We’ve got a special treat this week. We are interviewing Superstar Land Academy member Steve Hodgdon. Welcome to the show.  It’s great to have you. I know you’ve been a member for a while. I know you have other successful businesses, which I’m super personally intrigued about, and I’m sure everybody else is. How are you doing? Maybe you can start off with your professional experience.

The Journey Into Entrepreneurship And Land Investing

I’m very happy to be here. You and I met in person way back in the thing you did down in Redondo Beach. I have some friends who came out of that meeting, and I’m still acquainted with them. Your meeting and talking to you and Jill prompted me to understand I was in the right room. This is the right world for me. I’ve been in credit and collections since 1980. Somehow, I have always been around money. I’ve worked for banks and credit departments.

In 1989, I became an entrepreneur. I bought a collection agency at the advent like where we went from cards where you wrote things down to computers and then to PCs, and then to distributed networking. I happened to have a little experience in that. I was the kid. They gave the kid the IBM XT with the floppy drives and said, “Here, figure out how to use Lotus 1-2-3.” I did that.

I went out and got some education in systems analysis. I owned accounts receivable companies. I sold that business in 2005 and decided that the right thing to do was to own a property management business and real estate in the crash. That was an experience. I exited with this giant stack of money and then turned around and gave it to other people.

I figured out that retirement wasn’t for me and what I like to do is coach, mentor, and build. I like to make stuff. I’ve got a young partner, Nick Curry, whom I’m blessed to have. Nick finishes everything I start. We built a small-dollar boutique lending business. We do unsecured medical loans. We do a lot of EV loans. We lend mid-subprime Teslas. We collect 1,000 payments a month. I’m figuring I take that experience and come over to land and buy notes. It’s a good idea.

I bought 58 notes in a series of purchases from a couple of the desert square guys. I also wandered over into that community for a little bit. When I got there and started to meet you and all the other people, what you needed was joint venture money. Nobody starting out has time to wait for three years to get paid. We started doing that. What do you want? Do you want some numbers?

We’re close to the same age. I graduated from college in ’89. I immediately realized after doing a stint in accounting that real estate is where I should be. More important than all that, I know what it’s like to work, and I’m sure you do too, with just a telephone on your desk. It’s a whole different world. You have to think on your feet. I’m not saying you don’t now, but it was a whole different level of exposure and success. It sounds like you’ve been successful with the computer and without a computer on your desk. That’s great. We all want to read numbers.

Lessons From The Crash: Recognizing Market Opportunities

What happened in 1989 has happened here. Things got digitized, costs went down, and speed went up. We’ve built our own underwriting database and CRM. My son works with me. He’s leaning into subdivides and development. He’s been my IT guy. We’re pulling in Land id, DataTree, and all this stuff.. The AI comes in and gives it a score. I’m so happy. What we have done is with all the tools that are available, we bought them all. They don’t all match up even though the data comes from a couple of sources. We’re getting smarter. That’s what we should talk about.

The land piece is about a quarter of what we do. I’m looking to continue to grow it because this is fun. We do land funding, medical, and EVs. You talked about inflation and market changes. You’ve seen it before. In 2009, I was running a property management business in Palm Springs. I watched 170 doors turn into 45 through foreclosures. What I didn’t know was what the buying opportunity was. I was in the mud. I didn’t realize that the $150,000 condo, I could buy for $50,000. If I had done that, that condo would be worth $400,000.

We got taken to our knees and stared into the abyss during that time like everybody in real estate. We didn’t have any leverage that we couldn’t manage. We were buying and selling assets at that time. I realized, at the end of the downturn, that we should be buying a lot more for the long-term. The problem with all recessions for me was and has been, and it won’t be this time, is, “Is this the last one? Is it all going to tank? Is it over?” If you watch the regular news, it’s like the world is ending. You have to separate all that stuff. It’s all real estate. Some version of it is going to come back. I’m set up to go on a buying spree. We are buying a lot. I’m sure you’re set up for it, too.

The Evolution Of Land Investing: From Niche To Industry

We’ve had this creation of this industry. It’s not a niche anymore. It’s like an industry. Who knows how many teachers, gurus, schools, and “Welcome to YouTube”? There’s this flood of people coming in. I made some notes to try to stay on track. I decided that what we can be for folks is better than dumb money. I can bring some gray hair experience. I’ve got some scars. I can help kids not blow up on day one and not destroy their dreams. We’ve done that with a number of partners. We’re going to talk a bit about partnership. What’s a partner? What’s a hard money lender? There’s a big difference.

