Episode 71: JV Partnerships, Owner Financing, and More Ways to Put Money in Your Pocket

Clayton Hepler (00:12)
Hello and welcome to another episode of the ground game podcast. This is your co-host Clay Hepler.

Justin Piche (00:20)
This is your other co-host, Justin Piche and we're here to show you how to win the ground game. Good afternoon, Clay. It's Friday. How are you doing today?

Clayton Hepler (00:26)
Dude, I'm doing good. I just feel like we're coming on here. We're just having fun at this point.

Justin Piche (00:30)
I know. like I so I just quick updates. I mean, we met yesterday, you know, knock one out. We're meeting again today. got yesterday was kind of a catch up business updates like what things we took covered a ton of ground today. We're to focus a little bit more on some specific topic, which will be creative deal structuring, which is honestly we talked a couple episodes ago about motes.

Clayton Hepler (00:32)
Yeah

Justin Piche (00:54)
and how important modes are to your business. And so this is another one and we'll dive deep. But before I do that, every episode recently, we've been talking about AI. We talked about it yesterday. You you want your business to everyone in your business needs to be using AI because it's such an enhancement. Like you can do so much more for you than somebody without AI. I mean, and with computer control, Claude, open Claude, perplexity computer, man, it's all these different software products that are coming out.

I mean, it literally is working in the background right now while we're talking. And one of the things I'm doing is creating automations that save my team a ton of time. Like when we list properties on Lands of America, right? It doesn't take that long to list a property on Lands of America, right? You you open up your property control center or whatever their new thing is called.

You write your title, you write your copy, you get your photos, you make sure the size the right way, you upload them, you you put your YouTube URL slug in there, you check all these boxes for the what, you know, like what about the land is filterable for people who are searching on lands of America, all that kind of stuff. But then you, you know, you do that five, six times a week. And you have.

a VA who lives in a different country doing it. And maybe they're blocked from accessing property control center from their from their country. So they have to use either a VPN or maybe a remote computer. That's what we use remote PC or VPN. And it slows things down. And it's just this manual, repetitive task that people have to do. And so I it's taken me about three minutes of actual input because we have SOPs built out for these processes to create

a working version of an automation where when a property is new to market and there's a task that says listen on lands of America and it gets set by somebody to automation, then the AI run scripts, uses browser automation, has access to the photo folders, knows exactly what needs to be put in all the different spots, uses puppeteer or playwright. And it's just so powerful to save your team so much time. So this will save hours a week from one of my employees working.

And it'll do it repeatedly, without errors forever. That's just awesome. That's just awesome. just, every day I'm like doing more stuff with it that is just really, really cool. And in the end, right, that time that those employees are, we're spending on repetitive tasks that need to happen, right? It gets exposure to our listings. It brings more buyers and it makes our properties move faster. But now they can spend their time actually focused on the sales conversations that really move the needle, right?

You need to show people your products so that they will see it and buy it and know it's for sale. But if you can automate that and spend more time on the relationship building, the answering of questions, the removing blockers from those potential buyers, that's a much more valuable use of like a real human's time than this backend kind of stuff. So that's just a quick AI aside for today.

Clayton Hepler (04:07)
Love it. Nothing. I have nothing to add.

Justin Piche (04:10)
Let's, let's, let's know with you for, for today.

Clayton Hepler (04:13)
I think that.

You know, we're just churning, man. We're churning right now. We're seeing a lot of opportunity in the space. We're seeing a lot of opportunity with subdivides. You know, I just feel super optimistic. You know, a lot of times there's always the waiting for the shoe to drop thing, right? That all entrepreneurs have to have that sort of orientation of what could go wrong to cap the downside risk. But right now I'm like, wow, man, I'm really excited. So, no, man.

Life is good. I sent you that video of my son this morning, which is freaking amazing. Go, go, go. So life is good, brother. Life is good.

Justin Piche (04:45)
Yeah, adorable.

What are you guys thinking about another one anytime soon?

Clayton Hepler (04:52)
Yeah, we are. got some weddings to plan around. Like my brother's getting married in Hawaii. And so it's like that's a whole thing. And my wife's like not going to be like she's going to be pregnant, but she can't be too pregnant. So we have to be taught and we're not going to have a kid. It's just a weird time because we can't have a kid.

Justin Piche (05:11)
Yeah,

you are in that stage of life right now, like your age or friends, family, people are getting married. You'll have a lot more of those. I think I'm like firmly past that. I don't really know anybody getting married anymore. Maybe one or two people that are kind of getting married later.

Clayton Hepler (05:17)
Yep.

Dude, it's crazy.

like, I'm going to Italy this summer for a wedding. I'm like going to...

Justin Piche (05:30)
That

was a whole season of our lives, just going to two, three, four weddings a year for a five year stretch. So I'm glad we're through that.

