Episode 16: The funding Playbook

Justin Piche (00:00)
Welcome to the Ground Game Podcast. This is Justin Piche.

Clay Hepler (00:03)
This is Clay Hepler and we're here to teach you how to win the ground game.

Justin Piche (00:19)
Man, so it's January 7th today. And so we are, this is really kind of my first real day back fully working since the holidays. I mean, I was obviously trying to work a lot because I'm just, it's funny. When you love doing what you're doing and you're like building something, it doesn't really feel like work. I love being with my family so much. I really do. I also love working on my business and like,

I struggle. We've had a few previous podcasts about struggling to like balance family life and work life. And especially when you're passionate about both of them, right? It's easy, I feel like to know how to balance them when you don't like your job or like you're not like loving and getting so much life from what you're doing. It's much easier to be like, yeah, as much as I can unplug from that, I'm going to unplug. But when that's not the case, and you don't want to unplug, you know, do you struggle with that?

Clay Hepler (01:18)
I really love my family like I love spending time with my little son and my my wife but you know during the holidays, know, I kind of like think that Like I can do the one the holiday thing off but this year was kind of weird

Right? Like it was like a Tuesday and a Wednesday for New Year's Eve and New Year's and my company took Christmas Eve and Christmas off in New Year's Eve and New Year's off. And so it was just very weird. Like it didn't feel like a holiday. Whereas, you know, if you're a W-2, you might take like my brother-in-law to W-2 and he took like the entire week of Christmas off or that you could take the entire week of New Year's off. But when you own a business,

And when there's a lot of responsibility on your shoulders, you kind of don't really take that time off during the holidays. You might do it once a year, if that, maybe twice a year, if you're really lucky, or you design it that way. But I always feel like this year was just bizarre. I don't know. I just felt like it was like a really weird time.

Justin Piche (02:34)
Yeah, I think as the business has scaled for me and like there's just more going on. I've had an easier time I think in past years kind of unplugging during the holidays. think there's just I feel like right now there's so many moving pieces, so many deals, so many things that need my specific attention. I mean there's a lot now that doesn't, right? There's a lot now that my team wholly handles. But again, as I scale, I'm doing bigger deals.

Right. I'm doing bigger deals that require more of my attention because I have other people's money and significant amounts of other people's money at stake and I need to give those deals the attention they deserve to see them see them through. But yeah, I resonate with that. How was your how was your Christmas? How was your New Year's?

Clay Hepler (03:18)
This was really great.

Justin Piche (03:19)
First Christmas,

first Christmas with a baby,

Clay Hepler (03:23)
With the baby. He was awesome. We got him a little Christmas gift. Actually, my wife got him a couple.

And it was good to have family with family fly out from tell you ride and Denver we have a lot of family out there So we'd family come in stay over. We have a we'd to host and so we had a bunch of people over at our house We had a big family party and then New Year's we went out to dinner at this awesome New Year's Eve dinner had a babysitter handle a little has man and So I was I was able to go out to New Year's Eve and have like a really proper New Year's

dinner but didn't make it even to 12 o'clock so who am I kidding

Justin Piche (04:02)
I mean, it's so hard. barely made it.

We went to dinner as well. My parents watched our kids put them down at their house. And then we went to this dinner and it was great with friends and it lasted way longer. It was like a three and a half hour dinner and we were supposed to go to a New Year's Eve party. So we showed up to that super late and maybe for an hour. So by 11.30, were like, Julie and I were both so tired, we left. But the cool part was we were driving home.

or driving back to my parents house, which about 30 minutes west of where the party was near our house. And as we were driving down I-10, a big interstate that crosses the whole country through Houston, it hit midnight. And all of the neighborhoods on the north and south side of the interstate were all launching fireworks. So as we're driving down the interstate, we hit midnight and there's just fireworks going off everywhere. It was actually really cool to watch. We got our own little private fireworks show as we were driving down the highway, because it's kind of, you know, it's really open.

You know, there's nothing on the sides of the highway, so you can just see over all the houses and all the buildings. And it was really cool.

Clay Hepler (05:07)
Dude, that's really cool. That's very cool. Yeah, we had a we have fireworks show one of my friends dad is like very into fireworks and He's just one of those guys that you're like this guy is definitely in the fireworks and so he bought like a ton of like serious fireworks like you need a I don't know

In our state you have to fill out paperwork and it's a pretty intense process and so he had all these like Massive fireworks, but that was during Christmas. He likes to do fireworks during Christmas, which I'm like dude. Do you do it was a lot of fun?

Justin Piche (05:41)
Yeah, to you. That's

awesome. Yeah, man, we had a great Christmas. My kids are getting older, five, three, and little Gracie's about to turn one on Sunday. And so she got a couple of gifts and the big kids, they were so excited about opening gifts and trying them out. My wife bought my son, Jacob, this giant.

monster truck RC car, like it's a Spider-Man monster truck. And it's like, the wheels are literally bigger than my head, each of them. Like, so it's like a pretty big little monster. He like loved it. And my daughter got a new bike. And so her old bike, which got passed down to my son, and he learned to ride a pedal bike this, this holiday. So he's three and he's like cruising. So I've got to like run next to him as he's going, because I don't want him to like ride into oncoming traffic or something like that.

