Paul Hersko is the CEO of Sonny Capital Group and Discount Lots, which makes land ownership easy and affordable for everyone. In this episode, he tells us about the unique business of buying and selling land, how to get started, pitfalls to avoid, and how he and his team raise capital for their deals.
Paul Hersko | Real Estate Background
- CEO of Sonny Capital Group and Discount Lots, which makes land ownership easy and affordable for everyone.
- Portfolio:
- 2,000+ properties
- $50M AUM
- Based in: Boca Raton, FL
- Say hi to him at:
- Best Ever Book: Atomic Habits by James Clear
- Greatest Lesson: Find a strong, capable co-founder — don’t be greedy!
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TRANSCRIPT
Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with today's guest, Paul Hersko. Paul is joining us from Boca Raton, Florida. He's the CEO of Sunny Capital Group and Discount Lots, which is self-described as the easiest place on the internet to buy land. Paul's current portfolio consists of over 2,000 properties, and $50 million of assets under management. Paul, thank you for joining us, and how are you today?
Paul Hersko: Hi. I'm doing great. And yourself?
Ash Patel: Very well, thanks for asking. Paul, before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Paul Hersko: Sure. So obviously, my name is Paul, I grew up in the Chicagoland area, and I kind of cut my teeth in the Amazon FBA ecommerce world. So I started my first business back in 2016, with a heavy focus on digital marketing, and I quickly was able to grow that business to seven figures in the first year. So that's kind of how I got my start. Fast-forward to about 2019, I've been running my eCommerce business for several years; I crossed paths with my now co-founder, Willie Goldberg. Some people have probably heard his name in the real estate space in the past; he couldn't make it today. But he'd been doing land investing on the side, and then full-time for several years before that; we crossed paths, and I just kind of saw this massive opportunity to really take over a sleepy space. So we crossed paths in 2019, and formed Discount Lots. I guess the rest is history, and we'll talk about that today. So this Discount Lots has grown significantly over the last three years, and I'm excited to talk about it, and teach people about this niche that most people have never heard of.
Ash Patel: Let's dive in. When you say Discount Lots, are you talking about single family lots, lots on the side of a mountain, farmland? What is it?
Paul Hersko: Sure. So we have different divisions within our company, but discountlots.com primarily we're focused on residential agricultural lots. So down in Florida we sell residential lots, for example, in Port Charlotte, Florida, where you can buy the lot from us for a couple 100 bucks a month, and they're ready to have a house built on it, all the way up to -- I remember we sold a property in Utah that was 300 acres, for under $100,000, but we sold that, and it was in the middle of nowhere. So we have all kinds of properties; stuff for recreation, stuff for building a house, stuff for hunting... We have a whole mix of different sorts of properties that we go after.
Ash Patel: How do you find the lots? How do you source them?
Paul Hersko: So for us, we're kind of using freely available data... So we go where the people want to buy land. So an easy starting point is just going to Zillow and seeing where land transactions are happening... Because you can just go to Zillow and see what's been bought, what's been sold... And that's kind of our starting point, is just looking at Zillow and looking at the freely available data to see where there's land demand.
Ash Patel: And do you make unsolicited offers?
Paul Hersko: Yeah. So we'll find an area that we're interested in, and then we will target that area with software... I don't know what your listeners are used to software-wise, but we use for example DataTree, and we'll geo-target an area, and we'll either send out mail, we have a big cold calling team... And sometimes we'll just go to Zillow and send really lowball offers to people and see who bites. So we kind of have a shotgun approach to an area, and see which is the path of least resistance.
Ash Patel: And once you have the property under contract, do you close on it or do you wholesale it?
Paul Hersko: Everything that we [unintelligible 00:04:58.13] we're taking down and buying. So we'll purchase the property, and then we will sell it on our platform, on DiscountLots.com, through owner finance terms. That's kind of our process.
Ash Patel: Where does the capital come from to take down the deals?
Paul Hersko: So the way that we're set up is we have a -- I don't know whether to call a front end or back end fund... So we have a fund where we pay returns to investors, and then with that money, we're going out and buying hundreds of properties. So you put in 100k, you're gonna get your return, and with that money, that entity will buy a bunch of properties; we'll buy the properties, and then those properties will start cash-flowing, because we're getting them under owner-finance terms, and there's recurring revenue coming through, and that's how it's set up.