Clayton Hepler (05:36)
Yes.

Yeah, so we got we have Hawaii Italy San Francisco and and so Yeah, so in other words, we're gonna have one next year a little stinker next year, but ⁓ We have we have a full-on stinker right now and he is he's handling it all

Justin Piche (05:50)
Yeah

Yeah, no, I feel that going from one to two, I think is the hardest transition, frankly. It's like you get into this you get into this groove, you know, with one kid, you know, you start to get has in diapers still, I'm assuming. yeah. So so it's crazy. know, you can start them early, but but there's not really but you know, eventually you get them out of diapers and it's like, now you got to go all the way back. And and the challenge is just you go from you go from this

Clayton Hepler (06:03)
Great, I'm looking forward to it.

Yeah, yeah, yeah. yeah.

Justin Piche (06:26)
one parent can handle one kid no problem, to now you have two of them, especially when they're little infants, your wife's gonna, the baby's gonna need your wife so much and Hess is gonna, like, his world is gonna get rocked by much less access to mom for months and he's gonna be your best bud. I mean, he probably already is, but even more so. But it does make it challenging to like do things, you know, cause if your wife has this infant and has a toddler.

and you need to go out of town for like three days, four days, whatever that makes it, it's a lot more challenging. But it's awesome. And it's worth it in every way. None of those challenges should scare anybody off in my opinion. But let's get away from the personal stuff and dive into creative deals. You know, back to the moat kind of discussion from the beginning. And we've talked about this. I said this probably in the last last podcast, but when everything's a nail,

When you have a hammer, everything's a nail, right? When you have a hammer, when you're a hammer, that's all you got in your tool belt. Everything's a nail. And this is a natural progression for a lot of folks of like, I can only do double closes. I start there. All I can do is I can't come up with the money. I can't even bring the money to do like a fund the A to B side before B to C closes. I've got to just do double closes. Maybe you build up some money and you're like, okay, now I can do flips, you know, and then you start doing the flips and then there's still deals that you can't get done. And that's kind what I want to talk about.

is how do you get more deals done? How do you get creative? And some of these things I'm gonna talk about, many of our listeners are probably even better than we are at. Or, you know, I've heard of them and maybe not thought about how to actually structure it, but it's a conversation I've had with coaching clients over and over again, or people that just send me deals of just proposing, hey, why don't you do this? Why don't you do this? Have you tried this? Have you tried that? And so that's what we're gonna go into. We're gonna go into some of that stuff.

Clayton Hepler (08:15)
Cool, man. I love it. think that if you are not doing this, can no longer like have, it's gonna be hard to continue to be successful. Why? It is the cost over time of any marketing channel goes up relative to what you can do like, hey, just flipping land.

in double closing and seller financing and some of these kind of more creative strategies we're going to talk about today actually makes your business more net profitable. And it's just a change. it's like I used to just be able to buy a house in cash flow doesn't happen anymore. Right. It's just a different market. Right. And that's fine. It's not like, you know, people say, change is bad. It's like, no, change is change, man. Right. That's it. And so

I hope today we can go through kind of the high level creative tactics to help you kind of build out that strategy. And then the execution is everything, but for sure.

Justin Piche (09:08)
Yeah, absolutely. So we talk about this episode after episode. This business continues to get more competitive. Margins continue to get compressed. There's still plenty of pockets of opportunity and plenty of people crushing it. But the people that are crushing it more than others are the ones that have more tools in their tool belt, right? They're the ones that can take advantage of more opportunity. Marketing is expensive. It's time consuming and expensive to have teams that are sending out cold outreach.

at cold calls. It's mail is obviously an expensive marketing tool, but we still use a lot of people still use mail. Some of them are really hard. There's high barriers to entry for SEO and pay-per-click marketing, and it's hard to target really the right types of deals for those. So there's all these challenges. And so when you get a lead, a good qualified lead that you're able to talk to, and it's a deal you want to do, being able to structure it,

in a variety of ways that meet the seller's needs, that is skill that turns nos into yeses, that turns deals that you would pass up on into hundreds of thousands of dollars of profit hitting your bank account month after month. I think most of this, especially if have a team like I do, a lot of this is like training, equipping your team, having playbooks for what types of offers you can make.

And the reason why this came top of mind to me was because yesterday I was having a discussion with my acquisitions manager and my project manager for kind of our sub, building out our subdivision pipeline, our on market subdivision pipeline. And they brought up a deal. There's this property in Texas. We have the six acre tract under contract right now. And right across the street,

is a 30 acre tract that's owned by the same family. And so when we got the six acre tract under contract, of course we were like, hey, well, you let's get connected to this other family member and see if they're interested in selling their 30 acre tract. And they are, they just, they want a price that we can't pay. It's got lots of road frontage. It's kind of, it's rural, it's, it's, I'll maybe give you an idea of pricing. We're buying, we're buying the six acre tract for $10,000 an acre.

