Worst Real Estate Investments Possible (CFFL 370)
Worst Real Estate Investments Possible
Jack Butala: Worst Real Estate Investments Possible. 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: Happy Friday.
Jack Butala: Yeah. Yeah.
Jill DeWit: First Friday in 2017. Woohoo!
Jack Butala: Yeah.
Jill DeWit: Did you make through your first week?
Jack Butala: I have to say-
Jill DeWit: Are you suffering?
Jack Butala: It was a long holiday season. I love being back to work now.
Jill DeWit: What? What? What?
Jack Butala: In this episode, Jack and Jill … Jill’s gonna get me for that in a minute.
Jill DeWit: I know.
Jack Butala: In this episode, Jill and I talk about the worst real estate investments possible. We’ve all been there. Maybe you’re there right now. Let’s take a look. But first let’s take a question posted by one of our members. From the landacademy.com online community. It’s free.
Jill DeWit: Cool. Luke, I’m not sure which one in our group said, because it’s such a good question it could be either one of them. They’re both smart. How do I create easements?
Jack Butala: This is a great question.
Jill DeWit: Could I just write up my own easement on the deeds. I kind of like this. To give access to the back lot across the front lot of which I own both.
Jack Butala: Yeah. Put whatever you want in that deed.
Jill DeWit: I think that’s kind of cool. I like that.
Jack Butala: I really don’t like my fourth child. Can I just reprogram his brain how I want?
Jill DeWit: That’s good. I like that.
Jack Butala: No, you can’t just put an easement on a deed. In 1952 you might have been able to do that.
Jill DeWit: Right.
Jack Butala: But, no. You have to file for easements with the county. I mean, maybe there’s a county out there that still allows you to do that. There are counties that certainly allow you, that are agricultural-based, they allow you split off property if you’re deeding it to a family member or they allow you to split off property only to certain numbers, but for easements, you have to file a whole plan. Here’s the takeaway, Luke, and you’re right. Both of these guys … This is PhD level stuff.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: An easement, for the record, is a right of way across someone else’s property, an adjacent property to property that you own, so you can get there. So you can get to your own property. So you have to file a bunch of stuff and you have to … The best way to do it is to get ownership consent from that property. I should say that all the statutes, or nearly all of them that I’ve ever seen say if you own property you can’t reasonably withhold access to another person’s property. So you can ram it down the owner’s throat or you can just call in and say, “I’d really like to put a road in or put a platted easement in here.” If you see dotted lines on a plat map, that’s usually the easement.
The solid line is the property line. So, no, you can’t just write your own easements in. Nine times out of 10, the easements aren’t written in the deed anyway. You might see them sometimes in the old school ones where they’re talking about minutes and degrees and things like that, but in general, the easement, it’s separate. It’s separate from the deed. It’s real hard to answer this without visuals. Every kind is different.
Jill DeWit: It’s true. I think I know where he’s … You know where I think? I think I know where he’s getting it, because some of the people that I buy property from and we buy property from, they’ve owned it for so long, they do have it written in the legal description.
Jack Butala: Yeah, I know. I can see like-
Jill DeWit: So it has to be a certain wording and stuff.
Jack Butala: Fence went east.
Jill DeWit: Right.
Jack Butala: Or, you know, it’s 14 degrees west, yeah.
Jill DeWit: Stuff like that. Or even it’ll say, “Except this easterly portion”-
Jack Butala: Exactly.
Jill DeWit: You know, and with that special description so I’m sure Luke was going, “Well, shoot. If I just worded this the right way, right? Is there a certain way I have to word it and I can just kind of add it in there,” which makes sense. I would think that, too, but there’s more to it.
Jack Butala: Yeah, so, I mean, you never want to record a piece of property with an altered legal description ever.
Jill DeWit: Right.
Jack Butala: So first of all let’s-
Jill DeWit: Good point.
Jack Butala: Take a couple of steps back.
Jill DeWit: That’s a very good point.
Jack Butala: The legal description that is on the grantor document needs to be verbatim, and I mean every dot and every T crossed properly verbatim.