Ash Patel: Do you always get your properties with owner financing?
Paul Hersko: We don't get them with owner financing, we sell them on owner financing.
Ash Patel: Got it. Okay. And what types of returns do your investors make?
Paul Hersko: Our investors typically get 10% to 12%, depending on how much they invest; that's like our typical returns. And so it's not really based off of how does the portfolio perform; it's a debt fund, or it's based off of just debt, so we're taking on debt to buy this property. So it's a regular return where if you put in 50k, you're gonna get a 10% return, and it's all "This is what you're gonna get." It's very clearly laid out; it's not like, "Well, in two years, if it does well, you're gonna get 18%." It's a lower-risk, simple sort of investment.
Ash Patel: What's the threshold on getting to 11% and 12%?
Paul Hersko: Good question. I think the 50k mark is 10%, and I think over half a million gets you to the 12% mark.
Ash Patel: And is it fully liquid? Can investors pull their money out at any time?
Paul Hersko: So it's set up in a way, I believe -- my partner is the one that runs the fund of our business. So it's basically your money's in for two years, and then year three, if you don't want to stay in, it's principal and interest pay back. So the first two years are interest-only payments paid out quarterly.
Ash Patel: Okay. When you say you make lowball offers, is there a percentage below market that you typically offer?
Paul Hersko: I think it's really market-dependent on where we're going... But if we're selling something on owner finance terms, we're trying to get at least four times return on owner finance. If it's a cash flip -- so we also have a cash flip side of our business... We're going to want to make it 2x on the cash flow. Otherwise, we don't really want to mess with it. You can think about our business in a way of which we sell all these properties on owner finance terms on our website, but then we also have another division where we're trying to wholesale and take down bigger dollar properties. For example, we have a commercial lot in Austin, Texas that we bought for 400k and we're about to go under contract in the 900k range. That's a really big rip. That's not normal for us. But we have these two separate divisions, because it's kind of a totally different workflow... So for the owner finance stuff, if we're not getting it for dirt cheap, we're not interested. But our average deal, we're buying for $5,000, and then our owner finance terms, we're selling it close to $25,000. And then there's some overhead and marketing costs, but those are typically what our numbers look like on a deal on our website.
Ash Patel: And your typical buyer - is it the end user or is it an investor?
Paul Hersko: Yeah, our typical buyer - it's kind of a wide range of people, but people that are looking to get into investing in land... They want some sort of investment; maybe they don't own a home, they're paying rent, and they want to be able to own something, and this is like the easiest way, $300, $400 and you're going to own an asset at the end of the day, with no underwriting. So there's that pool of people.
There's the pool of people that they have a mobile home, and they want to put their mobile home down or their RV, live on the land, lower spectrum income... And there's also the people that live in the city and they want a big piece of land, so they can go with their friends and barbecue on the weekend and just get out of the city. So there's really a big mix, but it's mostly just consumers. It's not really wholesalers and stuff like that. That's not really our market.
Ash Patel: Paul, I think at one point or another, every one of my guy friends have been like, "Hey, do you ever think about buying land, just so we can ride four wheelers and shoot guns?" I think it's a guy thing.
Paul Hersko: Yes.
Ash Patel: Is that a decent part of your business?
Paul Hersko: It's so funny you mentioned those two examples... When we started the business three years ago, it was just me and Willie. And now we have about 60 employees, so we have a pretty big team now... But when we first started the first three months, I was doing all the sales calls, and I remember the first two lots that I sold, we ran a Black Friday sale three years ago, and I was working the phones, and I think it was me, William and my cousin working for us... We were just kind of all getting on the phone, because we had this Black Friday deal and whatever. So I remember the first lot that I sold was this guy in LA, and he was like "I want to build a dirt bike track in the desert." I think he bought a five or 10-acre property, and he's like "I'm gonna take my dirt bikes out there and dirt bike." That was like the first lot I sold.
And the second lot that I sold on the phone was another guy who was like "I have high-powered guns, and I want to just blast them away in the middle of the desert." So I sold another lot to this guy, like way in the middle of nowhere, so he could shoot his guns. And so literally, the two examples you gave me, a lot of people want to do that stuff. And it's like - well, you could just like pay 300 bucks a month, we'll charge your credit card, and you could start doing it today. It's a pretty compelling offering.