We have it listed at $100,000 an acre and we're getting dozens of inquiries a day. We've got it at the right price. It's going to move fast. We probably could have asked a little more, but we want to make sure this thing moves fast. So we listed it below market a little bit. The 30-acre track is not worth $10,000 an acre. It's not worth $300,000 grand. That's the 10-acre. That's the 6-acre. That's not even the 10-acre price. That's like the 15-acre price, whatever, something like that.

And so we can't do the deal at 10,000 to 12,000 acre what they want. And normally what we do is we get this deal, we send it to our underwriter, our underwriter will look at the subdivision regulations, they'll write up the Excel, figure out the cost of our survey, any improvements we need to make, all this stuff, make all these assumptions about our bank debt, how much cash we're bringing, what we think that child parcels are gonna sell for, the timeline of it, and what return we're gonna get to our investors, all this different stuff they're gonna do.

And they're gonna come up with a number, an offer price, like a max price where we can achieve the profit goals we have for the risk that we need to take on to actually do this deal and make that offer back to the seller. And that then goes to our acquisitions managers to negotiate, right? They have their quip now with the price that we can pay for this project. And if the seller is super stuck on price, like this one is, like we're just not, can't get the deal done. Can't get the deal done.

Clayton Hepler (12:33)
That's right.

Justin Piche (12:34)
They're

not willing to take owner financing, right? And we'll talk about owner financing obviously a little bit, but that's like number one creative way to get a deal done. And it honestly doesn't really work at that price even with owner financing unless it's just pennies down, you know, interest only type of a loan. So it won't work. What about JV? Right, what about JV? What if we do some sort of deal with them where we bring all this money and capital for the improvement, they maintain control over the land, we agree on a price per acre that they get.

And over time as the land sells, we release that price to them for each acre that's sold. And so I was just like, and to me, this is obvious, right? This is an obvious next offer. And so I asked the acquisition manager, hey, have we made this offer? And like, oh no, we haven't. And then I kind of dig a little deeper. I'm like, okay, well, why? Like, is this not part of our standard offering framework? And like, well, no, you know, we get our price and we make an offer based on the bank loan or owner financing.

And so you just kind of dig in a little bit and things you think are so obvious, you maybe you haven't, you haven't spent the time to train and equip your team with the right playbook. And so that's kind of a bit of oversight, obviously, introspectively on my side. but it got me thinking about how can I make this, something that we're doing across all of our deals. And I want to talk about JV partnerships in ways that I think, people can get them done and make them win wins for, for everybody.

Clayton Hepler (13:34)
Yes.

Justin Piche (13:54)
And I'll digress for a second. I'll stop here and I'll acknowledge that sellers have specific goals. And you need to figure out like what does the seller need. The question is not necessarily what will the seller take. It's what does the seller need. You can win on price or you can win on terms. Sometimes you can win on both but you've got to be able to win on one of those one of those sites price or terms in terms. That's really what we're talking about here with creative financing.

Clayton Hepler (14:01)
That's right.

And one of the things I would add here is that a lot of people are just not used to doing this. It feels intimidating. But once you understand these step by step, it becomes relatively easy to pitch these types of terms. Right? So I get that there's a lot of intimidation around this.

How do I structure it so the seller's gonna take my seller financing offer? How do I have a good conversation with them so that they're gonna be open to it? All these questions. We're doing a huge two and a half hour deep dive in the deal engine, Justin, about double closing, because people just can't get that, handle the objections, get over. But it's just practice, and I love how you took ownership. It's like, oh, it's just not in our process. It's teachable.

Sometimes owners will feel resistance toward it because they are not comfortable with themselves in having their AMs do it. But it's just a skill set, right? And the more you practice it, the better you get at it. And so when we think about it, dude, we want a cash offer on the table, okay? Then we got that double close, then we got the seller financing. All those cash, all those offers for us make sense, right? Now, there's the one thing about seller financing that I'm just gonna add here just for everyone.

is so important dude is making sure that you're not over leveraging because the guys the big gurus on the internet make seller financing seem like it's just this easy thing and Sometimes you you're like well, dude. I'll buy a seller financing. I'm I'm getting that I'm putting zero dollars down. I should buy it for 80 %

of market value. Well, what happens if the market turns and you end up selling something for 90 % of what you underwrote for, but after costs, you're at 8 % on sales costs. So you have a 2 % margin.

