Why You Need to Consider Land Banking for Long-Term Wealth

Aviva (00:00)
this week's listener of the week is Lone Star Luck.

Lone Star, thank you so much for leaving us a five star review and for those of you listening, if you leave us a five star review below, you might be next week's listener of the week, week, week. This week on Commercial Real Estate Secrets, we have Mr. Brad Warren. Brad is a real estate salesperson in California and Brad is a salesperson at Velur Real Estate Services, Inc. Brad.

Thank you so much for being on the show today.

Brad Warren (00:37)
Thank you very much for having me Aviva.

Aviva (00:40)
So Brad, if you could share with the listeners who you are, where you come from, and what you do here, and what you're doing on Commercial Real Estate Secrets.

Brad Warren (00:52)
Sure, love to. Have we got like three or four hours to answer that? So, who I am, I'm a husband, a father, I'm a real estate salesperson, but I had a career for a little over 40 years as a business coach. I used to work for Keller Williams as one of their coaches and had my own practice and also spoke on stages all around the world, teaching seminars and things like that. But now I sell dirt.

Aviva (00:56)
Okay.

Brad Warren (01:21)
and I am what's called a land banking consultant and I help patient investors build generational wealth by investing in land.

Aviva (01:28)
So Brad, what is land banking?

Brad Warren (01:33)
Okay, the easiest way to explain it to your listeners is imagine the place that you grew up as a kid. You're sitting in the back seat of the car. Mom and dad are driving around. They pass a vacant lot. Mom says to dad, gee, honey, there's a phone number and it says for sale. Maybe we should call and find out more about it. And dad says, yeah, that sounds like a great idea. And of course they do nothing. 10 years later, maybe now you're a teenager, you're still in the back seat of the car driving around with mom and dad, go down the same street.

Only that vacant lot is not vacant anymore. There's a shopping center or a solar farm or a warehouse or something has been built on it. And mom and dad are kicking themselves in the rear end going, my goodness, we could have made a fortune if we had bought it back then and held it and then sold it to the person that built whatever it is that's built there. That's the basic concept of land banking. Buy land when it's cheap. Buy land when it's cheap.

Aviva (02:30)
So how long have you...

Brad Warren (02:32)
hold and sell to a developer to make generational wealth.

Aviva (02:39)
curiosity are you finding the hold periods to maximize your success in land banking?

Brad Warren (02:46)
On average, we tell people who invest with us, expect 7 to 10 years. Does it happen sooner? I could give you an example of a current client, less than two years, and they got an offer for a lease, a 35 -year lease, that's going to net them about $105 ,000 per year for 35 years. That was less than two years. And I know people that waited 20 years, but sold a $400 ,000 property for $15 million.

Aviva (02:53)
Hmph.

Brad Warren (03:16)
So we generally go on the average of the clients that we know who have actually sold, we tell people conservatively, 7 to 10 years.

Aviva (03:29)
Very interesting. Do you find when people buy that they even want to sell eventually or they just like to hold on to it until maybe they croak and then their kids sell it out of curiosity?

Brad Warren (03:45)
Most people are buying with the intended exit strategy to sell and have the money for themselves. But the reason we call it generational wealth is in the event that you do hold it. And the longer you hold it, usually the more valuable it becomes, it's supply and demand. Less land, the land that still exists is more expensive. So some will hold and that's usually what they do, but some could buy and say, look, I'm...

In fact, one of my clients bought a very large parcel after five years. She's now selling it. In fact, it's supposed to close this month, the month of May 2024. And she bought it for $750 ,000 and is in contract for $2 .25 million. I know for a fact that she said her granddaughter is being named as the recipient of some of that money. She's putting it in a trust for her granddaughter.

So people have all kinds of different exit strategies. We do talk a lot with them. Oops, my phone's going. Somebody probably want to buy some dirt. I'll get back to them later. We do, Aviva, we do spend quite a bit of time upfront with potential clients and potential investors explaining the process, finding out what their needs are, what is the money intended for, can you wait seven to 10 years, can you wait longer? And we're very clear about that before they even invest.

Aviva (04:49)
BLEH!

Brad Warren (05:09)
In fact, I've turned away some people. I can think this one couple was in their early 70s and they were going to buy and I asked them some questions and, no, we really want to buy. And then sure enough, the next day they called me back and said, you know, 10 years, we'll be in our 80s. I said, yeah, I kind of ask you that. And I'd rather that you not buy than buy and be upset and still have the land and not sell it in your lifetime. So we're very clear about.

