Why Debt is the Root of All Evil (CCFL 484)

Why Debt is the Root of All Evil


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 debt is the root of all evil. Maybe literally. Before I get into it, let’s take a question posted by one of members on the Landinvestors.com online community, it’s free.

Jill DeWit:                           Nick asked, “My initial offer was $6,500 but I paid $7,500 and all of closing.”

Jack Butala:                       For a piece of real estate.

Jill DeWit:                           Right. It’s a 20 acre piece of real estate. Now I’m in for $8,520. Love it. My sales price is $18,499. I decided I would go down to $17,000 I four buyer negotiated. Well, Nick has got an offer. The buyer offered $15,000 and they pay all closing costs, which is approximately $1,000 – $1,200. All right.

Nick says, “I want to double my money, but $6,500 net is nothing to turn my nose up to.”

Jack Butala:                       No it’s not.

Jill DeWit:                           This is right. Nick, I think you kind of won.

Jack Butala:                       I think you knocked it out of the park.

Jill DeWit:                           I think you’re fine. Are we really going to say? Oh man, I mean 85, I really want to double my money. And extra $2,000 I can say I doubled my money. But come on, I think we did just fine. This is the thing that we always talk about, on what planet and in what industry can you still get something north of 50% profit consistently.

Jack Butala:                       Consistently.

Jill DeWit:                           It’s not the norm. Don’t … you did nothing wrong. Don’t get greedy and don’t hold out, don’t say I’m going to pass on this offer because I’m going to hang out for 18.5 and just sit on it for six months. Don’t do that. Take the money, reinvest, and do it again, and again, and again.

Jack Butala:                       Right. So you’re going to get $15,000 in a couple of weeks or lets say just 30 days. It looks like if their closing costs like that, you’re going to escrow. Which I think you really can reduce by the way. $1,000 – $1,200 for closing a property like this is way too much. Should be closer to $300. Anyway, you’re going to get a $15,000 check here soon. You’d better be ready and know, here’s a key to really maximizing your profit. It’s not about this one deal, you’ve just to keep using that $15,000.

You make that $15,000, $20,000. And then 25, then 30, then 50, then 150, then 250.

Jill DeWit:                           Mm-hmm (affirmative).

Jack Butala:                       $250,000 is right around the corner if you keep this attitude that you have right here.

Jill DeWit:                           Yeah.

Jack Butala:                       And a personal preference thing. We have members that we can call all the time, Jill and I, they wouldn’t do this deal they pound on their desk, my sales price is $17,000 and that’s it. Then six months later, they’re like, “I should have taken that $15,000 offer.”

Jill DeWit:                           Mm-hmm (affirmative). And that’s okay. What was I going to say? I love when I hear people, this situation. Even right now, he’s like, “Guys, should I take this?” Heck yeah! We’ve had people often on our weekly member calls that are saying, “I screwed it all up with these numbers.” We’re like, what do you mean you screwed it all up? Hello? Let’s do the math together, shall we? This is winning. You did fantastic, this is an awesome deal. Go.

Jack Butala:                       Here’s what I always say to member.

Jill DeWit:                           Keep doing it.

Jack Butala:                       Or people I’m talking to, I always say, “If there are 10 deals exactly like this right now, would you do the deal? Instead of $6,500 net it’s $65,000 net.” And everyone says yes. Yeah, I would do that. What’s the difference? Nothing. It’s just all in your head.

Jill DeWit:                           Exactly.

Jack Butala:                       It’s a personal preference situation. Here’s my personal preference, this is how I run acquisitions and sales. I do not negotiate price on the buy side because there’s so many offers coming in, I don’t care. It’s not worth it for me to negotiate. On a sales price, I’ll pretty much take anything.

I shouldn’t say that on the air.

Jill DeWit:                           Really?

Jack Butala:                       I just want to do the deal! I’ll negotiate all day long on a sales price. In fact, I don’t even negotiate. In this deal they said, “I’ll give you $15,000 and I’ll pay the cost.” I say, “Yep. Sign it, right there. Done.” As fast as the conversation can go, if we can get the next one done.