I should start here with a Kevin Farrell plug. We funded a handful of deals with Kevin. He’s still working with you guys. He’s great. We had one go bad. We had one mistake. It’s a big mistake. It was $100,000 and change. It’s still a mistake. It has been a couple of years, and we’re still sitting on this. He relied on a whitetail agent who didn’t set foot on the property. He drove by and said, “It will be okay.”

It turns out that the slope is so steep that a deer won’t walk on it. You can’t hunt on this land. If you shot something at the bottom of the hill, you’d never get out. We’re still trying to figure that out. Kevin put in five figures of his own money to build a landing and make a place where you get your truck off the road so you can get on the property and you can see it. We’ll get out of this. It’s okay.

Understanding The Key Factors In Land Lending Decisions

I can spin from there on how I make a lending decision. You have your eight As. I’m still using the six As that you put up on a PowerPoint years ago. It was five As then. The things that have killed us are Slope and Access. Most of it’s right there. A lot of people are selling their problems. They’re grateful that some sucker from California sent them a letter. They’re like, “I can finally get out of this.” I used to believe that there’s a price for everything, but then I met a 40-plus-year appraiser in Colorado who said, “Sometimes, there’s dirt that’s meant to hold the world together.”

I used to believe that there's a price for everything. But then I met a 40 plus year appraiser in Colorado who said, “sometimes, there's dirt that's just meant to hold the world together.” Share on X

What does that mean?

It means that some stuff doesn’t have any value.

It’s part of the Earth.

It may be the 38th tax deed loss I bought in Mojave. Some of those don’t have any value at all. For the price point of $1,000 a lot, when you add them all together, it will be okay.

I used to think the same thing. There is always a price for something. It has some value. I learned that the hard way. At any price, you don’t want to deal with it. You get a little bit older. We have a dollar threshold that, for the most part, is not for deal funding. For the deals that we do, we need to make $100,000 or it’s not worth it. It’s easy to look at 50 deals instead of 20 and make sure you’re going to make $100,000. That comes with experience.

Before we continue and echo your opinion about Kevin Farrell, he’s been an ambassador at Land Academy since the beginning. He’s the nicest guy who’s got his head screwed on straight. He did a whole presentation at one of our live events about deals that he screwed up. It was some of the funniest stuff I’ve ever seen because we’ve all been there. He’s a real guy. I appreciate him as much as you do.

Your point about deal size is one of the things that I’m looking to get back and forth. What I did was I came into the market and competed on price. I came into the JV market and said, “I found out what the lowest-price people were doing. I went down below that.” We did a deal split that was 80/20 for the partner. Suddenly, I’m popular. We did that, and in that came some people who weren’t Kevin. We learned.

Overall, our little side business here generated $400,000-something. We’ll beat that. We get this thing about, “Here we are.” You say, “$100,000.” That’s up here. If you are 5 steps up from me, I think next year, I can be 3 steps up. Our best deals have been buy for 40% and sell for 80%. If we’re below the real estate market in that area, then you don’t get competition. We are chasing an imperfect pricing model. We’re looking for glitches in the way people value things.

The magic to my $100,000 number is we need to do 2 deals a month and 24 deals a year to get the $2.5 million. We try to do 3 or 4 deals. It ends up being 2 deals. We can live on that. It’s not that there’s so much magic to making $100,000 on a deal. It’s part of a system. I’m sure you’re a systems guy at this point.

I’m not, and that’s the beauty of what I’ve built. What I did years ago is I didn’t know what I did. What I did was a roll-up. I bought five small local businesses and made a statewide presence. The multiple of that valuation was more than double the sum of the parts. I made a machine. When I was 1 or 2 offices, I was the smartest guy, which means I could only see this far.

When I built the machine, everybody in every management role was better at it than I was. We’re doing that. My partner is a systems guy. My son has software programming experience and has some vision. I’ve got a disposition manager who is better at selling things than I am. We take 1,000 payments a month. I never talk to a borrower ever. How do I do that on land? It took me 3 years to build up to 1,000 payments. For a year, I was the guy at the desk where you came in the door. I went all the way back to the beginning.

