Land vs Rental House-One is More Profitable and Easier (CFFL 0042)
Jack Butala: Hey, Jack Butala here from Land Academy. Welcome to our Cash-flow From Land show. In this episode, Jill and I take a look at the details of buying two types of cash flowing investments: land, and houses. When we’re done with this show, it’ll be glaringly clear, that buying a piece of land, and selling it on terms, or for cash, is way, way, way more profitable, and easy to accomplish, than buying a house and renting it out. But, both have their place. So, if you’re thinking about buying and renting houses, I think it’s a great, fantastic idea, but consider land, maybe before or during this effort. I’m actually going to try to keep Jill awake in this show, because it’s in two parts, and this is one of our technical shows. We’ll cover the numbers portion of it, which I’ll do in the management portion of it, which Jill does incredibly well. Jill, how are you?
Jill DeWit: Oh, sorry, what? Huh, now what?
Jack Butala: That’s what I thought. Falling asleep during the intro like all of our listeners. All six of our listeners just fell asleep too.
Jill DeWit: That’s great. If anybody’s listening to this on their way home or commute home, yeah, keep your eyes on the road, please.
Jack Butala: As luck would have it.
Jill DeWit: Because your eyes are getting just so deep … You know, Steven, you do have that very soothing voice sometimes, just makes some people go, honk.
Jack Butala: That’s the effect I have on women.
Jill DeWit: So that’s how you get women, you just hope you’re going to talk long enough they’re going to pass out?
Jack Butala: Yeah, it takes, like, three seconds. If you can’t stand our technical shows, and you just want to fast forward through it, I get it. Or if you love our technical shows, and you want to dive right into this, either way, I will tell you the name of our next show is, Flirt to Convert. Jill takes on sex appeal, to sell land.
Jill DeWit: Why would anyone not want to listen to this show? Granted, the next show is going to be really good.
Jack Butala: There’s some good stuff in here.
Jill DeWit: You and I always have fun, no matter what we’re talking about. I think that’s why people listen to us, because we can take the most boring subjects and make them entertaining.
Jack Butala: So, all right. There’s two types of cash-flowing investments. You’ve got land, and you’ve got rental houses, or houses that you buy. Both of them, you buy it, you look at it, you analyse it, you go at it the same way. You make the same decisions: should I buy land, should I flip it for cash, should I flip the house for cash, should I rent it out, or should I sell the land on terms, and collect the payment for a heck of a long time. There’s a lot of components to this. Let’s start with the first one, which I think is ridiculously overlooked, and incredibly important. Entry capability, from a money standpoint.
Jill DeWit: Yes.
Jack Butala: What the heck does that mean? How does it cost to buy a house, and how much does it cost if you’re new at this, to buy a piece of land and flip it. Buy a house and flip it, buy a piece of land and flip it. Jill, give me some raw numbers, just for fun.
Jill DeWit: Oh, my goodness. If you’re lucky you can buy a house for $150,000 – $200,000. Do you have that sitting around? Probably not.
Jack Butala: Right. You could borrow money.
Jill DeWit: You could, and there’s a whole other point of that, I know you’re going to discuss. Versus, I don’t know, can I come up with $500 or $1000 to get started, and buy for cash a piece of land, for $1500.
Jack Butala: Let’s say $1500. Most of the new people, the Land Academy members, they buy it for $500. $500 to $800.
Jill DeWit: So you can buy a couple.
Jack Butala: I’m more conservative, and I say it costs $1500 to buy a piece of property, piece of land, and almost immediately flip it for $3,000 to $4,000.
Jill DeWit: Right, what’s to think about?
Jack Butala: We could end the show right there.
Jill DeWit: Okay, bye. No, this is a good point because this is one of the things that, I know I have this ongoing discussion often with a number of people in one of our favorite websites, BiggerPockets, about the cost of entry for this, versus what you just said, which is rental homes, and I know that a lot of people didn’t even know this was possible. That’s really the discussion, it’s like, “What are you talking about?” They’ll see me having a discussion with somebody too, and I’ll have six people reach out to me, going, “What are you talking about?” I’m like, “Yes!” I know we have a number of current members, that they do want to do rental homes, so they do want to go into this, go into that. This is a really good, logical place for them to even start, get their feet wet. Lower cost of entry, fantastic returns, less risk, they’re in the business.
