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David: Hey guys, welcome back to the discount property investor podcast. I am your host David Dodge and today I have a special guest, Cowboy Joe is going to be joining us today. I got to meet Cowboy Joe in Tampa, man it's probably been 6 or 7 months ago at this point and then just about 2 or 3 weeks ago, I ran into him again in Tampa. I met him in Key West the first time but both times in Florida, and then I ran into him again in Tampa. And Cowboy Joe is awesome, he is filled with knowledge and value and I'm so excited to get to have him as a guest today and Cowboy Joe is going to fill us in on a ton of stuff and he is going to provide a ton of value. Every time I talk to this guy, he's got really really cool things to say. So Joe, Cowboy Joe, welcome to the discount property investor podcast. How you doing today man?

Joe: Thank you. I'm doing great David, thank you for having me on. I love your energy and love adding value to people wherever I can so truly looking forward to where this goes.

David: Man I love it. Well I know that you are an expert at land development, in land developments, and that you also do a lot of coaching and consulting in regards to land development, but you also do some coaching and consulting to entrepreneurs for high performance thinking. Wow, that is a lot of stuff that we could dive into today. Let's start with talking about the high performance thinking before we talk about anything real estate Joe because it all starts with mindset and that's where it all starts, right? And a lot of people I feel like that are getting into the real estate investing space and there's so many different things that we can do when it comes to real estate investing but it all starts up here, it all starts with our mindset and a lot of people that come to me for help, you know, I find that they always feel like they don't know enough when in reality they have enough information to get started, right? But essentially they're like oh there's you know, I need to read another book or I need to go follow this other guy and read his blog or I need to get more. When in reality you probably already have enough information at least to start marketing and finding deals and doing deals, right? So I want to hear you know, some of your opinions and thoughts on the whole mindset and the whole high performance thinking.

Joe: Definitely David. It all starts with the mindset and I tell people that I love developing land and entrepreneurs lives 'cause let's face it, that 6 inches real state that we've got right there between our ears is the most important real estate we'll ever develop. There's 3 S's to success: there's strategy, there's story and there's state. Unfortunately most people focus on the strategy and never address the story and the state. Let's face it, any strategy that somebody else has been successful at is a proven strategy so what's the other common denominator is the story and the state. Take two people doing the exact same thing and the exact same [inaudible] with the same resources, one will be successful and one will fail. The reason being is their story and their state. Story is literally any BS story your telling yourself and for you city people BS stands for bullshit. All stories that you're telling yourself are bullshit. If you're telling yourself you're too old, too young, I can't remember names, I can't remember numbers, whatever it is, that's a BS story and you can dissolve the charges around those stories to where they're not controlling. The other critical factor though is state, what kind of emotional state are you in predominately? I mean you're gonna have all the emotions but where do you stay predominantly? If you're in anger, shame, guilt or resentment, then you're not gonna make it very far at least not long term. In fact, those four emotions probably kill more people than everything else combined. It's not until you get into a state of gratitude that you can truly create. You have to be grateful for where you're at. You don't have to be content, you be grateful but not content for where you're at, but the key is to be grateful and then move forward from there.

David: Man I love preaching to my friends, my family, my students about gratitude. It is something that I really pride myself on in terms of you know being a grateful person, I think that gratitude and being grateful is the key to happiness really. Like people have a lot of wants and we have a lot of needs, right? But most people's needs are met and we have all these wants and that is a major reason that people are unhappy is they constantly want. And if you can just take a minute and just look around at all the stuff you have and just you know, try to be grateful for it, it's almost impossible to like walk away from that exercise unhappy. You got all this stuff, right? But I think that you know, the lack of gratitude is a big big issue so I love what you just said, I love it and I can't agree with it more. So you talked about four states, can you repeat those states.

Joe: Well you've got several states but the ones I key on are the ones that really harm you the most both physically, mentally and everything else, and that is anger, shame, guilt and resentment. Now, those emotions aren't necessarily good or bad, they're necessary to get you to take action. Let's face it, when we get pissed off we tend to take action. But it's when we harbor that anger and that resentment, it literally breaks our bodies down. It stops us mentally, we stay stuck where we're at and we can't move forward. There was an old saying that anger and resentment are kind of akin to you drinking a poison hoping it kills your enemy because that's literally, anger and resentment's not hurting them at all, that's destroying you though.