Clay Hepler (06:16)
Yeah.

Justin Piche (06:35)
Cause he's fast, know, and he loves it. It's so fun. It's so fun. And we had a lot of, a lot of family time. I had family come in from my, my, my wife's older brother and his family live in, in Baku, Azerbaijan. He works for BP over there, their expats. So they come back twice a year, once in the summer and once in the winter. And the two oldest cousins on her side of the family are their sons. And so we just got, you know, it was really awesome. The kids are kids and their kids and other cousins just got to spend so much time together. And it was.

Clay Hepler (06:38)
That is so much fun, dude. That is so much fun.

Justin Piche (07:04)
That was the best part is just watching the kids play and get to see their cousins who they love so much that they don't get to see that often. So it was really nice.

Clay Hepler (07:12)
Dude, Azerbaijan, who would have thought? That is pretty, I've never met anyone who's ever even lived in Azerbaijan.

Justin Piche (07:14)
I know.

Growing up, my neighbor

was from Azerbaijan, actually. His name was Farhad. I think he ended up working for Facebook. I don't know where he works now, computer programming stuff. But that was, I'd never heard of it until I met him. But anyway.

Clay Hepler (07:35)
I know that there's a lot of land in Azerbaijan, so let's talk about some land.

Justin Piche (07:37)
No, so let's get into the meat of it. All right, so we're

I guess we can do a quick update I mean, it's only a week into this quarter So I have so I have not done my my annual planning yet Unfortunately could not fit it in before the end of the year ideally for the audience you do this before you start the quarter But I'm a little behind so I have my meeting on Friday. So next podcast I'll be able to talk about our annual goals and stuff But just quick update. We've sold two tracks as of today

and booked just over 100K in gross profit. So pretty good. One of them was really actually a super quick to deal bought a track in Alabama for all in cost was $88,789.93. And we had, we kind of pre-marketed this one, had a buyer lined up basically a week after buying it at 140. And so we made booked, I don't know, 48K or so.

50k or 48, 51, something like that and gross profit from it in like 10 days, which was amazing. I love those fast deals.

Clay Hepler (08:40)
That's

Good deal.

Justin Piche (08:42)
Yep. Yep. So that was a good one. And then another one. Same county, actually. Both of these in DeKalb County, Alabama. That one was DeKalb. It's spelled like to Kalb, but it's actually DeKalb County, Alabama, Northeast Alabama. The other one was a buy at 70 sell at 115. That one took a little longer, but still good.

Clay Hepler (08:52)
to Capp County, Alabama.

Dude, solid deals, right? deals.

alright, so Justin last last time we got on this call. I was the star of the show was like the belle of the ball man. I was like, I felt I felt really really good. I had my whole cup. I didn't talk the whole dinner after that.

Justin Piche (09:14)
Yep. The bell of the ball.

Clay Hepler (09:23)
My wife was like, what did you do? was like, I just talked on a podcast all the time. I'm feeling really good. No, but today you have a lot some a really interesting topic. Now, what's interesting about this not only is what you've already disclosed to me, but we've kind of deep dived into this topic before. So we talked about this topic on a one on one basis of financing in your land business. When you use our money, private money.

equity joint venture, and Justin is going to deep dive Justin, you can speak for yourself here, but a little bit about how he's used it to scale his business personally and give some personal anecdotes and some other stuff that I think is going to be really beneficial. So we're taking the one on one that we've already taught over our listeners and we'll put the

the actually episode that episode will reference that in the show notes here. So you guys can just if you want to watch listen to that episode if you haven't already, then you can go back and listen to an episode before you listen to this one. But Justin, tell us a little bit about what we're going to discuss today.

Justin Piche (10:22)
Yeah. So,

so I, you know, as the business has grown, my, capital needs have changed over time. Right. And so I think what I wanted, what I wanted to do on this podcast, talk to you and kind of talk to the audience about how I've used money, both my own and other people's money over the last three, three and a half years of running this business and where I am now, because this week I've had quite a, like some very interesting meetings and a really

dear friend of mine has introduced me to some larger scale potential investors, guys that have a lot of liquidity to deploy that are interested in partnering on deals, interested in investing in somebody who's doing this type of work. And I just kind of wanted to kind of paint the picture, paint the kind of flow, and hopefully people can get something out of that of, I guess how creative you can be and just what you can do. Because I think one of the things that...

Obviously doing coaching and talking to newer investors and investors in the kind of in middle of their journey, Atlanta investing journey, whatever. People have a lot of the same kind of mental blocks about doing deals. And I think we talked about this before, like what is a big kind of struggle that you overcame in your business or what is a belief that you had, a limiting belief that you had that you've realized is not a good limiting belief. And I think one of them is money. Like, how am I going to do this deal? How am I going to do this big deal?

Right? You get, you have a high price tag. Let's say you're buying a piece of land for, you know, and for you, it might be a different number, right? But let's say you're buying a land piece of land for 200,000 and all you ever done is 10, 15, $20,000 deals. Like that feels huge. And it's like, do, can I do that? And then you get to the next level and you start doing deals that your costs $2 million or $4 million. And the deal review thing I'm going to talk about today, four and a half or $4.7 million. And it gets scary. You're like, man, do I have what it takes to do this deal? And so I think.

this kind of journey will help least enlighten the audience of how I've thought about it over time and kind of the steps I've taken and the changes that I've had in my mind about using other people's money and using big money to do big deals. So maybe let's take, go back to the beginning. I started my land business in September of 2021. That was when I like launched the LLC and set out my first bit of marketing.