Aviva (05:25)
Yeah.

Brad Warren (05:37)
being very upfront about educating our potential investors prior to them investing.

Aviva (05:44)
Good for you. Ethics are... If you don't have ethics in any of these businesses, I don't know what you have, but...

Brad Warren (05:52)
Heheheheh

Aviva (05:55)
So how did you get started in the, how'd you get started slanging dirt?

Brad Warren (06:01)
Well, I do a quarterly net worth statement. Been doing it since March of 1989 when I was engaged to my then to be wife. We were going to get married a few months later. So I started keeping track of our net worth every quarter. And so December 31st, 2011, I looked at the numbers and had a sort of an epiphany aha moment. And I realized my wife could retire alone with the money that she'd saved through her work at Oracle.

and her 401k and some very smart investing. Together, we could retire mostly on her money. But if I was still single on my own at that point, I was around 60 years old at the time, 60, 61, I said, there's no way I can retire on what I've amassed by myself personally. So I called my land banking friend. Her name is Marcella Silva. She came to the house with her computer January of 2012 and did her presentation.

just like a real estate agent that goes to get a listing for a residential would go to someone's home. My wife at the end got up and walked out, said, no, thank you. I don't like seven to 10 years. I like my stock market and my mutual funds and slow and steady wins the race. She walked out of the room. I turned to Marcella. I said, I got enough. Buy me a property. So I bought my first one. It closed in March of 2012. Then I got one in 2013, one in 2014. And then in 2015, my wife...

wanted to do a company meet, Marcella was speaking at a hotel. And investors like myself were supposed to bring friends to introduce to her and hopefully they invest and we would get what's called a finder's fee. So my wife says, well, I want to go. I said, sweetie, you already know what I do. And you said you never want to do it. She says, no, no, no, I'm not going to buy. I'm not going to buy. I just, maybe I missed something when she presented a few years ago, because you've been going down there. You have these little bags of dirt from the three properties that you own.

You go to the annual meeting, you're always talking about dirt. A lot of your friends have invested. Maybe I missed something, but I'm not going to buy. Okay, fine. We go, we sit, we listen, and what do you think happens? There in the hotel room, she pulls out her checkbook and she buys two out of the four properties that were offered. And the whole way home in the car, I'm going, I thought you weren't going to buy. I thought you weren't going to buy. And she says, shut up, drive it. I get it now. So she bought number five and six, and today we own 11 properties ourselves.

Aviva (08:14)
Wow.

So, let me ask you, my father, who's a mentor of mine, and one of my very best friends, he's your age, and in the course of his life, he bought and syndicated a ton of dirt and a ton of income properties. And...

He, you know, I'd say, what, you know, what do you regret? Look, he did really well with the dirt he bought and syndicated. It happened to be right by the Denver International Airport and they just sold it two years ago for an unbelievable amount of money that nobody expected. But he said to me, he said,

I would have bought more income properties and less land. And his reasoning was because income properties bring you income in the, you know, month after month, literally. We do warehouses. That's why we're the warehouse hotline. Whereas land, he's like, you know, they sat on that land out by the airport, I think for 40 years before they sold it.

So my question, and you know, he also says there's a million ways to make money in real estate. So his way is not, you know, it's not the do or die, but what would you say is your counter there? Why buy dirt instead of income property?

Brad Warren (09:52)
Yep, I know I get it.

Well, first I would say not instead of. I think you should do both. It's a question of diversification. You wouldn't put all your money into one stock. You'd be better off, the market has shown that you're better off buying some kind of basket of funds, like a mutual fund, over time than an individual stock. Also, it depends on your anxiety and stress level.

Aviva (10:31)
Yes.

Brad Warren (10:31)
I don't have to deal with tenants, toilets, termites, trouble and trash. I pay my property tax once a year. So once a year, I have to pull out the checkbook, send the money to the LA County or Kern County Assessor's Office or Tax Collection Office, whatever they're called, and I'm done. And for the next 364 days, I don't have to think about, and by the way, I own rental property and they just ...

Aviva (10:51)
Yeah.