David: Yeah it's totally, it's total- that's so true. It's destroying you, it's not hurting or touching them at all. That's so true. I love it. So you had mentioned you know, the 3 S's to success: strategy, story and state. And you said strategy, any strategy that's worked for someone else, it's been proven right? It worked for them, why wouldn't it work for you? I love that, that's awesome. Story, it's- whatever it is, you know, whatever story you're attaching to yourself is probably BS. You know, you're not too young, you're not too old, you're not too poor or whatever the case is. These are just things you're telling yourself that you're- that you believe after you tell themself- yourself these things, and they're not true, right? I love that. And then the state, you know, what kind of emotional state are you currently in? Avoid the anger and the shame and the guilt and the resentment, these are the four states that are going to destroy us, right? And then there are states of mind that you can have that will do the opposite and you had mentioned gratitude. Are there others that you'd like to talk about?

Joe: Gratitude, joy, love. I mean-

David: Oh yeah. Yeah.

Joe: I love human beings, I love mankind and I love animals. Do I necessarily like all of them?

David: Hahaha.

Joe: There are times that I don't but I truly do love- and that's why I do these and that's why I coach and I love helping people. But when you can just love somebody for where they're at, not what they can do for you or anything else despite anything that you all may have disagreements on, you can love somebody and still be friends and get along with people and you not have the same views and have differences. That's what makes the universe work. Everything is entangled and works together, and thus the universe is always going to be imbalanced. You can not knock the universe out of imbalance, we're just not that significant. But on the flip side of that, we're every bit as significant as we need to be to accomplish our missions.

David: Yeah. No I'm with you man, I love- I love that. And I'm really happy that we were able to start with that guys 'cause mindset is everything, right? If you have a bad mindset or a limiting belief mindset or a negative mindset, you're only hurting yourself, right? You had mentioned the most important real estate is the space between your ears and I just want to reiterate that, that is the most important real estate and if you are having negative thoughts and having a negative mindset and you're telling yourself this story about how you can't, right? You're not helping anybody and you're actually hurting yourself. I absolutely love that. Very very cool. Alright, so happy that we were able to start with that guys, it's imperative that you know that your mindset controls and is a direct effect of how you do things and what you do and really the ability to do things, right? So you gotta get your mindset right first, that's the most important part. I love it. All right, this is a real estate podcast, let's talk real estate Joe. Alright so Joe you are an expert at land developments. Before we even get into anything else, what does that even mean? What is land developments?

Joe: Well land development is a wide wide area. You have infield development, it is when you take a property that's inside of a city that's already been developed but maybe redevelop it or add additional density and development to it. I have experience in that and I actually have students that I coach in that as well but I focus primarily on raw land development and that's finding parcels of land anywhere from a couple acres to a thousand acres, it just depends on the project, and figuring what is best suited for that area. One of the keys on development is figuring out not only what's needed but what's wanted because if you can get what's needed and wanted then you have a fairly easy project to sail both from a standpoint of getting approvals and from the standpoint of selling for your final product to make money on.

David: Love it. So you're working on anything from small little infill land developments to raw land developments. So raw land developments typically are going to be outside of your major cities, right? Whereas the infill ones are going to be kind of inside or very close to and probably a little smaller I would think or-

Joe: Exactly and that used to not be the case for like example Houston TX and Dallas TX both. There used to be major tracks of land inside of the city limits that holdout ranchers or farmers held onto that the city basically grew up entirely around them. But I'm not saying those parcels don't exist anywhere in this country anymore but they are few and far between.

David: Yeah, and that makes perfect sense. So the infill ones are typically smaller, they're within city limits essentially whereas the raw land ones or the opposite, they're- they could be smaller but they're- but on the flipside they're probably larger and/or outside of the major city limits. I love that. Okay very cool. So you also mentioned that there are some keys for development, what- find out what is needed and what is wanted. And those are two different things guys, what is needed and what is wanted are two different things but often they can be the same thing. So I'm assuming you know, what you are doing is you're doing market research to find those things out whenever somebody presents you with a piece of land, right?

Joe: Definitely.

David: And the infill land developments that you had mentioned, you know, they may already have existing structures or businesses on those and what you're trying to do at that rate is try to find the highest and best use of the additional space or land on that lot, is that right?

Joe: Exactly. It's can you increase density and is it needed and wanted in that particular area.

David: I love it. Okay very cool. So when somebody does bring you, you know, a piece of infill and/or raw, it's kind of you know, the same thing in terms of- in terms of it being you know, something that we can build on or build up and increase the value and increase the highest and best use of it, how do you go about finding what is needed and/or what is wanted? I think that's probably the question that everyone's thinking right now.