Jill DeWit:                           I didn’t know that. What else do you not negotiate? Or what will you negotiate I should say? What can I offer that you’re going to go, “Well this is good.” What can I offer you that you’re going to go, “Oh, sure, Jill. Fine.”

Jack Butala:                       Honestly, Jill. I say this to you as your mate.

Jill DeWit:                           Okay.

Jack Butala:                       The faster it is my exponential answer to yes, is speed. If I don’t have to spend any time on it or do any stuff, everybody gets what they want. Think of the kids when the come to you.

Jill DeWit:                           You want to get out of this store fast?

Jack Butala:                       Yep.

Jill DeWit:                           Buy me this purse right now we can be out of here.

Jack Butala:                       Done. That’s it.

Jill DeWit:                           That’s all I have to do?

Jack Butala:                       Buy me these diamonds.

Jill DeWit:                           Got it!

Jack Butala:                       If it’s going to take a half hour, it’s not going to happen.

Jill DeWit:                           I really need a nice necklace for this party.

Jack Butala:                       Done.

Jill DeWit:                           Come with me, five minutes, I’ll grab it. And lets go.

Jack Butala:                       It’s speed.

Jill DeWit:                           Well, you’re going to be sorry you told me that.

Jack Butala:                       No I’m not. Because we can both win.

Jill DeWit:                           I’m just kidding.

Jack Butala:                       If I never have to go to the store again.

Jill DeWit:                           You know me. You know what’s so funny about us? Even now … why is the more, I don’t want to say more money, the more I have available to me, the more cautious I am. Maybe because I work really hard for what we have.

I’m not … I don’t throw money around. I really try to be careful. So I would never do that to you is what I’m trying to get at.

Jack Butala:                       If one of the kids came to you and said, here’s two ways to approach getting an Xbox. Here’s approach A.

Jill DeWit:                           Okay.

Jack Butala:                       Mom, I’m a straight A student. I’d really like to buy an Xbox that costs $300. Are you cool with that? That’s option A.

Jill DeWit:                           Are you asking the question now?

Jack Butala:                       Number two.

Jill DeWit:                           Okay.

Jack Butala:                       Mom, I did a bunch of research and I think that if we go on Sunday morning to this place to get an Xbox and it going to cost $300.25, I really would like you to consider. And on and on and on.

Jill DeWit:                           Oh, I hear you.

Jack Butala:                       Of the three kids, I can tell you how each one of them will approach that. And which one is going to get it the fastest.

Jill DeWit:                           I know, but they still need to work for it. Let’s not just throw things at them.

Jack Butala:                       It they’re getting straight A’s, that’s working for it. In my mind.

Jill DeWit:                           Okay. We differ on that too. But okay.

Jack Butala:                       My point is, everybody wants a soundbite. I don’t care who you are. A full sentence, one to two sentence sound bite. And just to get it done so they can go play. That’s human nature.

Jill DeWit:                           That can’t be the only thing, we’ll see.

Jack Butala:                       See, now you’re dragging it. I think it comes down to gender.

Jill DeWit:                           No.

Jack Butala:                       Certain things, women want things-

Jill DeWit:                           No, you know that because of the three kids. I have a gender thing that’s [inaudible 00:07:14]. We all have our favorites.

Jack Butala:                       You know I say this with respect and poise.

Jill DeWit:                           Uh oh.

Jack Butala:                       There are things that women love to make last a long time, and there are things that men just want to kind of be done with. Done quickly. Let your imagination run with that.

Jill DeWit:                           Are you talking about in the bedroom?

Jack Butala:                       Yeah. I am. That’s exactly what I’m talking about.

Jill DeWit:                           I’m like, do I go there?

Jack Butala:                       There’s a time for me to read a sentence.

Jill DeWit:                           Move on!

Jack Butala:                       You have a question, and you want to be on the show, reach out to either want of us on Landinvestors.com.

Jill DeWit:                           Maybe we want to get it over with sometimes to.

Jack Butala:                       Well, usually you don’t start … usually you just don’t start it at all.

Jill DeWit:                           Like, today. Like this show. Oh my gosh.

Jack Butala:                       Today’s topic.

Jill DeWit:                           Quick, get to the topic.

Jack Butala:                       There is a topic today.

Jill DeWit:                           Quick.