I had done a land deal with a friend of mine before then and I'd done other real estate stuff before then, but that was like really the start of Scout Land Group, the land investing business. And at first, you we talked about this on our previous episode. I started with quite a bit of cash, like relative to what I think a lot of land investors start with. I had half a million or more of liquidity that I was able to deploy immediately into properties to buy them, take title and start rolling the company. So when I found a good deal, like I would just buy it. I didn't really worry about

borrowing a bunch of money from other people. Very quickly was able to get some additional lines of credit from family members that believed in what I was doing and pay them a good interest rate and use that cash as well to buy property. But it was more of like cash. It wasn't like finding an investor and like partnering on a specific deal or using deal funders and giving up a lot of equity. was really kind of bootstrapped myself and then friends and family. That worked great for a while because I was able to turn the deals. We were moving kind of through.

generate new deals, deals, money would be released. We'd use that cash to deploy into new deals and all of them were cash sales at the time. I wasn't doing owner financing. So I had all that cash coming back in plus the profit to put back into, into deals. So that brings me to maybe, let's see, end of 2022 or so where I had deployed more than a million dollars in properties and I just didn't have liquidity left. And the market kind of slowed down too. Like sales got

got really slow. But acquisitions for us hadn't really slowed down. So I needed more money, but I didn't have it ready to go. And that's when we started selling owner financing. So we'd generate these owner financing contracts, which are great. They would move the asset out and we'd start getting a cash flow. And we'd generate this valuable note now that we could potentially sell. But it didn't return the cash from the deal. We still had basis in that deal that we couldn't redeploy into new properties.

So the first thing I did was go to family and friends to partner on deals. So friends of mine that had money, family that had money and say, basically go into essentially like a deal funder split, but probably a little bit more favorable for me than what a typical deal funder would do and basically do these joint partnerships with them. we generate these kind

Clay Hepler (14:58)
What

would be an example, Justin, of a normal split that you would do?

Justin Piche (15:01)
Yeah, like a

perfect example would be I've got a property that I think is a good flip. That's a buy at $80,000 and a sale at $150,000. Let's just say, for example, I would come to somebody and at that time I was co-investing 50 % minimum with everybody. So if it was, I would basically come up with half the cash. So in this case, 40,000 and I'd raise another 40,000 from a friend or family member. We joined together to bring the cash.

and we'd agree on a split. I'd say, I think I'm going to sell this for 150K. I think after, you know, net back, I'd do a little underwriter, Excel underwriter, I'd write it up. Net back, we're going to get 140 for it or 135 for it or whatever. The total profit is going to be, what would that be? 80, 135, 55, $56,000, something like that. I, as the deal manager, the person who found the deal, the person who's going to sell the deal, I'm going to get 60 % of the profits and the other 40 %

is gonna be split between us as equity partners, whatever our equity percentage, 50-50 in this case, if we both brought 40. If I brought 30 and they brought 50, then it would be split whatever that ratio is, 60-40 in their favor on the equity piece. It is very simple.

Clay Hepler (16:16)
sense. like 80

so like 80 2075 25 roughly equity split

Justin Piche (16:20)
Yeah, roughly.

Yeah, depending on the deal, right? If it was more profitable, it would be more in my favor. Maybe 80, 20, maybe 85, 15. And if it was a less profitable deal, but still a good deal, then it'd be more in their favor. It might go down to 60, 40 for me or 50, 50 for me, depending on how much return there was in the deal. The target was always to give them 30 to 40 % return on their cash. That was always the target. So not cheap money by any stretch.

you know, there's obviously the more the cheaper money you can get, the better your business can be, the more profitable it can be. But I kind of was striking the balance between risk for them, reward for them, good relationship with investors for me and, you know, sharing the wealth a little bit, right? Not necessarily like being so greedy and trying to nickel and dime them, but give something good where they want to keep investing and they're happy about the deal structure. And that worked basically just doing that for really until mid

2024. That's basically how I funded things other than bank loans. Okay. So at the time I didn't have a ton of debt, but I had good income. And so I would be able to get these larger bank loans on properties, personally guarantee them myself, and still kind of raise and raise additional money if I needed it from friends and family and structure it the same way, and do basically all the deals that we were, we were doing. So then fast forward to kind of October timeframe. That's when I spun up with a friend of mine, the limited partnership.

that I've talked about before on here to both bring capital out of my business so that I'm not necessarily. So I'm treating myself, my personal cash as an investor, the same like giving myself returns just like I would family and friends as an investor, kind of separate that cash, but also have a vehicle where instead of having to enter into individual deals with a bunch of different people on each individual property, where their risk exposure is really like that one deal. So that one deal doesn't perform as well.

you know, they're not going to make as much money and move it into a, you know, a one agreement between my operating company and this limited partnership for funding and have anybody who wants to fund kind of come into this limited partnership so that it's just one, one agreement. I'm not having to sign all these different agreements with all these different people. It's like they sign one agreement for this limited partnership. I sign an agreement with the limited partnership, limited partnership funds, the deals and the limited partnership and my operating company have an agreement and investment schedule. And we basically just assign a percentage profit to each deal that they fund.

