Pay Cash Don’t Finance Your Deals (CFFL 447)
Jack Butala: Jack Butala with Jill DeWit.
Jill DeWit: Hi.
Jack Butala: Welcome to our show today. In this episode Jill and I talk about why it makes a lot of sense to pay cash for deals and not finance them. Before we get into it though Jill let’s take a question posted by one of our members on the landinvestors.com online community, it’s free.
Jill DeWit: Okay. Brian asks, “Hey I’m considering buying more expensive properties on terms. Since the seller financing would be arranged between myself and the seller, what problems might this bring about with turning around and selling the property to a new buyer? Is there a way to write the contract so it doesn’t present a cloud on the titles to the new owner? Ethically, of course.”
Jack Butala: So a cloud on the title is the least of your worries. So let’s take a couple steps back real quick. Brian’s got a seller, he’s got a seller for property, let’s say the guy wants 10,000 bucks instead of maybe the 4,000 that he’s asking. So he’s thinking, “I’ll just pay terms, I’ll put a thousand dollars down. I’ll make a hundred dollar a month payment, and man if it’s not gonna take long for me to sell this thing for 20 grand.” So what the anatomy of that really is, an option, or do a close. So rather than complicate the heck out of this thing I would pay the guy 500 bucks, non-refundable, for an option. Option to purchase at ten grand. Now you don’t have to make any payments. Let’s just make it for six months, and that’s it.
Jill DeWit: Exactly.
Jack Butala: I don’t think it’s a good idea to leverage anything in this business at all. I’ve seen a couple of people who are very talented, long before we started Land Academy, just train wreck their careers this way.
Jill DeWit: It’s too scary, there’s too many things that could go wrong. What if there’s, I don’t know, like something happens to the guy, I mean in the process. And you’re wasting a lot of money like you said, I think.
Jack Butala: I’m not a fan of financing at all, on either end for land.
Jill DeWit: I’ll tell you though-
Jack Butala: It’s a crutch.
Jill DeWit: …well here’s the thing-
Jack Butala: It’s a crutch for negotiating a good deal.
Jill DeWit: …for all of our options deals, I’ve never given any money.
Jack Butala: I’ve never even considered this concept in my life, and I never will.
Jill DeWit: You don’t even have to. I appreciate your $500, whatever fee, if you really feel like you need to. But I’ve never had to do that. I’ve sold them quick enough, and it worked out great.
Jack Butala: Yep.
Jill DeWit: So, good question though. I’m glad that he’s, hey thinking outside the box.
Jack Butala: Yes, exactly.
Jill DeWit: I do really appreciate that.
Jack Butala: I agree. That is a great question and it’s totally unique.
Jill DeWit: Exactly.
Jack Butala: And the meat of the show here we’re gonna talk about why it’s super- it ties totally into the concept of the show here. Why it’s important with these smaller deals to pay cash. If you have a question or you want to be on the show, reach out to either one of us on LandInvestors.com. Today’s topic, pay cash, don’t finance your deals. This is the meat of the show. So ever since I started this crazy buyin land and sellin land on the internet thing in the ’90s, my concept from day one and right up to today has been: pay cash. Because it’s such a good deal you’re gonna run to the bank and get a one, two, three, four thousand dollar check, cashier’s check, and control the property. And then you have a 100% control over the deal. So financing property, or financing a house to rent out, you’re just asking for a lot of problems and here’s why.
There’s so much money, so much more money, it costs so much more money. The basis in the deal gets so much higher when you finance anything. If you have to, if you absolutely have to raise capitol to do deals, and there’s nothing wrong with that. Some of the most talented members we have started with zero. Take a partner on, take a money partner on. And when you do that, this is what it looks like. There’s a property that you’re gonna buy for, let’s say, four or five thousand bucks. You know it’s worth 20, cash. Go get a money guy out on LandInvestors.com/successplan.com. There’s lots of em out there. Have them purchase the whole thing in their name so that there’s a huge security blanket. Now they own a $5,000 property, for 5,000 they own a $20,000 property and then you go sell it and split the proceeds.
So the net on that thing would be 15 grand, you each get a $7500 check maybe 30 days later-ish. And I’ll tell you that guys gonna be your best friend forever. And it doesn’t cost anything.
Jill DeWit: My turn?
Jack Butala: Go ahead, yeah absolutely.
Jill DeWit: So I’m sitting here making some notes and I totally agree. Especially residence, homes, single family homes or things like that. Gosh, the negatives I wrote down, or the positives I should say. By paying cash, no one’s breathing down your neck and you can take your time selling the asset, you’re not worried about it. And I sleep really well in knowing the things aren’t selling or I haven’t even posted something yet. I bought it, and I’m in the process of posting it. I don’t care, I paid cash for it. If it takes me a week it doesn’t matter.