Justin Piche (16:16)
Plus you've paid interest. Yeah, your cashflow negative on it. Yeah, I agree. Seller financing is a lot harder to pitch than people talk about. let's just acknowledge that right now. I I have tried hundreds of times to get people to sell us a property on owner financing and it has only worked a handful of times. it's not like this, it could be a skill issue on our team for of how we pitch, obviously. Like that could not be a huge factor that could have had us win more on owner financing.

Clayton Hepler (16:18)
It gets dangerous. It gets dangerous.

Justin Piche (16:45)
than we actually have, but we have to acknowledge that. none of these are silver bullets, right? You're still going to struggle, you're still going to have challenges with conversion rates like you always do. You're never gonna get 10 out of 10. If you can get one out of 10, that's pretty solid. You can get two out of 10, like that's freaking killing it. But most people are below that. And this won't necessarily change that, but it will give you the opportunity to get more deals done. So it could bring it up.

I guess. let's just dive into some of these things. You we started off talking about double closing. I think this is like probably, you know, the basic level. This is what everybody listening to this podcast should know what this is. And just a quick, easy refresher. You have assignments and you have double closes. kind of, you know, those are both used to talk about the same type of transaction. Most people in this space do not do assignments. Most people don't really do assignments anymore at all because it's the seller is going to see your fee.

They're gonna see how much money you're making and that adds a lot of emotion into deals when you hope there won't be. They see how much money you're making and they say, what, I'm selling my property to this guy and he's making 20K off of this without putting any money. That makes people angry, that makes people wanna cancel the contract, so on and so forth. So let's just throw that out as a viable option. It will do more damage to your ability to do deals than it will help, I think.

If it's a house, you know, and you're making a 5k margin on an assignment, that's not really a big deal. That's not nearly as big of a deal. And that doesn't cause as much friction. But on a piece of land, when you're making maybe 40 % of additional on the price, that's when it becomes a big deal. So the real one is double closing. And double closing is as simple as you get a contract, you have equitable interest in the property, you find a buyer before you have to buy it, and you line up those closings to happen essentially on the same day.

The cleanest truest double close is an A to B, B to C, seize funds, fund A, you pull money out the middle. But those are actually kind of hard to do as well. There's not a ton of title companies that are willing to do that. It's illegal in some states to actually do that. Like South Carolina, you cannot do that. And so, a lot of our double closings, we actually end up funding.

the A to B side and then the same day or the next day or the next week, whatever, close the B to C, which I don't love. I have one right now, literally right now. It's in Alabama and we're buying this property. We bought this property for $400,000. I sent a wire on Tuesday for $403,528, whatever it was. So I own this property. I was supposed to sell it on Thursday.

and get the funds back. Title company couldn't do a B to C to A type transaction. Well, the county doesn't have e-recording. Right? So if county doesn't have e-recording, it means you have to mail off or send off the deed to get recorded. And they can't close the B to C transaction until the original A to B deed is recorded. And so what ended up happening is we got everything sent off and signed and money wired on Tuesday. On Wednesday, the title company sent the

the notarized deed off to the county. It arrived on Thursday. I don't know if they recorded it yesterday. Maybe they recorded it today. They're going to record it. They're going to send the recorder copy back to the title company. And then once they have the deed in our name, they will be able to schedule, reschedule the B2C closing. So it's kind of annoying, right? To have to spend 400 something grand. Yeah, we have it under contract to sell for $510,000. So I mean, it's a hundred thousand dollar margin deal.

Clayton Hepler (20:13)
What are the margins on that baby? What are the margins?

Justin Piche (20:23)
You know, if you were doing that as a flip, you probably wouldn't do that because you're investing, you're buying it at 80 % of what you're selling it for. Right? But with the B2C lined up, earnest money hard, the diligence period over, lender approval for the loan for the, you know, there's a little bit of risk that's been, you know, absolved, but there is still, I still have a risk right now of that buyer deciding to back out, forfeit their earnest money. Because in this specific transaction, I wasn't even able to

make sure that the buyer brought their funds, their documents were already signed in there before I wired mine, which is my preferred way to do a transactional funding double close. And I did that on a previous deal where it bought for 350 sold for 425, 430, something like that, where I waited to wire my money until the buyer, my B2C transaction had already wired their money. All the closing docs were ready there sitting at the title company. Our closing docs were sitting there.

And then once all those things were true, I wired my funds, but that was an e-recording county. I wired my funds, they recorded the deed, then they recorded the next deed, then they sent me the money back the next day. So it was like pretty fast. This one's a little bit slower. Anyway, I digress, but double closing is a great way to get some money into your pocket without having to take as much financial risk as buying and holding a property for some period of time.

Clayton Hepler (21:40)
Yeah, I think that it's also like it needs to be a part of your repertoire. And when you're doing double closings, one of the big things that we see, man, is that broker matters. We do not self list. Now you and I have a very different model here. You have an internal disposition team. I tried it. I thought it was a waste of money, nothing against what you did, just the way we were operating. just didn't make sense. And we've used broker. It's just reduced my stress in general.

