Seth: Hey everyone, how's it going? Welcome to the REtipster podcast. I am Seth Williams. This is episode 235, and today I'm talking with Steve Hokanson.

So I had breakfast with Steve at the Land UnConference a few weeks back, and I've seen his name floating around the land investing groups on Facebook for years. He's been in the land business himself for a long time, but what makes him really interesting is that he also runs Thacksland Books, which is a company that helps land investors with their finances in a multitude of ways.

And Steve does everything from bookkeeping and payroll to full-on CFO services. So he has a unique window into what's really going on with a lot of land businesses.

He knows where investors make the most money and where they lose it and where they make the most mistakes and what separates the winners from the strugglers. And that's exactly what we're going to dig into today. It's going to be fascinating. I think you're going to love it.

Steve, welcome. How's it going?

Steve: Just fine. Thanks, Seth. I appreciate the warm welcome and the pain work.

Seth: Yeah, of course. The way we usually kick these off is we get your backstory on how you got started in the land investing business. How did you learn about it? How long ago was that? How long have you been at it?

Steve: Sure. Like so many people, we stumbled across it on podcasts, right? And I'd been in a W-2 corporate job for 25 years, and it was becoming stressful in a variety of ways. And I needed to find a way out of that.

And so I work in the business with my wife, Tansha. We were looking for all sorts of avenues and this one seemed to stick. So we got into it right at the height of COVID, March of 2020, when everything shut down.

We got into a course and went in full speed ahead. And I was still at my W-2 job then and everybody was working remotely at that point. And so I worked my regular job and then do land investing in the evenings.

And then I had a plan. I had a plan to leave my W-2 job probably the summer of 2021. But then they made some structure changes that I wasn't crazy about. So I sped up that exit and I left February of 2021. So I've been out of a corporate job in that entire time.

So we did land investing full time. Love the model. And it's evolved over time and then started keeping business for land investors and tremendously enjoy that side of things.

Seth: If I'm following that right. So were you working on land part time for about a year or so before you pulled the plug on your job? Or how long was that?

Steve: It was about a year. And I just felt like it was the right time. And my wife and I were ready to jump both feet in and we did.

Seth: Now, I know 2020 was kind of a different world compared to what it's like today. What were some of your early challenges in land, if any? Was anything about it difficult?

I mean, one year from just starting to quitting your job is fairly fast. Like a lot of people don't do it that quickly. So how were you able to do that?

Steve: Being in a corporate job for as long as I was, I had a little bit more of a runway. So I had a bit of a cushion so I could afford to do that. Many people are getting into this in their 20s and they don't have that runway. I had a little bit more of that. Number one, yeah, it was a different time. There's no doubt about that.

We mailed just like everybody else does. And we were doing the small desert squares at first, like so many other people. And then we made a connection with Dave Dennison early on because he lives about a 15-minute drive from where we live.

And he invited us to a precursor of what has become the big Land Conference. There was maybe 12, 15 people there at that time. And it just completely changed the way I thought about doing the business.

From there, we did more than just the desert squares. We went on to the larger properties from there. We haven't been able to go to a Land Conference since then until this last one, because it was scheduled in May and we had kid activities that prevented us from going.

Unfortunately, I would have liked to have gone to many of the other ones, but we hadn't been able to. That first year, we did a lot of those little deals. I bet we sold 100 properties that first year, something in that range. But then moving on to the bigger stuff really helped tremendously to grow the business.

Seth: Cool. Moving on to the bigger stuff. So like, what's an example of what you call a little deal? And then what's a big deal? And like, how long was that transition? Did you just sort of flip the switch and overnight you're doing bigger stuff? Or did you do it over the course of a year?

Steve: Yeah, I would say over the course of time, the little stuff you're buying for a thousand, two thousand, three thousand, those smaller deals. And you're selling them on terms for three to four times that, right? That's the smaller deal.

The bigger deals, you ramp up your comfort level. To me, you know, so many land investors just jump full feet into this. They'll do a $50,000 deal without even thinking about it. You don't get to that comfort level right away. It takes a little bit of time.

So what do we try to focus on? The deal where you can buy it for 10 to 20 and then sell for double. That's really what we like to be. And that's really the spot where so many other investors like to be.

Seth: It's interesting what you say about the comfort level of buying a $50,000 property. I've got it with you. I remember that being a really hard thing for me to get to. That's a ton of money, a ton of cash to throw at anything in land, depending on the land deal, it's not always like super clear cut with absolute certainty of what it's going to sell for and when it's going to sell.

Do you often see people who jump into that too fast? Like maybe they really shouldn't be confident. Go a little slower, pal. Whatever happened in your mind? What do you think?

Steve: All the time, but it seems to work out. I'm shocked. Even if you make a mistake on a $50,000 deal, it's pretty rare that you're going to get stuck with that with no way out. You're going to have an exit strategy. Even if you're breaking even, you're probably going to be able to sell that.

It's not like a house where you're flipping a house and you can really get underwater in a hurry. With land, what's the worst that can happen? Yeah, you might lose a little bit of money, but breaking even, that's pretty reasonable in almost every situation.

Seth: I see the same thing. It seems to work out somehow. Sometimes it'll kind of blow up in your face where you can lose not just a little, but like tens of thousands of dollars. But usually that's not what's going on. Usually, if anything, they're just kind of stuck holding it for a while longer. Maybe they break even like it's not a catastrophic mistake necessarily.

Steve: Yeah, there's hardly any catastrophic mistakes. I've not seen any. What's the worst that can happen? You buy a big subdivide and then it all blows up. I've not seen that happen, but people usually protect themselves enough where that's not going to happen.

But that is striking. I mean, the entrepreneurial spirit in this industry is quite amazing that people just jump into them and they end up making money. And it's fantastic.

Seth: Definitely. So at what point did this bookkeeping idea pop into your mind? Like, hey, I should offer that as a service to land investors. Like, was that kind of part of the plan from the get go? Or did you see something that was like, hey, I could do that?