Brad Warren (10:59)
told me the other day, the sprinkler system's busted. We gotta get someone in, they have to do this, that, that. Once there was a snake under the house and they had to call the exterminator to go under there and catch the snake and get rid of it. And another time a piece of siding blew off and I could go on and on and on with rental property. Now, and I still think people should buy rental property, even with those problems, those challenges that come up, but you want to be diversified. I, Marie and I, we've done stocks.

Aviva (11:21)
Sure.

Brad Warren (11:28)
bonds, mutual funds. We own 10 -year bonds with the government, very safe and secure. We've done syndications, gas station, strip mall, single -family residence, dirt. I mean, we haven't made money, and we've lost some money. We made money. But overall, our portfolio is very nice. And as far as income, we're both retired through Social Security. So we've got...

$5 ,000 a month in cash flow coming in every month, as long as Uncle Sam keeps Social Security solvent, we've got cash flow. And we have one rental that's fully paid, so we've got cash flow. So for us, we didn't need to worry so much about cash flow. We wanted something that was going to give us a big hit, but we knew it would take a little bit longer. And then that money, if we don't spend all of it, which I'm sure we're going to try, but if we don't spend it in our lifetime, our daughter is going to be very...

Aviva (12:18)
Sure.

Brad Warren (12:25)
Very, very wealthy daughter.

Aviva (12:28)
Does your daughter know that out of curiosity?

Brad Warren (12:32)
She knows that we have land. She has some idea that it's going to produce a fair amount of income, but she doesn't really have the numbers and doesn't know that most of it will go to her unless we decide to take some really outrageous vacations, like around the world cruise for a year for $200 ,000, $300 ,000 each. I don't know. But no, it's not appropriate to tell her that. We need her to make her own money and do her own thing.

Aviva (12:35)
Hahaha.

Sure.

Yeah. Okay, okay. Now, hey, you know, it's an interesting question because, you know, someone who has worked with my family, you know, I have, it took a long time for me to understand what was going on. And I see the ramifications of that with my peers and my clients and you're right. My dad always says, I'm spending it all before I die. So.

Brad Warren (13:25)
Yeah.

Aviva (13:27)
And I hope he does. But, you know, yeah, no, it's, it's generational wealth is a very interesting thing that I, as a real estate professional, you're in the front seat of watching and dealing with it. And it's got high highs and low lows. And you obviously want to do right for your kids. But,

Brad Warren (13:29)
Yeah, good for him.

Aviva (13:50)
You're also not in control, specifically once you go six feet under. So it's just interesting. So let me ask you, site selection, how do you do it for your own personal buys?

Brad Warren (13:56)
Yep.

So the reason why I left my 40 plus year career as a very successful business coach and trainer and seminar leader and went into the business of selling the land is first I became an investor, then I became a finder, which is a referral partner, and I was making finders fees, and then eventually got my real estate license and joined the company. And the reason why I like this company, you mentioned ethics before at the beginning, they're very, very, very ethical, very straightforward.

And I can't go into detail because we could be here for 35 to 40 minutes, me explaining how we find the land, but we have a very specific process that we use, we meaning the company, has a whole team. It's called the Research and Acquisition Department and has several people in it. And all they do 40 hours a week is find the dirt that meets our specifications. And again, it can't go into a big thing, but we're very, we do

as much risk mitigation upfront as possible before we buy the land. And when I say we, our company buys the land first with its own money and then sells it to investors. So this is a very different model than a lot of us. We don't represent the sellers. We actually find land, we get it dirt cheap. There's my one joke that I always like to say. We get the land dirt cheap. A lot of people say, how do you do that?

divorcing couples in California, it's a community property state, when they divorce and they both own the land, maybe they got it from grandma 20 years ago, they either have to buy the other person out or sell it and split the money 50 -50. Most of them want to sell it. There's not a ready market for it. We find them. We offer them something, you know, nickels, dimes on the dollar. I mean, we're getting a good deal, but they're also getting it free, boom, cash.

Aviva (15:51)
Yeah.

Brad Warren (16:01)
They're done. And then we sell that land to our investors still below market, but with enough of an increase to provide cash flow to pay all the people in the research and acquisition department and to give the owner a return, et cetera, et cetera. It's a company. You have to have a profit. But our investors are still getting a piece of land that has been checked out, verified as having no liens.

No buried gas tanks, no red -legged salamanders that would prevent development. It's in the path of growth. We show them that. It's a big, long process, but I love the process. I'm very, very confident that all 11 properties that my wife and I own will eventually sell. When is the only question? And that's why we ask people to use what's called patient money, money that you're not going to need.

for a hip operation or a Lamborghini midlife crisis or something else.

