Buying Ranches in High End Markets (CFFL 335)
Buying Ranches in High End Markets
Jack Butala: Buying Ranches in High End Markets. Leave us your feedback for this podcast on iTunes and get the free ebook at landacademy.com, you don’t even have to read it. Thanks for listening.
Jack Butala: Jack Butala with Jill DeWit.
Jill DeWit: Howdy. Happy Friday.
Jack Butala: Happy Friday, exactly. Welcome to our show. In this episode, Jill and I talk about buying ranches in high end markets, one of our favorite topics at the moment.
Jill DeWit: Yee-haw. I’m going to go cowgirl on this show. Yee-haw.
Jack Butala: This is a way to print money. First, let’s take a question posted by one of our members on LandAcademy.com, our online community. It’s free.
Jill DeWit: I’m sorry. Your little excitement there just got me all excited. All good. Matt asked, “I have heard or read somewhere that becoming a real estate agent …”
Jack Butala: What the heck?
Jill DeWit: This is good. Let me back up because I’m giggling here.
Jack Butala: I’m glad. I’m glad this came up. Go ahead.
Jill DeWit: Thank you, Matt. This is a good question. “I heard or read somewhere that becoming a real estate agent was somehow detrimental to this land investing business.”
Jack Butala: Dentrimental?
Jill DeWit: Detrimental. “If one takes a real estate test and becomes a licensed agent, how does this affect the business?”
Jack Butala: Go ahead.
Jill DeWit: Well, let me start by saying I have gone through all the courses. I have taken and passed the test.
Jack Butala: Me, too. So have I.
Jill DeWit: However, I never activated my license so here’s my, and I think you share this with me, thoughts on this. Talk about a great education. If you really want to learn some great things about this whole business and a lot of good information, take the courses. It was what, I don’t know, a couple years ago it was 600 bucks and 60 hours or 80 hours. I don’t remember. 90 hours. Something like that. You can do it in weeks or months, whatever. Great, great information to do that. Here’s the thing. As a licensed agent, it brings a whole bunch of rules and regulations and different things that you have to … Actually, there’s an extra cost, too. You have to have a broker and you’ve got to hang your license somewhere, but there’s all kinds of rules and regulations and things that you have to jump through and … Is the word notified, Jack? I’m trying to think.
Jack Butala: Notice.
Jill DeWit: … notice that you have to do.
Jack Butala: … and disclosures.
Jill DeWit: Yes.
Jack Butala: I’ll talk about it in a second.
Jill DeWit: Here’s why we don’t need to do this. Because if I’m going to be doing this for somebody else and I’m representing that person, that’s a whole different ball game. But we’re not. I’m acting, I’m buying real estate for me and my company. I’m not representing a third person, so I don’t need to do that. It’s all legal and up front and honest and when I sell it, it’s me selling it to that person.
Jack Butala: Exactly. Here’s why in the universe you are required to get a real estate license. You are required if you represent somebody in a purchase or sale of real property, right? You’re not the purchaser or the seller, but you are representing the Smith family in purchasing a house, or you’re representing the Jones family in selling their house. That’s why. And you’re required by law, and it’s severe. If you do this without a license it’s pretty severe. That’s why you get a real estate license. You are not required to get a license to buy or sell property in any number as the owner or the investor or in a partnership. What do we do here? We buy property for ourselves and we sell it and we do tons of it every week. You do not need a license to do this. It’s a huge misconception. I don’t know where it comes from. I think that this younger generation just thinks you’ve got to get a license because hairstylists and barbers and stuff have to get a license. You’ve got to have a license to have a dog. Don’t you, Jill, get a dog license?
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: Everything’s license this, license that. It’s very strange, because this is hugely … I bet your dollar Donald Trump and Sam Zell and super high end guys, they don’t have licenses. How do they get away with it?
Jill DeWit: Could you imagine Donald Trump renewing his real estate license? Sitting in a class next to him?
Jack Butala: Seriously, they don’t have licenses. All the guys I know that do a high volume, none of them have licenses. Do they have access to the MLS? Yeah, through different ways and stuff. Or maybe somebody in their office has it and they use it that way and they pay them. That’s the real truth of it. This comes up a lot. I’m really, really glad. We haven’t talked about it a lot recently on the show at all. Do not get your license, and here’s why.
First of all, more education is always better. Jill’s right. I’ve done this, too. I went through all the classes and stuff and took the test and all of it because you learn. You learn all about the state where you’re going to be, where you are. Every state’s different. Learning is great. It’s actually, I think, when I went through it was 4 or 500 bucks, and man, for $400 or $500 dollars, which is a pretty small amount of money, the stuff that you learn is amazing. It really changed how we do business in Arizona, specifically. I’ve never done it in California. Have you, Jill?