Jack Butala: Or a year.
Jill DeWit: I’m not paying anybody anything. It’s mine, it’s paid for.
Jack Butala: It’s over.
Jill DeWit: It’s not going anywhere. It’s sitting in my safe basically. So I’m cool with that.
Jack Butala: Well said, it’s in your safe.
Jill DeWit: Thank you. And then some of the negatives, this is what really scares me. Cuz you’re right, when you start financing things, your costs just went way up. Now you got interest, you got this, you got that. It’s more expensive period. Number two, you’re gonna feel rushed. The clock is ticking now. Now you gotta hurry up. And especially flippers, like house flippers. Cuz we’ve done that. But you know what’s interesting, let me back up on this one too. Our flips, just so people know, we pay cash for those too. So we want to hurry up and flip em just because of the nature of the asset. But we didn’t have to hurry up and flip them. So that’s interesting.
Jack Butala: Cuz we’re us.
Jill DeWit: Cuz we’re us. Well and I wanted to share this story that I read on Facebook about this guy, he put all the details in. He’s six years in, he’s a flipper. He does multiple, I don’t know maybe ten or more a year. And he wanted to share this experience just, not to scare people he said, but I want to be real transparent, tell ya what went on. And he put in great detail, bought it for $20,000, he was hoping to sell it for like 150. It appraised at like 120. He put 70, 80, I don’t remember how much. Whatever he put into it. And he put in all the details. He took a four month delay because HVAC guy, and this guy, and this guy. And he put in there, “Here’s what I did wrong. I didn’t know how an HVAC system works.” Who should know that? Do you really want to get into that?
Jack Butala: You shouldn’t know that. No, you need to know about data and not that stuff.
Jill DeWit: He’s putting as one of his pitfalls, he didn’t know how that works. I’m like, “Oh, gosh.” So he didn’t pick up on some of the issues that he thought he might have seen coming. So the very, very bitter end of the day, it was a four month delay, it did not appraise what he thought it would, he took a thousand dollar loss.
Jack Butala: Oh my gosh, he lost money on that deal?
Jill DeWit: $1,000 loss. How sad is that. So the guy probably has six months, can you imagine working for six months for free?
Jack Butala: Yeah.
Jill DeWit: That’s what happened.
Jack Butala: Here’s how I would do that deal. Is your example done?
Jill DeWit: Yeah.
Jack Butala: Here’s how I would do that deal. I bought a property, I write a $20,000 check, it appraises for 120, I would sell it for 30,000 bucks. Immediately.
Jill DeWit: Yep, that would have been the better plan.
Jack Butala: And get outta there.
Jill DeWit: Isn’t that interesting?
Jack Butala: Maybe not even go see the asset.
Jill DeWit: I know, not his business deal. I mean maybe it’s a hobby thing, maybe people really like that. They like swinging a hammer, I don’t like swinging a hammer. I’d rather take like you. I’m with you Jack. Let’s just take the $10,000 and run and go on vacation.
Jack Butala: Not vacation. You gotta do another deal!
Jill DeWit: All right. Well we think differently don’t we.
Jack Butala: Jeez. You know the conversation Jill and I had right before this? We have two friends, who are both like type triple A personalities. That’s what I am. Jill and I have a fighting chance cuz she’s- I’m nuts every day and she’s like, “You know man, it’s really going to be okay.” Go on vacation.
Jill DeWit: That’s what I want to do.
Jack Butala: Do you need a vacation?
Jill DeWit: I live on vacation.
Jack Butala: I know you do, that’s how you think. Your life is a vacation.
Jill DeWit: My life is vacation.
Jack Butala: Here’s the biggest mistake I see new real estate investors make. They do what their parents did, or they do what they’ve seen other people do. They go on the MLS. People talk about it in bigger pockets all the time. They go on the MLS, they pick out a property, usually it’s a house. I’m not a huge fan of that product type at all as a real estate investment vehicle. They pick a house out on the MLS and then they go get a loan. They go and get a loan, and then they try and rent it out. And here’s who gets paid during that process, the buy side realtor, the sell side realtor, the mortgage company, the mortgage broker, the inspector, and I’m leaving somebody out. The contractor, if you’re gonna clean it up.
Everybody gets paid except you. And when do you get paid? You get paid over the life of 30 lives, over the 30 year mortgage. Couple hundred bucks a month. There’s nobody anywhere, on Wall Street, or any professional investor that’s gonna say that return on investment is okay. So why are all these people driving fast cars that flip houses? Here’s why. They buy the houses cheap. Cheap, cheap, cheap, cheap. They figured it out. And the ones who drive the really fast cars don’t clean em up at all. They do it like us. They sell em to the flippers.
Jill DeWit: I like how you classify people. What do you drive? Okay, I know exactly what you do.