It's very simple and very straightforward and it works great. Which brings me to kind of the point I am now where I have deals, a lot of which have come from exceptional partners who are probably going to listen to this broadcast. So amazing people. But the value of the deal, the purchase price is in the millions. So we have a few deals, one kind of purchase price, 2.6 million and another one that I'm going to do for the deal review.

that we just got under contract on Friday for 4.7 million. And now I'm at the point where I can't personally guarantee of $3.6 million bank loan anymore. I have too much other real estate debt and banks really are looking for people to be able to personally guarantee they want to see a DSCR ratio of 1.25 global DSCR. So debt service coverage ratio for those who are listening.

Basically they want to make sure that the cash flow you have coming in exceeds by 25 % or something the total debt obligation that you have. if you, yeah.

Clay Hepler (19:51)
So, so my question just

I'm gonna just jump in here. Why can you not get a commercial loan that does not have a personal guarantee if it's over a million dollars?

Justin Piche (19:58)
So you can,

in some cases, it's hard to get those loans and you've got to find the right bank. So there's always a potential for that. Like you potentially can do that. But I think it's still a challenge. All right. It's still a challenge. Most loans like this for like kind of land development, most banks want to see some sort of personal guarantee. And I think the reason is the main reason that I've been told by banks and anybody who's listening, you may have more information on this than me. I am not claiming to be an expert on this.

This is just something I do in my business and look into all the time, but I'm not like the best in the world at this type of stuff. But the asset doesn't cash flow. So land is not cash flow. So you can't tell a bank, look, it's generating cash. So like you don't need me to be able to guarantee the cash flow to cover the debt service. Like like an apartment building, right? If you have an apartment building that has $40,000 a month in gross rents.

and your debt service on that loan is $35,000, the bank can look at the cashflow of that asset and say, okay, well, the asset produces enough cashflow to cover the debt service. So I feel good about lending without these people personally guaranteeing. When you have a piece of land that's no cashflow at all, they need the proof that you're gonna be able to pay all the debt service. And that's where the kind of coverage ratio, personal guarantee type stuff comes in for some of these land development projects. So anyway, got these big deals.

Clay Hepler (21:16)
That's right.

Justin Piche (21:26)
have a lot of cash deployed in other deals, need to raise money from investors. So like, is, how do I, how do I, how am I doing that? And what, am I thinking about it? Well, you got a question?

Clay Hepler (21:36)
No, no, no, no, no.

Justin Piche (21:38)
It is a relationship game. It is all about relationships and track record. That is what that is the name of the game. People invest with people they like. They invest with people that have a proven track record of executing good deals. And so my kind of journey started with just talking to friends that have money that I know have kind of bigger money that are interested in investing and doing some smaller deals with them and getting them comfortable with doing bigger and bigger investment amounts.

So that's like part of it. But what I'm doing now is a really, really dear friend of mine who listens to this podcast because he's such a good friend.

like a really big relationship guy Just like incredible at making connections relating to people He works in kind of wealth management area But he over the last 15 20 years has made just a lot of really incredible connections with wealthy people and people who Want to make investments that aren't you know your standard kind of stock portfolio type people and so I reached out to him kind of

He knows what we've talked about, kind what I'm doing. listens to this podcast. So he knows some of the stuff that's going on. And I basically just asked him for introductions. It's like, Hey, do you know anybody that might be interested in investing in some of these types of deals? And he, I mean, he went to bat and he really like, he went to bat for me. He made seven introductions to folks who are in his personal network that might be interested in these types of deals.

And so I've been setting up meetings with these folks and I have had two of the seven meetings so far. mean, they these are just incredible people, incredible investors. In some cases, just incredible Christian guys that he knows through his network that want to invest in other Christian guys like doing, doing work. Obviously they want to make a return, they, they, like that means something obviously to them like faith. And so I set up a couple of meetings and the first meeting, the first gentleman he sent me, it set me up with to talk to, it was just an incredible conversation.

And we're going to meet next week again in person. was over the phone, but I mean, I just kind of explained my background, shared a little bit about my, my testimony, talked a little bit about the deals that I've done. He's actually invested with another friend of mine and make good money from another land investor. So he's familiar with this type of deal structure. I mean, he, I mean, he just basically told me he's like, Hey, like I, I want to be able to promote deals. I have other people in my network that are interested in investing in these types of things. You know, I want to invest in a Christian business owner. Like I want to.

I want to help make sure you don't have to think about a capital requirement again. And I was like, holy smokes, like how incredible is that? It's all relationships that a friend of mine in my network who knows people who is willing to put his name on the line for me making those introductions. And I think for the audience, like think the main point in all of this is

It's so cliche to say your network is your net worth. It is so cliche, but it's also so true, right? And if you're an exceptional operator, if you have a track record of doing really good deals and you have integrity, you absolutely can raise money from people because you are not asking for a favor. You are offering an opportunity.

I think that is probably the biggest mindset shift that I kind of want to comment on from the time I started my business until where I am now. At first, it kind of felt like, can I borrow money from you to fund my business or to fund this deal or something like that? It's kind of how it felt like it's like, I'm asking for this favor for somebody. But over the course of last three years, paying hundreds of thousands, maybe more than a million dollars of profit to investors, probably more than a million dollars in profit to investors.

