How to Survive an Inevitable Economic Downturn (CCFL 485)
How to Survive an Inevitable Economic Downturn
Transcript:
Jack Batell: Jack Batell with Jill DeWitt.
Jill DeWit: Good day!
Jack Batell: Welcome to our show today. On this episode, Jill and I talk about how to survive the inevitable economic downturn. Can you make this show fun, Jill?
Jill DeWit: You know, I would just like to point out just once again like every show, I’m here on time, happy with bells on.
Jack Batell: Oh my God.
Jill DeWit: Acutally, today I was on time.
Jack Batell: This is the first time you’ve been on time ever.
Jill DeWit: Well, wait a minute.
Jack Batell: Actually.
Jill DeWit: For you on time is early. So, that means I was early. So that … It’s only taken me how many years to figure that out about you?
Jack Batell: Before we get into this, let’s take a question posted by one of our members on the www.landinvestors.com online community. It’s free.
Jill DeWit: Okay. Allan asked, “I’ve got a seller who’s skeptical about cashier’s checks,” and wants to know what kind of work work arounds aren’t a lot of trouble. Especially since it’s a $2,000 deal.
Jack Batell: What’s the view? What do you think about that? It doesn’t happen to me. This is a not so infrequent. It’s a very good question, by the way. And not a very infrequent problem.
Jill DeWit: I don’t understand why people are not comfortable with cashiers checks.
Jack Batell: So for the record cashiers checks are like money, by the way.
Jill DeWit: Exactly.
Jack Batell: It’s green money.
Jill DeWit: Exactly.
Jack Batell: It’s pulled out of your account when you get it.
Jill DeWit: Yeah.
Jack Batell: And by the way, it says right on there it’s only valid for 90 days and then it’s not but that’s a bunch of malarkey.
Jill DeWit: Well you know what then.
Jack Batell: I’ve deposited cashiers checks like big ones, like three years later.
Jill DeWit: Oh really?
Jack Batell: Yeah.
Jill DeWit: Okay I recently had a check that didn’t go through but we won’t go there. But it was not a cashiers check though. That’s probably why.
Jack Batell: Really?
Jill DeWit: Yeah, it’s okay, it was 100 bucks. I could care less. But with a cashiers check …
Jack Batell: So good that I don’t know about that.
Jill DeWit: Exactly. This to me is kind of where does a guy want a money order? I mean what does a guy want?
Jack Batell: Probably.
Jill DeWit: I mean you could almost do green cash. I just am not comfortable sending that in the mail. Because …
Jack Batell: I wouldn’t.
Jill DeWit: Because you’re not … Cause LEt me back up. How would the transaction is usually played out is the person, the seller, is stand there with a notary and the deed and the seller is agreeing to sign a deep right then and there in from of the notary for the transfer of the property and at the same time, the notary’s handing the seller a cashiers check.
Jack Batell: The buyer.
Jill DeWit: Yeah. Selling to seller. I’m talking … It’s a seller so he’s buying it.
Jack Batell: Oh.
Jill DeWit: So that’s it.
Jack Batell: Oh. I see.
Jill DeWit: So, I mean, you know what? Here’s a couple things, I would say, “What would make you happy,” number one figure it out. I’m not real comfortable about doing a wire transfer ahead of time, without having a deed. So, Allan if this person is going to be really, really picky and they’re not comfortable with your cashiers check or your money order, and they don’t have a way to take credit cards … I don’t know if they want to do a PayPal thing, I don’t know.
Jack Batell: I’ll tell you what Jill would really do if this happened today because I’ve overheard this. She would sell them the fact that a cashiers check is okay.
Jill DeWit: Um hmm.
Jack Batell: She wouldn’t do a work around. She would sit there until they said yes and talk to them and tell them research it. It’s as good as cash.
Jill DeWit: It is.
Jack Batell: That’s really the answer.
Jill DeWit: It’s safer because it has their name on it.
Jack Batell: Yes.
Jill DeWit: It’s safer for me and safer for them because it’s a good C note; it’s got their name on it. And you know a [crosstalk 00:03:28]
Jack Batell: Also.
Jill DeWit: [inaudible 00:03:29] realy push.
Jack Batell: You can also almost guess the age of this person.