Joe: Well a couple of things, the first thing I usually look at is residential, is industry supported by enough residential areas if it's in a residential area, if it's commercial, what's needed uh we pretty much see that the big malls have pretty much gone by the wayside but small strip centers with different businesses in them are growing rapidly. And is seeing that and talking about growth and where things are headed, you look at your growth factors, I think most everybody is on this podcast listening can think of an example of when Walmart was built on the bypass or something else was built on the bypass and the city center is dead. If you try to build something there, you're not going to be able to sell it out. Whereas if you get in front of growth factors and move in the direction that the area is headed into then you can increase value, you've got higher potential of selling everything out and you make a higher margin because it is going up in value as you get these projects approved.

David: Man speaking of malls, holy cow. They're going dead left and right, most of them are probably already dead so they're- I live in St. Louis MO and where are you at again? I forget.

Joe: I'm in Gulf Shores AL.

David: Oh man, I love Gulf Shores, I'm coming down to visit you soon Joe. That's one of my favorite places in the United States, love it and the hangout music festival they do once a year there is a killer time. Love that city, so much fun. Alright but back to the malls. There's two malls in St. Louis where I live that are still up and running, maybe even three however there is about 10 malls that are dead at this point and half of those have already been removed and taken down, the other half of them are either vacant or they have turned them into office space but they don't necessarily you know, have store fronts anymore where people would go and park their car and get out of their car and go walk through that mall like they traditionally would. Now it's just like people rent those spaces because it's square footage you know, to run a business or whatever it may be. In fact, one of my friends rented shoot I don't even know, 8 or 10 thousand square foot in a mall and he uses it to run his business but like you know, he doesn't encourage people to drive to the mall and get out of their car and walk into his business, it's just- it's mind boggling. But you had said something that really stuck out to me, right? Look at the forward growth, look at the growth factors and move in the direction that the area is headed. I absolutely love that. So you had mentioned Walmart and Walmart is probably a great place to kinda judge your growth factors on because that's where a lot of people are headed. They're not going to the mall anymore, they're going to Walmart and they're going to Amazon, right? But around a Walmart I would think would probably be a pretty good place to develop land in comparison to around a big dead mall.

Joe: Well I'm gonna give your viewers a million dollar secret.

David: Alright, we love million dollar secrets.

Joe: The single best company on the face of this earth at researching and evaluating which direction things are headed in is a McDonald's. They are not a hamburger company, they are a real estate company that pay for their real estate by selling hamburgers. If you see a McDonald's under construction and you can buy every square inch of land around it, you- I'm not gonna say you're guaranteed a profit but it's a very good investment.

David: I love that. I totally agree McDonald's is a real estate company. Great movie recently about what's his name?

Joe: Ray Kroc?

David: Ray Kroc. Yeah about Ray Kroc and it's played by batman, what's his name?

Joe: There's been so many batman's I can't even begin.

David: Oh I know, there's been so many of them. Yeah but anyway there's a really good movie about McDonald's recently within the last couple of years and it's- Michael Keaton, that's who it is.

Joe: Okay.

David: Michael Keaton plays Ray Kroc in the movie and awesome movie but in the movie you know, they talk about how he's in the- he's- he doesn't even know what business he's in, right? And he's really in the real estate business not the burger business, and it's just a great great approach. But that is a million dollar secret guys from Cowboy Joe himself, I love it. So McDonald's is one of the best places to find, I would imagine, where the direction's going. New McDonald's are probably great indicators for places and areas, you know, near it that have potential for you know, development. I love that, I absolutely love that. Very cool. Alright well Cowboy Joe enough about you know, what is need and/or wanted in the area, let's just talk about you know, some of the stuff that you have done recently or that you're even working on currently. And I'm just kind of curious, you know, what kind of land developments do you like to do or are you currently working on?

Joe: Well I love to do anything that involves coming up with what can go on raw land. I used to tell people that I have no artistic ability whatsoever and I don't when it involves a paintbrush or music but when it comes to land, I can walk onto a parcel and envision what can go there. And we're currently, well I've got a student that is developing a travel center and deal brand hotel that's going to be awesome. I'm personally in the process of developing a destination restaurant bar Marina and hotel down here in a little town not far from Gulf Shores and then we're also doing a vacation rental destination in Gulf Shores, actually Fort Morgan. And then we've also got a high end subdivision going in Gulf Shores. Those houses will start at about 1.2 million.