Steve: I didn't get into land with that intention, but pretty much right away I saw a need for it. The people in this space were want to be entrepreneurial. They don't want to be doing their books. That was pretty evident right away.

So I quit my job, I said, February of 2021. I started the bookkeeping business in November of 2022. So it was almost two years after we were doing it full-time.

I got my first client almost right away, then my second client almost right after that. And then it grew pretty quickly after that. There was a big need for it at that point because lots of people were doing this business and they all needed bookkeeping services. So that was a great niche for me.

It fit right with my skillset. I have an accounting background, not necessarily a bookkeeping background. I managed fiduciary accounting departments in my past, but I had to do some refresher with bookkeeping. So that's another reason why I didn't do it right away.

Seth: It's a topic that I've heard brought up quite a bit over the years is like, how do I find a good accountant or CPA who understands the land business? And to be clear, that's not exactly what you are, you're more of a bookkeeper in, I guess, fractional CFO for some people.

Do you have any tips on that? Like, how do you find an accountant who gets this business?

Steve: Well, I do have a CPA that I work with regularly that I'll refer clients to, but many people will have their CPA from past experience, right? I work with the people's CPAs that they have already, and many of them don't know land, don't know, especially installment sales, and I'll have to educate them on that. And that's fine. I'm happy to do that.

That was a niche that I really enjoyed getting into is understanding the installment sales.

Seth: In your opinion, why do land investors need bookkeeping that's specific to land instead of just using a general bookkeeper or CPA? Like, is there something you know or understand that you bring to the table that another bookkeeper couldn't do? And what is that?

Steve: The installment sales is the big thing. Not to say anybody can't figure it out. Land is a specific niche, right? And not all bookkeepers or CPAs are going to want to get into that niche. Many of them have big businesses. They have boxes where they're going to have clients and this will not fit in that box, right?

Bookkeeping part of it, especially, especially with the installment sales and educating the CPAs on that side of things is a big factor in what I'm doing for them.

Seth: What do they need to be educated about exactly? Is it about revenue recognition? Is there some tax issue tied to that? I mean, installment sale in itself doesn't seem like that complicated of a thing, or it's not specific to land only, like other businesses have this kind of thing too.

So is there something about land that's like, okay, Mr. CPA, here's what you need to know. What is it you need to get through their head?

Steve: Well, yeah, it's the exception for vacant land, residential land sales. So most installment sales, you have to pay the profit all the way up front, right? When you do the installment sale with land, there's an exception in the tax code that allows you, you're fully aware of that.

And many people are aware of that, but not all CPAs are aware of that. I know of situations where people have gotten a big tax bill from their CPA because they took the installment sale and calculated the full profit upfront, right? They don't need to do that.

There's an exception in the tax code that allows you to take, that proportionally over the course of the sale. That can be a huge eye-opener as you get a tax bill.

Seth: Yeah. Yeah. I've got a pretty detailed blog post that explains that in great detail. I'll look at a little link to that in the show notes, retipster.com/235.

And you're always welcome to copy and paste that URL and share it with your CPA if you ever need them to understand it. It's just kind of an easy way for them to figure out what this is all about, But it's kind of a big deal.

If you're selling land with no dwelling on it and an installment sale, that makes a massive difference compared to if you were trying to do this with a house, for example.

Steve: Absolutely. And I'm happy to do that. And not everybody likes to do that. I like doing it. It's interesting to me. So I'm there to help people.

Seth: Yeah. Is there anything else about land bookkeeping that's different? Sometimes it's just a matter of understanding the nuances and the weird oddities of running a land flipping business.

Like if you've done it yourself, you just have this built-in understanding that the average bookkeeper is not going to have. That probably goes a long way too, right?

Steve: I would say so. Yeah, that's the biggest thing. I'll recognize exactly what those expenses are. I know what Land ID is. I know what PropStream is. I know what Stride CRM is, whatever the expense might be. I'm going to know exactly what those are.

And I'm going to also know if I have a deposit from a title company, that's almost certainly a sale. So as long as you're organized and I can go into some spreadsheet or something about all of your land deals, I'm going to be able to go in there and see what those are without having to bother anybody.

So the vast majority, 80, 90 percent of bank transactions, I'm going to be able to figure out without having to ask somebody about them. And if you have regular installment notes, I'm going to be expecting those. I'm going to know how to deal with those.

Yeah, there's going to be some things I don't know about. I need to ask, but for the most part, I'm going to be able to figure them out.

Seth: Yeah, I know seller financing. I mean, it's a big deal for land investors and a huge opportunity to get properties sold that would otherwise take longer to sell. So a lot of people rightfully are either actively doing it or they want to do it.

But I know a lot of the education out there, including this stuff that I got way back when I was figuring this out, did not explain this very well and definitely did not really point out like the important issues on like, how do you efficiently collect payments and what's the correct documentation to use? And a lot of things I've since learned.

So when you're talking to people who are doing seller financing, do you ever encounter like. Just big blind spots or just like problems in the way that they're handling things, whether it's how they're collecting payments or anything come to mind where you see it and you're like, oh, you got to fix this. What would those things be?

Steve: Most people, before they get to me, they have a method to collect payments. There's some good ones out there. Terra Notes is great. GeekPay works great. Some people use the invoice features in QuickBooks, which I would not recommend for a variety of reasons. I would recommend an outside vendor to collect those payments.

But as far as blind spots go, I'm with you. A lot of the education out there does not talk about all those pitfalls that are really out there. If you default, it's not just a matter of taking the property back. There are ramifications if you take that property back.

They could come back at you and say they have an equitable interest in a property, which a lot of that's not explained. The vast majority of those seller finance deals are on small desert squares, low value property, probably not going to come up as an issue, but it could.

And it was good to know that. I remember listening to one of your podcasts. I think it was a podcast where you laid this out. That was really eye-opening to me when I heard that. It was a few years ago, if I remember that, right?