Jill DeWit: As crazy as it might sound, leave it.
Jack Butala: So the answer is a categorical ‘no.’ That is not the place to-
Jill DeWit: Right.
Jack Butala: To alter an easement.
Jill DeWit: Right.
Jack Butala: So the first place you start with stuff like that, is calling the either planning and zoning or, yeah, would be planning and zoning.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: You know, I just learned for the first time ever that planning and zoning are sometimes two different departments.
Jill DeWit: Oh that’s right.
Jack Butala: Not in Santa Barbera.
Jill DeWit: When you went to go look for planning and zoning, so planning’s over there and zoning’s over there.
Jack Butala: Yeah.
Jill DeWit: What? That’s what I think. That was funny. I thought that, too. I always thought they were like, it’s the same guy and he just hangs out the … You know, it’s-
Jack Butala: Well, usually it’s one person.
Jill DeWit: Yeah. Exactly. One phone. [inaudible 00:04:37]
Jack Butala: Oh, you mean Mike. Yeah. Here’s Mike’s number.
Jill DeWit: Exactly. Mike in planning and zoning. Not Mike in planning and Bob in zoning.
Jack Butala: Or Mike is planning and zoning-
Jill DeWit: Exactly.
Jack Butala: But he’s playing golf today.
Jill DeWit: There you go. Exactly. That is really funny that you bring that up. And they have different hours than other people, too, which was funny.
Jack Butala: Right. Hey, if you have a question or you want to get on the show, please reach out to either one of us on landacademy.com. Today’s topic, and I’m gonna get in trouble for saying it, what’s the worst real estate investment possible? Jill hates it when I put words like ‘worst’ and ‘awful’ and ‘failure’ and ‘hate.’
Jill DeWit: This is … Don’t get into hate. That’s the one-
Jack Butala: In the title. Right in the title. I did it for you.
Jill DeWit: The worst is good because we’re helping people. It’s the hate I’m like, “Oh, I just cringe on that word.”
Jack Butala: Sunshine and rainbows at this point.
Jill DeWit: Thank you.
Jack Butala: [crosstalk 00:05:27]
Jill DeWit: And unicorns.
Jack Butala: Uh huh.
Jill DeWit: Just kidding.
Jack Butala: And parades.
Jill DeWit: And parades.
Jack Butala: Jill, I wrote this title as a response to a lot of questions that I’m getting, and because I did it, the first real estate deal that I ever did was a house deal and it was the worst real estate deal I ever did because I just had no education at all.
Jill DeWit: Right.
Jack Butala: I looked at it like it was a house I was buying … You know, I would buy personally to live in.
Jill DeWit: Right.
Jack Butala: A personal primary residence, and I see a lot of people doing it. I see a lot of people in bigger pockets. They go through the whole thing. I’ll describe it in a second, and then they go out back on in bigger pockets and they say, “There’s no way you can succeed as a real estate investor successfully. This is a mess you set up to fail.” And I couldn’t agree with that comment more. Here’s what you never want to do. Get a real estate agent. Wake up in the morning and say, “You know what? I don’t like my job too much. I’m gonna be a real estate investor. My parents, they made half a million bucks on their house, and if I just do that 10 times, five million dollars, so I’m gonna do that. I’m gonna go.”
So they get a real estate agent. Maybe it’s their buddy, and they look through the MLS, the multiple listing service and they pick out a property. Or they go driving for dollars and they find a property that’s falling down. Something like that. This is what I see all the time. This is absolutely, by the way, what not to do. So they buy it or they negotiate a great deal. They get $10,000.00 off or something like that. They buy it and they get in there. Try to clean it up.
They go get a loan. Right? And the conventional wisdom is try to put as least amount of money down as possible so your monthly payment is, you know, “Hey, if you get … Your monthly payment’s only gonna be $25.00 more if you get X amount down.” You know? I’ve heard it a million times. So now, you got a loan. You’ve obviously signed personally for that. A lot of risk.
Jill DeWit: Right.
Jack Butala: Right? Yesterday’s show or two days ago was no risk.
Jill DeWit: Right.