I had some bumps along the way. I decided the safest thing for me to do was go back to small-dollar face-to-face lending. I went and bought a little platform in Southern California. I was there for three months and was like, “I need to do something better,” so I started buying mortgages. That was working. I don’t know how I came across you, but I did. You were in Redondo. I was in Laguna Beach. There we go.

Default Rates And Risks In Land Note Investing

Can I ask you a couple of note questions for land? I think everybody is interested. I have the perception that, as a percentage, there are more non-performing notes in land, especially desert squares, than there might be with houses or credit cards. From a non-performing loan standpoint and rural vacant land that may or may not be usable as we define that, how do you handle that?

You can go through all kinds of different ways to do this. The small-dollar desert square in Mississippi, Arkansas, and $5,000 notes is a profitable, heavy hands-on, and so-much-work-it-is-not-worth-it business, but it’s a machine. The 1,000 payments that we get are almost all unsecured. They have high default rates. They’re people that other people won’t touch. That has been my experience. I have owned collection agencies for twenty years. These are my people.

Back to your question, what about land? The default rate is ten times. One percent of mortgages go bad. If you’re doing a good job with notes, 10% go bad. If you’re doing $99 a month, 20% to 25% go bad. That means you have to adjust the price. The best analogy is a used car lot. You drive past used car lots, and you know that used car lot.

That one with a twenty-year-old Honda Civic and that’s their show car, that’s the loan-to-own guy. He’s making more money than the new car dealer. I worked for a bank that taught me there’s money in people who don’t have money. We built portfolios where there was no way these people could pay their bills in full. They had to revolve. We were charging $299. You build the same model. If I know I have a 20% default rate, I have to buy at a 40% discount.

It’s all about price. You have to sit, work with them, and look at their finances. This is interesting for me.

If you’re going to write a mortgage, you’ve got a bunch of underwriting. I’ve got a lending license in a couple of states. There are a whole bunch of things you have to do if you’re doing seller finance for a home occupant. With this stuff, you can be looser. The looser and worse documentation you have, the less value the note would have if you were going to try to sell it.

“Where’s the guy working?” “I don’t know.” “What’s his cell phone number?” “I don’t know.” “How did you get paid?” “He sent me a cashier’s check.” It’s all the logical stuff. Technology has given me all these tools. It’s a quick little online application. I get your bank information. I know if you had any NSS. I get your credit score and offer you payment terms. I’ll give you 18, 24, 36, to 60 months, or whatever the structure needs to be. You choose it. You get a contract online. You sign it, and you’re done.

A high 90% of our payments are all ACH. I’ve set up a machine to do this. If I’m a small note investor and I’ve got twenty loans, I know what I do with the small stuff that’s in my IRA and 401(k). It’s not like, “Everybody gets a break. Everybody gets to skip a payment. Who cares?” Everything that stays in the company is 30, 60, and 90 out the door. There’s no “I talked to Steve, and he was feeling good that day.” It was 30, 60, and 90 out the door during collections. Off we go.

In land notes, if we take the common desert square note, it’s zero interest. There’s no underwriting, and there’s a low down payment. The guy that I bought $500,000 worth of land notes from was doing the $99.99 down. Lo and behold, the same borrower can put $1,000 down and pay $199 a month. It’s the same borrower. Everything starts to work. If you’re out there selling on price, there’s no protection. There’s no moat around what you’re doing.

When I came in to look for JV partners, I came in at a price as I advertised. Our average deal turns out to sell in 4 months at a 40/60 split. Since I started this, we’ve turned over $5.5 million to $6 million. We made $1.2 million gross. My partners made $1.8 million gross. That’s what I want. I’m old. I’m not doing a loan. I’m not doing all this stuff. I want you to come away a little bit better than me. That’s capitalism.

That’s been an integral part of our model since day one. We buy and resell them for what I think is way less than retail. Whoever buys them from us needs to make more money than I do, so we can continue to do it. My hat is off to you. You’re leaving money on the table, and it’s a hard thing to digest, but it’s not hard anymore. I get a kick out of it, like you.

Everybody wins. I’ll chase $1,000 with the same effort as I’ll chase $100,000. Emotionally, I can’t tell the difference. It’s, “How do I close this? How do I make everybody happy? I’m going to have to pay the title insurance. Who cares? You’re waiting for a soil test. Let me go get it done for you. Let’s move along.”

You’re a real deal-maker. Jill is like that. She’s like, “I want to get a deal done. I might make less money, but it has to get done.”

