What to Look For When Buying Land (with Cody Bjugan)
What is there to know about raw land? And how can you actually benefit from knowing what land your property is on? Join Ken McElroy and raw land developer, Cody Bjugan, in a conversation about the power of raw land, what it takes to build new properties, and how real estate investors can benefit from knowing a thing or two about their land.
Ken McElroy:
Welcome to real estate strategies today on our show. I have my good friend, Cody Bogan, Cody, how are you, man?
Cody Bjugan:
Good. How are you brother?
Ken McElroy:
Good. Good. So Cody owns ally development, which is a raw land development company. And I know a lot of you guys don’t think a lot about raw land, but I want you to think about this. Everything starts with raw land, every single thing, single family, multifamily commercial. So a lot of you guys focus on obviously buying existing properties, somebody prior to you actually develop that land into what you’re actually buying. So I’m really excited to have you on Cody. I know a lot of people are interested in land development, and I know you exclusively work in these off-market deals. And so those of you that are a little bit interested in this, because it’s a big, big market. If you can get deals, if you can get raw land set up for people, you can make a lot of money and Cody’s had a career doing that.
Ken McElroy:
So Cody, let’s just jump right in here. Um, you know, a lot, I know a lot of people are just getting started in real estate and they don’t think a raw land because there’s so much focus on cashflow and passive income. And I, you know, me, I’m a big passive income guy and, um, but, uh, so what happens a lot of times as people kind of overlook this, right? And so can you talk about why I, and I, I agree with this. Why is raw land a great option to get started in?
Ken McElroy:
Well, I’ll just start with this. And you touched on it earlier who controls the deal or controls the dirt controls the deal right here in simple. It starts with the dirt. So, and even if you’re into passive cashflow, to me who understands the dirt game, right, has a huge advantage over those that don’t.
Cody Bjugan:
And I don’t care if it’s doing passive cashflow deals, right? Your multi-families your new projects, right. That you’re going to build and keep, where do they start? They start with the dirt. So, you know, whether you’re looking to create, you know, substantial, ordinary income paydays, or whether you’re looking to create a cashflow model, knowing the dirt gives you a huge advantage, because the reality is dirt is a niche, even though I don’t think it should be, I’m thankful it is because it’s the space I operate in, but it’s a niche, but it gives you a huge advantage because majority, I mean, I don’t have percentages, let’s say 95% of guys that play in real estate know nothing about how raw land deals work in the development world and how to take those through the political approval process and get a project approved that then you can, you can build, right.
Ken McElroy:
It’s just a huge advantage. And so for those, you, you know, I know we talk a lot about cashflow and passive income and, and you gotta obviously be focused on that, but there are ways to take rod dirt and turn it into cashflow. And we’re going to certainly get into that a little bit later. Um, so Cody let’s jump right in your company, allied, you know, you work exclusively with off-market deals. And I know we were having dinner not long ago and like you’re, you’re doing deals all over the country. And so this is not a small local company. I know you started that way. Can you talk about, you know, you’ve been in the business, what now? Almost 30 years now, right? A little over 20 years. Yeah. Yeah. So 20 years. Okay. So obviously, you know, your way around this business and, and we do a lot of land development, so that’s why I was excited to have you on, because I think people don’t realize when, when I’m looking for multi-family deals as an example, uh, if I tie up a piece of land, I might not be able to build on it for a year, year and a half, two years.
Ken McElroy:
So, so being able to buy a multi-family piece of land tomorrow is a massive, massive advantage for me because you have market risk and all those kinds of things. So guys, this is a real, real, real way to make some really good money and solve a lot of development problems. Um, so how do you find all these off market deals? I mean, because, you know, that’s kind of the million dollar question. Everybody’s like, how does he do it? Because I was talking to you the other day, you’re like buying a golf course. You know, I won’t say where, but I’m like, man, like how do you, how do you find it? Because you buy a golf course, that’s a lot of land and it’s in the middle of a big growing city. Um, and this is stuff guys that goes like under the radar.
Ken McElroy:
So it’s pretty cool. So how do you find these off market deals?
Cody Bjugan:
You know, that is the magic question, right? Because on market, here’s the reality, everybody’s kicking each other’s teeth in and on market deals. And because of these artificially low interest rates, cap rates right now are insane on on-market deals. And so I just decided beginning of my career, I just wanted nothing to do with on market now in a depressed market, that’s different, but in, in a market like this, I’m the only at the table, majority of the time talking to a property owner, that’s a huge advantage. So the magic question, how do I find these deals I don’t have? So I’ll tell you how I find them, but let me say this. It’s not that I have some magic sauce it’s that I choose to put in the work. Right. I choose to pound the pavement.