Jack Butala: We’ve just spent decades putting together a risk-free real estate situation. There’s not more risk … What I’m describing is the most risky.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: Now you’ve a lender involved. You’ve got a real estate agent involved. They’re getting paid. You’ve got an escrow agent involved. They’re getting paid. You got an inspector involved who’s really working for the lender and they’re getting paid, and on and on and on and everybody’s made a bunch of money except you. And so you’re standing there with the keys in your hand looking at a untenantable house that you think you’re gonna rent out or flip or whatever and it doesn’t work.
Jill DeWit: Right.
Jack Butala: You get in there and you find out there’s mold and all kinds of stuff. So that is how you try to buy a primary residence as an investor and it’s just absolutely the worst real estate investment you can possible make. You want to remove all those risk characteristics for yourself and flip a property as fast as possible. That’s why we’re here. We spent a career doing that and we’re sharing it with everybody.
Jill DeWit: Exactly.
Jack Butala: What do you see, Jill?
Jill DeWit: I was looking at it from our world and our people and I see people … Usually it’s before they got to us and they rushed in, they bought an asset, whether it’s a property or whatever, because they were told it was a good deal. Sometimes they were told it’s a good deal and that was enough for them. I’m like, “What the heck?” Or they assumed it was a good deal.
Jack Butala: Yeah. I’ve seen that, too.
Jill DeWit: They didn’t know and they didn’t do all the right work and so they either bought something that really wasn’t a good asset or they overpaid. Because often you can fix it. If you buy it right you can still fix it. You can still make some money.
Jack Butala: It’s like a marriage.
Jill DeWit: What? If you buy it right-
Jack Butala: I can still fix.
Jill DeWit: Like a marriage. Oh, that’s where you’re going with that.
Jack Butala: If I just get deeper inside.
Jill DeWit: I’m like, “[crosstalk 00:09:20] apply it right. What?
Jack Butala: If I get deeper inside of him I can fix him.
Jill DeWit: Wow. That’s scary. Oh my gosh. That’s so scary. I’m sure people say that. “He was workable. I had something to work, whatever.” That’s awful. That’s another bad investment. Anyway.
Jack Butala: Exactly.
Jill DeWit: But they rushed in and then they overpaid and that’s the times that I see people getting in trouble. Really when you rush in it’s not like you did the deal too fast. It’s like you didn’t really have everything lined up. You know? It’s just because of experience.
Jack Butala: [crosstalk 00:10:01] You don’t tip yourself.
Jill DeWit: And if you don’t have experience, you don’t necessarily have to have the experience, but as long as you have someone there with you who does have the experience and you’re learning from somebody and you have the education and you’ve been watching this for six months on the sidelines, now you’re ready to go. You watch people making their own mistakes, which, by the way, is one of the things I love about our online community, Jack, and it really is. I watch a lot of people. I talk to a lot of people that have been watching and following and by the time they get to me and they’re ready to join Land Academy they’re like, “Okay, I’ve been following this member and that member and this member and that member.”
Jack Butala: Oh really? You follow specific people?
Jill DeWit: Mm-hmm (affirmative) And they see their questions-
Jack Butala: Wow. That’s cool I never thought of that.
Jill DeWit: And they were paying attention to their transactions and they’re like, “Okay. I can do it.”
Jack Butala: Wow. Really?
Jill DeWit: Yeah. It’s really cool.
Jack Butala: Like who do they follow? Do you have any names?
Jill DeWit: David. David’s a good one.
Jack Butala: Mm-hmm (affirmative)
Jill DeWit: David’s a really good inspirational one, David. Thank you, David. Yeah. We have a couple … We have a lot of good members [crosstalk 00:11:00].
Jack Butala: Yeah.
Jill DeWit: I could sit and list a lot of names.
Jack Butala: You know, when I was starting out, I wanted it to work so bad that I would start to see things that weren’t there. Too optimistic.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: Like I would look at a deal and say, “Ah, I can get over that.” Or, “I can get over that because I hate my job so much”-
Jill DeWit: Oh.