Jack Butala:                       Why debt is the root of all evil?

Jill DeWit:                           It’s not in the bedroom. That’s not the root of all evil.

Jack Butala:                       You really shouldn’t be thinking about that in the bedroom at all.

Jill DeWit:                           That’s right.

Jack Butala:                       You should be thinking about other stuff. Anyway. This is the meat of the show. I did a little research, I looked it up, and I probably did it incorrectly and too fast.

Jill DeWit:                           That was two shows ago! Just kidding!

Jack Butala:                       Turns out, the debt itself … the history of it, it’s rooted in nations lending each other money. Here’s an example, and heres the one that I pulled up. It may not be the end all, beginning of debt but a long time ago, private corporation, a very large private corporation lent money to a south American country. To mine and log it’s own national resources.

It lended the money in a predatory manor. There’s no possible way … I mean the lender looked at everything and said there’s no way that they can repay this. In the end, they structured the deal so that they lent them money. They knew that they were going to foreclose on it, they knew that they never could pay it back. Didn’t have the knowledge of the resources to complete what they wanted to do and they took over the property.

They took over the mining operation, the logging operation, and the land itself. In the end, that’s what they wanted and they wanted it for half price. That is in the back … that is the root of all lending. If it all goes south, they end up with the asset.

Just saying that out loud burns me up.

Jill DeWit:                           I know.

Jack Butala:                       It makes me really angry actually because it’s not right.

Jill DeWit:                           I’m thinking about this and I know where we’re going to go with this in a minute but I was just thinking about who was the goofball who came up with the whole credit score thing. Seriously, we’re the only country in the world that does this. It’s the most ridiculous thing on the planet.

I know people who have been in the situation where they can plop down the cash but their credit score … they have the cash to show it but the credit scores is keeping it from happening. Like, what the heck?

Jack Butala:                       I know.

Jill DeWit:                           It makes no sense.

Jack Butala:                       That’s a little bit off topic.

Jill DeWit:                           I know.

Jack Butala:                       Everybody hates credit scores.

Jill DeWit:                           I am curious. I was going to look it up but I don’t want to take the time right now.

Jack Butala:                       You know what cracks me up about credit scores is that you have to pay them to get it?

Jill DeWit:                           Oh my God.

Jack Butala:                       That even cracks-

Jill DeWit:                           I got to take out credit and start running up a tab to build up a credit score.

Jack Butala:                       Even to get your credit score you have to pay.

Jill DeWit:                           That’s true too.

Jack Butala:                       A monthly fee just to manage it.

Jill DeWit:                           To see what it is.

Jack Butala:                       It’s like insurance. It’s the greatest scam of all time.

Jill DeWit:                           It is a big scam.

Jack Butala:                       It’s manufactured.

Jill DeWit:                           It is.

Jack Butala:                       It’s like they made it up in thin air.

Jill DeWit:                           It is. They’re all in cahoots. I agree.

Jack Butala:                       Exactly. Anyway. Debt is not all bad, okay? But it’s really bad when you put 3% on a house, we’re going to get a million emails on this. You never ever out 3% down on a house or 1%.

Jill DeWit:                           Yeah.

Jack Butala:                       Never. You’re putting yourself … unless you’re buying a $10,000 house and it’s grossly below your means. Then that’s fine. But all I ever see, these are maturely aged people, my friends making bad decisions about buying houses and stuff. For some reason, we’ve all been taught that. The lowest down payment is the best.

Jill DeWit:                           I know.

Jack Butala:                       That’s just not the case.

Jill DeWit:                           They get in there. I see it, then it gets worse. If you’re doing a mortgage and you’re doing a 15 year mortgage with a healthy down payment and you’re going to pay it off in seven or eight years. I get that. That’s a good plan. But when you go into what Jack is talking about, 3% down, it’s a 30 year loan and then you refi after five years. Now it’s a 45 year loan. That’s the wrong direction.

You really owe it to yourself to read how much, at the very end of the terms, because it’s written down for you. That’s the sad reality too. Every person looks at that document and signs away going, I know. I’m fully aware of that. I am buying a $400,000 house and when it’s all done and paid for, I will have paid $1.2.