And so we use brokers to list everything and we have a single disposition point of contact that manages the broker relationships. So I don't know if you do self list these double closes or do you rely on brokers?

Justin Piche (22:18)
We'll do all. Yeah, all both both.

Hey guys, this is Justin interrupting your podcast to say thank you for listening today. Clay and I are diving into some creative deal structures, ways that you can add to your conversion rate. If you can even implement one of these techniques, you will make more money. I guarantee it. Although I can't guarantee it. You've got to perform. But now back to your regularly scheduled programming.

Yeah, we list them with brokers. We self list. We market them on Facebook. We market one lands of America. Sometimes we'll do brokerless MLS.

Yeah, so yeah, I we listen everywhere ourselves. like for the first or I guess the second one I was just talking about, this was a North Carolina deal where they had e-recording. We did a double close, but we bought brought the funds and then we got the funds back the next day. We actually we listed that with a broker. It was a perfect deal for a broker, large enough. And we wanted broker exposure in that The other one that we're closing, I guess next week, we'll end up selling for 500 grand. That was self listed. We did that. We took that one all in house.

It was actually great. I mean, great deal. listed it at 500. We had six offers. The highest one was 10K over asking and yeah, it was solid.

Clayton Hepler (23:27)
Dude so

so that I think what the here's a nuance though man, and this is just so important right you own you run a big org Okay, you'll loss success you run a big org But a deal like that the one that we're talking about here is the difference for some investors between I had a killer year and I didn't Let's just let's keep that on the table. So this is the whole point So imagine you can do one or two of those deals a year extra

And so your business, instead of being a 200K a year business, it's 400K a year business with 300K in net margins. Dude, that is huge for a lot of people. I think we have to acknowledge that. And that's why this is so important. Because what we are really, for serious operators, we're adding more net margin and more opportunities. But for people who are trying to get into the space, this is even more vital. Because what

What this does is it buys you the runway to get to become a professional operator. The runway of the cash flow, the runway of the opportunities, the runway of the more at bats, the runway of better conversations, the runway of better data, hiring more people. And so you can afford to get better people on your team, because you know you can execute these deals. You can predict your deal flow better, because you know that you're going to convert, instead of one out of every hundred, three out of every hundred.

And right, like these, it's the biggest thing, like one of the lessons that I've learned, right, in the business is like, obviously you want to continue to have the solid lead flow, you just keep getting more at bats, but our business is home runs and singles. There ain't triples, brother. There ain't doubles, it's home runs and singles. Like your big deal last year, right, the killer deal that you talked about many times.

Justin Piche (25:15)
Yeah.

Clayton Hepler (25:16)
Bro, home run, that was the right, like you had a couple of big deals, same with me, home runs and signals. And so if you can give yourself more at bats with these signals or maybe a double or two, man, totally changes the business. But that's why it's important. that's in, and I love you brought this topic up is because you gotta have that.

So, you know, one thing I've heard, I was talking to a guy the other day on a call and he was like, well, I know some guys will partner with builders or partner with land owners. And I'm like, dude, it's never worked for me.

I've never ever partnered effectively with a landowner. I've gotten deals and a contract, but I've never gotten a deal partnering directly with a landowner and splitting the profits. Have you?

Justin Piche (25:59)
Yeah, I have one right now. I have one right now. But they're hard to do. No, no, no, no, no, no, no. It's not common. We get shut down all the time, which is why this is so important of like working on the script, working on the value proposition and the salesmanship behind explaining why this is a good fit for somebody. Right. And this is a focus. We're going to focus on this right now. Literally. My ops manager just had surgery, so she's recovering a little bit right now. But when she gets back, I want to have like a

Clayton Hepler (26:02)
he's just a better he's just a better operator.

Justin Piche (26:27)
real clear value prop that we can pitch people on

Yeah, let's touch on a couple other kind of the toolkit essentially, a couple other of these creative deal structures. We already touched on seller financing. Quick rundown on that if you don't know what that is, you know, no worries. But that is where the seller acts as the bank. So instead of actually getting a bank loan, having to personally guarantee, producing a personal financial statement, producing multiple three years of tax returns,

them analyzing your ability to repay the debt. Unfortunately, because land is not a cash flowing asset, it is always based on your other income and how much debt you have and your ability of your other income to cover the debt service. And then on top of all that, because you run a business and if you're an operator like we are, they will basically average your last three years of tax returns. So if you're new in this business and you haven't had a lot of gross profit, net profit, whatever for the last three years,

They're going to essentially write you as a zero income from what year one, you know, maybe you made 200K year two, maybe you're at 400K year three. Well, they're going to average that to like a 200K or less income. And that's just how they do it. And it's really conservative and it's really frustrating. And so it's hard to get those type types of loans. So seller financing is great. Sellers typically do not require a personal guarantee. I've used seller financing a handful of times and I've never had to sign a personal guarantee for it.