That was not in the education that has been given out there. So there are many pitfalls that people just don't know that they're getting into. And most of the time, it's not going to come up. But the one time it does, that can be a problem.

Seth: If anybody's curious about this stuff, I noticed a lot of the gaps in just lack of information and sometimes just outright wrong information that I had heard from other educators and courses about seller financing.

Big consequential stuff that could like totally screw you up if you actually did what they said. So I spent a ton of time getting a lot more educated on that and brought in a lot of other seller financing experts in the land space, made a course called the Seller Financing Masterclass, sellerfinancingmasterclass.com if you want to check it out.

If you ever want to like really uncover everything you got to know about seller financing, specifically with regards to land, how to collect payments, figuring out the right documentation, how to properly handle the foreclosure process and way more than that. Be sure to check that out. Quick plug. I'll put a link to that in the show notes. Again, retipster.com/235.

Steve: Highly recommend that. That's very good information that you put out there.

Seth: I know you see a lot of what goes on with land investors. You really see behind the scenes. So when a person says, yeah, we made $10 million last year, or we sold $10 million worth of land.

Selling $10 million worth of land doesn't really mean anything. You could be losing money and selling $10 million worth of land, especially if you paid 20 million for it.

So you actually get to see like, how much money are you really making at the end of the day? It'd be really interesting to stand over your shoulder someday and see what's actually going on and how the sausage is made.

But with all the stuff that you do have access to, is there like a single biggest money mistake that you see land investors making over and over, or maybe even a few mistakes that come to mind?

Steve: The biggest mistakes I would say is paying too much for VAs and overhead. The most successful investors in this space are the people who do everything themselves and have very low overhead and are doing cash deals on bigger properties. That's the biggest margin that you see.

VAs are a necessary part of this business. There's no doubt about that, especially for those who are in a W-2 job. They can't do everything themselves.

But when you really sit back and look at the numbers, the best numbers are those who have low overhead and doing it all themselves.

It was striking to me the first time I saw that.

Seth: When you say the best numbers, do you mean like the best ratio of income to expenses or do you just mean like the best total net income at the end of the day?

Because like you could have huge expenses, but an equally huge net income, or you could have smaller income with even smaller expenses if you're following what I'm saying. So what do you mean by that?

Steve: I would say ratio is number one, but it's not just ratios. People do million-dollar businesses and make a 40% margin on that. But you could do 2 million and make a 10% margin on that. I don't know what's better. Probably the 40% margin. But that's not in the realm of possibility for everybody, right?

There's realities. Some people don't want to do things within this business. Like us personally, neither one, my wife or I liked doing intake at all. We never like doing intake and we didn't like managing intake.

That's kind of the lifeblood of your business. Intake is where you make your money when you acquire the property. So if you don't have that down, it's hard to go forward. So you hire it, right?

You can still be successful, make money in this business and have VAs, but your margins just aren't going to be as high. That's the bottom line.

Seth: It's really interesting. I don't know how much detail you have on that, but when you say spending too much on VAs, do you mean like they just have too many people on staff or are they overpaying for like U.S.-based VAs when they could just as well get the same quality overseas?

Like how are they overpaying?

Steve: I don't really see that when I'm doing the books, right? Unless I'm really digging in and doing CFO type work. If I'm just doing the books, I don't see if they're overseas or I can kind of extrapolate what they are, but I don't know that for sure, right? I would just say the VA costs end up being too high.

And there's a good percentage of people who are scaling back and getting out of this business right now because it's a lot harder, right? I would say from my peak, there's about 40% that either have gotten out of the business, have indicated their desire to get out of the business once their inventory and their notes run out.

Or they're just scaling back. And it's a lot harder to do business right now, right?

Seth: That's actually really fascinating to hear. I've often wondered about that because I know people are getting out of it while other people are getting into it. I don't have a firm grasp on how many people are getting out of it. What percentage of people are moving on and doing other things? But you said about 40% of your clients?

Steve: Of my clients are in some ways cutting back. From my peak about that have either cut back, either getting out, have gotten out, are getting out or cutting back.

Seth: Yeah. How many land investors have you done the books for over time?

Steve: About 36, I counted.

Seth: Like what would be like the average annual gross net income of these people? I don't know if you have those numbers in your mind, but are we talking like big operations or like solopreneurs?

Steve: Preparing for this podcast, I did run some numbers. I was expecting to see big reductions this year, especially in top line growth. I didn't see that as much as I thought I would. Yeah, it's down maybe 10% first half of this year versus last year. But where I really saw the difference was in margin.

Margin last year was between 15% and 20% average. This year, it's below 10%. That's where you really saw the difference. That's the thing about this. If I talk to clients, they're all kind of saying the same thing. It's a lot harder to do business, et cetera, et cetera. I see this from so many other investors.

It is hard to do this business right now. Everybody's impacted the same way. So don't feel like you're alone. And that's one thing that I can be a voice of reason, a counselor to some effect is that you're not alone in this. Everybody's experiencing this right now. So don't think that you're alone.

Seth: It's interesting what you say about the 20 to 10% margin. In my mind, in somewhat accurately, as I've often been a solopreneur in the land business, I can actually look at the total investment into a property versus the total amount I'm selling it for, like the HUD to HUD. And like, that is my margin. But when you have a team of VAs, like that eats into your margin a lot too, that a lot of people don't think about.

I get what you're saying in terms of, it's very easy to just. Blow money and not realize what it's doing to your business.

Steve: Yeah. When I talk about margin, I'm looking at the bottom of the P&L. Take that ratio times the revenue. That's the margin I look at. Now, if you're looking at just the cost of land, yeah, land investors are doing a marvelous job of selling land for more than they buy it for. Those margins are regularly over 50. And for desert squares, they might be up to 80%. You might be selling them for five times what you bought them for.

But when you factor in all the other costs, that really eats into the margin. So the actual margin varies widely from investor to investor, as you might expect. And I'll say this, you look at the bottom of a P&L, it's more common than you might think that that number is negative.