Scaling A Land Investing Business: Efficiency And Delegation

If you are the right buyer for the property, I can get out of the way in all kinds of different ways. I can stretch terms. That covers that. We’ve funded 50 to 60 people. Of those, the 80/20 rule applies. People come in and they don’t like the space. They’re not good at it. Let’s talk about this for a second. I talked about scale, how I built up, and put people in who were better than me at all the jobs. We see many folks who seem inefficient. They’re one-man shows or they’re a couple of people. The range of tasks that you need to do, the things that Jill does that you don’t do and vice versa, and you’ve delegated out, make a much more efficient model than, “I’m doing everything.”

If you are the right buyer for the property, I can get out of the way in all kinds of different ways. Share on X

Luke Smith got a video of him running his Z folder and sending out his letters. I got rid of my Z folder many years ago. There are mailing houses now. The inefficiency in this space is okay as long as the margins support it. We agree that margins are contracting because people are making stupid offers. I’ve turned down a couple of deals that have been, “This is retail.”

Jill and I have, at any given time, a ton of property all over the country. Once a month, we’ll get an offer on one of them. Those all add up. We are selling properties that would never have happened where she signs it, sends it back, and says, “For this, I’m happy to sell it.” We mitigate that personally because she gets on the phone with these sellers. This is on everybody’s minds. I’m sure you know this. They’re like, “I talked to a seller. They’ve got three offers,” whether that’s true or not. Let’s say it’s true. They’re like, “They received three offers. Your offer is not the highest. It’s not even close.” She goes to work. She does her magic and gets the deal done.

That’s always been like that, and I rely on it. I’m not worried about the attrition, but from a pure numbers standpoint, this can’t go on. People can’t continually pay over retail for properties that are not going to be built on or utilized in any other way other than vacant land at that price. Like any business, it has to make sense financially. I don’t know where that comes from. I don’t know if people are getting bad education or if they’re sole deal junkies. What do you think?

I’m getting better at understanding that I can’t control macro events. I couldn’t fix the California real estate market in 2009. We had this enormous COVID wealth created. That’s something I should say to you because you like numbers like this. We had this enormous savings. We had this whole go-run-away-from-the-city thing. We had all this euphoria over the printing of money. A lot of the folks who have come in the last couple of years don’t have any 2010 foreclosure experience.

The government, whatever the government is, isn’t going to make the mistakes that they made in 2008, 2009, and 2010. Whatever history will show of the mistakes that were made in 2020 and 2021, we won’t know for a few more years. Does $36 trillion matter? Not if you believe modern monetary theory. Logic says that somebody has to pay a bill, and it’s us.

Market Shifts And The Future Of Land Valuation

Inflation is here. One of the biggest pieces of inflation is housing. Housing goes up. Therefore, the underlying land value goes up. If I can sell a $500,000 house for $700,000, I can pay 40% more for the dirt until I can’t sell the house, and the interest rates are 10% to 12%. I’m starting to sniff around bigger parcels. This is something you can help me with.

For parcels that are outside of my buy box, I can’t write a $500,000 check every week. There’s a rezoned property that is still being treated as vacant ag and is buildable. It’s time. Is now the time to buy it at such a price point that you sit on it? Is this land banking time? We’ve done some parcel splits. I did my first joint LLC with a couple of people out of Land Academy. There are five partners. We’re all 20% partners. We don’t have to do the thin send thing.

We all put in $100,000. It’s about ten lots in Buffalo from an experienced, sophisticated real estate person. Why would they sell these? We think it’s a double-our-money deal. Why would he do that? It’s because he’s held them for several years. He’s an apartment developer. He stays in his lane. The city will never approve of turning this land into apartment complexes, so he needs to go.

He’s our age. He’s like, “I’m going to take this money and build an apartment complex somewhere else.” He builds 300 units of garden-style apartment buildings. It’s what he does. There’s a bunch of acreages. We’re cutting it back up into single-acre parcels. The neighborhood is a $700,000 to $1 million house. Our deals are $700 to $1 million on exit. Buy a dozen eggs and sell them one at a time.

That’s out of my lane. Every time I get out of my lane, it doesn’t go well, especially at this age. There’s only so much that I’m comfortable pushing myself toward. If not for any other reason, it’s not my expertise. It involves higher risk and higher reward. My answer to myself is, “Why?”

