How to diversify risk in real estate (CFFL 481)

How to diversify risk in real estate

Transcript: 

Jack Butala:                       Jack Butala and Jill DeWit.

Jill DeWit:                           Hello!

Jack Butala:                       Welcome to our show today. In this episode Jill and I talk about how to diversify your risk in real estate. Before we get into that let’s take a question posted by one of our members on the landinvestors.com online community, it’s free.

Jill DeWit:                           Okay. Brent asked, “My very first mailer is a trouble maker.” Funny. “Looking for a way to find a plat map of Rancho Rio Grande, Socorro County New Mexico. The county’s useless. Any thoughts?” Oh I have a lot.

Jack Butala:                       If I had a nickel for every property that I ever purchased in Rancho Rio Grande, oh wait I do.

Jill DeWit:                           You have more than a nickel.

Jack Butala:                       Jill and I flipped thousands of deals and there’s three subdivisions right in Socorro County. Thousands and thousands of properties we’ve purchased and sold. In fact one time I went there and got all the plat maps in the county. Literally all of them. This is before we-

Jill DeWit:                           Back in the day.

Jack Butala:                       This is before … Jill’s going to solve your problem here. But a long time ago you had to go there. Get on an airplane, go there, collect all the maps and ship them back so you could deal with it, and then take photocopies of them. This is how long ago that was.

Jill DeWit:                           And then later on it became much, much easier where you could call them up and you could write a letter and enclose an old fashioned check. Literally, seriously, I’ve done that and mailed the check to them and then wait two weeks for them to mail the map back to you.

Jack Butala:                       Now what do you do?

Jill DeWit:                           Now it’s so much easier. Well I got two ways. Well number one the reading your using … You need a plat map traditionally is because you can’t find the property. So I would first go to ParcelFact –

Jack Butala:                       Ding ding!

Jill DeWit:                           And look up the property.

Jack Butala:                       Oh you’re the girl for me.

Jill DeWit:                           Thank you my guy. It’s not been really advertised but I’m telling you now it’s alive and well. Everybody needs to go to parcelfact.com.

Jack Butala:                       F-A-C-T, parcel F-A-C-T .com.

Jill DeWit:                           Yeah, and put in state county APN. Knock yourself out. Or put in the address.

Jack Butala:                       Jill and I just spent tens of thousands of development dollars and a ton of time and why? Why would we do that for this tool? Here’s why. Because for 20 years we’ve been struggling with exactly what Brent is talking about. Now every single property, 148 million properties with the exception of a few counties, is covered. All you do is put the APN in. The state county and the APN and there’s your map.

Jill DeWit:                           I have two more things too to add if you don’t mind. Brent, if you’re really dead set on having a plat map because you like to put it in your postings and look cool …

Jack Butala:                       He’s not going to sell it any faster.

Jill DeWit:                           I know. But it does look cool if you have the plat map and they can see that.

Jack Butala:                       Does it look cool?

Jill DeWit:                           Oh I think-

Jack Butala:                       Are plat maps cool Jill?

Jill DeWit:                           Plat maps are cool yeah. Plat maps are cool.

Jack Butala:                       You are now officially a geek.

Jill DeWit:                           I know. Okay so let’s just say Brent, if you really want to be cool and have a plat map, because I’ve been there …

Jack Butala:                       You’re not the land geek by the way.

Jill DeWit:                           No you can. You have two tools in your toolbox where you can go get them.

Jack Butala:                       Google thinks we’re talking to her.

Jill DeWit:                           Hello. That’s so funny. So that’s really good, but go … One of them is if you go to the TitlePro247 seven access that you have, pull up property profile that can do for free because we provide those for you, and you have it, it’s in that packet. Number one. Number two, jump on over to our RealQuest Pro stuff and you can request a plat map there.

Jack Butala:                       Yeah as a member … Is Brent a member? Do you know Jill?

Jill DeWit:                           Yes he is.

Jack Butala:                       As a member you have access to Core Logic RealQuest Pro, the national version. The best version you can get and TitlePro247 the national version, the best one you can get. So those are two great resources to find maps.

Jill DeWit:                           They’re both in there so you could do that. And you can get deeds, copy of vesting deeds and you can go back pretty darn far too and check your stuff.

Jack Butala:                       Here’s the other thing too, before you send … One of the things on your list about choosing a county to mail for land anyway … Not for houses because wherever you mail houses the chances are the county’s going to have pretty good data. But when you’re sending out a mail campaign please put this on your list. Check to see what the county has and what they don’t have before you send the mail out. Last thing you want to do is send some mail out, get a bunch of offers and then not be able to research it … Well ParcelFact really solves that anyway, but you know check ParcelFact because not 100% of the counties are anywhere. There are some rogue, none participant counties in this country that will not supply data to anyone, and won’t provide it through people on their own website.