You wouldn't think so. And some of that is some creative accounting principles. And I'm not suggesting this is illegal or immoral or anything, but they have their blessing and their CPA. But at the end of the day, some of them end up losing money. And so you average that with the ones that are making a lot. And that's where I came up with an average margin.

So your podcast does a marvelous job of giving both sides of things. Your market update a few weeks ago did a great job of that. But some of them, it's all prosperity gospel. Everybody's making millions of dollars and making 50% margins. Well, when you dig into it, it's really not quite like that. It's quite a bit different.

I love hearing that truth perspective that you could bring. I'm sure everybody listening out there is like, yes, thank you for telling us the truth.

Seth: I knew this would be good. Yeah. I wonder, do you see any big improvements in people's income to expense ratio as a result of switching marketing channels?

Like I know as direct mail has gotten a lot more expensive over the years, people have been switching to other less expensive things, but some of those less expensive things require. More work from VAs and other expenses and that kind of thing.

And I guess what I'm asking about is like the ROAS, the return on ad spend. I don't know if you have any examples in mind. Maybe you don't even track this, but as people transition from mail to something else, is it better in the end or is it worse in the end? Like would they have been better off if they just stuck with mail?

Steve: That's a good question. I don't really track it that way. It'll go into acquisition expense. That's how I get categorized. And then on the sales side, I don't have a way of tracking what's a sale from a lead that got to you through mail versus text versus cold calling. So I don't really track that.

I was hoping I'd be able to, but I can't think of a way that would be a good way. Most investors track that separately in their own channels. And so they don't look at their P&L for that. If somebody asks me to, I will. Some investors really want to look at that detail really closely. And I'll do that if they ask, but most don't ask. They'll have their own way of tracking it.

Seth: Yeah, yeah. That's the funny thing about the return on ad spend is like, it's definitely an important number. No mistake about that, but can be kind of an elusive thing to really know because, you know, say if you send out a direct mail campaign and a deal materializes from that two years later, somebody just saved your letter and decided to call you back.

It's like, well, now you don't really know until two years later. And not just when you buy the thing, but when it eventually sells, that's when you know. So like, I don't know what a reasonable timeframe is to cut it off and be like, okay, this is the box that we're using to measure. But I don't know if the answer is, it's just kind of confusing.

Steve: Realistically, you don't cut off one channel. If you're doing mail, you're going to continue to do mail. And then if you're texting, you're going to continue to text and then move on to do voicemail, cold calling, or then the next thing is a distressed title. That's another channel completely.

So you don't really track that in the P&L. That's really hard to do. It has to be other ways because there's like you just said, how do you cut one off? I have no way of knowing what the sale was.

Seth: Of the clients that you've had, the ones that list and sell all of their properties with realtors versus the ones who list and sell all of them themselves, whether it's on Facebook Marketplace or Land.com or something like that.

Do you see one or the other doing better overall? Like more profitable because they're doing it one way or the other? Or is it kind of just a mishmash mixture each way?

Steve: Let me think through that for a minute. Is it a mishmash? Yes. But my gut tells me that at the end of the day, the bigger deals that are sold to realtors. Are the ones that provide the most profit. Profit number, right?

If you sell a terms deal, buy it for 2,000, sell it for 10,000 on terms, and it defaults twice, the percentage return on that is a lot better, but the dollar amount return is not as good. So I don't know the answer to that specifically, but that's my gut reaction to that.

What are you looking for? You're looking for the percent return or the dollar return? Probably most people are going to focus on the dollar return and the bigger cash deals are going to provide that more than the terms deals.

Because at the end of the day, you default on it twice. There's a lot of overhead that goes into that. And you're probably not handling it. Your team is probably handling that. You don't want to handle every single default and every deed that needs to be redone and all that all by yourself. So there's a lot of overhead that goes with that. So yeah.

Seth: Knowing what you know about seller financing with land, how much of it you've done yourself and also how many clients you've seen how they've done it.

Do you have any basic recommendations of like, do it this way, please. Like to make my life easier, like, you know, require at least X dollars of down payment or use Terra Notes specifically or loan servicing company. Don't do this in house. Anything come to mind in terms of like, just wisdom you could share with people who are doing seller financing and don't really know what they're doing.

Steve: The biggest thing is a big enough down payment where it's meaningful for the buyer to walk away. There's seller finance notes that don't have down payments, right? The buyer doesn't have skin in the game to just walk away from it. So the bigger the down payment, the better.

And I understand you want to move properties. Sometimes you need to do it with a smaller down payment just to get properties moving, but the bigger down payment, the better. That's my advice.

Seth: Yeah. And this is part of the seller financing masterclass, but Eric Chiraga came up with a really good table that he uses to determine how much of a down payment is appropriate based on the purchase price of the property and also the person's credit score. Any bad credit score can be overcome with a big enough down payment.

In separately, totally different conversation. I was talking to Justin Sliva about this over a year ago. I hope I'm not misquoting him. Sorry, Justin, if you hear this, I'm saying this wrong. But I think he said that of every seller finance deal that he ever sold, whenever they require a $10,000 or higher down payment.

People like basically never default on that. Like it's just a high enough number that people aren't just going to walk away from that flippantly.

But the main takeaway is the down payment totally matters. And if you're just selling stuff willy-nilly with no down payment at all, like you better be ready for a tidal wave of defaults because people don't really have any reason to stick around if you've got no skin in the game, right?

Steve: That's exactly right. And you don't want to go have to resell that property and you don't want to do the bookkeeping behind it because it's a lot of work to rebuild that piece of property and put it back on your book. So yes, absolutely.

And this is another communication thing. Sometimes I don't know about it. Sometimes I don't find out about the default until it's been resold.

And then I got to go ask, wait a second, this is sold to somebody else. How did you sell it to this person? So communication is always important between you and your property.

Seth: Are there any like invisible expenses that most investors forget to track, but that really add up over time?