I've realized, no, no, no, I'm actually offering incredible investment opportunities to people. And I have high conviction about the deals that I do. I have the track record to support it. And now it's more about just making those connections with people who want to invest in people like that.

Hey, this is Justin interrupting your podcast to just say thank you so much for listening. We really appreciate it. If you could subscribe, follow, download and leave a comment. It means so much to us. The comments especially. 1 % of people leave comments on this podcast and we want to hear from everybody. We want to know what you get value from each week. So thank you again and back to your regularly scheduled programming.

Clay Hepler (26:01)
that's all you need to say. our listeners can really go into how does this apply to me? And when I hear this, think of like, your story has been supported by friends and family with whom you have great relationships

that you've proven whether it be in your civic life or your professional life to be someone that's reliable, someone that is consistent, a man of his word. sometimes, you told earlier, you gotta give up some equity, right? And some people just wanna do it with the debt and they wanna be selfish.

You know, and sometimes it's actually good to give up the equity because you really want to think long term and you want to establish relationships. And if you're just greedy and you're trying to take everything for yourself, you really set yourself up to lose in the long term because who cares if you give someone an extra 10 or 15 % on their money or

percent of the deal if it opens a door for more opportunities for you. And really, being in a collaborative professional, having collaborative professional relationships is also life giving. It's also just like fulfilling. you're, can tell you're just energized right now. You're like, I can't believe this happened and I'm just, I'm with my people. Like I'm connecting with investors that are aligned with my values and aligned with how I see the world and that's really cool, man. And so that's...

Justin Piche (27:22)
Yeah.

Clay Hepler (27:35)
there's more in business than just the profits. And if you expand your mind to focus on collaboration versus competition or grabbing every little profit, and then you'll find that it's just much more beneficial in the long run, as Justin showed. And Justin, one last thing, dude, what you reminded me of, one of the first times we talked is you said, hey, man, like, my first subdivide deal, I basically gave the whole deal away.

Justin Piche (27:39)
Agreed.

Clay Hepler (28:03)
because I had to raise money from a group of people that I had to give up a large equities percentage of my deal. And I was okay with that because I wanted to get the deal done. And so guys, that's another thing like early on, if you need deal funders or you're trying to get this business off the ground and you're too focused on the return versus the deal, then your business will be cut short, most likely.

Justin Piche (28:33)
That's that's really how a lot of these relationships with investors work. Right. And honestly, the funds kind of work the same way. So I was having a discussion because these big deals that me and these partners, these incredible partners have under contract right now. We talked about, hey, what would it look like to raise a fund to basically fund the entire all these deals like a pocket of three?

for whatever large, large scale developments. And talking to a few folks in the fund space, one is my friend Kyle, who's an attorney who puts together these funds. And it's like, you know,

when you put together funds, like there's really a normal way to put together funds. It's two and 20, right? Two and 20. We are talking, you know, 2 % of a management fee of assets under management, 20 % carried interest or 20 % profits. So when you raise money in a fund, investors are expecting to make themselves 80 % of the profits that the fund generates and give you as the GP 20%. And it's not super popular to do that in the land space because the deals that we have are

very high profit, right? Oftentimes 120, 150, especially these developments, know, 150, 160 % returns on cash over a two year period. They have IRRs in the seventies or the sixties and it's very high returning deals. And it feels like, man, I'm just giving up so much equity. But sometimes like that's what you need to do. That's what you need to do to get the deal done. Right. And it's okay to do that. You've established a track record, but when you raise money, let's say you need to raise 5 million in a fund.

you're going to go at first, the first fund you raise, you're probably going to get small 100K, 200K investors in there, right? People are going to dip their toes. If you perform on that first fund, you're going to find a basket of maybe five, 10 % of those investors that are like, they perform well for me. I want to fund a much larger portion of the next fund. You go from this large pool of investors down to these very special, very engaged investors that are easier to work with that believe in you and

You can move that profit more in your favor over time as you build the relationships because you're able to demonstrate you can give a really good return to people. I think these deals are a lot of the same way. Like at first, like Clay said, you may have to give away a good bit of equity, a good bit of profit to prove your track record. But once you have it and you're reliable, then you don't have to give away quite as much. But you still don't ever want to be greedy. You want to look after your investors because it's a long term game. Your job as a land investor or land developer, whatever.

Clay Hepler (30:42)
Mm-hmm.

Justin Piche (31:02)
is to find the opportunities, put together the team, put together the deal and make everyone, make everyone money, build good communities, bring a good product to market. That's where your kind of specialty is. Your specialty is putting together deals and finding the deals. You don't always have to be the funder too and make all the money.

Clay Hepler (31:19)
Yep. I agree.

Justin Piche (31:23)
So that's kind where I'm at. And that leads me into something like a kind of big deal review type discussion that I want to dive kind of deep in because it's so interesting to me. I'm just like constantly fired up by opportunities. And this is one that is really it's probably the biggest opportunity I think that I've had come across my desk. And I am not responsible for finding this deal, by the way, when my partner's is. I'm so grateful that he's including me as a partner on the deal.