Jill DeWit:                           Well lets-

Jack Butala:                       Not very many.

Jill DeWit:                           Well I mean let’s cut to the chase, I mean they are really-

Jack Butala:                       Like then of them.

Jill DeWit:                           I know there’s not a lot but there still exist counties in this country that are not online. I mean that’s the fact. There’s not a lot but there are a few.

Jack Butala:                       In my experience that’s rooted from just a general lack of … They don’t want any outsiders. I mean it’s right out of 1951. They just don’t want any outsiders in their county. As short sighted as that is.

Jill DeWit:                           Exactly.

Jack Butala:                       It must be nice to have blinders on like a horse.

Jill DeWit:                           Could you imagine?

Jack Butala:                       Not think about anything that … Not be nice.

Jill DeWit:                           You know let’s think about this. Do we want to be in those counties? What are they doing out there that they want to be so hidden?

Jack Butala:                       I had a talk with a guy recently … Yeah exactly Jill.

Jill DeWit:                           I have some questions.

Jack Butala:                       I had a talk with a guy recently who seeks those counties out.

Jill DeWit:                           Yeah?

Jack Butala:                       Because he’s like no one’s ever sent any mail out there ever.

Jill DeWit:                           Right?

Jack Butala:                       And he does really well.

Jill DeWit:                           Well that is not-

Jack Butala:                       He’s like, “Can you send me a list?”

Jill DeWit:                           Crazy too.

Jack Butala:                       If you go to parcelfact.com, this is not a commercial by the way, and just … You don’t even pay a dollar. Just click on coverage and you click on the top, and you’ll see a map right there of all the counties that are included and not included. There’s I think 10 counties in the whole … Out of the 3,400 counties that there are that just refuse to supply us data.

Jill DeWit:                           That should be part of your thought process. When you’re getting into this business and you’re picking your criteria, if you’re going down the path of “I’m going to get to be the expert because I really want this property, and I’m going to be the expert on this exact situation because nobody else can do it” that’s now your criteria. You know what I mean? Don’t do it for one offs. If this is a really difficult county like Jack said, now you’re going to own that county.

Jack Butala:                       This parlays perfectly into our topic.

Jill DeWit:                           Yay!

Jack Butala:                       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; how to diversify your risk. What Kill just said. How to diversify your risk in real estate. This is the meat of the show.

So think about a stack portfolio or any type of investment in diversifying risk. What you want to do is … We have a good friend who’s been very successful as a government contractor his whole life and very successful at passive investing in the stock market. Mostly because he’s almost 80. And he bought shares of stock in Ford Motor Company when they were three dollars and Apple when it was like 12. I don’t need to tell you how much equity he’s generated doing that. Well the concept is the same. You don’t just buy one stock and cross your fingers. You don’t buy just one piece of real estate and cross your fingers. You don’t just buy one type of real estate and cross your fingers, and you certainly don’t just concentrate on one county forever and keep going back to that well and expecting it to produce water forever.

You diversify. Geographically you diversify. So you send mail to multiple counties. You diversify in the types of real estate. I had a long conversation … Jill and I have said this a few times so far this week, that earlier this week we went to an investors conference in Los Angeles. And I was talking to a kid from KPMG where I used to work. I was a partner there. And he was talking about apartment buildings and he was just hung apartment buildings, which is fine. There’s people who have made fortunes in apartment buildings. I personally can’t stand apartment buildings but as an investment he loved them. And what I said to him was great. How about get your feet wet in a couple of pieces of land that cost one, or two, or three thousand bucks, sell them for 10,000 let’s say and understand the process. Get your feet wet and learn. And if it’s apartment buildings you want to do just apply the same concepts to them. We have people in our group who buy and sell apartment buildings based on the data and the tools that we provide.

So diversifying your risk is captain obvious scenario.

Jill DeWit:                           It is.

Jack Butala:                       Pick lots of different states, lots of different counties, and lots of different types of real estate.

Jill DeWit:                           Do you know one of my simple things when I talk to people … I do these calls with people who are thinking about diving in and doing this, and so they can schedule a free call with me. And one of the common things that they … They ask this. “How can I make sure it all goes smooth?” And one of my things is, don’t borrow. I mean that’s a real simple, little, easy thing is pay cash for it. And buy it right. And we always obviously show you, and help you, and make sure that you do that. Not make sure but you know what I mean. We give you all the resources so you know wat you’re doing. And that, for me, there’s no risk. If I pay cash for ten properties at 1,000 bucks each, and I’m trying to sell them all for 5,000 each but … I dunno something goes wrong and the market dips and now I’m selling for 3,000 each, I’m still okay.