Steve: Well, like we were saying before, they look at their profitability between what they bought the property for and what they sold it for. It's all the other stuff that adds up that really eats into your margin. We need so many subscriptions. They're necessary evils, but they add up. And then your VA costs.

So people need to have VAs, especially if they're still working on W-2 and many people are in this industry, but it's a drag on your business.

Seth: And on that note, on both subscriptions and VAs, I can tell you with absolute certainty, you can totally wipe out some of those if you use Stride CRM. I wiped out four grand of subscriptions each year just by switching to that. So just got to mention that since we're on the subject.

Steve: Absolutely.

Seth: So I don't know how many of your clients use land funders to go after deals. Similarly, if they are regularly assigning or doing double closings on deals, the main thing being they don't have to tie up much or any of their own capital in the deal in order to make money from it.

Like they can either sell the contract or use a funder and then they take on all the risk. But then the land investor gets less of the profit in the end.

But I'm just curious of the people that you see who do that, whether they use funders or do assignments or any of those strategies. Do they end up doing better in the end because they don't have as many expenses? Or does it kind of just hold them back because they're ignoring opportunities they otherwise could have done if they did use their own cash or did take title to it?

Steve: There's a few things there. So double closes. Let's look at that for a minute. People who do those often, they're infill lots, right? And they have a buyer lined up. They might have a builder buyer lined up and they're happy with a 10% margin on it, but they're harder to get.

You might get buyers who have no interest in wanting to do a double close. I don't have access to that information, but it's harder to get those deals. So I don't know what the opportunity cost is for taking title versus doing a double close.

But the double close, their numbers might not look very good. You might have a $50,000 sale price, but I'm happy with an $8,000 or $9,000 profit on that, right?

In the books, I'm going to reflect the $50,000 sale probably because if you're getting a 1099 from a title company, you want that full 1099 price in your books so that if you get audited, you can say, well, there it is. It's getting reported to you. You need it in your books, right?

But yeah, you have a $50,000 sale price, but only an $8,000 margin. It doesn't look very good. But at the end of the day, you're making $8,000 and I didn't have to put any money into this. Or, you know, you have your mailing costs, of course, but your numbers aren't going to look as good, right? In a double close.

For all other things, almost everybody is taking funding from some other source. You can't really scale in this business unless you have a million dollars sitting around to really do this business effectively, right? So, and so then your profit is less. You got to pay profit to the funder and you can't scale a business unless you do that, right?

Seth: Right. It's interesting what you say about how everybody's getting funding, because I remember back when I got started, like there were no land funders and I couldn't find banks. So like, it was just a game of, well, I guess I'm stuck until some properties sell. And it was super frustrating.

Where else do you see people getting funding from? Like, are there other common sources like that? A HELOC? Are they finding a bank to finance stuff?

Steve: I see some of that, but not tons more than you might think more than it would have when you're describing that because nobody was giving loans back then. I'm sure that you had trouble getting loans. So yeah, HELOCs, I do see that. But most of the time, it's other funders, or it's friends, family who are really happy with the returns on, land versus putting it in any other kind of investment.

So even today, things have slowed down for sure, but still the returns on it are still way better than you would get in some other private investment. So if you have a good deal, you're going to be able to find money. And I'm sure that wasn't the case 10 years ago, but it is now. But you got to have a good deal. Bad deals will get rejected.

And they should. And that's a good second look at it because there's been some deals that I've wanted to do and they got rejected and it was better that they got rejected because they were not good deals.

Seth: Do you do bookkeeping for any funders?

Steve: I do. Yes.

Seth: Oh, cool. More than one?

Steve: Yes. I mean, a lot of land investors are also funders. So sometimes you'll see people playing both ends of that.

Seth: But from the land funder perspective, is there any mistakes you see them doing or anything that you think, don't make this mistake?

Steve: I don't see the underwriting that goes into them. I just see the list and I see the aging of that particular deal. And I don't know what is factoring into that, but certainly more aging today than it was a year ago. So I don't know what the exact mistake is.

Is it that all land deals were profitable two years ago? So now this is the natural impact of the market changing. I don't know what the answer is to that.

Seth: I know you don't see the underwriting, but I think you kind of just nailed it. That usually is the mistake a funder is making comes down to their underwriting, basically deciding like, should I do this deal or not? I know many different funders and there's a wide variety of underwriting methods and how conservative or liberal they are at that. And I'm sure that has a lot to do with how things end up going for them.

Steve: For sure. Even the most tight underwriters make mistakes. The liberal ones are going to make more mistakes, but they might make more upside on the questionable deals. So pick your poison.

Seth: Yeah, definitely. I am wondering from an accounting standpoint, is there a way a land investor can accurately account for their time? It's like a non-monetary item, sort of, where you could spend like 80 hours a week on this and not take a paycheck from that.

And your financials could look great, but your life is horrible because you're spending all of your time in this and you don't have a life anymore. I can't think of a way to account for it, but like, is there a way a person can track that or just make sure that they're somehow considering that and the greater picture of what's going on?

Steve: Well, I guess that's from a personal life quality perspective, not from a financial perspective. The IRS won't let you take a salary that way. It felt like you take your salary on your S Corp for a reasonable percentage of the revenue, right? But not a time factor. That's your own personal preference.

Seth: Do you have a recommended accounting software that you want your people to use or does it not really matter?

Steve: I prefer Xero. I think Xero works better for land investors. Most people gravitate to QuickBooks. QuickBooks dominates the US market and people gravitate to that. And some CPAs will only work with you if you use QuickBooks. So I understand why most people gravitate to that.

I feel like Xero works better for land investors for a variety of reasons. The biggest one is that I can take a property, I can attach that property name, APN number usually, but it doesn't have to be APN number to any transaction. And then I can filter for that property and I can run a P&L. I can run a balance sheet. I can run any kind of report for that property alone.

And the tools to do that in QuickBooks aren't as good. You can do it with tags, but you can't put a tag on a journal entry in QuickBooks and you need to do journal entries, especially for terms deals.