Jill DeWit: Right. Well here’s my other thought. At some point you have to say never mind. You know what I mean? Look, I’m okay, Allen, seemed like if you’re not happy with this I was happy to buy your property, I’ve offered six different ways to pay for it and none of them meet your criteria. I guess you don’t want to sell.
Jack Batell: You know what you could do too is read the notary, have the guy … have the meeting at the bank and deposit the cashiers check because the funds will be available that minute.
Jill DeWit: Oh, that’s a good idea.
Jack Batell: Yeah, so you can look at your bank balance. The guy can look at his bank balance and say, “Okay, I have the money. I’m signing.”
Jill DeWit: Now I’ll sign it. And you know what, hey, good idea Jack. Thank you.
Jack Batell: I mean there’s … that’s what my point is. Sell him on the fact that a cashiers check is okay.
Jill DeWit: Um hmm.
Jack Batell: I wouldn’t use another financial instrument.
Jill DeWit: Got it.
Jack Batell: I would just make that work.
Jill DeWit: Right.
Jack Batell: Hey, nice work buying a property for $2100 by the way.
Jill DeWit: Exactly.
Jack Batell: That’s what this is really about.
Jill DeWit: Totally.
Jack Batell: 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 Survive the Inevitable Economic Downturn.” So while the title of this thing seems a little bit negative ,,,
Jill DeWit: Hmm
Jack Batell: It’s not all sunshine and roses.
Jill DeWit: No, it’s just …
Jack Batell: It’s a good topic to talk about cause it’s gonna happen. Some of the younger people out there, some of our younger members just think that this thing … the last financial downturn is over and it’s never going to happen again. The fact is this is a cycle. It’s a 12 to 14, well 10 to 14 year cycle for a real estate downturn. One that we had that most recently, I guess, was 2010ish. 10 to 14 was the worst one in the history of this country. Arguably the [inaudible 00:05:19] one against maybe 1929. So, is it going to be that bad again? No I really don’t think so but, in fact, in our lifetime it’s probably not going to be that bad again, but it is going to turn down significantly. We are going to have an economic downturn. So, the two things you want to do is realize that it is inevitable and just accept it, however you need to do that with yourself in front of the mirror. And a second one is plan for it.
Jill DeWit: Right.
Jack Batell: And then, implement your plan when it happens. I guess
Jill DeWit: Exactly.
Jack Batell: that’s three things, but really two things. Accept it and
Jill DeWit: Be ready.
Jack Batell: put a plan together. Yeah.
Jill DeWit: Exactly.
Jack Batell: So.
Jill DeWit: There’s a lot of things you can count on, you know what I mean? Like
Jack Batell: You can count on Jill not being on time to record these shows. You can bank it.
Jill DeWit: Jack! That’s not true. No.
Jack Batell: To your credit, you were on time today.
Jill DeWit: That is not true. That is really not true.
Jack Batell: This is show number 485.
Jill DeWit: You know, in my defense, our schedule gets turned around a bit like even today. Our show … so in my defense it’s not like it’s 100% consistent.
Jack Batell: What happened today?
Jill DeWit: We got moved up an hour.
Jack Batell: Oh yeah.
Jill DeWit: Yeah, thanks. So I still … I did really well. No but, it’s like why you have … hold on a moment.
Jack Batell: The real reason that Jill was on time today, is because we worked out together this morning. We exercised together.
Jill DeWit: Yes we did. We’re going to call it that.
Jack Batell: If you can call it that.
Jill DeWit: Oh boy.
Jack Batell: Oh my gosh [crosstalk 00:06:41]
Jill DeWit: So here’s what I was talking about … Okay back to the show.
Jack Batell: Be sure you listen to this.
Jill DeWit: Oh my gosh that’s why it’s in code. Okay. It’s like car insurance. You have to be ready for this stuff, like a prenup you gotta be ready. I don’t know why this topic made me think about being ready and that’s where I went with it. Like some days you just kinda …
Jack Batell: Wow, Jill.
Jill DeWit: It just can happen. You’ve got to be careful. I’m sorry it’s really [crosstalk 00:07:08] All right go ahead.