Where do I sign?

Jack Butala:                       Why do we do that?

Jill DeWit:                           Why do we do that? I know. I don’t know. It’s insane.

Jack Butala:                       Yeah.

Jill DeWit:                           What were you going to say?

Jack Butala:                       Go ahead.

Jill DeWit:                           I’m like, I just think it comes down to keeping up appearances. We need to live within our means, everyone. There’s nothing wrong with living within your means. And just be smart and only buy what you can afford. My mom always told me this and I thought it was the funniest thing.

It’s not a sale. She used to say this quote, “Jill, it’s not a sale if you don’t have any money.” That it doesn’t make any sense. I’m like, but it was on sale?

Jack Butala:                       That’s good advice.

Jill DeWit:                           She’s like, “That means nothing.”

Jack Butala:                       I had a college professor, a finance professor, we walked in the first day of class and on the board was this sentence, cash kills companies. With two underlines. What that really means is, anybody, I don’t care who you are and any business owner. Whether you own a dry cleaner or a manufacturing facility, has ups and downs in revenue and ups and downs in cash balance. At some point, I do not care who you are, you’re going to get into a severe cash crunch, that’s just the way it works.

You do need a simple credit line. Then you pay it off when it gets better. That’s a fantastic, great use of debt. If you sign away … you have a piece of real estate, let’s say you are a dry cleaner and you own the building. You have a mortgage and you pay $10,000 a month for this mortgage. You have two or three months where it’s seasonal, like in Phoenix nothing happens in August because it’s too hot. That’ll kill your company.

You have too much leverage. If you own the building, you don’t have to worry about it at all. You’re going to be there forever. This is a Captain Obvious moment, cash kills companies. You really have to review it before you start signing your name.

Jill DeWit:                           I had a guy ask me just the other day about, how much money do I need to get started in this? I have … I think he said, I have $10,000 should I dip into my 401K, should I borrow this or borrow that? I’m like, no. Don’t do that. Use what you have.

Jack Butala:                       Save some money.

Jill DeWit:                           Exactly. Start with your $10,000. Make it 20, make it 40, and you’re on your way. You don’t need to touch that stuff. I don’t want you to touch that stuff because once you do, the clock is ticking, people are bugging you. You’re going to start … you could make some bad decisions because of your debt.

Jack Butala:                       Having an accounting background in that environment, in [inaudible 00:15:12] maximize everything. Maximize your tax exposure. It’s all … I’ve heard people say, I did this a couple nights ago and I left. Left the environment. People are arguing about how to minimize tax. There’s not just one way to do it.

Here’s the right way to do all that stuff. The way that you’re most comfortable. That’s it.

Jill DeWit:                           Right.

Jack Butala:                       I don’t want to make it a contest. Same thing with debt. I would never buy a primary residence … first of all, I’ll pay half of what it’s worth. That’s how you win. Then you have to leverage it, leverage I won’t do 50% of that.

Jill DeWit:                           Mm-hmm (affirmative).

Jack Butala:                       Now you’re really, really setting yourself up to succeed.

Jill DeWit:                           Mm-hmm (affirmative). I agree.

Jack Butala:                       Join us for 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 and your real estate ambition. What that show boring enough?

Jill DeWit:                           No. I don’t think so. It was funny you say that about that house thing in the end. I just talked to a guy the other day, he’s like wait … so my wife and I are looking at buying a house. Will this work? I’m like, heck yeah! But here’s what you do! Do not send her driving around yet. You first, I saw at the school district and the area, and that kind of stuff. The size of home you want. You know that this area is in your price range.

Send out the offers. When you get 10 back, then you and your wife can go drive around and see what it is and then decide.

Jack Butala:                       That’s great.

Jill DeWit:                           It works.

Jack Butala:                       That would work for just about any spouse. Here’s your 10 choices, they pass all … they pass a neighborhood test, they pass the money test. Your wife, now it’s got to pass the female can we-

Jill DeWit:                           Emotional.

Jack Butala:                       … Yeah. Can we live in it test? Because men don’t know about that stuff. A lot of men.

Jill DeWit:                           That’s for sure. Say that again.

Jack Butala:        Information and inspiration to buy undervalued property. 

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