Aviva (17:02)
So let me ask you, how has the fluctuation in the debt markets impacted your sales and acquisitions?

Brad Warren (17:14)
When you say that, could you just describe to me what you mean by the debt market?

Aviva (17:19)
Sure, look, it's my understanding that, you know, development, it was very, very hot coming through 2022. Then once interest rates started to pass 5%, 6%, 7%, construct, you know, the numbers didn't start to pencil and shovels and pencils went down.

Brad Warren (17:45)
Okay, so one of the things that we do is we attend city council meetings. We read general plans. We watch where cities that we invest in, and there's a couple primary cities that we like, but we watch where the city council is putting its money. So when we see the city council vote to spend $180 million of city money,

on widening the off -ramps on the major thoroughfare that runs through the city, you kind of got to ask yourself, why are they doing that? Obviously, because there's going to be a lot of development at the four corners of those exit ramps and entrance ramps. So we immediately start to buy up as much land near there as we can because we know something's coming. So follow the money, do the homework, see where things are going. I'll give you another example.

Aviva (18:23)
Yeah.

Brad Warren (18:42)
These are what we call the 10 economic growth factors. One of them is population increase. Well, in two of the cities that are real close to each other, the two mayors have declared that by the current population of the two cities combined right now is around 420 ,000. They have said by 2030, which is what? Six years away, there'll be a million people living in those two cities. That's...

Aviva (19:02)
Okay.

Yeah, well.

Brad Warren (19:11)
two and a half times, right? 400 ,000 to a million is two and a half time increase in population. Well, where are those people going to live? Housing. So we watch housing. How many, you know, Lennar homes and American homes and KB homes, how many of them are coming into town and how big are the projects? We look at warehouses. We look at warehouse development and all of the commercial development.

Aviva (19:21)
Well...

Wow.

Brad Warren (19:40)
So by following the money and where it's going, we know that what's needed in all of those houses, warehouses, swimming pools, libraries, hotels, what do they all have in common? They're built on dirt. So that's our main premise. We want to own the asset that everybody needs in order to build something. We don't want to get involved in crypto and stocks and... I mean, you still should diversify and have some of that, and I do.

My wife and I, when I say I, I mean we, my wife and I, we have a wide array of stuff. We own the Nvidia stock, which is the current darling. Well, yeah, I bought it at $21 a share, like five years ago, $21 a share, it split four for one. So my 50 shares went to 200 shares. Well, guess what? They're now 1100. It's over 200 and...

Aviva (20:20)
Yeah, good for you. Hey.

Yeah, that was a good bye.

Brad Warren (20:36)
Yeah, it was a very good buy and they've announced a 10 for one stock split. Hello, thank you very much. Now, of course the price drops, but then everybody will be able to get in, which will then of course make the price go back up again. So yeah, own a lot of different stuff, including land in your portfolio.

Aviva (20:57)
It's, I love it. You know, it's funny. It's like, you don't have to be the first person, but you follow, you follow the money, you follow the smart ones and you don't have to be first. So just don't be last.

Brad Warren (21:12)
In fact, you almost never want to be first because, what do they say, pioneers get the most arrows. The guy at the front in the jungle in wartime, the point person is the most likely person to get killed. You don't always want to be first.

Aviva (21:19)
Right.

Yeah, the guy who kicks down the door is always the one who gets shot, is what they say.

Brad Warren (21:33)
Yes, exactly. So you don't always want to be first, but you want to learn from those people's mistakes and not make the same mistakes. Make new ones, make different ones, get some new learning. But that's why I like this company. We've been around 45 years. The current owner is the son of the founder and he's a PhD economist. He has a degree in economy. So you think he knows a little bit about, you know,

Aviva (21:37)
Yeah.

Brad Warren (21:59)
upside, downside, trends, cycles, all that kind of stuff. Yeah, the guy's brilliant. And I'm learning an incredible amount about dirt. I didn't know there was so much to learn. You know, there's five kinds of zoning of dirt. It's not just dirt. It depends on the zoning. Let me give another quick example. Do we have time for one other example, Aviva? So my first purchase was actually mixed use, which is the highest of the five kinds of categories. And it was MU4.