Jack Butala: Or, “I hate where my career is going so much”, that you start to see … “And I want to be an investor so bad”-
Jill DeWit: Uh oh. That’s [crosstalk 00:11:25].
Jack Butala: And I’m starting to see. I bought a couple of laundry mats one time. And in the end it worked out great. The sale of it. I made some money. I mean, back then it was a lot of money, but now it’s like the average house that we flip. You know, the house that we wholesale. But, you know, that was back in the day where you’re looking at a deal going, “Ugh, I just want this to work so bad, and I don’t have any time. It’s Sunday. I gotta go back to work and so I’m gonna make.”
Jill DeWit: Shucks.
Jack Butala: So I see that.
Jill DeWit: “I’m gonna make it work.”
Jack Butala: Yeah.
Jill DeWit: That’s not the right thing. Move on.
Jack Butala: Yeah.
Jill DeWit: That’s a good, good-
Jack Butala: It was un-researched. Back then, too, it was a lot harder to research stuff.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: We have all the answers to all the questions on the planet in your pocket right now on your phone.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: This was back in a different time where you just really relied on … You know what? You brought up a great point. You listen to somebody when they’re around.
Jill DeWit: Right.
Jack Butala: I never thought of … You know what? You’re right. Maybe you have a bad boss. I had a really bad boss.
Jill DeWit: Yeah.
Jack Butala: In commercial real estate in Michigan. He was just full of crap and really scream at us all the time and when you’re young and impressionable like that it’s not good.
Jill DeWit: Yep.
Jack Butala: Basically, he was just teaching us to lie. That whole car dealer mentality.
Jill DeWit: Right.
Jack Butala: Get it … Get … Stick em. Stick him as good as you can.
Jill DeWit: I’ve had that.
Jack Butala: It’s terrible.
Jill DeWit: I have had bosses like that. “Hit your numbers.” It’s more about hitting your numbers. It doesn’t matter if it’s the right people or if it’s the right fit or whatever and that sends me … It makes me so angry.
Jack Butala: To carry along the point here, the worst real estate … The biggest mistake you can make in a real estate deal, and I’m not talking about commercial at all. I’m talking about if you’re new and you’re independent and you’re just getting started getting a loan. Can you think of anything worse than that?
Jill DeWit: Nope.
Jack Butala: It starts the clock. Now you got all this pressure. It starts the path of bad decision making.
Jill DeWit: Even before that, I talk to people and I tell them, “If now’s not the right time, do not join Land Academy until you have enough money to do a mailer and you know-
Jack Butala: Look, five grand.
Jill DeWit: Exactly.
Jack Butala: Everybody’s asking themselves, “How much does it really take?”
Jill DeWit: Right. If you have five grand you’re in good shape.
Jack Butala: Three to eight thousand. But five … I think five-
Jill DeWit: That’s a good number.
Jack Butala: You can really start doubling your money fast.
Jill DeWit: Yeah. Don’t think you’re gonna come into this and just have the education part and be able to pay for the data and then that’s all you need.
Jack Butala: Right.
Jill DeWit: You gotta spend money on the mailer and then when the mail owners come back you want to buy the asset. You need to be able to buy the assets. Like Jack said, you don’t want to borrow the money. You don’t want to tie em up in options deals and stuff. For some, yes, but not all. You want to do this right. I tell people all the time, “So what? Wait six months. Save up. Do it right.”
Jack Butala: Any decision that you make that’s putting pressure or you think that might cause you to do bad deals, that’s the problem.
Jill DeWit: Bingo.
Jack Butala: Here’s a short list.
Jill DeWit: Like a wife?
Jack Butala: Yeah. That can be problematic. I know some can be problematic, but the biggest one I see is, number one, you quit your job way too early and it’s like, “Well, heck. I gotta make X amount next month.”
Jill DeWit: Right.
Jack Butala: Now you’re gonna make bad acquisition decisions.
Jill DeWit: True.
Jack Butala: A loan. “I got this loan. I gotta make the payment next month.”
Jill DeWit: Yeah. “I gotta hurry up and sell it.”
Jack Butala: I gotta get this thing rented. I gotta sell it. I have to get it rented. I have to, you know, you’re making bad acquisition decisions. Take the pressure off of yourself.