I think we're cut from the same cloth. So it of makes sense. really like working together. this particular deal, Texas, Texas subdivide and ERA, cut this out, cut this out. It's a Texas, Texas subdivide in North Texas. And it's this large tract of land with a house and a beautiful house, 4,000 plus square feet, nice pool.

on 11 acres out of the kind of cut out of the front of it. And we did not want the house. This was an on market deal. It listed on market listed at 5.6 million and we didn't want the house. So we wanted to just buy the land because the house obviously is valuable and it increases the basis quite a bit. And so we're talking and we're like, man, this house is very valuable. We could probably sell this house before we close. So we made the offer. The offer contained kind of a provision that allows us to market and sell the house kind of separately.

As long as we close it all, it's contingent on us closing everything at the same time. But if we're able to find a buyer for the house, the seller is fine with us marketing it and selling the house so that we can acquire the land. So we got this property under contract for 4.7 million on Friday. And then I went up to it yesterday. I drove up four and a half hours north from Houston, went, visited the property with the Realtor, drove around on it, checked it out. And on Monday we got a full price cash offer on the house. We listed it at 1.25. So it

So 4.7 million, 1.25 house sale. We haven't signed it yet. We're still working some things out with the buyers, but full price cash offer in like literally two days listed. So that reduces the cost basis of the land down to 13 and a half K per acre, which is really good value. At first, the whole project, we were looking at like a 17 K, 18 K an acre basis on the land. Now with the house sale, it's down to 13.5. And while we're out there with the realtor,

The realtor was talking about how some of the neighbors also want to buy tracks of the land that boarded their properties. And we're talking about what price we take. so basically the market price for a 10 acre tract out there is about 30 K, 28 K, 30 K. So our current cost basis on the land, you apply all of the purchase price of the house to the purchase amount, 365 million, 3.65 million. And if we're able to sell every 10 acres we sell, let's say at 30, or let's say at

28K an acre, that's 15,000 of margin on our cost basis. So if we're able to sell, let's just say 100 acres to the neighbors as like kind of a double close, like portions of the land as we acquire like the central or the primary 180 or so acres, then we can basically get the land at a cost basis of 7,000 an acre. And just for context, a two acre tract,

in this area, which is the smallest we would do. We'd probably go 2s, 3s, 5s, acres, tracks, build a road, build, we're going to build a road, build power lines, et cetera. Cost basis for two acres is $60K an acre and three acres is $50K an acre.

And the road, the roads are not particularly expensive. They're chip and seal. I think they're 20 foot wide. They might be a little wider, which is 60, $70 a foot, depending on your contractor and like the road. We've got to do overhead power. We've got to do a water study, which might be 75 to a hundred thousand dollars to do like a aquifer test study to make sure we can get wells on all these lots. But it's just, it could be just a slam dunk deal. And it's just so exciting to like, and it's all because of creative.

like it's creative thinking, right? Most people who are, we had three other competing offers on this property. Most people didn't want, nobody wanted the house. They all wanted just the land. And so they weren't, they were making offers on the land. They were trying to figure things out, but we just, we knew what the seller wanted, which was to get rid of everything at once. So we put in an offer on everything and negotiated the terms there. And now there's just so much additional opportunity with these adjacent neighbor sales, selling the house itself to be able to make a lot of money on this project.

Clay Hepler (35:53)
Congratulations, man. I can't wait to hear how it goes. It's going to be really exciting.

Justin Piche (35:56)
I mean, let's be real though. It's like

one of those things that we, you know, that we is going to take. I'm not going to see a penny of profit probably for two years. You know, it's like, it's one of those things where you build this pipeline of deals, you know, and for your business that are going to pay you in the future. It's not all about also all about making the money right now. It's about setting up this pipeline of opportunities.

Clay Hepler (36:17)
That's right. That's right. Yep. I

Justin Piche (36:19)
I did

want to comment on maybe one more thing with how I structured these partnerships because there's so many ways to do them. The way that I do them, and I'll tell you the reason why I do them, there's a couple reasons, but the way I do them is I like to use leverage. So I like to use a bank, cheap debt, relatively cheap debt to fund the bulk of the initial purchase at a minimum.

I to get the best terms I can. I try to go at least 80 % loan to value on the purchase price of a bank. Sometimes we're able to roll in some of the development costs to the loan and do like a loan to cost 70%, 75%, but at least 75, 80 % loan to value. And then raise the rest of the money from investors and with the GP co-investors. I always have a co-invest. In this case, we probably do 20 % co-invest on this deal. And the way funds get paid off as you sell lots,

For me, it's basically almost always put 100 % towards the bank loan to pay off the bank as quickly as possible and minimize any interest charges on that project to increase the overall profits of the project, obviously. And then money gets returned to investors next. Developers aren't getting any pennies out of it. It's just money's going directly back to the investors next. So if we have a GP co-invest, then we will get our GP co-invest back.

with the other investors, limited partners. And then profit is split. And it's not necessarily the optimum way to do it. The reason why people set up these big funds, a lot of times it's like they are making so much money by just managing the fund and the assets under management. That's where most of their money comes from. And then they make that 20 % kind of on top. I like to have more skin in the game and I like to make sure the investors reduce their risk by both having a GP co-invest so they know that I have skin in the game.