Cody Bjugan:
Uh, I don’t, I want to be careful about using the word lazy, but we choose to put out that energy, that effort. And so, I mean, we do it through, with technology today. Cause you mentioned how we’re we’re right now scaling across the country. We’re literally able to scout out land across the country, remotely, virtually through technology. And so, you know, we work with title companies and basically we come up with a criteria, right? So let’s say like right now, you know, we’re, we’re, um, opening up the Dallas market. And um, I come up with the criteria where in town do I want to be? What size piece is that I’m looking for? Um, what is the use of the type of property I’m looking for? You know, multifamily, single family, retail, storage. I don’t care what it is. This process is 95% the same, no matter what the asset class is, that’s the beautiful part about it.
Cody Bjugan:
So we come up with our criteria, right? And then through different databases. And actually mainly through our title company relationships, we provide them that criteria and they kick us out a list of all the properties that meet that criteria. And then through other softwares, we then go and get the phone number, all the contact information. Cause a lot of times title companies can’t get that information. And we, we take all that. We load it up into our CRM, our database, our mailers go out our direct mails. Um, and then we just start pounding, pounding the phones. And, and I think one right there, we’ve already surpassed most of the industry because no one’s willing to put in that work. Right. Um, but then I think really what’s allowed us to be successful is our follow-through and up like I’m a big believer in the money is made in your follow-through right in your follow-up.
Cody Bjugan:
So, I mean, there’s really nothing magical or what I just communicated, but the reality is the majority of the people won’t do it right where the magic sauce really lies is knowing what the hell we’re doing. Meaning we understand how to evaluate these deals, right? How to underwrite them, how to price them, how to structure them. We understand how the political approval process works to get these deals approved. And that’s where really we surpass most of people in real estate because they don’t have that education. It’s not taught anywhere. And that’s what it gets me. So I’m actually wearing one of the shirts. That’s what gets me excited about vestright, my online educational company, because we’re teaching exactly what we do and that’s where the magic happens.
Ken McElroy:
Yeah, I agree. And so, Hey, we’re going to take a quick break because, um, obviously we’ve got some, some commercials coming in here, but I want to make sure that you guys listen when we get back. Cause now we’re going to talk about when you find it, how do you create massive value for someone else and yourself? So after the break.
Ken McElroy:
Okay. So Cody, so now you’ve got through the title companies you got through your database, obviously your pat on the payment, you get a phone call from somebody and you know, it’s a big piece of land and I’ve seen some of the stuff that you’re doing, you know, sometimes, you know, these are, by the way, these are big pieces, right? Like 10 40, 5000 acre piece, right?
Cody Bjugan:
Yep. Yeah, yeah, yeah. So it comes in the lead comes in. Right? So whether we were able to reach them by phone or they call us through our mailer, um, I mean, I’m at a point now where I have a staff, right? So we have underwriters, we have planners, we, you know, so on and so forth, but we weren’t always that way. I was a one man show. And so once the piece comes in, I mean, the first thing we’re doing is we’re looking at, I mean, it’s whole checklist of things we look at, but just to summarize, I mean, we’re looking at things like where are the public utilities, right.
Cody Bjugan:
Are utilities to the property, you know, water, sewer storm, so on and so forth. Are we, um, you know, what’s the topography of the land, right? Because flat pieces costs less to develop then steep pieces, right. Um, we’re looking at, can you know, all of your, you know, your storm drains in your sanitary sewer, can it gravity flow to the main lines that are in the roads?
Ken McElroy:
And guys, I, before we jump across this, what you consider to be a small thing, these are big things. Like from a developer standpoint, this could be millions of dollars and I’m not exaggerating. If you have to take a sewer line or utilities across other people’s properties, excuse me, or across a road or a longer road or down and cut through all of a sudden, these things become very, very, very expensive. So these are small things, but they’re big things, right?
Cody Bjugan:
They’re huge. Yeah. Like we call it onsite and offsite improvements. Right? So anything that’s offsite, meaning not on our property cut as far as costs, those are above and beyond the norm us. So we look at those very specifically and don’t get me wrong. We do deals all the time that I have substantial offsite costs, but I just gotta make sure I’m aware of them so that they’re put into my performer. Right. My evaluation, my underwriting, um, you know, obviously we’re looking at the zoning of the property, right. Either it’s currently zoned for development. Now make a note here, just cause it’s currently zoned for development. Doesn’t mean you can just go develop it. There’s still a process. You got to go through a big process. Yes. Yes. So, um, other pieces we’re buying the aren’t currently zoned, but we know what the designation is for that area, as far as what was a part of the, the concept plan for that area.
Cody Bjugan:
And so we’ll go through the annexation and zoning process.
Ken McElroy:
Before we jump off of that, let’s explain what that means. So what happens guys? Sometimes let’s say you find a piece of farmland and it’s, uh, it’s zoned ag or agriculture. Usually you have low taxes and all that kind of stuff. So you might be across the street from a shopping center literally. And so all of a sudden you have to now get that zoned from ag to, let’s say commercial, and there’s a process there. And when he’s talking and when Cody’s talking about the, oh, the overlay, the city and the counties have actual maps that actually tell you like the path and what’s happening. So this is all online and all public, you just go look at these things. And, uh, but there’s a process right. From, from bringing it from ag to commercial and that could take, it could take months or it could take years.