Jill DeWit: The licensing?
Jack Butala: Yeah, we probably should go …
Jill DeWit: No, my mom did.
Jack Butala: We should go to the school, though, and just maybe learn because I know the rules are really different.
Jill DeWit: I thought having the right real estate attorney next door was … We could ask him anything, which is really what we do.
Jack Butala: Yeah. This ties into what the show is about today because we’re in the process of buying some huge ranches, really expensive ranches, like movie star stuff, and we could learn. Anyway, go ahead.
Jill DeWit: One thing I was going to add to this for Matt is I don’t think it’s detrimental because we do have a number of licensed real estate agents in our world who are doing this. Now don’t quote me here. This a whole thing you want to double check. You want to make sure when you’re buying property in your state how or if you need to disclose this. If you’re buying property in other states, how or if you have to disclose this. It is absolutely not going to sink the ship. It doesn’t mean you can’t do it. Oh, no, none of that. But you just need to make sure you check the regulations, that you are following all the rules. That’s one thing that, I think, if it’s your state where you’re licensed there’s different rules and if it’s not in your state where you’re licensed there’s different rules.
Jack Butala: In Arizona if you’re a licensed agent and you’re flipping land like we do, you have to put it everywhere. Everywhere you post the property for sale you have to say, “Owner is a licensed agent.” There’s a bunch of other rules and regs, too. Here’s the kicker … I think this is the final point and we’ll move on to the show … When you are a licensed real estate agent it puts you in an entirely different legal category, so if something goes sideways and you get sued and the whole thing kind of blows up … which, I’m not trying to scare anybody. It almost never does. We’ve been in trouble two or three times and it’s because people are crazy, not because we really did anything wrong. We rectified it immediately, but if we were licensed agents, in the eyes of the law, we are an expert now in the field. It’s a little bit ironic because we went through education. We have a license and the whole thing and there’s all kinds of recourse and awful stuff that can happen to you if you get sued as a licensed agent versus just a real estate owner. “I’m just a little real estate owner. I don’t know anything.”
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: It’s funny because, you know, it’s ironic.
Jill DeWit: Okay, now, here’s the inspirational person in me coming out. Hold on, let me add one more note on this. You could spin this any way you want. I mean, let’s assume that you are a licensed agent and you do everything by the book and you’re one of the best ones out there. There are a lot of great real estate agents out there who are really good people and are really doing good stuff. I’m assuming you’re that person and you’re going to say, “Hey, you know what? Not only do I know this area because I invest here, but actually, I am a licensed real estate agent in this state and I can tell you everything you need to know about it. I do properties in this area, not just for me, but other people, too. You know, you could spin it that way and it could be a positive thing.
Jack Butala: Right.
Jill DeWit: Thank you. Are you making faces at me?
Jack Butala: No, not at all. You’re exactly right. There’s pros and cons to all of it. In my mind, there’s way more cons than pros to being a licensed agent in doing this.
Jill DeWit: Yeah, I don’t want to have to jump through those extra hoops. I just want to be able to … It’s like I want to buy a car and sell it. Say I bought a car off Craigslist. I drove it for a few months, and I fixed it up and now I want to sell it for more. I painted it, whatever. I don’t want to have to get a car dealership broker license to sell the car back on Craigslist.
Jack Butala: Right.
Jill DeWit: You know? That’s the thing.
Jack Butala: Yeah, I mean, if you’re going to flip houses or wholesale houses like we do, Jill, can you imagine? If we were licensed agents, the way that we wholesale houses … we mark them up ten grand and sell them to flippers … the stuff that we would have to disclose? Like every time we talk to a seller. “Oh, yeah. I’d love to sell you my property, Jack. Well, I’m a licensed agent.” You would have to notify your broker. You’d have to use all the state contracts that they make you use. You’re subject to … [crosstalk 00:09:28]. You and I are famous for doing one-page agreements on everything.
Jill DeWit: Right.
Jack Butala: Purchase agreements? One page. You know? Disclosure statements? One page. The regular Arizona, California purchase agreement is like 42 pages. We’d have to do that on every deal.
Jill DeWit: That’s it. It’s not like we’re trying to pull anything past anybody. It’s just the extra work that you would be required to go through.
Jack Butala: Right.
Jill DeWit: I don’t want to do that.
Jack Butala: I don’t, either.