Ash Patel: I like that. I might look into that. You might be the only real estate company in history - certainly the only one that I know of - that has ever had a Black Friday sale.
Paul Hersko: Yes. So we're preparing up for our Black Friday/Cyber Monday sale. We usually do super-well. We'll run a pretty decent sale. We just had our Halloween sale, and... We do things differently than traditional real estate. We're more of an eCommerce brand, to an extent, that happens to sell real estate... But we look at our business -- we always have to be good at buying the real estate [unintelligible 00:10:56.17] but we really treat this as an eCommerce and a brand.
Break: [00:11:03.23] to [00:12:09.00]
Ash Patel: You guys take down deals and you close on them yourself. There's a lot of risk associated with that. Where have you gotten bit in the past?
Paul Hersko: The rule of thumb in real estate - I'm sure you've talked about this in the past - is you make your money or you lose your money on the buy. So if you don't do your homework on the buy -- for example, we literally don't lose money on deals. We had our first property where we lost $10,000 or $15,000 on the deal... And this was a deal from 9-10 months ago; we had a guy on our team that - it was his only deal he ever got, and then we had to let him go, because he wasn't getting deals... But we had this property, it was in Florida, and there was a wetlands report of how wet or not wet is the property. The real estate agent misread it, and then we just listened to this real estate agent... And so we thought it was super-dry, but it was really a super-wet. And so we ended up having to sell the property for less than we bought it for. But really, what I can say is if you don't do your homework, you could really get bit.
So being really good about doing your due diligence and homework on a property - that's really it. We're a little bit different than your typical multifamily or house wholesalers and all that, because we don't have to look at the roof, we don't have to look at any physical things. We do all of our due diligence online. So we'll look at a property, and we can use Google Maps, and we can call the county, and we can do it all behind a computer screen. And then in certain areas, we have to order a survey, but then we can look at the survey. So it's kind of -- you move into different areas, and there's different problems that maybe we don't know about; certain areas like water rights, or stuff like that that we're not super-familiar with... But again, it all comes back to doing the right homework. And that's kind of what I would say is how you can make big mistakes.
Ash Patel: Paul, you mentioned that you had to let somebody go because they weren't getting deals... I'm assuming your machine is the one getting deals. Where does the human interaction come in on a typical acquisition?
Paul Hersko: For us -- okay, what are the areas we want to target? And then we'll send out mail and we'll send our team on it, and they'll start getting on the phones, and we'll get a feel for how hungry are the people to sell. To acquire the properties, it's still very human-driven. We need them negotiating the deals. You can't really automate. You can automate to an extent on mail, but you need a human to evaluate the property and look at it. And then you can look at OpenDoor, and Zillow, and all these people that thought that they could buy a house with AI, and look what happened. There's always gonna be that human element to it.
Ash Patel: Yeah, I sold a house to Zillow that was way over market what they paid for it, and shortly after they got out of the business. Paul, if some of our Best Ever listeners want to get into what you describe as a really small niche, how do they go about doing that?
Paul Hersko: Honestly, I think there's some courses out there. We used to be in the course game. When we first started, we thought that we could teach people how to do this in order to fund our business. Well, our business took off, and we were like, "This isn't really gonna work." So we did it for a couple months. So what I can say is there's a lot of courses out there that teach how to do this. I think you could probably take a course. Or you could just send some mail out, do some cold calls... It's the same thing as houses, but it's just land. It's just a different asset class.
But honestly, I would just say jumping on a course somewhere and understand the basics. I think there's probably some free resources on YouTube and stuff like that... But the information is out there. People just don't talk about it, because it's not sexy. There's no HGTV "Watch us rehab our land." There's no, like, "We're going to rehab this house", and there's TV shows about it. It just doesn't have that really sexy appeal.
Ash Patel: Paul, you have 2000 plus properties, and over $50 million of assets under management. What is that all about? Are those pieces of land that you just kept for yourself?
Paul Hersko: No. So this is our portfolio, right? So you can almost think about it like people paying rent on an apartment, but the only issue is the apartment is gonna go away. So you could think about it like 2000 doors almost. We have over 2000 properties where people are making $200, $300, $400, $500 payments while they're trying to pay off that land. So the average notice is around eight years. So we're gonna get eight years of payments on these 2000 properties. But we have to keep growing our portfolio, because they're gonna go away after eight years. So that's kind of how that's set up.