Clayton Hepler (27:23)
That's right.

Justin Piche (27:46)
And so it does hit your debt to income. So if you apply for another loan, they're going to see that you're going to have a deed of trust. You're to have a promissory note, et cetera. If you don't report it, you know, you're technically lying. So don't do that. But you could have a ton of leverage and still get an under financing deal done because they're not really going to they typically are not going to require you to do a personal guarantee and underwrite you as strictly as a bank would do. And you can get more creative with the terms. Right. You could do interest only.

You can negotiate a low down payment. You can negotiate held interest, where you actually don't make monthly or quarterly interest payments, but it accrues over the life of a loan. And when you pay it all off, you pay off the cost, you know, the loan basis plus the interest on top of that. But that's essentially owner financing. It allows you to do deals without using your own money and without using a bank.

I don't know you got anything else to add to that one. It's pretty straightforward.

Clayton Hepler (28:34)
Yeah, I-

I have nothing else to add to that. I I love owner financing. I just haven't seen it work that many times. But when it works, dude, it works. They're killer deals, right? That's the thing. That's the thing.

Justin Piche (28:44)
Yeah.

They are, I agree, I

agree, I agree. We've gotten so close on so many and had them fall apart because the seller just kind of flaked out at the last minute. A lot of this is based on trust. When you're asking the seller to step up, and the JV is even more so, and we'll get into that in a bit, but when you're asking somebody to transfer title of their property to you and you to owe them money on it, there's an air of trust because they're not doing all those verifications. And plus,

Clayton Hepler (28:58)
That's right.

Justin Piche (29:13)
You know, people like we get back to what does the seller need if seller wants all their money right now in three months and they believe in their heart of hearts that they can just listen on the market and get that price and get it in three months. Like you're going to you're fighting an uphill battle. You're not going to be able to negotiate with them to get that deal done unless you can show them why doing it this way adds more value to them.

Clayton Hepler (29:33)
That's right. That's right.

Justin Piche (29:34)
The next one I want to talk about is super flexible is novation. when I started, I mean, I didn't really even figure out what novation was until like two years ago. So I, even when I was flipping houses, like I became like this new like thing and really all it all it really is, is a long contract with power of attorney. That's it. It's nothing crazy. Novation is nothing crazy. It essentially gives you a long contract. You have power of attorney to act on the seller's behalf.

to list the property, to market the property. You have the authority to invest money into the property, not as equity, you know, not as equity. But the way innovation contracts are typically structured is you have the ability to spend money on the property and you write into the agreement that if the seller defaults in some way, then they agree to let you file a mechanics lien on the property so that you can cloud the title and if they ever sell, you know, recover your money that you've invested.

into the property. But the reason why innovations are so flexible in my opinion is and why they're beneficial to sellers is because the seller retains ownership over their property. You you aren't taking title. They have it. It's still their property. They're agreeing to let you it's like an option contract kind of they're agreeing to let you work on the property invest money in the property market the property and when you send sign a sales contract you're not taking title. They are actually the ones signing the sales contract. So you're going to you're making the difference between what you agreed to pay them.

Clayton Hepler (30:56)
That's right.

Justin Piche (30:59)
and what the sale price is. So that's part of the innovation agreement is they agree to sell any sales contracts you got. And I've done one successful innovation contract. So I can't claim to be an expert on this, but it worked great. Land, land. was 150 acres. We had under contract for $290,000. And the way we pitched this to the seller was, look, this is a great hunting property. And you have some rudimentary trails.

Clayton Hepler (31:02)
That's right.

⁓ houses or land?

Justin Piche (31:28)
all your green fields are grown over. It just doesn't present well. It's going to be really hard to sell this property. So we got a survey, survey the easement access, which the seller didn't have, which was kind of clearing some clouded title, some title insurance issues. The title wouldn't insure it without the survey. So we got that done and then spent another about $30,000 or so on clearing trails, making sure vehicles could get in there, clearing hunting fields, green fields for people to hunt.

and ended up selling it for like four or three, I don't know, 360. I don't know what it was. We basically doubled our money. It wasn't a great return. I think we had like 45 into it. We made 45. It was not like an exceptional deal, you know? But yeah, right? But it was a cool product. It was a cool process. And it could have been used to make a whole lot more money. We just kind of were like reaching the end of our contract. We had a year long contract and we were like, all right, we just need to drop the price and get this thing sold and turned around for something.