So I have my own way of doing like installment sales, for instance, in QuickBooks. I found the best way to do that is an offline calculation. It works fine. I have plenty of investors who do that. But in Xero, I can do everything within Xero. I don't have to do an offline calculation.

I can do it all and I can filter it on that APN number, do my recurring invoices to that APN number, run any report from that number. So that's why I think Xero is better.

Nothing wrong with QuickBooks. It works fine. If you're on it, I wouldn't switch. If you're on one, I wouldn't switch the other. That's way too much work. But that's my personal preference.

Seth: Yeah, well, that's a great tip. I've never used Xero. I don't know exactly how it looks, but I know what you're talking about. Being able to run reports on a single property is kind of a big deal in this business, especially when you consider all of the deal-specific costs that go into something or like with seller financing, just keeping track of the payments on that one property.

It's a huge advantage that might not be a big need in other types of businesses.

Steve: Right, exactly. And that's why Xero works. It works a lot better that way. If I'm rebuilding a default also, that's a big thing. I can pull all of the payments that have come from that property. And all I need to do is filter for it and I can easily rebuild the default that way.

And I can also calculate how much is left. You can do that through the software, but in any event, I like to be able to filter and run reports for any property that I want.

Seth: Yeah, that's great to know. I know you talked earlier just in passing about the margins being like 20% and down to 15% to 10%, that kind of thing. And I'm curious, do those margins change noticeably based on whether the land investor is going after like super cheap deals or like mid-level infill lots or higher end properties?

Do you see people who go after certain property profiles doing notably better or worse in terms of their profit margin?

Steve: Like I said before, the most successful investors are the ones that are going to higher level properties and doing a lot of the work themselves.

Profit margins might be higher on smaller properties, but there's a lot of work. It's not passive income. People don't pay the same amount. They don't pay at all. You got to deal with them. All the excuses that you can think of now, you know, maybe half of them, you don't deal with that, but there's enough that you do and your time gets sucked up in that. And how do you factor that into?

So I also want to say that cash deals have slowed down this year, right? So people with a lot of notes have had that recurring income. And haven't had to worry about it. Yes, you might have a little bit higher default rate, but for the most part, most people are going to pay, right? So it's nice to have that note income for slower times of cash sales. So there's a reason to do both.

Seth: Tell me something without telling me anything.

So we've talked a couple of times now about overpaying your VAs, basically just losing a lot of your profit by having too much of a bloated staff. Is there some kind of metric you can use to know, okay, for every dollar I'm paying to this VA each year, I need to see X number of dollars in profit as a result of that.

I don't know if you have any structures in your mind like that, but how could I make sure I'm not doing that? That I'm not overpaying for a too expensive of a VA or just have too many people on my staff?

Steve: I can't think of a good way to do that other than, you know, people track their own metrics, their own way, right?

Seth: I wonder, should a VA produce three times what they cost each year, do you think? Or like, where should that number be?

Steve: Yeah. Looking at that, you know, from any business standpoint, yes, absolutely. Three times what you're paying them. That's a good rule of thumb. I haven't done any kind of analysis of that. And are you talking about an individual VA or total VA costs?

Seth: Kind of both. I mean, whichever one is easiest to comprehend.

Steve: One of the questions that you asked, you know, do you see people adding too many VAs too soon? I would say that it's actually on the other end. You don't pull the plug soon enough.

That you have these teams, you feel responsible for them. You want to take care of them. But your revenue flow is. It doesn't reflect that. People keep their VAs on too long and they end up bleeding money. And then the decision gets made for them.

If there's one piece of advice that I would give people, don't let that happen. Don't bleed money. Cut that off sooner than later.

Seth: Again, going back to your unique perspective of seeing the books of so many different land investors and some land funders, knowing what you know and seeing what you've seen.

If you had to like hit the reset button on your own land business and start focusing on one specific investing model, property type. Anything like that, what would you do based on what you've seen and who is actually the most successful and has the most profitability?

Steve: Yeah, I would go to the higher end properties, the ones by box of 20 to 50,000 and then sell for double. That's what I would try to focus on.

Seth: Would you sell with seller financing?

Steve: If I had to, but I would try not to as long as you had a big enough down payment like you said at least 25% and I would try to do cash though that's what I would say then making sure that you have the right people in place like I said we never enjoyed the intake side of things and make sure you have that all in place and you have good people there.

Seth: From what you can see in the books do they reveal any patterns about which marketing channels really pay off long term versus the ones that drain money like can you see anybody who's, I don't know, spending all their money on texting and you're like, yeah, it's not going that well for you. Anything like that come to mind? Or is it just too unique of a situation for each land investor to really make a conclusion about that?

Steve: Yeah, it is. And they may or may not want to track that. If they ask me to track it, I will. But oftentimes it gets lumped into acquisition costs, right? So I can't tell really whether it's a cold calling or texting or mail. I don't really have any insight as far as that goes.

Seth: Have you noticed any relationship between how much people spend on mail and marketing and how profitable they end up being?

Is there a direct correlation like the people who spend more make more? Is it that simple?

Steve: I would say there's a direct correlation between how much you mail and how much top-line revenue you have. But your profitability is more a function of how your business is running, how your operations is running. All those VA costs, all those things that we've talked about.

That's more of a factor of profitability. But there's definitely a correlation between how much you mail and how much revenue you have. So that's what I'd say about that.

Seth: Yeah. The tricky thing about all the stuff we're talking about is like, you can definitely say a lot by the numbers, but you can't say everything. Like there's a lot of stuff that you just don't have access to that, you know, would really give us the rest of the story that we just don't have. But it's still interesting to hear what the numbers say, because that's what most people can't see. They can see the other stuff.

So are there any record keeping habits that make life much easier come tax time or when people come to you and there's just a mess? Like, what's a mess? Like, what should they have been doing differently?

Steve: The most enjoyable ones to work for are ones that are incredibly organized. They'll have a Google sheet or a spreadsheet with all of their deals and they have a naming function either by APN or let's say 2025-1, 2025-2. I can follow that extremely closely and then I can match that up to a bank transaction.