To that point, you’ve built a machine. You come in, and the predictability of what you do is something that I need to aspire toward. I love deals. You can give me a handful of deals and have a machine like we have now, collecting payments. I don’t underwrite. I need to get smarter. I’m getting too old. I can’t keep up with myself.

I’m the fifth smartest guy in all these companies that we have. I get high off the data, not off the deals. It wasn’t always like that, but that’s how it is now. I don’t think that there’s anybody smarter and brighter than I am from a data standpoint. In manipulating the data, they’re smarter people. Collecting it, making sense of it, and applying a big picture toward converting it into money, I was put on this planet for that. I’m lucky to have people around me who convert that to money, specifically Jill.

I’ve got to plug in 1 or 2 more people to pick up some of this stuff, or I’m going to keep getting us in trouble.

You don’t want absolute power. You want a group of people around you who are going to stop you from being you. That happens to me every day. I don’t know about you.

We’re doing deals all the time. We have a standing half-hour meeting, deal review, and vote. There was a deal that I said, “No,” and they tabled it for more information. I missed the next meeting and they approved it. I was like, “What the heck? We’ll see.” I smiled and said, “Much of this stuff is opinion or nuance.” How much is too much slope? How wet is too wet? This $50,000 purchase, what’s the worst case? It’s $50,000. We’ll get out what we paid for it. It’s fine.” The number of deals that have not broken even is so few.

I vetoed two deals, which I thought were a veto, but they ended up going and doing it themselves. That’s how much authority I have here. They killed it on both of them. On one of them, we made $150,000, which is a lot for us per deal. It’s like, “How hard should I push on this stuff?” For our age, we’re like, “I got burned on a slope. I don’t want to look at any properties with slope,” which is ridiculous. That’s not how you should be looking at it. It should be a lot more scientific than that. No emotion and no experience. That’s not how it ends up being.

I’m emotions first. You are the other side of the brain, whichever is which. I’m like, “Let’s go party.” We’ve continued to get better. Your eight As are a little ribbon on every one of our projects. It measures the sell-through rate. In 6, 9, and 12 months, it measures the margin price per acre versus ours, which is slope, wet, and access. If you pass the six boxes, I shouldn’t have to look because I said, “Here are the six boxes. Get out of the way.”

I would give a ninth A for slope.

Can you walk up it?

I’m looking for a word starting with A. I’m not sure what it is. I’ll figure it out. We shy away from the slope way too much. It hasn’t been a problem, which is why it’s not an A. The A expansion is not bad. It’s good.

Thank you for helping me at least get some quantification instead of showing me pictures. I didn’t buy the business. I bought the assets of a desert square guy. I either got 70 properties and 100 notes or 100 notes and 70 properties. It’s one of those. What do desert square notes go for? It’s going to be somewhere between 80%, which is what I’ve seen in the open market, or the $0.60 that I pay because I’ve got the default experience.

Is it 60% of the note value or the asset value?

It’s of the note value.

I would’ve figured you for 20%.

I bought, out of the money, a second mortgage back in 2010 for a nickel.

They weren’t worth a nickel.

I didn’t know that all I had to do was put them in a drawer and wait for three years. I settled them all for $0.10. It was a hero. I was like, “Marcus, come back.” Do you know Bruce Norris?

No.

Bruce Norris of The Norris Group is a phenomenal folk out of Riverside. He’s been teaching for 30-plus years. He predicted the crash. He teaches this thing about charts. You look at charts, draw the line, and say, “Where are you on the line?” You look at the Southern California line. We should be here, and we’re up here.

What’s going to happen is we’re going to have ten years of here to fill the line to get back to even. We’re trying to learn how to look for markets and where they are on the line. Where is growth happening? I’m trying to buy from doing infill. I’m trying to buy places where people are migrating. These are places where you can afford to build a house for a sale of $300,000 or $400,000.

Those are the markets we’re into. The entire Phoenix market is great for that.

They have been around for several years. They’ve done a marvelous job. The little three-man band has done wonderful stuff. I get their disposition manager, which gives me that smarter person. She comes with enough inventory to pay her own way and purchase. We could be whole in a year, maybe eighteen months. That’s a 50% return on equity. I should do more of that. Should I find people who have particular skills like Jill’s or Jack’s skills and connect them with the other half?