David: Wow. Holy cow. So you have restaurant, farm, Marina, hotel type of a development neighborhood type of developments. I'd imagine that in your 30 years of real estate experience that you've probably done either some storage units or maybe developed some mobile home parks along the way. What's your favorite thing to develop? And I'd guess- and I would imagine you're gonna say well David, it's about what's needed and what's wanted, right? But what's your favorite thing to develop?

Joe: I think my favorite is mixed use, the restaurant bar and Marina and hotel because that allows people to enjoy the surrounding area and actually connect with people, get out and be able to be with friends and have- make memories. I was materialistic at one time, I owned a bunch of high dollar toys but now it's- to me it's more about the experience. Meeting you in Key West and we were on the boat and just being able to talk to you in high level, how can we impact the world? Those memories and those conversations to me are way more valuable than any car. boat or plane or yacht or anything else you can have.

David: Yeah.

Joe: But that's my favorite.

David: Man I agree 100%. I love just to get out, meet other investors, learn what they're doing and you know, just grow as a human, grow as an investor, by taking in more information and more knowledge. Now I do have to say one thing though, don't think that you've got to go out and meet 200 investors before you start doing something with your own investing career guys. Find one niche that you like and jump, right? Jump in, don't think that you need to know everything. Now I'm not saying that you just start without knowing anything by any means but there's a big difference between somebody having analysis paralysis and thinking that they need to know more and they need to know one more thing before they do anything, right? So Joe what would be you know, your two cents or your rebuttal to what I just said?

Joe: Well I was one of the people that basically just jumped out and started doing stuff without any coaching or mentoring and I have since spent probably close to a million dollars on masterminds and coaching and mentoring and things, but one of my mentors explained to me that my mistakes I learned the hard way, people look at those as seminars and coaching modules. So when you factor that in, I've got 75 million dollars or plus invested in coaching and mentoring. So if I had spent the money on coaching and mentoring in the front end, I probably would have spent a whole lot less money than learning it the hard way.

David: Great point.

Joe: But the key is though is taking action. Did I make a lot of mistakes? Yes. Did I lose money? Yes. Did I make money? Yes, I made a whole lot of money. But there's a ton of value in coaching and mentoring, and regardless of who it is, make sure that you are getting coaching and mentoring from people that are doing what it is you're wanting to learn and more importantly, living a lifestyle that you want to live. Know what your values are and build your life around that not around what somebody else thinks it should be. Cuz you can pick a mentor that is working 20 hours a day who's about to lose everything he's got family wise and things that are important and pick up those habits and end up being miserable, and we can talk about that on another point but someday ask me how I know that.

David: Hahaha I get it, I totally get it man. How do you know that? I gotta ask now.

Joe: Well basically I used to be a very one sided individual, built several successful businesses, multimillionaire but I was the most miserable man on the planet because I didn't- couldn't tell if I had a single true friend or if they were just there because of what I could do for them or what I had. My wife and I spent basically the last probably 12 years after our marriage together strictly for the kids which was in hindsight not that great either 'cause they cheered when we actually got divorced.

David: I hear you. You know, and that’s says a lot Joe, like a lotta- so I was just talking the other day with some of my really really good friends that are in the industry that also have coaching. You do coaching, I offer coaching, obviously in different niches but it's real estate, right? And it's so crazy because a lot of people they choose to get into real estate because they want two things and there's way more things that you could obviously want but I like to look at it as just simple. People get into real estate 'cause they want to have two things, they want to have financial freedom and they want to have time freedom. And it's sad because most people that do get into real estate they don't get either. They work their butt off, you know, they go from a 40 hour a week job to working 60 or 70 or 80 hours in a week and yeah they may make more money than they did, they may not, right? But with more money, you know, doesn't necessarily mean less time, right? You can get caught up, you know? And you had just mentioned that you were a multimillionaire, I'm sure you still are but you were working your butt off I'd imagine and it destroyed relationships and you know, you said a second ago too like you didn't know who your real friends are, right? So the one thing that I try to really really really you know, I'm trying to think of the right word here but like harp on and be very very transparent about is real estate can give you financial freedom, it can give you time freedom, right? But you have to be strategic about how you work and what decisions you make because you can very easily get robbed of both of those things. Isn't that crazy?