Aviva (22:18)
Yeah, yeah, yeah.

Brad Warren (22:29)
meaning you could build up to a four -story apartment building, four -story hotel, whatever. Well, guess what the city council of Lancaster did for me? They rezoned the land. They rezoned the land. How, MU5, what does that mean? They can build a five -story hotel or a five -story apartment building. They added one and a quarter acres to my holding instead of me holding...

Aviva (22:39)
Told you you couldn't bite. how nice of them.

Yeah.

Brad Warren (22:56)
I bought an acre and a quarter times four stories is a five acre property, basically. Now it's a six and a quarter acre property. Do you think I'm going to sell it for the same price as the five acre? No, I'm getting one X more. I made $115 ,000 by them rezoning my property. Or let me put it this way. The value of my property went up $115 ,000 just on it being rezoned.

without me even doing anything. We call that the unearned increment. I didn't do anything to earn that. The city council did me a big, big favor by rezoning my land. And so that's another way that you can make legacy and generational wealth is you let the city council do some things to your land and upgrade the zoning.

Aviva (23:46)
Hey, normally it's just horror stories from the city council, so I like hearing a good story.

Brad Warren (23:50)
That's right. No, we know the mayors of both cities. We read everything that they print in the paper. We go to city council meetings and listen to them debating and talking. And we do a lot, lot, lot of research to help us with mitigating as much risk as we possibly can for our investors.

Aviva (24:13)
Smart. So Brad, what makes you happy about what you do dealing dirt in commercial real estate?

Brad Warren (24:24)
Well, I'm a salesperson at heart, have been for decades. So I love the whole selling process. But what really lights my fire, floats my boat, is when Velur gets a letter from a developer addressed to one of my clients, one of my investors. He usually goes through the home office first. And when Marcella, my business partner, calls me up and says, Brad, are you sitting down? That's like, okay, yes I am, what's up?

Your clients XYZ who own property at ABC location just got an offer letter. I just emailed it to you. Yeah, I'm looking at it right now. my God, I can't believe this. 3 ,500 an acre for 30 acres for 35 years and that doesn't even include the escalation clause? Yep, I want you to forward this to your clients and we're going to get on a three -way call. there's another thing I like about the company. For free, we offer negotiation coaching.

So with that client, the married couple, Marcella and I got on a half an hour Zoom call and explained to them what this meant, what it looked like. We taught them about the escalation clause, which they didn't understand or know about. That added tens of thousands more dollars to their contract. We gave them a series of questions to ask the energy company. And now they're in the process of negotiating, which by the way, could take one or two years to negotiate.

Aviva (25:23)
Hmm, that's smart.

Brad Warren (25:51)
but we will be with them through that entire process. And we can't tell them, yes, sign, you know, that's financial advice and we would lose our real estate license. But we say things like, wow, that's a really generous offer. And that usually means, yes, you idiots, that's good, that's as much as you're gonna get, go ahead and sell. But we can't actually outright specifically tell them, don't sell or sell. That's financial advice, we get in a lot of trouble.

Aviva (26:03)
brain.

Hmph.

I love it. It's cool when you win alongside your clients and you're, you know, the more you give, the more you get and yeah, it's the best. So Brad, yeah, where can the listeners find you, follow you and contact you?

Brad Warren (26:29)
Yes, yes, makes me very happy.

It's absolutely the best. Yeah.

They can find me here in California at my house, but in order to get a hold of me, the best and only way is my email. And I picked an email, that's my name, so that I'll always remember it, because hopefully I never forget my own name. Brad @ bradwarren .com. Brad at bradwarren .com. I respond, even when I'm on vacation, I respond to all emails within 24 hours.

I will get back to them. They need to tell me where they heard about me because I like to thank you Aviva for having me on your show and I want to know how they found out about me. I only work by referrals so they have to tell me. If they don't remember then I don't do business with them. I say, well you got to let me know how you heard about me because if it's not through somebody that I know, I'm sorry I can't work with you. All of my business is by referral. And then I'll set up a Zoom call with them. We'll chat.

They have to get educated first, as I mentioned earlier, my business partner does a one hour presentation that they must watch before they're even allowed to invest with us. And I'll start them down that process, down that road and follow that process. And eventually they'll hopefully become a client.

Aviva (28:02)
Brad @ bradwarren .com. Brad, thank you so much for being on the show and for everybody listening. We'll see you next week.