Jill DeWit: Right.
Jack Butala: Buy some of these assets that like in our asset … The land assets that we buy are typically a thousand bucks, three thousand bucks. The real good ones are three thousand. Sell it for six or eight, double your money, make a bunch of mistakes. Plan on making mistakes.
Jill DeWit: Right. It might take you a month. It might take you a few months because you didn’t know how to market it properly. Big deal.
Jack Butala: Exactly.
Jill DeWit: You owned it.
Jack Butala: Exactly.
Jill DeWit: Yeah.
Jack Butala: Then there’s no pressure.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: You’re still getting your bills paid because you have your job.
Jill DeWit: Your day job.
Jack Butala: Your spouse is still happy because … Tell your spouse about it after your successful, not before.
Jill DeWit: Ooh.
Jack Butala: What’s that saying you say, Jill?
Jill DeWit: Oh my god.
Jack Butala: Ask for forgiveness.
Jill DeWit: It’s better to ask for forgiveness than permission. Easier.
Jack Butala: What [inaudible 00:15:21] does on a weekly basis with me.
Jill DeWit: Hold on. Do not do this, please. Do not. This is a big deal. “Sweetheart, why is our savings gone?” We don’t want to have those conversations. I do not want those people calling me. “You told my husband.” No.
Jack Butala: Oh man. Does that really happen?
Jill DeWit: I’m sure.
Jack Butala: No, I mean do they call you saying that?
Jill DeWit: Oh no. No, but I’m like it could. Yeah. “This guy Jack told my husband.” Oh no.
Jack Butala: Yeah. You want to put yourself in a position to succeed.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: Right? You want to get the right education. You don’t want to have a lot of time pressure or money pressure or any of that stuff. Jill regularly says to people. I’ve heard her talk about it on the show, “Now is not the time for you to do this. I know you want to have it happen fast, but you need to save some money.” Really, really. And there’s a ton of things you can do before you can actually invest that’s free. I mean, all over the internet there’s people that have a lot of experience that are just sharing their experience.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: Read as much as you can.
Jill DeWit: Spend a month in our online community. Read it all.
Jack Butala: There’s a ton-
Jill DeWit: See all the stuff-
Jack Butala: If you live in a larger area, there’s a ton of free real estate investment groups. Go to MeetUp. You know, meetup.com. There’s a ton of … Most of them are bad. Some of them are good. Just like everything in life. You gotta choose the ones that are good for you.
Jill DeWit: I always walk away with something. You know, that was a good tip, though. Going to those, a lot of them, they are still saying, “Drive for dollars” and some weird off thing, slash, however, I always take away something.
Jack Butala: Yeah.
Jill DeWit: Especially for somebody new. You’ll learn a little something. Even if it’s, “Well, I’m not gonna do that.”
Jack Butala: Or “I’ll never invest with that guy.”
Jill DeWit: Exactly. That’s usually what I take away.
Jack Butala: That’s exactly. What I take away almost always now from these things is, “Man, I don’t want to come off like that.”
Jill DeWit: Yeah or Jack and I are often like, “This is why we’re successful”, and they’re not getting it. They still don’t get it.
Jack Butala: I mean Jill and I go to some pretty high end groups in Los Angeles and I’m telling you right now.
Jill DeWit: There’s a lot that just don’t get it.
Jack Butala: The average Land Academy member, if they converted what they know to commercial real estate with the right financial backing would do way better than these long term career pros.
Jill DeWit: Bingo.
Jack Butala: Talk about seeing something that’s not there. These people are delusional.
Jill DeWit: You’re right.
Jack Butala: I mean it. I’m not-
Jill DeWit: They don’t get it.
Jack Butala: Blowing smoke.
Jill DeWit: You’re right.
Jack Butala: It’s hilarious what they think is good and not good.
Jill DeWit: It’s brilliant.
Jack Butala: A lot of people only think it’s only valuable if there’s a lot of work.
Jill DeWit: True.
Jack Butala: Remember, you used to say that all the time. We should bring that back.