Joe: I would say that a lot of people think of real estate like you said and not to rebut you but I don't like to use financial freedom, I use financial independence because really I thought I had financial freedom and Elon Musk, Warren Buffett, any of them, they don't have financial freedom, they got financial independence 'cause even they could do some things at a high enough level stupid enough to go broke again then they don't have freedom. Financial independence though that's where you're making wise choices that are around your values. You can do pretty much anything you want but you do it from a- with a governate standpoint versus just haphazard throwing something out there.

David: Man you know what? I love it whenever somebody tells me something that I have not heard yet and that was something that I am not going to forget because I use financial freedom all the time and you just changed the whole way I looked at things. So guys it's not necessarily about the financial freedom, it's about the financial independence. Whew I love that, that is awesome. Very very good thing to think about guys. It's not necessarily about the freedom because again you could lose that money, right? You can make a bad investment or a stupid investment or something could happen and it's really more about that financial independence. Joe, that was a gold nugget right there, I love that. Very very cool, very cool. Alright well Joe let's talk about you know, some of the coaching and the consulting that you do and help people with when it comes to the land development. And I know you also do the coaching and consulting for high performance thinking as well and we talked a little bit about that in the beginning of this episode but now let's kind of pivot more into you know, the land development. So who would be your ideal student? What does that person look like?

Joe: My ideal student is already on the real estate side, is already a successful real estate investor but maybe doesn't have experience in land development but they've got plenty of experience in- if you're a experienced fix and flipper, you understand the steps to carry something from one point to another so experienced fix and flipper can do well in land development. Anybody that has plenty of real estate experience and understands how to evaluate a property and things to that effect, I can teach them the steps in the land development. Another one of my ideal clients is people that do have land development experience but maybe they've been working in a smaller area and they're wanting to step up to larger projects but they don't have the mindset, they've got some beliefs that are stopping them from jumping up into that next level. For example say they're playing in the one to 10 million dollar range and then they get a 50 million dollar opportunity, that's a pretty big jump for most people to make that mental leap. And then I've got one client that actually is moving into well, the development I'm consulting with [inaudible] is 160 million dollar development. So experiential state investors with or without land development experience. I've got another student that is a very experienced real estate investor but has no development experience whatsoever and taking him through all the steps to learn it and then consulting on his projects as he comes across them.

David: I absolutely love that. So you're looking- so your ideal student is somebody that's already a successful real estate investor or investing but they're not doing like the bigger deals or the land development type of deals and it seems to me like you know, you had thrown out some pretty big numbers there. It seems to me like what you really love and have passion for is helping people you know, take that jump from you know the small $50,000 house or you know $1,000,000 apartment building to you know, thinking bigger and you know, maybe trying to get into a project that's you know, 30 million or 100 million dollars. That is awesome, that is really really awesome. I absolutely love that. Guys I gotta throw in a quick plug, cowboyjoe.me, not dot com, dot me. C-O-W-B-O-Y-J-O-E.me, cowboyjoe.me, that is Joe's website and Joe has a ton of information over there. You can even book an appointment and get on the phone with Joe and Joe's team. Joe, you also do events?

Joe: I have spoken a few events, I've got a couple of them on the schedule that we're putting together but I don't have them actually fully developed out on when they're gonna be yet.

David: Sure. Okay cool. Well guys keep an eye on his site for more information on that and then you also have a land development profits course as well. And again, cowboyjoe.me, you guys can learn more about that. Tell us about that course Joe.

Joe: That course is a home study course that will take you through the 10 simple steps to carry apart from finding a property to carrying it to entitlement and getting it approved for development. The actual development side of it is a more in depth course and I'll probably never create that as a home study course 'cause it's just too broad. Even the home study course from that, I put a lot of time in it and if somebody went through that course, they could develop land strictly off of that course but most of the people that actually want to branch out into land development [audio cut] my coaching or my 101. And my 101 is where I literally take somebody and get them to an approved project.

David: Wow that's- so is that land- that's the land development mastery then right?

Joe: Yes.

David: And that's a one on one coaching plus you have a community it sounds like over there as well.

Joe: Exactly.

David: Wow, that is really really cool but you do have the land development profits which is a course and again, somebody could just take that course and they could get their feet wet, right? It'll at least expose them to the possibility and you know, maybe their potential and all these other things but if you do want to work with Joe one on one, again guys he does have a program for that, go to cowboyjoe.me to learn more about that. That is awesome. So Joe you had mentioned earlier that you were working on what was it? A destination restaurant, bar, Marina, and hotel. Wow, that doesn't sound like a small project, that's like four things all in one.