Building A Sustainable Investment Model Through Partnerships

I’m writing this down. I should go do more of that. I don’t know what I should do more of, but I’m going to figure it out by the end of the day.

With the JV, you’re talking about value. The note pool average was a year plus payments on time. We didn’t buy anything that was delinquent. They’re doing a little bit of underwriting. We’re improving the quality of that. That’s the law of big numbers. If I have 100 loans and 10 go bad, I still have 90 that pay the bill. If my basis in that was 50%, I’m okay.

That’s predictable and repeatable. That’s my whole thing.

I had run away from anything that didn’t have a tree on it. I did not understand the desert at all. The other side of that, one of my stories is, have you ever bought a square mile?

Yeah, I have.

I did. It’s 87 acres.

It never goes well. I hope you had a better story.

It was with a fairly experienced partner. We thought we had a solid exit. We could have held on, but the buyer pool is 1 or 2. It was a defunct cattle ranch in New Mexico. Access was serious 4×4, not running up there in a Highlander. It had water. It had some old adobe buildings on it. It must have been many years ago. It was a cattle ranch. We were in for $250,000 with taxes. It took a year and a half.

You did sell it. That’s great.

I sold it on terms with interest. The buyer comes from Wisconsin. The buyer is looking to make a life change. He’s an entrepreneur. When you go look him up, he’s got a nice house in town. It’s close to the business. He’s got the lake house. He’s stable. He has great credit. He put a big payment down. I gave him a pre-pay incentive. We were in for less than $250,000. $50,000 down and note for $280,000, it balloons in five years for a $3,000-a-month payment.

With $50,000 down, that’s a fantastic deal for you.

I’m out of pocket $180,000, but I’m collecting $36,000 a year. It’s not land-flipping numbers, but this guy is never going to miss a payment. I don’t know how these leases work. He has a lease with Frontier Fiber Optics. They’re going to put a line, a tower, or something across his property.

If they’re doing that, that note will perform to the end.

He’s getting $1,000 a month from that. Talk about getting out of your lane. There was a 640 square and an adjacent 40. We were in for 687 acres.

That’s what concerns me about people who buy ranches. Who you’re going to sell it to is such a small number of potential people. I hope this guy is in the fiber optic business because that might be repeatable. Somebody hopefully saw something in the land that you didn’t see and made it work for you.

What’s the intrinsic value? What’s the wholesale value of what we buy? The old days of buy for 25% and sell for 50% may be buy for 35% and sell for 70%.

It’s probably going to go to 45% and 90%. That’s how it is. That’s okay.

It’s going to go to 45% and 65%. Suddenly, it’s not juicy. House wholesalers are running here by the droves. They’re used to much narrower margins. We’re running a team of commissioned cold callers as a comparison to mail. Since I bought this entity, I’m on both sides. I’m a phone guy. I ran a collection agency. People didn’t pay off with letters. People paid because you made a deal.

I’ve been saying that for years. I tested it for myself, and it became a full-time business. It’s a hard transition for anybody. We were having all this crazy success. Profit margins are crazy. It doubles and triples our money. We’re making all kinds of mistakes and doubling our money. What I told myself was, “I can’t ever lose sight of the fact that this is going to be a 20% margin business like every other business on the planet at some point.” It still hasn’t become a 20% margin business. It’s still way better than that for us.

I keep waiting for that 20% margin day. I still have a stack of notes about that somewhere. I’m sitting here wondering, and it’s not healthy to do this. I’m like, “Are we immune to this?” I’ve got a team that involves Jill and our transaction coordinator, Jan, who seems to make wine out of water. In the end, I expect it to be 20%, even with those amazing tools.

It’s so messy and imperfect that it’s hard to make a Wall Street pitch. I am, for the first time, thinking, “I need to borrow some money.” They try to turn this into a one-page explainer saying I buy worthless stuff and sell it for more. What we may do is lever the whole book. Is there $3 million of performing unsecured paper, all these car notes, and all this other stuff? That’s more understandable to a family office that would like to see a 15% return.

If you spread the risk across hundreds of assets, maybe that makes sense. If I went to somebody and said, “Give me $1 million, and I’ll give you back $1.3 million,” they would say, “No. It must be something illegal,” or, “You don’t know what you’re doing. It’s too good to be true.” There are many people who have gone out there and done the Bernie Madoff thing. It’s not right.