Clayton Hepler (32:07)
I'll take that. I'll take that deal.

Justin Piche (32:22)
I think if we had more time, know, it's such a unique large property, they take longer to sell. But if we had more time, we would have made more money for sure. But yeah, innovations actually can work really well as a JV structure too, as a pitch for a JV. And the way, maybe let's jump in, unless you want to talk about innovations, you want to jump into the kind of ways you can JV with people.

Clayton Hepler (32:41)
I would love to do that. I'd love to do

Justin Piche (32:43)
right. So we talked about innovation. The next thing I want to talk about is JV's and to the person that cracks this code of being able to deliver these offers well to sellers, you are going to make a freaking killing. We're going to work on it. We are going to try. But as Clay said, they are hard to do and I don't want to not talk about them because they're hard to do. But I've given a lot of thought to how to structure these. And so that's what I kind of want to share with the audience is how to think about these these deals. So

with a traditional, let's just say like a minor subdivide, because that's where I feel like most of these come into effect. You're not going to be able to JV with somebody on a flip. You know what mean? Like those people aren't going to be like, you're why am I JVing with you? You're not doing anything. Right. So there's got to be some method of you adding value and extracting more value from the product to even enter into this JV discussion. But here's an example. Let's say you want to do a minor subdivide. You have 100 acres. You want to split it into 10, 10 acre tracks. Simple. Road frontage split.

The property is worth, call it, 700k. The seller wants 700k. Now, if the value of the child parcels with your loan and your financial structure is such that you can offer 700k to get this deal done and make your margin, great, do it. Like, that's fine. But what happens in most cases is that that's not true. There's not enough margin, there's not enough force appreciation for that, for that, you know, those child parcels. And so,

You do your underwriting and you come back and you say, hey, with the bank loan, with the capital I need to bring for development, with the risk, with the timing, with the interest, with everything, I can offer 500,000 for your property. And so Mr. Seller says, hey, that's not enough. I want 700. And then you say, huh, well, I can only offer 500. Maybe can I reach back out in a few months and see if anything's changed? And then you hang it up into your, you know, reach back out into the future bucket. Great. Not great.

There are ways to do that deal and get to 700 and still make a bunch of money on it. And that's where JV comes in. When you're doing a deal where you have to get a bank loan or something like that, you've got to bring the down payment. You've got to bring interest because you're going to have to pay that bank and you don't have to pay it out of your own pocket, right? Raise it up front. Make sure it's there ready to go so you don't put the loan at risk in any way. You got to bring any development capital. If you're building driveways, you got to bring money for survey engineering, whatever it might be, marketing dollars, hold time, whatever you have.

And then you've got to make a percentage on top of that, right? Well, if your number's only 500, because of all those factors, maybe the total property sale is a million. Let's say it's a million. So there's like, after closing costs, call it quarter million dollars of total margin on it. But if you're buying it at 700, you've got to bring like 350, 400 maybe. And so making 250K on $400 invested over a year, year and a half, that doesn't meet most people's underwriting guidelines that I know. Doesn't meet mine.

So we wouldn't be able to do that deal. That's why the price kind of drops. So we get into that point where we can make our margin. But if you don't have to bring that down payment, you don't have to bring that interest for the bank. All you have to bring is the money to improve it and you can still get the seller their 700K. Now you've got $250,000 of margin. That's the 300K total, the gross margin, less selling costs. Let's just say we're making a 5 % assumption. Might be more than that, but let's just use that for round numbers.

You got 250K of gross profit that you can make on that deal, but you might only have 100K or less than that of money you actually have to invest. So if you structure this joint venture as innovation, the seller has title to the property, you have a contract long enough to execute your entire sales strategy with buffer on the end or option extensions for hard money or whatever it is to make sure that you don't lose this deal because of time and the ability to invest money into the deal.

and the ability to put a mechanics lien on the property and cloud the title of something were to go wrong for the seller. And now you are making every dollar above that 700K. You're getting them what they want. The higher price for their property. It just takes a little bit of time. And the way you sell this and explain this to people is your property is beautiful, large, expensive. There's a limited buyer pool for this property. You can show them data on the market. How long to other hundred acre tracks people asking $700,000 sit on the market.

What are the comps showing that those properties are selling for? You chances are it's going to be a little bit less than that. Most of these sellers want a little bit more than market. This is a way to actually offer people more than market price on their on their property. You just got to be confident in your, you know, your child parcels. But what you can see, what you tell them is you're saying, hey, I'm what we're doing is we're taking this limited buyer pool property for this hundred acre track for 700 K and we're turning it into a product that a hundred times more people can actually afford. We're expanding our buyer pool.

by some order of magnitude because we are now offering 10 acre tracks at $100,000 each. How many more people can afford $100,000 property than can afford a $700,000 property? Huge, huge increase in your buyer pool. And if you can explain that and convince the seller, then there's the trust aspect, right? You gotta have some sort of presence. You gotta have some sort of track record. It's hard to do if you're kind of new doing this, but.