Jack Butala: Well I drive an old 4Runner so what does that say about me?
Jill DeWit: You know what, you put your money in other things and I appreciate that. Like me.
Jack Butala: Oh my gosh. Some derogatory stuff just went through my head. I can’t talk about on the show.
Jill DeWit: You’re winning by the way.
Jack Butala: On that Thursday call it’s not broadcast so we can say- I would have vocalized everything that was in my head.
Jill DeWit: Oh boy, that’s really good.
Jack Butala: But can’t on this show.
Jill DeWit: That would be good. We can classify people by based on what they drive and who they date.
Jack Butala: Yeah. And what their dates look like.
Jill DeWit: Exactly. I love it.
Jack Butala: What they find acceptable in a date and what they don’t find acceptable.
Jill DeWit: Exactly.
Jack Butala: That’s a whole podcast right there.
Jill DeWit: You know what, I mean this taps into so many other things that I’m not gonna share…
Jack Butala: Date up. That’s what I say. Date up, don’t date down.
Jill DeWit: Date up, definitely. But paying cash for everything, that’s just the way to roll. I was raised that way. I was told that, I don’t care if it’s on sale, it’s not a good deal if you don’t have any money. It doesn’t matter. You should be paying cash for stuff.
Jack Butala: There’s certain times that it’s very, very advantageous to manipulate leverage, or loans, or equity. They usually involve- and this is just my risk threshold, some people want to leverage everything and they end up with the fastest car. But I don’t like to go to casinos either for that reason. It makes a lot of sense if you love operational income, and you’re an expert in your industry. Maybe make some little aircraft part that you can mark up a thousand times, and you’re one of two people in the whole world that manufacturers it. We have a friend like this, this is a real example. That makes sense to leverage. Do a little leverage. Cuz your chances of losing are so small. But in general, no you should never.
I mean if you’re gonna buy a skyscraper and you’re gonna cross collateralize everything and form a real estate investment trust, leverage is the name of the game. That’s really what, you know how we always says data is what we’re really into and real estate just happens to be what we buy. That’s what that is. Some people are hard wired for financing through debt and equity. And they just use real estate as the vehicle.
Jill DeWit: Dude, I’m gonna remember that. That’s what I’m gonna say next time I’m at a party when people ask what we do.
Jack Butala: What do we do?
Jill DeWit: Data’s what we do, real estate just happens to be how we use it and what we buy. It’s a good example.
Jack Butala: Yeah, have you listened to the show that we’re on?
Jill DeWit: No but I’m always looking for a better way to describe it. Cuz I always end up having the people with this blank look on their faces like, “What, huh?” Cuz you bring up the word data and then their eyes gloss over. They stop hearing anything you say.
Jack Butala: In the end we’re a data company, data slash IT company, that happens to be involved in real estate.
Jill DeWit: Exactly.
Jack Butala: We could apply the data IT thing to a lot of stuff, like selling shoes if we wanted.
Jill DeWit: It’s true.
Jack Butala: But shoes are silly.
Jill DeWit: That’s true. Think of this we haven’t done that one.
Jack Butala: Jill and I just moved recently and she doesn’t think that shoes are silly, cuz there’s three or four large U-Haul boxes of shoes that we moved.
Jill DeWit: I’m still trying to figure out where to put them. Shoes are special, thank you.
Jack Butala: 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: To get 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: You are not alone in your real estate ambition. And those are just the shoes that didn’t go to Goodwill.
Jill DeWit: Yeah, right. Oh my gosh. I did downsize there.
Jack Butala: I know you did.
Jill DeWit: So thank you, I appreciate give me some credit. If you notice I try to show them to you as I’m carrying them out. “Hey look, look!”
Jack Butala: Yeah, I know.
Jill DeWit: Okay, good.
Jack Butala: You always say, “Hey, look at this whole box going to Goodwill.”
Jill DeWit: I do. It was very important to me.
Jack Butala: “I’m trying to impress you Jack.”
Jill DeWit: I am.
Jack Butala: And you do.
Jill DeWit: That’s how I-
Jack Butala: In lots of ways.
Jill DeWit: Thank you.
Jack Butala: Hey you know what we didn’t talk about, is why in the real early part of your career you should never finance. That’s the worst time to finance anything.
Jill DeWit: Oh.
Jack Butala: In fact the best thing you can do, if you don’t have any money, don’t let it stop you. Learn about data and all the other stuff. If you don’t have acquisition money, find somebody like us. Or somebody else, not you father-in-law. Somebody whose done this stuff and likes it and understands it, to go in on some deals with you. After the fourth or fifth or eighth deal, depending on how good you are, there’s your money right there to start the whole thing. And you got a bunch of deals under your belt. We have multiple members, Land Investor members, who do that exact thing. With us, some of them do em with us.
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