Joe: Yeah that's a- that's gonna be a pretty big project. Well it's- it would- if it was in another area, it would be multiple 100 million dollar project but with the area that we're in with the material cost, land costs, things like that, it's probably about a 30 million dollar project. But I don't worry- I don't look at what the cost basis is, I look at how much money it's gonna make me long term and the ROR which is your internal rate of return on that project is going to be north of 30%.

David: Wow so you're talking 10 million dollars then.

Joe: Well that's- yeah year over year.

David: Right. Okay gotcha gotcha. Wow. Yeah that is awesome, holy cow. So whenever you're doing these things, I mean can you just walk me through like you know, maybe you know, just a couple of minutes of course, you don't have to go to in depth on it but I mean I would imagine it first starts with land either the infill or the raw, right?

Joe: Right.

David: That's where it all starts, right?

Joe: That's where it starts.

David: You have to find the land, that's kind of where it starts and I'd assume that you like to buy it at a discount, right? Or does it not matter?

Joe: Well that's the great thing about land development. I do still try to buy at a discount and it depends. If I can put it under contract contingent upon getting approvals for the project that I've got in mind then I'll pay pretty close to what they're asking for it. I'll still try to buy it at a 10% discount just 'cause I'm a horse trader and like to negotiate.

David: That's right.

Joe: If not, I'll put in full price offers contingent upon approval of the project that I won't put on it because I've already done the numbers and I know that I'm gonna make money at that.

David: And I'd imagine that sometimes these projects don't just- I mean it depends on the project of course, right? But I would imagine that sometimes these projects may take a year or two to get approved, right?

Joe: Well this project will probably take us pretty close to two years to get approved and a year and a half to build out so this is 3 and a half years down the road.

David: Wow.

Joe: And I'll maybe able to-

David: And that's probably pretty standard for these bigger ones, right?

Joe: That's pretty standard. I may be able to crunch the approval process a little bit. I've already started trying to put all the dominos in place for that but from a standpoint of when you- anytime you're planning out something on project approvals, getting entitlements in land development, whatever time frame you think it's going to take, double it.

David: Yeah.

Joe: Because that that can make or break. We're figuring 2 years, if I get it done in a year, great. If it takes me two full years, I've already planned for it.

David: You've already planned for it, I love that. So whenever you're putting properties under contract, you're not buying those properties, you're basically putting them under contract contingent on your project being approved so you have to tell these individuals whenever you're you know, wanting to buy the land that project- that could take you know a year to two years to get approved. So are you typically building in that sort of inspection period or contingency, is a better word I believe, for the approvals?

Joe: It is a case by case scenario and depends on your negotiating skills. This particular property, all I did was put 120 days for due diligence because I pretty much know whether or not I'm gonna be able to get approval within that time frame because this property wasn't gonna stay around long, I was amazed that it even went on the market. I literally put it under contract the day after the sign went up and put a 100- 'cause a 120 days for due diligence is fairly easy to get a seller on a larger parcel that they know is a development parcel to yeah.

David: Sure.

Joe: So that was on this particular case but I have done projects where I put land under contract with contingencies of project approval knowing it was going to take a year and a half, two years to get approved.

David: Okay that makes perfect sense. And then you had mentioned also that you have developed neighborhoods in the past. So how do you finance these? And I guess it doesn't have to be neighborhoods, it could be you know, a big 30 million dollar project like the one we had just talked about with the restaurant, the bar, the Marina, the hotel. You had mentioned that your favorite things to do is mixed use and you had mentioned that you had done some neighborhoods, right? Well you know, whenever I'm going out to buy let's say a house or a small apartment building, I'm buying it at a discount hence the name of my podcast, discount property investor. Love buying at a discount because you know, for single family homes or small apartment buildings, you make your money when you buy, you get paid when you sell. It's a little different with the raw land because you're adding that value by building something, I mean you're truly building something, right? Well we're typically just rehabbing, right? We're not really doing a whole lot of building so you gotta buy at a discount but you don't necessarily have to get it at a discount even though who doesn't like discounts? Everybody likes discounts. But my question is, I got sidetracked there sorry bout that. My question is though how do you go about financing something along these lines?

Joe: There's a module in my course that goes on it. It's capital structures and you have debt and you have equity involved in a capital structure and then you have another part that most people don't factor in: reserves. Making sure you have the reserves to make it through those times. And I typically tell people, my clients and myself, that I take down the land strictly with equity. I do not put debt on the land until after I've got approvals for a project and are ready to start construction then I'll take on debt but the reason I do that is anytime you put debt on a property, you've added a burden to it. Debt is a burden.