But really, when we think about our business, we're this eCommerce platform, but on the back end, we're also the bank. So we're owner-financing all these properties, and we have to provide the financing to these people, so we have this big balance sheet... Just because we have 50 million of assets doesn't mean we have $50 million in the bank. It's similar to a $50 million apartment complex, to an extent.
Ash Patel: Yeah, understood. Paul, what's the typical interest rate that I would pay if I want to buy land that you owned?
Paul Hersko: So we don't charge interest, because we don't want to be a fiduciary, to an extent... So we basically run off of installment contracts. So you'll pay almost like an implied rate, to an extent, but there's no interest and principle; it's just, you pay an equal amount every single month.
Ash Patel: Interesting. And how does that benefit you guys?
Paul Hersko: It benefits us in a way, and we still get a further markup... We're set up in a way where we're giving a cash discount. So if you want to pay cash, the price is less; if you want to buy from us in owner financing terms, the price is a little bit higher. So that's kind of how that's set up.
Ash Patel: Interesting. Do you know the financial benefits of doing that? The implications - is there tax implications that go along with that?
Paul Hersko: There's no tax implications related to that. It's just a technical setup that we've put together, to an extent. I think if Willie was on the show, he could probably talk further about it. So just for the listeners - my partner, Willie, is from the investment banking world. So that was his background, and we combine that with real estate, plus eCommerce. That's kind of how -- eCommerce is kind of how we got to where we are, is just from really wide-ranging past experiences.
Ash Patel: Got it. Paul, what is your best real estate investing advice ever?
Paul Hersko: Good question. I think the best advice is get out there and do it. Don't wait for the perfect deal. Don't try to time the market, and don't be scared. Just jump in. The stars don't have to align. And then number three - it might be counterintuitive, but also be patient for the right deal, but don't be scared to jump in, if that make sense.
Ash Patel: It does. Paul, are you ready for the Best Ever lightning round?
Paul Hersko: Let's do it.
Ash Patel: Alright. Paul, what's the Best Ever book you recently read?
Paul Hersko: Recently, or all-time?
Ash Patel: You tell me. You pick.
Paul Hersko: Okay, I just finished a book called The Big Leap, and it was awesome. I don't know if you've heard of it, by Gay Hendricks. It's a book about -- everyone in life, and Ash, maybe this has happened to you... When things are going super well. But then out of the blue, you do something to screw it up, or something bad happens. And this entire book explores the idea of we all have an internal thermostat, and if things are too comfortable, or if things are going really well, we as human beings find a way to screw it up. It's just kind of exploring this entire idea, and it really was impactful for me. I recently read it. Most people haven't heard of the book, but I highly recommend it.
Ash Patel: I wrote that down. I've got some friends that do that with relationships.
Paul Hersko: Yes. So this explores this whole thing. And I wasn't doing it with relationships, but I really connected with the book and I highly suggest it.
Ash Patel: Interesting. Yeah. Thank you for that. Paul, what's the best ever way you like to give back?
Paul Hersko: How do I like to give back...? I like helping other entrepreneurs. So if people need help, or any way that I can provide... And I was involved with this program called NFTE, which is basically underprivileged schools, and I would go in and help their business programs, and just giving advice to young kids in high school and middle school about their business ideas, and how to become an entrepreneur. So I think it's really awesome. Okay, cool, I have this great business... But how can I share that with other people? Especially people that don't have the same circumstances that I have, or you have, where they can learn from someone and get help? So for me, I love doing stuff like that.
Ash Patel: Paul, how can the Best Ever listeners reach out to you?
Paul Hersko: You can just go -- I set up one of these little Linktree things... PaulHersko.com. And it has all the links - Discount Lots, our fund, any of that stuff. And you can just reach out to me there. It has all my contact information, PaulHersko.com.
Ash Patel: Awesome. Paul, thank you for your time today, giving us some insight on this unique business of buying and selling land, how to get started, some of the pitfalls, some of the returns, and how you guys raise capital for these deals. So thank you for your time today.
Paul Hersko: Thank you so much.
Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five star review, share this episode with someone you think can benefit from it. Also, follow, subscribe and have a Best Ever day.
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