Jill DeWit: That’s it. I hope that answered the question and it didn’t scare anybody, because it’s really not a big deal. I mean, don’t go get your license because you don’t need to do that. It makes it easier if you don’t, but if you have it, that’s okay. Don’t worry about it.
Jack Butala: I can hear iPhones turning off all over the country.
Jill DeWit: Click, click, click.
Jack Butala: If you have a question or you want to be on the show, reach out to either one of us on LandAcademy.com. Today’s topic: buying ranches in high-end markets. This is the meat of the show. Jill, I know you’re just itching to talk about this. Go.
Jill DeWit: I’m excited just because of where we’re going now with this. The opportunities are available in any price range. It’s just staggering to me. I’m excited. I love what we’re doing right now. I don’t know how much you want me to share or not share, Jack.
Jack Butala: I think you should share all of it without disclosing the counties.
Jill DeWit: Oh.
Jack Butala: Every last detail.
Jill DeWit: Well, if anybody follows us on FaceBook they know one of the counties.
Jack Butala: Well, yeah, you’re right. Go ahead. Share it all.
Jill DeWit: Well, how do I keep that a secret? Don’t go look at FaceBook. Don’t tie this all together. Shh!
Jack Butala: Do not connect the dots in this business. We are here to eek out information, just as little as we can, and then charge more as we go. That’s our whole model. Mark, that’s what we’re here to do. Mark.
Jill DeWit: Oh my goodness. No.
Jack Butala: You know what? I’m going to say this. We sell one product. Land Academy … This is not our primary business. This is a non-profit scenario. We didn’t get into this to make money. We make money on real estate deals every week. We sell one product. There’s no $50,000 product or any of this malarkey that these other places … We do this to educate people who want to be in real estate so we can be their partners. They find deals. They bring them to us. We both make money. That’s why we’re here. There’s the disclosure. Go ahead, Jill.
Jill DeWit: You just did a mic drop.
Jack Butala: If I sound angry about it, I am. A lot of people come to us and say, “I’ve spent $50,000 over here. I went to this Hilton thing and I had to spend …” Come on. Nothing like that goes on.
Jill DeWit: That’s the thing that makes me mad. If you’re ever in a situation … This is a little off topic. If you’re ever in a situation where someone says, “And come to the back of the room,” because Jack and I have been in these things.
Jack Butala: Jill and I go to these things incognito just to laugh and test it. Go ahead.
Jill DeWit: Oh, it’s the funniest thing. We sit there. “How many people are familiar with da-da-da?” We don’t raise our hand for anything. It’s hilarious. I’m sure they’re wondering, “Who are these people over here in the corner and then they leave?”
Jack Butala: “Why are they giggling throughout the whole thing?”
Jill DeWit: Oh my gosh, exactly. We do giggle through the whole thing. It’s great. If you’re ever in a situation where they say, “If you really want to do this and da-da-da, come to the back of the room and we’ll help you. We could even talk to you about how to up your credit limits on your credit cards and da-da-da.”
Jack Butala: Oh my gosh.
Jill DeWit: Oh, I know, I’m sorry. I just did that thing you hate. Anyway, I think that’s the worst thing on the planet. If you ever find yourself in that situation, run. Run, run, run. You should be in the situation that people say, like we do, “Hey, if this isn’t right for you, that’s okay. If this isn’t the right time for you, that’s okay. We’re not going anywhere.” I had a guy even answer his own question the other day. He said, “You know what, I get it. If I don’t have enough money to do this right now, I need to have money to invest in the data and I need to do mailers and all of this.” I said, “Yeah, you’re right. So sit tight. Get yourself in the situation you need to be in, and we’ll be here. That’s it. Don’t … ‘Go take out a new credit card and we can work this out together.'”
Jack Butala: Yeah.
Jill DeWit: No. Don’t go backwards to go forwards. That’s not the right way. Anyway, back to buying ranches in high-end markets. Jack, you have a lot to say.
Jack Butala: Yeah. I do. There’s a few ways to … One of the other shows we did this week we talked about, “Would you rather do 10 deals or one and make the same amount of money?” My answer at the end was both. You want to do them at the same time. Well, this is that one deal. We are specifically seeking out property. Here’s the basic numbers. We talked about it on our weekly call last time, last Thursday, with all our members. We’re seeking property that’s worth about 20 million bucks. Large ranches by Neverland, you know, in Santa Barbara county by Michael Jackson’s old … I guess he still owns it. I don’t know. No, no, he sold it. Properties that size, you know, seven, eight, nine, a thousand, 1200 acres. They’re worth 20 million bucks and we’re seeking to buy them in the exact same methodology that we buy 40 acres for four grand. In rural markets, to buy them for around, let’s say, eight million, and then sell them … sell a 20 million dollar ranch for 10 to somebody who’s then really going to market the heck out of it and make a ton of money. We’re only in it to make between 800 and 1.6 to two million bucks per unit. It’s going great.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: That’s the end of the show.