If you put a deck together on a 15% return secured by single-family residences built after 2009 or 2010 and built a profile, it’d be easy to sell.

I need to go back to the next step. I’ve done a fair number of ground-up construction projects over the years. Way back when we started, we were working in Pensacola. You did your analysis on Pensacola. You said, “This market changes between APNs. There’s no way to pick a price per acre.” There isn’t. We sniped tax deed lots and built houses. That kept the team busy down there. That was fine, but it’s not scalable.

I’m not Toll Brothers or KB Homes. I built the same model nine times. The one time we got out of that box, we were out. In Florida, you buy things called hurricane lots. That doesn’t work everywhere. Do you ever talk to your folks about tax-advantaged investments? Do you ever get anybody on to talk about 401(k)s or anything like that?

We’ve done utilizing a self-directed IRA, but if you’ve got one, I’m happy to listen to that.

I’m not a financial advisor. Let’s put that whole caveat on this. My experience is that my partner and I set up a company, a qualified retirement plan, with two members. We did the mega Roth conversion thing that you’ll hear people talk about. We have put in $180,000 or $220,000 in cash into this thing, and it’s now $700,000. We cherry-picked some deals that we knew were going to be quick turns. We’ve turned that money over three times a year. If you turn it over three times a year at 40% to us deal splits, that’s 120% IRR. It works.

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You never take a distribution on that. It has to stay in there.

I’m old enough. I could take my $100,000 back out and let it churn on its own, but I can’t admit that I’m old enough to do that. I get Social Security.

I’m not quite there yet.

I can give you a rant on why that’s not going to last forever.

I bet we agree on that.

That money goes into another account that I look at at the end of the year and do something with. It goes to Rotary. The QRP with a solo of self-directed checkbook control LLC gives us that one step removed so that we’re not self-dealing. We’re sure doing the same job. We’re doing 9:00 to 5:00, but we’re doing it over there. Cannonade Investment Group is going to be a $1 million thing. Any of your people under 67 years old might want to think about carving off 10% to do that.

Do you have somebody you like that set it all up for you? I understand it’s time-consuming.

It wasn’t hard. We did it with Anderson Advisors. I’ve turned out not to be a big fan of them. You can tell I need more personal stuff. Speaking of a machine, they do 9,000 tax returns a year. They have no idea who I am. The QRP is managed. The tax return is getting done in another group. We’re taking 1 out of 8 deals, putting them over there, and turning over that money. My partner is 36. Imagine what that’s going to be like in 30 years. Let’s compound it 100% a year for 30 years.

You don’t need a calculator for that.

One of the big takeaways for your tribe is that with a little bit of money, come buy a note. Do something with somebody else so that it’s over there. They can come to do something with you so that it’s over there. Everybody takes care of each other. I buy the back end of notes because I don’t need the money yet. You discount a note. I’ll take the back. I’ll take it ten years from now. You need the money now. I need the money later.

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What’s my loan-to-value? It’s 20%. It’s going to be okay. Things may not go down 80%, but we saw them go down 50%. I bought a shopping center at the end of 2006 for $5.5 million. In March 2008, it was worth $2.5 million. I rode that the entire way. I fed that thing for eight years, and it finally came out okay, but it is soul-crushing.

You’re defeated.

Spread your risks. Make $100,000 a deal. Don’t try to make $30 million in 1 unless you can go to that table, make that big bet, and be okay if it fails, or you’re my 36-year-old partner and you got time.

Smart Investment Strategies For Young Entrepreneurs

Before we wrap up, do you have any simple advice for people who are 25 years old and trying to figure out what they’re going to do with the rest of their lives?

If you’re working hard for an employer, then you’re going to be okay as an entrepreneur. If you are half walking or sleepwalking through your job, going out to the bar, and complaining to people about how lousy your employer is, you should stay in a job. I’m a terrible boss. I’m awful. I beat myself up all day, all the time, although this is the most fun I’ve had in forever. I play Monopoly for a living. That’s what we’re doing. This is not a job. If you hate your job and are lousy at it, you may not be good at working for yourself. Get good at what you’re doing.

If you’ve been successful at something in your life, then you’re going to be very successful at this because it’s easier.

I will go with that. It makes sense.

It was great talking to you. I appreciate it. Based on this conversation, we’ll do it again if you’re up for it.

We’ll see you soon. Thank you.

That was Steve Hodgdon, everybody. Thanks for tuning in.