Cody Bjugan:
Yep. That’s right, right. Yeah. And it’s, um, I think the most common mistake is probably a lot of your audiences they’re used to going in and buying an existing building. Right. And they’re doing a value add play or whatever. And, and, or they’re, they’ve come from residential real estate and they know how you go and you buy a home and you have your 10 day inspection period and, you know, close, you know, 30 days later or 15, whatever it is like this space is completely different. If there’s only, if there’s one thing you could take from this call, it would be this because it is so important. And it’s a huge misconception in the space for, I, first of all, I grew up in a small little town. I’m a high school graduate. Um, so I’m a meat and potatoes one-on-one guy. So I have this little thing and it’s that if you’re going to pay for a diamond, you got to make sure it’s a diamond.
Cody Bjugan:
Okay. And so if I’m going to pay development values for a piece of land, I’ve got to make sure I can actually develop it just because it’s zoned. And just because it’s got utilities, doesn’t mean you can just go develop it. There is a process you got to go through and you should hear mark my words or hear me closely here. You should never pay development values for land until the development is approved. What I mean by that is, do not close on that property until it’s approved for development for your development. Because just because it’s zoned doesn’t mean you’re necessarily going to get your project approved. So for us, our average deal from the time we eat a contract to the time we close is anywhere from a year to a little over two years, depending on how brutal the process is. And so that is a key element.
Cody Bjugan:
And for those that maybe don’t want to do the horizontal development or the vertical development, you know, as far as where they can make substantial paydays, you touched on earlier, this is where the substantial paydays come into the come into play.
Ken McElroy:
Um, well let me explain real quick before you jump over that. Cause I love, so let me explain what happens guys. So Cody finds a piece of farmland, then he has to get a new designation on it. Let’s say for multi-family at that point, he’s not even talking to me because he’s trying to get it worth something, because right now it’s farmland, it’s worth a lot less than it is if it’s so multifamily, but even then he gets the multifamily designation on there. I don’t actually know how many units I can put on there because the city basically, or the county basically tells me how many, you know, you go there and they might have flood issues and they might have setbacks and they might have high restrictions and they might have all these things that say, you know, that piece of land, Cody, that the zone for 300 units, the county is only going to allow 200.
Ken McElroy:
Those are real conversations guys. So can you imagine that you could buy something that’s zoned for, let’s say 300 units after Cody gets to that point, and then you’re trying to get it through the city or the county and they say, sorry, 200 units. So now you basically got a third last units that you can actually build on there, therefore you’ve overpaid for the land. And so that’s what Cody is trying to say here is you want to make sure that you completely understand what’s approved and what the city will allow, not what they say, because trust me, that’s been a problem too. So, you know, things can move a lot or you got fire, uh, involved, you got the, you got all kinds of ADA issues, which is American disability act. You got setbacks, you’ve got, um, flood flood issues. And you’ve got all kinds of things that happen when a property, it goes from raw to develop and can significantly reduce your density.
Cody Bjugan:
Yeah. And even have design elements, like you mentioned multifamily. So part of our land use application or design review application for multifamily is we’ve got to provide the design elements or the elevations for the vertical construction. And it might be that what you think you’re going to go in there and put, you know, you’re going to put in three-story garden style, um, with exterior stairs and they won’t allow it because of the design standards in that area of town. So there’s just a lot of things you gotta make sure you check all the boxes and that’s why I suggest never closed on these deals without all approvals in place. Yeah.
Ken McElroy:
And there’s one more thing that we’re going to talk about, um, in a second here. Um, and, uh, you know, I think that this is really, really, really important, and that is, you know, when you guys buy a piece of land, you oftentimes have neighbors and sometimes those are actually neighborhoods.
Ken McElroy:
So, you know, so there’s a whole process that we’re going to talk about that we’re not even talking about the political process, although this can be political, but, but you know, I’ll give you a great example. We actually had to fund and build a community center for the community as part of a land development. And it was totally above board. They said, Hey, it cost us I think 400 grand, but it was part of the acceptance. And so there are a ton of things that go on in land development, guys, that we’re going to talk about that in a, in a minute. Um, I’m going to ask Cody what advice he has for people looking to get started in real estate and land development after this, this is over on the premium side. So if you’re subscribed head on over, if not go to KenMcElroy.com. Cody as always, thanks a lot. I appreciate it. Um, we’re gonna, we’re going to do a second one of these guys and we’re going to talk about the political approval process and all the things that you have to do to, um, uh, you know, to, to get across the goal line on some of these, because that is actually where the money is actually made. So Cody as always thanks, brother.