Jill DeWit: That’s it.
Jack Butala: Talk about dropping the mic. We’re filming everything and so it’s going to become a whole program and the whole thing. Jill is famous for saying, “The bigger the airplane, the easier it is to fly because it’s got more stuff on board. More electronics, more stuff.” It’s the same thing. The larger the real estate deal, the more people that … the more lenders there are, the more partners there are. True to form we’re not borrowing any money to do this.
Jill DeWit: One of the discussions I have with people often is this. “Are there really people out there that will let their property go? Are there really people out there that, gosh, have homes without a mortgage and things like that?” It sounds crazy because it’s not you, but it’s really, really true. I remember having a discussion with a woman recently who’s in our group and she was trying to help her mom and dad find properties. She thought it was crazy to be … She was doing it for single-family homes in the area that her parents want to move to. We were talking about using the data and how to tweak it and making offers and all that kind of thing. She’s sitting there scratching her head about, “God, you mean, can I make these offers?” I said, “Yes.” I said, “Think about this. There’s a lot of people right now in that area your parents want to move to that don’t have a mortgage. This isn’t crazy.” She says, “Oh, you know what? You’re right. My parents don’t have a mortgage.” I’m like, “Uh, hello. They’re doing the same thing. I mean, that’s it. They would be selling their home that has no mortgage to buy another asset from somebody else in the same situation.”
My point is there’s a lot of people in areas, especially in California, they got in in the 50s, 60s, 70s, 80s, gosh, even some in the 90s, Jack. They’re still sitting in these homes that they spent a couple hundred thousand for. I should look up one of our homes. My family home, it was in Laguna Hills. I should look it up, because I want to say we bought it for 100, $200,000 back then in the 90s. It’s probably, I don’t know, six, seven, $800,000, you know, now …
Jack Butala: Oh, I bet it’s worth 1.5 million dollars.
Jill DeWit: … even more.
Jack Butala: Yeah.
Jill DeWit: See? Right? I bet some of the neighbors on the street are the same neighbors if I drove down that street today.
Jack Butala: Yeah.
Jill DeWit: It’s hard to grasp, but when you really think about it, it’s true. Okay, so these people that you’re coming to, this home that’s worth 1.2 and you’re offering $600,000 when they paid $250,000 for it. This is a lot of money and you can cash out tomorrow.
Jack Butala: That’s right.
Jill DeWit: It’s not crazy.
Jack Butala: There’s a lot of people who sell homes … We’re not talking about ranches, now. We’re shooting off to a little side note here, but people sell houses because they don’t want to clean it up to list it. They don’t want people running through their houses. They’ll give up $200,000 in a market like that because they don’t want to deal with the three or six-month process that it takes to sell the property because people are walking through their house and all that. For lots of reasons, people do that. It’s the same thing with land. It’s easier. I’ve done this before. I think this is Jill’s first time. I’ve done it with high-end markets where, you know, instead of sending a mailer out to buy a piece of property for 5,000 bucks, you’re sending a mailer out to buy a piece of property for five million. Yeah, it might be worth eight, but if somebody sends you an unsolicited offer for an asset that you own for five million dollars and you haven’t even thought about that asset for a lot of years like Jill’s saying, where maybe you bought it for one, you’re going to look at that pretty hard. You’re not going to throw it away. You’re not going to call back and say, “This is ridiculous. It’s a lowball offer.” You’re going to take it seriously. It’s easier to fly a bigger plane than it is a small one.
Jill DeWit: I use that house example as kind of a baby step. If you can grasp this, okay, now grasp it here. All right, now I grasp it in that market. Okay, now grasp it as a ranch. Grasp it at the numbers you just said. Now, why is that not the same? Then you kind of go, “All right. I get it. I see it.” You know? The whole thing is not crazy.
Jack Butala: Here’s the math. 50% … This is right from the census. Approximately 50% … It varies. It varies, but 50% of the residences–condos, townhouses, single-family houses–have no mortgage. 50% in the country.
Jill DeWit: That’s huge.