And my interests are directly aligned with my investors because I am co-investing and I'm putting my own money at risk in these deals the exact same way they are, which helps your investors feel good about the deal and want to invest with you because you have a meaningful contribution and a meaningful amount at stake in the project. And so that's a big thing for people. People want to do deals with no money or no risk themselves and put all the risk on other people. That's all good and dandy and like, you know, sells well and sells in a guru course well.

But when you're building relationships with people, especially first, you have new relationships, new investors, a significant co-invest is a huge way for you to build that trust with your investors. And then the other thing is like, I'm totally fine not getting paid out profit until the very end of the deal. think that's another way that you can show your investors you have their interests very much at heart because you're gonna make sure they get their cash out, their initial investment out.

and you're not actually going to make any money as the developer until the very end. That also is another way to really help investors feel comfortable with the deal because they know if you're enforcing the appreciation significantly and all the cost basis is going to get pulled out before you are making any money as a developer, your goal is obviously you're not going to make money unless you have a really good return on the project. you've got to execute on it and you've got to execute quickly too or else if it drags out, it might be years before you see profit.

Right. And lower IRR for your investors. It's like that type of deal structure while not optimum. Again, I'm going to say I am not the best person at this. There's so many creative ways to finance where you can get paid more quickly. Maybe you can make more money. Maybe the deal can return. You can do some creative things like phasing it and raising less money upfront, selling a portion of the development, using those profits to pay for the second half of the development. Those are great. Those are all great ways to do it. But a simple like upfront raise only kept calling the cash as you need it from investors.

and pay your profit on the end is a way to really make investors feel a little bit lower risk and be more willing to invest with you.

Clay Hepler (40:15)
Yeah, and it makes it a lot easier to raise money, right? And that's a big thing. you you might think that you're not good at raising money. Maybe it's just the terms that you're giving your investors in a ratio with your track record. The better track record you have, the less favorable turns to the investor you can give because they're like, I trust this person. My risk adjusted return is higher.

Justin Piche (40:18)
Yeah, it does.

Clay Hepler (40:42)
But if you have a track record that's not robust, then the risk adjust return has to account for that. And so that's why, you you might have to give up more equity at the beginning of the deal, which is exactly what we talked about. Or at the beginning of your development journey or land flipping journey. Justin, dude.

That was a masterclass in thinking through how to scale your business using your own money, transitioning into family and friends and other funding partnerships into lines of credit and then into going to fund and then now going after even larger deals. Is there anything else we should talk about before we finish up our Finish up the podcast today.

Justin Piche (41:25)
We should

probably do a team building tactic. So, so cut this out Leo, because we're going to talk about our team building tactic and then we're going to deliver it. I don't know why I didn't think about, I told you I would come up with a team building tactic.

Clay Hepler (41:29)
Probably.

Justin Piche (41:41)
Let's talk about like empowering your team. Maybe let's let's talk about what we were talking about before, which is why I hired Annaleigh for the position as like a team building tactic. I think the team building tactics specifically is empowering your team to like tell you their vision and their what they like. It kind of goes along the lines with you talking about your team's deliverables and getting them to commit to what they were going to do this year, because it means so much more when somebody

is proposing what they're going to do, then you're just telling them what to do.

before we go, we've got it. We've got to hit our key segment, which is team building tactics and team building tactics are actionable advice that we use every week in and out to manage our businesses. And this week, I think we're going to talk about when you know, you're an employee is ready for a promotion. It kind of goes along with also like empowering your team, but I think

The specific example I want to talk about today is I have just recently promoted somebody on my team to kind of the acquisitions operations manager. know, people use all these different terms, you know, in their business for what they call certain people. But what I'm talking about is the person who is in charge of all of of acquisitions, not necessarily the acquisitions manager is in charge of kind of the lead gen team and lead management, but operations follow up, KPIs, training, like the big position on top.

So I recently hired a US based sales person, somebody who took close deals and she is a great, like just great sales person, really, really personable, knows how to close deals. She came on the team and was working part-time at first and she had a full-time position, like a job, like a totally separate job. So this was, she came on part-time to work and yeah, to make more money and to do something she enjoyed.

Clay Hepler (43:28)
Why was she working part time?

Justin Piche (43:41)
So I hired a full part time and right off the bat, she started training my team, like not just like closing deals, but like getting on individual calls with my acquisitions, lead gen team, with my acquisitions manager, with my lead manager, co-calling manager and training them on sales processes. She started out by auditing our entire like cold outreach, like marketing campaigns and like templates and things that we use.

and improving them, giving actionable feedback to the team. It was awesome because she was commission only, getting paid only when she closed deals. And yet she was spending a significant amount of time upscaling the team. And so we were talking kind of early December and we had a conversation about like, what was her vision for her future here? And what was my vision for her future here? And I mean,

I would have been absolutely happy with just an exceptional closer that kind of worked up to more and more hours. But she came to me and she said, Hey, this is my vision. I've audited these sales processes. This is what I want to do. And basically communicated exactly what my vision was to me for kind of an end role for this person. And it was amazing. was like, it was like somebody coming on who's so fired up about our company and the culture we have and the work that needs to be done in the acquisitions team.

and the opportunity there is to improve and basically defined her role exactly how I would have defined it and said, I want to leave my job and come full time and work for you. And this is what I had my vision for this role. And I was just floored because it's just so rare for that to happen. I mean, a lot of employees you hire, it's like, you need to tell them what to do. And my big thing, especially for managers, people who at a management position,

is for them to take extreme ownership over their division, their department. Own it. I don't want to have to tell somebody what to do. I can communicate a vision, right? I'm going to communicate big goals, but I want people who are working for me that are going to get a plan together and execute to achieve those goals without much direction at all.