Jack Butala: Right, so I mean, there’s a right way and a wrong way to buy a house, and I think for a new investor, taking on a financial partner, and paying cash for the house, is a thousand times better than actually going and getting a loan. Loans are expensive, and if something goes sideways, your hands are kind of tied, and you have to deal with this. So I just think … To wrap up the cash portion of this, it just makes so much more sense to shell out a couple of thousand bucks, $1000, maybe even $500, flip a property. See if you can do it. See if you like it, it’s not for everybody.
Jill DeWit: It’s true.
Jack Butala: Doubling your money on an asset is not for everybody, which cracks me up, I don’t know …
Jill DeWit: Isn’t that funny?
Jack Butala: Some people just don’t want to do it, I guess, I don’t know. Right, so the next point then might be, do we need to visit these properties?
Jill DeWit: No.
Jack Butala: Each asset. Do we buy properties every week out of state?
Jill DeWit: Okay. This is really two parts. When you’re new, and you’re getting to know this, is it a good idea to get to know the area, maybe take a trip out there, get to know the county and stuff, it’s not going to hurt you, how about that. Is it required? Nope, it is not required in our land thing, especially nowadays with Google Earth Pro, and all the wonderful mapping things out there.
Jack Butala: Hiring a photographer on Craigslist, like we teach.
Jill DeWit: You can even, as you’re really getting close, if you’re really doing your homework … Say it’s your first deal and you just want to make sure, you could pay $50, hire a photographer, have him go out there, give him the GPS co-ordinates. Have him go out there, take some pictures of it for you. So you don’t really technically have to stand on the dirt, but you can actually feel like you did stand on it, have the views looking in all four directions, whatever you want.
Jack Butala: Take a video.
Jill DeWit: Take a video of it, and then you really know what it is, what it looks like. You know, everything if you really want to go that far. You sure can, gosh, it’s so much less expensive doing it that way.
Jack Butala: I can’t imagine, unless you’re in some kind of institutional investor environment, buying a house sight unseen. We do it with land all the time. Jill’s right, we’re not advocating if you’re new in this business to buy assets that you haven’t seen. When you’re new, you really need to take a look at the property, or practice in your own market, and then expand wherever you’re going to expand. One of the consequences of not having to go visit the property after you’re seasoned, is now you’re in a scalable business. Which means that you can be sending out mailers, or jamming your pipeline, your acquisition pipeline full, all over the country.
Jill DeWit: Right.
Jack Butala: With houses, I think there’s a lot of … The first thing I do when I go into a house that we’re thinking about buying or using as a rental, is I inadvertently start finding problems. The cabinets need to be replaced, or whatever. It never happens with land. The physical asset, it’s land.
Jill DeWit: It is what it is.
Jack Butala: It can burn down, and it’s worth the same amount of money. In fact in some cases when you burn it down it’s maybe worth more.
Jill DeWit: Right, you know it’s so interesting you say that, not only do you walk in and find things, it’s so subjective what people want in a home. The color schemes now are not the color schemes, you know, whatever. It changes, everyone has a different attitude, and there’s so many variables. We’ve done this, don’t think we haven’t, we have done this.
Jack Butala: Every weekend we do it.
Jill DeWit: Right, but it does not compare to the ease and profitability we have found with our land.
Jack Butala: Exactly. Next point, deal structure. 100% of our deals for land are structured as cash deals. I’ll walk you through the points. You send out a mailer to a ton of properties you’ve identified in maybe a single area, that you are think are good acquisition candidates, and you send them a purchase agreement. You don’t send them a postcard or something. You get a lot of purchase agreements back in the mail, or a lot of positive phone calls back in the mail. They’re people ready to do deals. Step one.
Step two, you pick the best ones, and you do the deal. You do the paperwork, and you get a cashier’s check for let’s say $1000 if you’re buying a property. You call a notary in that area where the seller is. The property might be in Nevada, the seller might be in Maine. This happened like a month ago, this exact example. You hire the notary, you send all the stuff to the notary, the notary goes to the seller’s house, they hand over the check, they sign the deed. The notary sends all the information back to you and you send it into the county. It takes, what five days, maybe seven, and you’re the property owner.
Jill DeWit: Totally.
Jack Butala: Walk us through a house deal, Jill.
Jill DeWit: Oh my goodness.
Jack Butala: I’m going to take a nap, go ahead.