A lot of that comes down to you and talking to the seller, building a relationship with the seller and convincing them. that's innovation. JV is what I would say is like the preferred way to JV because it's just simple. Other ways to JV with sellers would be you start a new LLC, they contribute their land. You agree on like a value of that land. You probably split some upside. Another way that adds more protection to sellers is combining seller financing with starting a new company.

So you start a new company the seller comes in as a portion of that company for whatever upside you're planning on giving them then they personally offer really attractive owner finance terms zero down interest held or accrued to that LLC. So the LLC has control. You are the managing partner of the LLC. So you have operational control over it. They're a member of the LLC. So they're going to get their nut. They're going to get paid. They own their property a portion of it in there and they have the seller finance note as well. So

The downside risk for them is pretty low. If you don't perform or the LLC can't pay them whatever, then they foreclose, which, you know, honestly isn't that hard of a process in most places, and they get their property back after all the improvements you've put into it. Right? And they get, and they get upsized. So those are just a couple of ways I wanted to go through that real kind of quick because, you know, in the interest of time here, but. ⁓

Clayton Hepler (38:55)
Yep.

No, man, I think

that's great. mean, look, like I think that, you know, you've done a lot of talking today, which is great. It's good to have someone on the podcast that's smarter than you. You know what I mean? I just sit here and just, you know, play some Candy Crush in the background. I've actually never played Candy Crush in my entire life. Yeah, yeah. But look, I think that the the premise, the summary of the podcast is the following.

Justin Piche (39:08)
I

Hahaha.

Yeah, neither have I.

Clayton Hepler (39:26)
You create opportunity, you used to create opportunity through volume. Now you create opportunity through quality. Quality comes down to quality of operations, which there's a part of the operations, which is quality of offers and qualities of salesmanship. And you can only get so far by being a amazing salesperson.

And I was talking to a private client the other day, very, very successful guy. And you can go from 8 to 12 % maybe, right? But that jump, the points, when you jump a .23 when you're closing deals, yeah, first it does come down to salesmanship, how well, what percentage of the time you're talking versus the seller, the quality of your questions.

How well you can handle objections that might give you one or two closing points and another closing point you can think here is Double closing maybe I get two closing points. So I'm from 8 to 12 I'm creating more opportunity and 8 to 12 is a 50 % increase now if I want to go from I want to go from 12 to 13 or 14 I need to get even better now these millimeter shifts come down to

a lot of reps and they come down to when you have the opportunity, which might happen once a month, it might happen once a quarter, you can pull one of these things out that we're talking about today and you execute. But it's not gonna be, if I can set the right expectations, it's not gonna be like every day you're doing this. And so that's why people say it doesn't work. Because they're not prepared for when it does.

So if you're prepared for when it does make sense and you can pitch it and you can do it well, you'll get the opportunities that no one else can get. But it ain't going to be like, man, I'm getting better at sales and I'm having a conversation with that. So pitching seller financing is not every day of the week. Right. And pitching joint ventures. And so I just want to set the expectations for the listeners. Justin, I know we could talk about this in, but I'm a very literal person. I'm like, okay, so can I start to actually utilize this today?

No man, this is a tool belt that you're like, you know that one thing in your tool belt that you're like, it's my screw that like, or my saw that like handles this one little angle, right? That's what we're talking about here. Everything is a hammer, but it's this little saw, guys. But it'll help you, it'll definitely help you take your biz to the next level.

Justin Piche (41:48)
Yep, yep, that's what we're talking about.

Clayton Hepler (42:00)
Guys, so so we'll come back to you guys next week. The next video that we have is going to be around the biggest constraint in your business. But the only way that we're gonna release another podcast is if you rate, review and subscribe. I'm just kidding. But seriously, guys, we appreciate all the listeners and would appreciate if you do get benefit from this podcast to rate, review and subscribe. Just I love getting together jamming. But it does give us feedback like hey, there are actually people out there.

And I think we have 20 % of our listeners, maybe 15 % that actually rate, review and subscribe. So we just appreciate guys take that extra minute. Just click on Apple podcasts or go on YouTube or Spotify, Spotify, wherever you're at, give us a five star and let us know that you you're getting value from this podcast and make sure to include my name in there before Justin's alphabetically it's Cvert before J. Yeah. So, so appreciate you guys and Justin anything else before we sound off here? My man.

Justin Piche (42:50)
Yeah, C comes before J, that's true.

No,

that's it. That's it. If you guys got value, do what Clay said. We appreciate you. See you next week.