The other thing with tax time is 1099s and make sure that we have those throughout the year categorized to the people that you need to issue 1099s to. That's a big one too.

So as far as regular ongoing bookkeeping, there's some people that are super organized. You'll know exactly what deal is what deal. Either you'll have a Google sheet or you'll give me access to HUDs where I can match that up to a bank transaction.

That's the best thing. When you fall behind on that, that's when you can get into trouble.

Seth: Yeah. What exactly do you need from a client? Like, do you need access to the bank account? Do you need them to send you any invoice or receipt or HUD? Like, is that pretty much it? Like, is the spreadsheet thing just a nice extra thing to have, but you can do without it?

Steve: Yeah. I mean, I see the bank transactions as my to-do list. If it's on the bank transaction, I know I need to do something with it. So then I need to go look onto whatever organization platform that they have for me, whether that be a HUD or whether that be a spreadsheet, and I can match them up.

Most of the expenses are pretty self-explanatory. Those are easy. It's the revenue items. I'll go then and match that up with what they got. And then I will need bank statements to do a full reconciliation of their bank account to make sure that all the transactions are taken care of.

It's not appropriate for me to have access to most people's bank accounts, right? I don't want to have check writing privileges. There's got to be a wall between me and that. You can't have any fraud accusations or anything like that. But I do need access to the statements to be able to reconcile them.

Seth: Sure. Okay. Gotcha. Is there a way a land investor can tell. At what point they should stop doing their own books and outsource it to somebody like you or some other bookkeeper?

Steve: Almost right away. As soon as you can justify the cost, because unless you have a propensity for numbers, don't make a big problem worse by trying to do it yourself.

I've had some big cleanup projects and I enjoy doing cleanup projects. I really, really enjoy doing that. But if I'm asking you about something that happened 10 months ago, you're not going to remember. People forget a month ago. I forget a month ago. I don't know what that transaction was for.

If you got to do that for many months, that's asking for a lot of problems. So I just say as soon as you can justify it, I'd say outsource it.

Seth: Yeah. I remember for a short while there, I was doing my own bookkeeping, which I don't know why my wife made me do this because she is a CPA and she does all my bookkeeping now. But for a while she was making me do it and it was awful.

I just remember I could do it, but like, oh, it's so not what I wanted to do with my time and I should not have been doing that. Like it's not a revenue generating activity. It just totally took my eyes off the ball of what I should have been paying attention to. And luckily we got that all sorted out.

But like you said, unless they just love doing it themselves or if you just simply don't have the revenue yet, that might be another reason to pay for a bookkeeper. I can't think of a lot of reasons why they should be doing it themselves.

Steve: That's correct. I would wholeheartedly agree with that. If you don't have the revenue, Obviously, you're not going to hire one, but as soon as you get any kind of revenue, yeah, outsource it.

Seth: Yeah. Can you think of any other surprising insights you've uncovered from doing books for land investors? Anything come to mind?

Steve: The biggest one is the margin, the profit margins. And we kind of alluded to this before. The impression you get when you talk to people, you hear podcasts is that everybody's making tons of money in this. And at the end of the day, that's not necessarily reality. There's a lot of expenses that go into it. So at the end of the day, if you're making 15, 20% margin, that's pretty good. So there's people that make more, people that make less. That's been the surprising thing.

And it's also good to see, we're in land investing. Sometimes we struggle in certain aspects of it. It's good to see people doing deals. It's really insightful. That's really interesting to see how people are doing their business.

And focusing on an area too. That's one thing that we ran into. We went to too many places. And finding expertise in all of those places is really difficult. So I'd say focus more on an area instead of spraying all over.

Seth: So if somebody's numbers ever looked too good to be true, I don't know if you ever encountered this, but if you ever see that, what would be any unusual reasons behind that, if that ever comes up?

Steve: Numbers at the end of the day don't lie. So as long as your bank feed is up to date, it's hard to make them look better than what they are. The too good to be true are the narratives that people give towards their numbers.

Seth: Makes a lot of sense. The numbers don't lie at the end of the day. Do you ever see any early warning signs in the books that an investor is about to run into a cash flow issue? If so, what would those warning signs be?

Steve: The obvious one is the top line revenue is suffering. You're not having that side of things and then you don't cut off the VA costs before that really becomes an issue. Outside of that, I can't think of another thing that's a warning sign.

The people who are successful in this business are the ones that can continue to keep enthusiasm in the business. If you can't keep the enthusiasm, it's maybe time to take a second look at this. Because you have to have the energy and you have to have it every day for it to be successful. If you don't, it's going to suffer just like anything else.

Seth: So I'm wondering, as we wrap this up, this has been awesome, Steve. Thanks so much for everything you've said. If you could wave a magic wand and get every land investor to change one habit in how they track or manage their money, what would that be for you?

Steve: Pay attention to the numbers. Pay attention. What a novel concept. It's pretty obvious. Because I have a standing invitation to any of my clients. I'll do a weekly call if you want. I'll do a monthly call. Many people don't take me up on that. It's the easiest thing to put on the back burner.

A month becomes two months, then becomes the end of the year. And then you're scrambling at the end of the year to figure out your taxes. So paying attention to it more often, even if it's a 15-minute check-in, that goes a long way.

So if my magic wand is, let's talk more often. I'm happy to go over these things. I'm happy to be a counselor if you're not happy with the way the business is going. I'm happy to relate what I'm hearing. I don't share client stuff with other clients. That's a strict no-no, but I will tell you general things. I'll tell you how things are going, how other people are seeing. You're not alone in this book. Everybody's dealing with the same thing.

Seth: For somebody who's just getting started in land, maybe the revenue isn't there yet to pay for a bookkeeper. They're just figuring things out. What's like the simplest bookkeeping system they can set up today that will scale with them later or be easier to transition to a bookkeeper?

