once you have everything up and running? For example, if you have a gross revenue of $100,000, presumably about $50,000 would be purchase costs plus your data and mailer costs, closing costs, etc., the actual net profit before taxes is around 30% to 35% of the total gross revenue. Is that accurate to your experience? I’m trying to get our first, second, and third-year goals set. This would help by establishing where we need to be to quit the day jobs and go full-time.”

Budgeting And Profit Margins

Ben, the fact that you’re doing this, you are ahead of 95% of the universe. You’re putting a budget together. The budget will eventually be your goal. You’re going to give yourself enough wiggle room to change or adjust as you go through time. In your 2nd and 3rd years, you will achieve what you’re attempting to achieve within reason. That’s that old trick. Write it down and it’ll happen. Before I met Jill, I thought that was silly. I thought it was some kind of myth. It’s true.

I’m going to go right into the topic and answer your question. This episode’s topic is the hidden costs of land investing and how to avoid them. You buy a piece of property for $50,000 and you sell it for $100,000. It’s a regular run-of-the-mill Land Academy deal. At the top line of your income statement, you have $100,000, and right below it, you have the cost of what you sold at $50,000. You have a gross margin of $50,000.

Fixed Vs. Variable Costs

From this point, you categorize your expenses into 1 of 2 categories, fixed or variable. A fixed cost would be my rent. I have office rent. I hope you don’t at the beginning of your career, but office rent is fixed. It doesn’t matter how many deals you do. Your rent is X. It’s a fixed cost. The second cost is, let’s say, your salary if you choose to give yourself one. Let’s say it’s $3,000 or $4,000 a month to get by and it does not change no matter how many deals you do. You could do 50 deals, 1 deal, or 0 deals. You have fixed costs.

Some people refer to this as overhead. I hate that. Overhead is a manufacturing term left over from the 1920s. Variable costs are mail, education, and things like that. They’re adjusted based on whether or not you buy real estate deals. A perfect serious variable cost is escrow or real estate agent fees. You don’t incur those in any way unless you do a deal. The more deals you do, the more fees you incur.

The key to all of this is to ensure you have mostly variable costs and minimal fixed costs. Share on X

Here’s the key to all of this. You want to make sure you have almost all variable costs and no fixed costs. If we decide to go on summer vacation, I don’t do a mailer and Jill doesn’t answer the phone. There’s no expense. We’re drawing from money that we made in the past. You want to make sure you have as many variable costs associated with business versus fixed costs.

I didn’t get into this business by accident. I didn’t wake up one day and somebody said, “We’re going to do this.” I looked at fixed costs and variable costs businesses and realized I’m only going to ever make a dollar or incur the expense of making that dollar if I do a deal. The exact opposite of a business example is a manufacturing facility. You go and buy a building, lease a building, or rent a building and there’s tons of outflow from a cash standpoint. You put machines in there. You put a sales staff in. You buy raw materials and they haven’t made any money yet. Not a dollar has come in yet.

Two years down the road, you’re ready. You’ve satisfied yourself that you can make a good product and you’re going to release it out in the marketplace. There are chances of you failing at that because of the structure, not because you know about manufacturing or not. That has nothing to do with it. From a financial structure standpoint, you’re set up to fail.

Before you ever sit down at your desk to buy and sell a piece of land, I’ve set up this business for you to succeed. Your cash out from the beginning is your cost of education and the mail. From there, you have no other costs, including that $50,000 that I talked about at the beginning of this example, because you have a financial partner like us.

You have your own money if you don’t want to. I agree.

Hidden Costs And Risk Mitigation

This is the topic. What are some of the hidden costs that come up in our lives that come up with this business? It was a trick question. There aren’t any. If there are, don’t incur them. Crazy costs come up, like legal fees, when we have to look into something or when a title agent looks into something, but this is so far down their career.

What are some of the hidden costs that arise in our lives and in this business? It’s a trick question—there aren't any. And if there are, don't incur them. Share on X

It’s all related to a deal. Anything is related to a deal and I bake it in. That’s the bottom line. I was talking about this with somebody. I’m doing deals big enough that I want to bring an agent in. I don’t want to do the work. I’m making it easy on myself. I bake it in. I make sure I’m still going to double my money because I’m buying it for $50,000 and selling it for $150,000. By the time I have all those other costs, I’m still going to make 50%.

If you have no fixed cost percentage, then you have complete control over your company. What you want to do is send out as much mail as possible. The pipeline gets jammed up and you’re on the phone, making sure that the people who are going to fund your deals are there, available, and real, which we’ve done. I bet 50% of the deals that go on in Land Academy are funded by other people, including us. That’s it. You’re moving stuff around. You’re on the phone making a deal.

That’s it.

The only hidden cost that may occur and eventually will incur, and you do not want to do this in your first year, is that you bought a piece of property. Everybody’s afraid of this, including us, even at this point in our career where we miss something. Jill’s answer for that is to buy a $150,000 piece of property for $25,000. Nineteen things can go wrong and you’re still going to get out of it okay. Join us in the next episode where Jill and I are going to talk about what’s the catch to the Land Academy education program. You are not alone in your real estate ambition. We are information and inspiration to buy undervalued property.