Jill DeWit: Yeah, you don’t get a trophy for working 50 hours a week. You know? That’s not the goal here.
Jack Butala: If it’s super hard … You had a saying for a while. I haven’t heard you say it in a while. If it’s really really really hard you’re probably not supposed to do it.
Jill DeWit: Oh. That’s right. I used to say, “If it comes easy to you there’s a reason for that. Go with it.”
Jack Butala: Yeah.
Jill DeWit: You know? To you, that means it’s … Yeah, it’s meant to be.
Jack Butala: If you cringe at the word ‘data’ and ‘spreadsheets’ and ‘analysis’ and [inaudible 00:18:31] scrubbing’ this is not for you.
Jill DeWit: Exactly.
Jack Butala: You know, if you-
Jill DeWit: If you don’t like talking on the phone, if you don’t want to work with customers, you don’t want to work with the county and line up a notary. That’s def … And that’s okay.
Jack Butala: That’s right.
Jill DeWit: This is not for you.
Jack Butala: Awesome. So don’t get stuck or put yourself in a position where you’re doing a really bad real estate deal just because you want to get out of the situation you’re in or pay off a loan or any of that stuff. Join us in another episode where Jack and Jill discuss how to use information. That’s me.
Jill DeWit: And inspiration. That’s me.
Jack Butala: Just about anything you want.
Jill DeWit: We use it everyday to buy property for half of what it’s worth and sell it immediately.
Jack Butala: Do good real estate deals. Good show, Jill. Good week.
Jill DeWit: Mm-hmm (affirmative) It was a great week. We’re off to a good start, I think. Our members, our people are so excited.
Jack Butala: Of to a good, you know-
Jill DeWit: Year.
Jack Butala: Year start. Yeah.
Jill DeWit: Exactly.
Jack Butala: I’m real excited about … You know, 2017, from a land acquisition and sales standpoint is probably going to be about the same as ’16 for us, maybe a little better. I’m super excited of what’s going to happen with Land Academy and what’s happening.
Jill DeWit: Right. I am, too.
Jack Butala: Get offers to owners and land pen and the whole thing.
Jill DeWit: What do you think about the economy. I know people ask you that.
Jack Butala: Somebody just asked me that.
Jill DeWit: Uh huh.
Jack Butala: The real estate economy, so you can almost set your calendar by a 12 to 14 year cycle in real estate and when I say that, I mean mostly residential. With cheap land and data specifically, it never changes. Sales might slow, but there’s always people out there who love to buy land for half of what it’s worth. In the acquisition possibilities, we’re still, I’m still seeing from the last downturn the acquisitions opportunities, it hasn’t waned.
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: So, about the economy, I don’t think anything’s gonna crash now.
Jill DeWit: Right.
Jack Butala: It’s never gonna crash. In our lifetime it’s not gonna have … What happened last time, if you’re really young, if you’re really young, what happened last time was the second worst real estate disaster in the history of this country and that’s not gonna happen. Knock on wood. We’ll see a downturn. We’ll see GDP decrease and some other things and we’ll see a slight growth in new homes and all that, but we’re never gonna see just a massive disaster in this lifetime.
Jill DeWit: Too bad we can’t do a limit up/limit down on real estate. You know what I’m talking about?
Jack Butala: I bet you could with [inaudible 00:20:57] and stuff. I bet you could.
Jill DeWit: But would it save everybody?
Jack Butala: Yeah. Oh, you mean like a stop trading.
Jill DeWit: Like stock market.
Jack Butala: Yeah. Stop trading.
Jill DeWit: Yeah where [inaudible 00:21:04] said “limit up, limit down. It’s closed.” Yeah.
Jack Butala: That’s a topic for a whole different show. Not even just a different episode, but real estate subject-
Jill DeWit: It’s funny I know that stuff.
Jack Butala: Bond ratings. Ratings are … That’s a subject for a different show.
Jill DeWit: What’s funny because that’s not what we invested. Again, I know what that is.
Jack Butala: Yeah. Information and inspiration to buy undervalued 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 jack@LandAcademy.com.
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.