Steve: When you say system, do you mean like a Xero or a QuickBooks? To me, it's Xero. The other thing about Xero is a little bit cheaper than QuickBooks. So I think the bottom tier service is like $20 a month. So that's really affordable. If you're going to just use that, you can scale with that.

If you don't feel like you can justify that cost, Just keep organized. Keep a Google sheet of all of your deals. And at some point, you're going to want to transition. If you're really serious about this, you're not going to be on spreadsheets forever. So at some point, you want to move on to the software. And that's what I would say.

There are some other softwares out there. Stessa. That's more of a real estate investing one, but that's a free one. It doesn't have all the bells and whistles. There's some other free ones out there.

Seth: Is it like FreshBooks?

Steve: I've not used FreshBooks. I don't really have any insight on FreshBooks. I don't think it's free, but it's another one out there. There are some other free ones out there. I would not recommend them. Just stay organized until you're at a point where you can justify the cost.

Seth: Okay. So as we wrap this up, one last question for you, Steve. You had said something about how you got into a Ponzi scheme and how you got out of it. Tell me a little bit about that. And also, what do you think that means for land investors who are trying to set up a fund? Because this is something that I've heard a number of times, is land investors having this fund. I'm curious to hear your thoughts about that.

Steve: This dates back several years. This was back from probably 2009. I invested with a personal friend of mine who was trading currencies against each other, the dollar against the pound against Australian dollar, et cetera.

At first, I'm pretty sure he was legitimate. I did a lot of due diligence on him. He talked the talk. He walked the walk. I invested with him. Like I said, I'm pretty sure he was legitimate at first. I was invested with him for 10 years and he would pay a regular dividend like clockwork. It was about one and a half percent a month.

And he would offer that. You could take it in a payout or you can reinvest it. I took it as a payout for several years and then I turned around and reinvested it maybe halfway through that 10-year period. So I had received returns from him.

When I really sat back and took a look at it, his returns were like clockwork. When you look at the graph, it was straight upward. Nobody can do that over time. You can't beat the market over time. And I just got back to thinking, something's not right here.

And in the middle of this, he materially changed his lifestyle. He sold his modest house in town and went and bought a fancy place on the lake. So a lot of this didn't add up. So I got my money out. I asked him to pay my money back to me and he did. It was over an 18 month period, which was what the original agreement set. So no red flags there necessarily, but I was happy to get my money out.

I did leave a little bit of money and my younger two kids, I have four kids, my older two were going to college at the time. I got their money out and mine, but I left the other two in.

Well, about two years later, I got the notification from the feds that he was under investigation for running a Ponzi scheme. And this was an $18 million Ponzi scheme that he was eventually convicted of running. And he's in federal prison now.

You know, I thought it was in the clear, but the feds have this way of clawing back your returns. And when I first saw that, I'm like, I'm going to fight this. There's no way they can do that. And just about when I was going to do that, I watched the Netflix special on Bernie Madoff.

And that put the fear in me that I needed.

Seth: When you say clawing back your tax returns, you mean they can actually go into your bank account and take money out of it against your will?

Steve: Not like that, but they can force you to pay back the returns that you made on the investment. Your original investment, they're not taking that away from you, but any excess returns. You're supposed to return.

Seth: They basically like send you a bill and just expect you to pay it, and then you can do it whenever you want? Or how does that work?

Steve: Pretty much. You said this is the amount that you owe. Well, I was able to negotiate with them. I negotiated a lower amount and it was installments. Okay. Ended up getting out of it.

Seth: Okay. But the fact that they're able to do that was just mind-blowing to me.

Steve: When you watch the Bernie Madoff special, for instance, there were people there who inherited accounts from their grandparents who received returns in the 80s, who had to return it all. So you had retired people that had to go back to work at Walmart because they had no money. It was just mind-blowing what the feds are able to do with those clawbacks.

So that put the fear in me and said, I'm going to settle this. So I say that in the context of I would never invest in a private fund like that again.

And I'm not saying Anybody would ever intend to create a Ponzi scheme, but it might be too much to handle if all of a sudden the returns don't come back the way they had them. So I'm not bad mouthing anybody who would put together a fund like this, but you just never know what people are capable of. I would have never thought that this guy, my personal friend, was capable of this, but he was.

Seth: So, yeah, it's interesting. I've actually heard of people not in the land space specifically, but in real estate investing space, really well-known names who kind of got caught up in this sort of thing. Like. They started with the fund that was legit and it like somehow morphed into this Ponzi scheme.

I wonder like the pressure to make these returns true, whether or not they're there. I wonder if that's like a big temptation for a person to be like, OK, I'm going to start doing what I got to do to keep this thing alive. Is that like how these things often start, do you think?

Steve: That's what I think, too. Even Bernie Madoff at the beginning, I think, was legit. It's just the pressure to continue the returns is too much of a temptation to continue that on. And if you can get money from other investors to pay off other investors, that's a short-term band-aid and you don't have to face the music until many years later. But now this guy's in federal prison and I wouldn't want to be dealing with that.

Seth: Like I've had things I've invested in that didn't pay out and I haven't been paid anything. And honestly, like I'd rather just not be paid anything than have somebody fledge the numbers and then I got to cough it up years after the fact. That'd be a real disaster. So that's a good point. Yes. The small silver lining, I guess.

Steve: Silver lining, yes.

Seth: Well, Steve, it's been awesome talking to you. I learned a lot. If people want to reach out to you or connect with you or anything like that, is there a place they should go to do that?

Steve: Yeah, I have a website, thacksland.com. It's an acronym for my wife and four kids. And then land at the end of it. T-H-A-C-K-S-land.com. That's my website.

Or email me. That might be the best way to get a hold of me. Email me at steve at thackslandbooks.com. I do have all the socials but that might be the best way to contact me.

Seth: Cool yeah and I'll include a link to that in the show notes again retipster.com/235 or it's in the description wherever you're listening to this you can go ahead and click on that and get right there and Steve thanks again and we'll talk to you next time.

Steve: Appreciate it thanks.