Thank you, Mike and Tyler for inviting me. It was about eight or nine years ago. I was one of the first guest speakers when they started. I didn’t really know them, any more than I got invited, but I can tell you if you ever watched me on the bigger pockets, anybody that’s new to Oregon or talks about it, I always refer to this particular group these guys are super sharp. You’re very lucky to, I believe, to be able to get all the information and knowledge that they spread to everybody and are willing to help. I do these talks throughout the country and a lot of the things that I go to, a lot of it is, you know, selling things. So what I like about this is there’s actionable information that is done by the people that are running it.
So I just wanted to give a plug to that. We wrote this last November when I was doing a presentation in Oakland and one in San Francisco on pivoting. Now the market really slowed off in 2018 as everybody probably knows, but it’s somewhat on a comeback. I’m not sure how much that’s going to be, or if we’re going to have a protracted downturn and values or values are going to come backwards. I’m not predicting a big massive recession like we had in the GFC, but for my own company and what I’m doing, what I call pivoting is I’m basically moving out of, up until about two years ago, everything we were doing was with max debt max leverage. And the big pivot that we’re doing is we’re paying cash for most things now, if not all. And we’re limiting our debt to, fix and flip type stuff, new construction debt, and short-term debt.
We’re not taking any on any long-term, contingent liabilities. I have Guen and Alicia, who work in our office, create all this nice stuff for us. These are the markets that we’re in across the country and l started funding turnkey stuff in 2002 and that ended me up in 14 different markets so I have a pretty good working knowledge of a lot of places across the country. One thing I want to talk about and especially for this demographic is pivoting and this is what we’ve tried to do and what I recommend, especially with the demographic care, how young everybody is there. This is a long-term option that I optioned in 2009. This is 117 acres at the corner of Evergreen and Jackson school road and Hillsborough.
You can see the map there, you can see where the airport is and, and Intel on everything. So we bought that at farmer PRI, little over farmer prices. Okay. So we’ve been paying on it now for 10 years. Does it create any income? But we bought that property. We optioned that property for 50,000 an acre. It’s 117 acres. That property when it comes into the UGB and comes into the city will be a mixture of high density residential, commercial, and I don’t know what, three, four or 500,000 an acre when it comes in. And what I did is I put a group of people together, basically 30 year olds, actually all my partners are all much younger who had a Roth IRAs. And with your Roth IRA you can only contribute a certain amount of money to the Roth IRA. So we put a partnership together to buy this and they each contribute.
There’s 11 or 12 people in that deal. We pay 120,000 a year for our option payment. So everybody’s six, seven, $8,000 but they have a 10% interest in what’s going to be about a $50 million piece of property. So that’s one thing I wanted to share with a lot of the folks here that have done really well in real estate or have high paying jobs to be looking at some other kinds of really long-term investments that, you know, when you do go to retire, there’s something that you never had to worry about. All you had to do is wait for politics to change. And you simply look on maps and look at, look at where is, whereas, you know, the city going and by ahead of that path of the progress path, the progress is where some of the biggest money in real estate is made. So I wanted to share that with everybody. It’s just an unbelievable piece of property. No wetlands, no environmental issues. It’s out of the flyway. So that’s in about 10 years, hopefully, you’ll see bulldozers out there. Now I can hit my little fast forward button here.
The big one.
The other thing we’re using in all your real estate folks, you can see these drones are super effective if you’re going to be making presentations or trying to sell things. , we love these drones, you know, picture makes a thousand words. So what am I doing? Am I going backwards? Okay. Anybody have any questions about this? Why or I’ll just continue on.
100% of the payments, go to the purchase of the property. There’s no interest. It’ll be about 10 years, I think before it comes in and we start developing it. So let me, I want to tag on to Mike’s point, 2009, where was the economy in the toilet? Guess who had this before? Me, Roger Pollock, if anybody knows. So he is one of the bigger builders here that flamed out spectacularly. And, and the guy that owned the property, um, lived off the option payment. The Pollock was paying him, he finds himself with nobody and nobody was willing to step up. We were able to come in option and cheaper than Paula candidate only have to put up 200,000 in cash to get the option and got 100% of our payments towards the purchase price.
So by the time we’re 21 years into this, it’s over half paid for anyway. And then at that point, you know, we got to, we owe $2 million on a $50 million piece of property. So I just like to share that and plant that seed. You know, cause I know if, if all you folks got talk to each other and partner up on deals, longterm options on land structured this way can be very good for your long range and for your Roth IRAs because on top of it, all these kids I put into this and I call them kids because they’re the age of my kids. Um, you know, all the gain on this is going to be tax free because it’s in their Roth IRA. Okay. So that’s, that’s one thing.
Can you talk a little bit about how that works for the rock layer?
A Roth IRA, you can, you can, if you have a self directed Roth IRA, any money you put into your real estate, once you go to sell it down the road, there’s no, no tax. It’s not like a regular IRA when you take your money out and you have to start paying income tax on it. Roth IRA, any gain that you make, it’s tax free. So this was a perfect setup for 30 year olds making good money, got six, seven, eight grand a year. They can put in a Roth IRA, pull it all together, go option some longterm, highly valuable land. So that’s, that’s that.
So sorry, one question. So you’re waiting for this in 20 years to develop it heightens the houses, right?
And yes, when it, when it comes in we will develop it. Depending on where I’m at personally, I’ll either start building on it. Um, but I’m fairly certain we’ll get one of the big players to come in and probably, you know, cut us a check. Yeah. Once it’s fully entitled, it’s not fully entitled yet. Right. If it was fully entitled today, that would be cooking off at 500,000 an acre. So. So yes.
Do you feel like you’re buying opportunities like that today, this market or do you feel like that’s a lot of developments to market it back?
I think it’s both.
One, one if you, you can like I just optioned another, um, 40 acres in banks for 160 lots that’s in the urban growth boundary can be developed, but banks has a water and a transportation problem and I put up $100,000 in option to whole thing for 4 million bucks and I don’t have to pay for the property until the city gets all the, all those things done. So you’re taking $100,000 and you’re tying up a $4 million piece of property that wants developed. We’ll make four or five, $6 million. So it’s just a, it’s just a different, different mindset. Yes. So are you paying interest on there?
No. This particular one, we negotiated a deal that it’s an option payment and 100% of the option payment goes towards the principal of the property. There’s no interest carry. Thanks. I’m paying no interest. Nope. Just no payments, nothing. Just flat, flat. A hundred grand.
So what’s like a worst case scenario that could possibly happen? Just to look at both sides?
, worst case would be banks. The city of banks doesn’t get their water and transportation solve for five, five, or 10 years or never. And I lost my a hundred grand. This one right here, same thing. It never comes into the urban growth boundary. And we lost a couple of million bucks.
I think if you look at the location, it’s pretty much evidence self-evident.