Jack Butala:                       Or if you have to, god forbid, sell them for 1,000 bucks each to get your money back.

Jill DeWit:                           I’m still okay.

Jack Butala:                       It’s going to be okay.

Jill DeWit:                           Exactly. I paid cash. No one’s hanging over my head. I’m not having to pay back a loan. There’s no interest and there’s no time constraints. For me, that makes me feel really good.

Jack Butala:                       We have a show coming up. I think it’s called The Root of All Evil is Lending.

Jill DeWit:                           Oh my gosh, is debt.

Jack Butala:                       Is debt. And we’ll save that for that time, but Jill is exactly right.

Jill DeWit:                           Yeah.

Jack Butala:                       Borrowing money the way that lenders do it now where it’s tied to one asset with a mortgage or a hard money is maybe the silliest, and the best way to destroy your whole scenario. Destroy your investment portfolio. It’s probably the fastest way to do that.

Jill DeWit:                           One other thing I wanted to say to about diversify. When we say diversify, we don’t mean buy an apartment, buy a 40 acre property, buy a condo, buy a whatever. You don’t want to spread yourself too thin where you only know 10% of each of your product types. Does that make sense? You still want to stick with what you know, but diversify in the areas and the sizes. I mean that’s the best thing. When you go to somebody’s website and you see they have a variety of properties all over the country, a bunch of different sizes, something’s going to appeal to somebody. If your website is nothing but … You know like Jack was saying earlier, all five acre properties in the same county in Colorado it gets kind of boring.

Jack Butala:                       I’ll use myself as a lab rat for everybody to learn from. Very early in my career in my 20s I was a commercial real estate broker in Detroit, leasing office buildings, which led me to … I leased some office space to a heath care group who just took a company public to buy and sell long term care facilities. Nursing homes and assisted living facilities. So I said “Hey, how about I find some of those for you.” That’s how this whole thing started. So I bought and sold long term care facilities for these people by sending faxes to the building at the time. This is before email, believe it or not. Then a light bulb went off over my on head. I said “Man, maybe if this works, maybe it works for land. So then maybe it works for houses, maybe it works for apartments.” I just in five seconds described my 20 year career in real estate.

And that inadvertently, not even intentionally, diversified my risk. And now Jill and I buy and sell a ton of land. Small properties out in rural areas. And we also do it in very urban areas where there’s really rich people want ranches. They think they’re ranches, but they’re not really. Like Santa Barbara. And we buy and sell houses all over the country.

Jill DeWit:                           Why is that?

Jack Butala:                       Look at the houses.

Jill DeWit:                           By the way, why is that?

Jack Butala:                       I don’t have a hammer.

Jill DeWit:                           Why does every celebrity we meet think they want to have goats and chickens?

Jack Butala:                       I don’t know. We just met one. He bought a farm.

Jill DeWit:                           Exactly. So-

Jack Butala:                       Next time I’m going to ask.

Jill DeWit:                           Yeah it is very … Maybe it’s just a cool thing to do. Maybe it’s what the cool kids are doing in Hollywood.

Jack Butala:                       You know what, next time … Jill and I just met a celebrity who we’re not going to … I think we did name-

Jill DeWit:                           No we didn’t, don’t.

Jack Butala:                       We did, like, two shows ago.

Jill DeWit:                           I didn’t.

Jack Butala:                       I think I did.

Jill DeWit:                           No, so …

Jack Butala:                       He just bought a farm and I don’t know why. And why farm? Why not a ranch? A ranch is cooler than a farm, isn’t it?

Jill DeWit:                           Yeah I’d rather have horses and have some fun. But that’s just me.

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 do just about anything you want.

Jill DeWit:                           We use it every day 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. You know I wanted to ask you, do you lose any sleep about all our eggs are in one basket? Or do you think we’re sufficiently risk diversified?

Jill DeWit:                           I don’t think all our eggs are in one basket.

Jack Butala:                       I don’t either.

Jill DeWit:                           I never look at it like that.

Jack Butala:                       I mean I do it intentionally.

Jill DeWit:                           We don’t play the stock market and I’m pretty happy about that.

Jack Butala:                       I mean we have like seven different lines of income at least, maybe more. And plans for way more. So I feel like we’re totally diversified.

Jill DeWit:                           Mm-hmm (affirmative). I sleep very well, thank you Jack.

Jack Butala:        Good. Information and inspiration to buy undervalued property.

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