David: Yeah totally.

Joe: And debt magnifies the volatility of the asset, and land's not that volatile but it does still have some volatility and that magnifies it so I take it down with equity. I'd rather give up a percentage of the total project and have a safer investment with still really good returns than to buy it with debt and then end up not being able to carry that burden. Let's say that you plan for two years and it takes three years to get it approved, well if you don't have enough reserves to cover that debt service for that additional year, you end up losing the project. So yeah you had 100% of the project but you lost it all. I'd rather have 60% of a rather nice pie than 100% of no pie at all.

David: Yeah totally. Okay that makes perfect sense. So you're using equity to buy the land and you're not putting debt on it until the project is complete, got it okay. And then whenever you do that, so we find ourselves you know, 10 acres of land that we want to develop, we buy that land then what's the process of you know, getting the financing for the actual construction of that property? I would imagine you're doing both, right? Some equity, some debt, little mix.

Joe: Yes and you said, the debts not once you've completed the project, it's once you got approvals for the project and you're ready to start construction is when you bring on the debt. And you can start either raising debt or talking to banks prior to that 'cause you'll have your numbers putting the construction stuff together so that you don't have a lag from the time you get approved until the time you can start 'cause you're still trying to get the debt structure. Some of the key metrics that we evaluate is DCR which is debt coverage ratio. That's a bank metric that the banks used to determine whether or not you're a lendable project and usually they want to see a 1.2 or better. The other is BER which is break even ratio and that is what percentage of your money you're making can you drop before you are no longer able to service that debt? That's the break even ratio. At what point do you get break even? And from there you go backwards.

David: Okay.

Joe: And then the other metric is reserves. People talk about money sitting in your checking account is dead money, you gotta put it to work. Well that's one of the reasons that I went broke in 2008/2009 was 'cause I was in that mantra. I was over leveraged, didn't have enough reserved and- but I had half a million dollars worth of lines of credit open with nothing used on them. Well when all of that hit, they closed them line of credits immediately so lines of credit are not reserves. Cash in the bank is reserves or cash in other vaults. There's different vaults that you can put it in but its main thing is having a liquid readily available cash reserved to handle any unforeseen obstacles.

David: I love it. Okay so you talked about the break even ratio and talked about reserves. What was the first thing you said?

Joe: DCR, debt coverage ratio.

David: Got it, and that's the debt coverage ratio and you had mentioned that they like to have a 1.2?

Joe: Right. That's basically-

David: Or greater, right?

Joe: 1.2 or greater.

David: Okay, and what does that mean? What does 1.2 or greater mean?

Joe: That basically means 1.2, you're debt is 1 so if you're at a 1, you're making enough income on that project that your servicing the debt.

David: To break even. Right.

Joe: The break even's calculating it backwards and you would think that if you have a 1.2 DCR, you'd have a 80% break even ratio but they fluctuate. Some you have to look at both numbers 'cause it- there's slightly different metrics in each one of them.

David: And that makes sense.

Joe: The break even ratio, banks look for 80% or lower. The debt coverage ratio, they look for 1.2 or higher. That's basically meaning that you're making 20% more money than what the debt coverage is and then you get 1.4, I've got projects that are 2.1 so I mean-

David: Wow.

Joe: It's just a matter of how you structure both the debt and the equity to create it and just how strong the project gives.

David: Got it. So are you typically getting 100% financing assuming that you have a good debt coverage ratio as well as maybe a good break even ratio or are you having to put down you know, 10,  20, 30 percent? I would imagine that it probably varies a little too, right?

Joe: It does vary. Like say we take down the land with equity and usually the banks that I work with will do 90% of construction cost and land cost.

David: Okay.

Joe: So once we get to construction, I can get 90% but that's because they know that- and they see the numbers. I typically create 30% equity the minute that we're built out. So for example we've got a small vacation rental property that we're going to build out, it's gonna be about $2.4 million worth of cost including land acquisition but the minute we finish, it's valuation is going to be 3.6. So they know that they've got plenty of LTV and we've got a history of completing projects.

David: I love that, I absolutely love that. So one thing that you corrected me on and I'm glad you did was is that you said that it's not when- you're not putting debt on the land and I had said until the project was completed but you corrected me and said until the project is approved. So you're buying the land in some cases or in all cases with equity I should say but you're not going in and financing that and/or putting any debt on it until your project is approved. And in some cases your probably not even purchasing the land until the project is approved, it's all going to depend on the seller and their motivation and the costs and you know, a couple other factors. Does that sound right?