Jack Butala: It’s been like that since they started tracking the data. Sometimes it goes up. Sometimes it goes down. But it’s about 50%. That means wherever you’re sending mailers out, if you are wholesaling houses … Through our data the way we do it, people only ever get … I’m satisfying this question because it comes to me all the time. “Well, that’s not very many houses. How many are you missing if you just send it out to people with no mortgages?” It’s half. You know, if there’s 5,000 units in a zip code that you’re interested in, 2,500 have no mortgages, you’re going to buy a property. I don’t care how low the offer is. Within reason, you will end up with a deal.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: Same with land.
Jill DeWit: Not to mention you need to deal with the people that can make the decisions. If there’s a mortgage on it they’re not making the decisions. I’m not sending it to the bank and dealing with that.
Jack Butala: Unimproved land … and I’m not talking about property that has sewage to it or a subdivision property or infill lots. I’m talking about unimproved, rural, vacant land, or just vacant land anywhere … is not financeable through conventional methods. You can’t get a mortgage on it like you can on a house. They just don’t lend on it. The percentages are way, way higher. It’s in the 90%. The census doesn’t track that because it’s not a primary residence, but when I look at it through liens and things like that, through lien sources, it’s about 90% of the vacant property in this country. There’s no mortgage on it, including huge ranches.
Jill DeWit: Exactly.
Jack Butala: In fact, banks run from deals like that so the people that own these things are extremely wealthy. Not to mention the tax liability. The annual taxes on a 500-acre ranch in Santa Barbara is extraordinary. The check that you write to have a piece of property that you may not even be using … and a ton of them are not being used … is a lot. It’s all the more reason to say, “Hey, you offered five million. What do you say about six? We can get a deal done,” and we’ve got a buyer lined up for 10. Those are the kind of numbers that we’re shooting for. We’re just about ready to send a mailer out, too.
Jill DeWit: Yup.
Jack Butala: I got the thumbs up. If you have a question or you want to be on the show … Oh, sorry. Join us in another episode where Jack and Jill discuss how to use information. That’s me.
Jill DeWit: And inspiration where I’m keeping you on task here … Just kidding … [inaudible 00:22:06] anything you want.
Jack Butala: You are not alone in your real estate ambition. I got so excited I got tripped up. I love this topic.
Jill DeWit: I know. It’s all good. I’m just teasing you. It’s Friday.
Jack Butala: It’s a blast.
Jill DeWit: It’s Friday. It is.
Jack Butala: I love these large deals. I haven’t done it in a while because of the economy, but it’s back now.
Jill DeWit: Yes. People are feeling good. People are feeling good about spending money and selling and making changes and like you said, the economy’s back. It’s really good. I’m glad.
Jack Butala: Me, too. What we didn’t probably mention enough in the regular show is that the mechanics are exactly the same and there’s nothing different. The only variable, and I said it a million times, is pricing. You can do this with any asset type as long as it’s database driven. It’s all variable pricing. We’re offering, in some cases, $100,000 an acre versus $100 acre in northern Arizona.
Jill DeWit: Right.
Jack Butala: What are you going to do this weekend? What do you want to do this weekend?
Jill DeWit: I’m going to make my way to Arizona.
Jack Butala: Oh, that’s right. Oh, that’s good. I’m excited.
Jill DeWit: Yeah. I’m going to come and check out what you’ve done with the office and see what I need to undo. Just kidding.
Jack Butala: Boy, that wouldn’t be the first time, would it?
Jill DeWit: I’m just kidding.
Jack Butala: Sometimes I get mad.
Jill DeWit: “He told you that’s okay? What?” Just kidding. No.
Jack Butala: I’ll tell you a true story along these lines. The number three child took my hand and walked me out of Home Depot yesterday.
Jill DeWit: Why? What were you buying?
Jack Butala: No, I was about to murder somebody, just a person that was really impatient about the fact that they couldn’t pass. We were standing … It was a crowded aisle. All right? There was a lot of people there. We were buying some stuff. They were extremely impatient and agitated about the fact that they couldn’t pass. I was not the only person, the only guy, that was agitated by this. He saw it coming and walked me out of there and said, “It’s not worth it.” That’s what happens in our office. That’s my point. I bring it up. I get mad and I’m like, “All right. We’re shutting this program down, this program down, and this program down.” Jill’s like, “Wait a minute. What are you talking about?”
Jill DeWit: Right. Exactly. Love it. What are you doing this weekend?
Jack Butala: Oh, I want to spend some time with you. It’s been like 2 or 3 weeks that we haven’t really hung out, right?
Jill DeWit: We’re going to have some fun.
Jack Butala: Information and inspiration to buy undervalued property.
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