And that's exactly kind of what she did. And that's how I knew she was obviously ready and the right person for that position and for that role.

Clay Hepler (46:12)
incredible dude and so this is not your average employee interaction

Justin Piche (46:19)
No, no,

it's not.

Clay Hepler (46:24)
But it is an example when someone shows proactivity like why that really demonstrates, hey, this person is ready to be promoted. When they're proactively saying, this is what I want to see. That's so rare. mean.

Justin Piche (46:36)
It is.

And you know, this, had, we had my sales manager, Brian on an episode eight, I think it was. So if you haven't listened to that, it's great. It really is. We're talking about why an in-house dispositions team kind of is a superpower in your business. And that's kind of, that's like exactly what Brian did when he came on is take over and build out and achieve our goals on the disposition sales side without my direction.

just full ownership over that side of the business.

It was, it's, mean, it's been amazing. It really has. It's been amazing. And like people will ask me, coaching clients, whoever will ask me like, Hey, how do you, how do I hire this really like important role, this critical role for my business? And I always say like, look, I got really lucky. Like I got lucky. I cannot claim that I am the best hire or, know, I feel like I have a pretty good eye for people and people's character. And I have, I know that I have a strength in building a good culture.

and empowering team members and building them up and giving them the resources and breaking down the barriers that they need to succeed. But I am not the perfect hire. And I think anybody who's looking for that critical role, you just.

You need to find somebody who can take ownership over the role. That's really what it comes down to is you need to find essentially somebody who wants to start their own mini business within your business. Like their business is going to be that department that they lead.

I wish I had better advice for exactly how to find those people. I think it just takes time. But the other thing I will say is I really...

Clay Hepler (48:18)
How many interviews did you go through to connect with?

Justin Piche (48:20)
I had

420 applicants to the job that I hired Annalee for. I had narrowed it down to six interviews. So wasn't a huge number of interviews. We did lot of like pre-vetting based on applications and videos and things like that to boil it down to six people that I then made one offer to her.

Clay Hepler (48:37)
So, 420 to 1.

Justin Piche (48:40)
Yeah, that was the ratio. That's all the resumes and applicants that we reviewed.

Clay Hepler (48:46)
Guys, mean, that's Justin and get lucky.

Justin Piche (48:48)
It took four

months to find her. Yeah, it was not easy.

Clay Hepler (48:55)
That's not luck, right? That's, you know, when it happens once, it's luck. When it happens twice, it's deliberate, like, skill set. Like, that's the reason why you do it. And so, congratulations, awesome. Good to hear you. Like, that's really good news, man, for you. And also, I just want the listeners to know it's not about luck.

Justin Piche (49:09)
Thanks, man.

I like to think there's an aspect of luck to it, but maybe that's my own personal aversion or imposter syndrome or aversion to feeling prideful or feeling like, I know I'm skilled in a lot of ways, but I also know that I have so much to learn and be better at in all of those ways and many more. And so think it's hard for me to think about, and maybe this is a faith plug, so I'm just gonna throw it in there. Everything I have is from the Lord.

I cannot take credit for any of the good that's in my life. And I think that's part of kind of who I am and part of why I feel that way at the same time. I'm sure that has something to do with it. Because that's such a critical part of who I am. Maybe the last thing I'll say, kind of on attracting talent to you and to your business, is that

How you present yourself and how you lead people and how you talk about people especially when you're in private conversations how you interact with Waiters, for example how you interact with your spouse your friends people pick up on that and people people are attracted to you if you are like we talked about in last the last podcast like a giver if you were a giver people are attracted to you and

I think that's a lot of why I've had such a good team or built a good team is because people are attracted to what I'm putting out. And so the way you carry yourself, the way you do business, the way you interact with people, that's so important to also to attracting good people. you're very kind of micromanage-y and very quick to shift blame to other people and not look internally, people feel that and they don't really like working with those type of people very much.

Clay Hepler (50:59)
I completely agree. have nothing else to add in this podcast. Justin, awesome job brother. You killed it. If you thought Justin did a good job, please leave a review below, subscribe and let us know that I did a really good job interviewing him. Just say Clayton, thank you for interviewing him. Justin did a good job on this podcast too. No, I'm just kidding. Guys, again,

Justin Piche (51:20)
You

Clay Hepler (51:29)
Please, if you get benefit from this podcast, rate, review and subscribe. It really helps us out. We're not pushing a product or data or or a software or anything like that. This is really to share the lessons that we've learned in the hard knocks of going through 420 applications for one interview or one applicant, all the way to how to actually build a robust land flipping business and everything in between.

Justin, anything else before we leave here?

Justin Piche (51:59)
Nope, nothing else. Got to get to my quarterly play. Get ready for my quarterly and annual planning meeting here in a couple days.

Clay Hepler (52:09)
Good deal. Thanks again, guys, for listening to the Ground Game podcast. We'll see you next week.