Joe: That's exactly right. If we have to take the property down before approval, we take it down with equity. If we can get it contingent upon approvals then basically all we've got in the project is earnest money.

David: Yeah why wouldn't you do that if you could, right? Yeah absolutely.

Joe: The more we can keep our capital freed up, the more opportunity costs we have because the more capital you have available, the more opportunities come to you, the more you can take advantage of it. Whereas when you tie you capital up, that's opportunity cost that you're losing somewhere else.

David: Right right, okay. No that makes perfect perfect sense. Guys if you want to learn more about land developments, there is nobody better then Cowboy Joe. Every time that I've met this guy, he has blown me away with knowledge and information and value and he's just one hell of a cool guy too. I really like Joe, really really like Joe. cowboyjoe.me, that's C-O-W-B-O-Y J-O-E.M-E to learn more about Joe. Joe's got a home study course, Joe has a coaching program and the thing is about Joe is yeah he's got the program and this course but he truly likes to help people, right? And when I met him for the first time, he was truly interested in who I was and what kind of investing I was in. It wasn't about Joe, it was about me and that's a rare thing to come across. I absolutely- I love this guy. He is just one hell of a guy and he knows what he's doing, he's been in this business and this niche for over 30 years. I absolutely love it. Joe, thank you so much for coming on the show today, it's been an absolute pleasure. What would be some really good parting words that you could share with both me and the audience of listeners and viewers to help them? Again, this podcast is a real estate podcast, we focus on buying at a discount but we talk about all things real estate, right? And anybody that's listening is probably interested in doing some sort of real estate. So again, what would be some good parting words of advice for you to give to the listeners today?

Joe: The biggest thing is rural states a great vehicle but pick what it is that you love to do, don't do it because somebody else said this is the best place to make money. You can make money at all of this, what aspects of it do you love doing? Do you love getting your hands dirty on fix and flips? Then do that. If you're more into- and you got great marketing and can find the deals and pass it off somebody else, then do the wholesaling. It's whatever you truly are inspired to do and you love to do, focus on that and the money will come. The service is the currency of the universe. If you focus on serving other people, the money comes. As long as you stay in your highest values and you're in for an exchange, the money is the easy part.

David: Man I love it, I gotta repeat it man, that is awesome. So pick what you love to do guys, you can make money at everything, right? Anything and everything you put enough time into, you could make money doing it, right? But what do you truly want to do? And if you're still exploring that then that's okay but figure out what you like to do, Joe said it, do that. That's what matters, focus on what you love to do, serve other people and the money will come and Joe I agree with everything you just said, that was awesome. Joe, thanks again for coming on the show. Guys don't forget, check out Joe's website: cowboyjoe.me, easy to remember. This guy is awesome, he knows his stuff, 30 years of experience developing land both infill lots, raw land, doing all different types of stuff, building hotels, marinas, bars and restaurants, neighborhoods, you name it, Joe's done it. He is the man and again there is nobody better to learn from in this business than Cowboy Joe himself. Joe, thanks for coming on the show and I can't wait to run into you at the next event which I'm sure is going to be really soon. Are you going to be down in Miami this week?

Joe: No I will not be in Miami this week.

David: Oh I thought- figured you might be going to Ricardo's event cuz I'm gonna be down there but I was just-

Joe: I'll actually be in your neck of the woods next week.

David: In St. Louis?

Joe: St. Louis yeah.

David: Well shit man, let's go get some dinner or some lunch.

Joe: Sounds like a plan. I'll probably be in Wednesday so I'll give you a holler.

David: Give me a holler.

Joe: We'll touch base.

David: I love it.

Joe: It's been an absolute pleasure David, I truly love being in your presence. You said something earlier and the only reason you recognize it is because the mirror law because it's in you. You are a heart centered individual that loves helping other people and that's why you can see it when other people exhibit the same thing so I truly do love your energy and love being on the show with you.

David: Man I have had an absolute blast. Guys, gratitude, joy, love, right? These are states that are going to help us grow and they're going to help us be better investors, they're gonna help us be better people, alright? So don't forget it all starts with mindset and if you are ready to take the next step and you want to get into doing land investing, Joe is going to be the guy that's going to help you get there. Alright signing off guys, until next time. Thanks for listening.

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