Jill DeWit: You’re right, first I’ve got to find the right one, now I’ve got to negotiate a price. What does it look … What commission does that person want, what commission does this person want. I’ve got to get through all that first and make sure it’s still going to work and my numbers still line up. I’ve got to hope too that the house is, you know, whatever.
Jack Butala: It’s got to pass inspection.
Jill DeWit: Right.
Jack Butala: You’ve got to get a mortgage.
Jill DeWit: Oh my gosh, and the title company, how much is that going to cost? You know, there’s so many things. The mortgage thing is the part that scares me the most. The points involved, and the down payment involved. By the way, did I have the money for the down payment? Am I trying to appease an investor, because I didn’t have the money for a down payment. That’s a whole other variable that you need to consider. Then, all the stars are in alignment, you can do this in 30 days.
Jack Butala: Yeah, 30 days is … Can you get a loan in 30 days anymore?
Jill DeWit: Sure.
Jack Butala: Any more do you think, after the changes? I don’t know. 45.
Jill DeWit: I think you can. I think it might be harder, so we don’t usually … That tells everybody that we usually pay cash.
Jack Butala: Right.
Jill DeWit: So we’re not doing deals, we’re paying cash even on this stuff, this type of thing. But that’s-
Jack Butala: So I think, from a deal-structure standpoint, even on a sell-side … On a sell-side you get listed with an agent. The way we sell property is we list it on a lot of websites, that really specialize on rural vacant land. They are crawling with people that are already sold on the fact that they want to buy a piece of land, and when they see yours because it’s priced cheapest in the area, it’s not a hard sell. It sells itself.
Jill DeWit: Exactly.
Jack Butala: Deal structure, land wins. Profit margin, do you mind if I go first in this?
Jill DeWit: Go for it.
Jack Butala: This is a regular deal for us. We buy a piece of property for $500, $1000, or $1500. Don’t believe, us? Go on SuccessPlant.com and check it out. There’s tons of members, Land Academy members, that are doing this and talking about it with each other. It’s a little online community. So a typical deal for us is let’s say we buy it for $1500, maybe 5 or 10 acres out west here. Or maybe if it’s a vacation lot, or a retirement type of situation east of the Mississippi, like in northern Michigan or in Florida or something, same numbers, we buy it for, I don’t know, $2000 now. We immediately sell it, because we only buy properties that we can double our money on immediately afterward or close to it on these online websites. So $1500, we sell if for $3000. Or we sell it for $4000-$5000, for cash.
If it’s a great property, like Jill’s working on two properties we just got in yesterday, two 40 acre properties out west here, you buy them for $2000-$3000 each, and then you sell them on terms, where you collect a down payment and then the buyer purchases the properties on terms for $100 or $200 or $300 a month, for 15 or 20 years. Between 12 and 19 years is a typical deal for us.
So what does that all add up to from our return on investment standpoint, and when you stack it against buying a house and flipping it, or renting it out. Well, no one ever purchases a house that I know of, with the intent to double their money. They might buy a house for $100,000, clean it up, and then make $10-$20,000 if everything is going well. In some cases they might make $30,000, if everything is working out well. There’s no double their money. If the down payment is that, they might, but boy, every house flipper I’ve ever talked to has some tragic stories. The regular deal or average deal, they don’t double it. They might [inaudible 14:02] once in a while.
Or they rent it. They buy a house, they clean it up, and they rent it out forever. I’ll tell you, that’s maybe one of the oldest, greatest business models there ever was. The vast … tons and tons of members that we have at Land Academy, they’re horsing around on the internet trying to start a real-estate business, where they’re buying houses, and rent them out, and they end up buying land first just to test it out. Then they move on, or they continue to do the land, and then work the rental business into their business model.
So, hands down, if you look at a percentage, where else are you going to buy, do a real estate investment, and get a 100% return? I would love for someone to contact me and … Not a one-off, but every month or every week.
Jack Butala: Every single month we give away a property f or free. It’s super simple to qualify. Two simple steps. Leave us your feedback for this podcast on iTunes and number two, get the free ebook at landacademy.com, you don’t have to read it. Now go buy some property.
If you enjoyed the podcast, please review it in iTunes . Reviews are incredibly important for rankings on iTunes. My staff and I read each and every one.
If you have any questions or comments, please feel free to email me directly at steve@LandAcademy.com. And don’t forget to check out LATV. This is dedicated to all things rural land.
I would like to think it’s entertaining and informative and in the end profitable.
And finally, don’t forget to subscribe to the show on iTunes.