Jack Batell: So, here’s the thing. We talked about this in the past on the show. There’s several things that you can … that are good signs that there are good early indicators that stuff’s going to happen. The economic downturn is going to happen. Number one, land follows houses in commercial real estate so houses are always the first one to go for some reason.
Jill DeWit: Um hmm.
Jack Batell: And then, commercial too. Commercial houses are … you can arguably … People can argue about which ones first, but when people stop building houses, all right. When people … somebody subdivides a … files with the county to do up a large subdivision to build houses, they file for what’s called entitlements and you can bank … you can go to the bank on watching these entitlements. Right now they’re going up and up and up. People are building it and buying houses. At some point they will hit the top and go down and start to go down. Like my old football coach used to say, “Tomorrow when you get back here and you can either be better or you’re going to be worse than you are today. But you can’t stay the same.” That always stuck with me. I’ve said it in the distant past.
Jill DeWit: I know that. Where are you today? Are you better or worse? Collect
Jack Batell: You can …
Jill DeWit: Can you answer the question for us, Jack? I really would like to know.
Jack Batell: I’m more wealthy than I was yesterday and I feel a lot physically better actually.
Jill DeWit: Aww.
Jack Batell: Than I did yesterday.
Jill DeWit: Got it.
Jack Batell: For a bunch of reasons.
Jill DeWit: You look good. All right, well we’re let …
Jack Batell: I put Jill’s jeans on by accident this morning.
Jill DeWit: Please do not share the outcome of that. Leave that alone. No, but I want … I have a question on the show topic. I’m trying to keep us on topic here. I used to pay attention to interest rates and I stopped. How much attention do you pay to interest rates, Jack.
Jack Batell: Zero.
Jill DeWit: Okay, thank you. We’re on the same page on that one.
Jack Batell: A lot of years ago, you could really … It was a big deal.
Jill DeWit: Right.
Jack Batell: That would be a real telltale economic indicator. Since the downturn interest rates have been zero.
Jill DeWit: That’s funny. I never watch it. Not only would I watch interest rates, I would pay attention. I would know mentally when the meetings are going to happen.
Jack Batell: Yeah.
Jill DeWit: And like, okay, everybody be ready, we could go up a percent or down a percent. It might reset something and now I don’t even pay attention.
Jack Batell: It used to be a big deal. Greenspan, when Greenspan was in office … I don’t even know who’s in office now, but … For some reason, I’m not sure why, maybe it’s us, maybe people just don’t care. Here’s what I think, interest rates before the stock market got computerized like it is now …
Jill DeWit: Um hmm.
Jack Batell: Where you can buy in percentages and used to be you could only buy … it would go up eighth or down an eighth. That was a minimum trading value.
Jill DeWit: Um hmm.
Jack Batell: Now it’s all … you can do it by one-tenth by one billionth of 1%.
Jill DeWit: Um hmm.
Jack Batell: I think that that mattered. I think that intaerst rates really did matter. You can kind of bank on what would happen in the market after it got announced. Now I just don’t think it matters.
Jill DeWit: Isn’t that funny?
Jack Batell: I don’t know; I’m just guessing, quite frankly
Jill DeWit: I just don’t pay attention, so when it … I just thought it was good for this topic because watching interest rates may not be an indicator to what’s coming.
Jack Batell: Yeah, so I mean that … Watch entitlements [crosstalk 00:10:24]
Jill DeWit: It may …
Jack Batell: The county publishes those. It’s public record so you can watch entitlements and watch the days on market for houses. Like right now, the listed days on market for a regular residential real estate in Los Angeles County is like … It’s less than 30 days.
Jill DeWit: Um hmm.
Jack Batell: Which is staggering.
Jill DeWit: Right.
Jack Batell: During the downturn the days on market for houses like eight months.
Jill DeWit: Right.
Jack Batell: Eight months to a year or so. You can watch that number go up and down too, and really …, I’m not saying obsess on this.
Jill DeWit: Right.
Jack Batell: There’s indicators like that and if you Google it you’ll find some other ones. Not just real estate indicators and other stuff. Like durable good manufacturing and …
Jill DeWit: Right.
Jack Batell: I don’t want to get into that. This is not an economics lesson.
Jill DeWit: Okay, so talk to me more about the survival part because here is why I’m coming at this. I don’t worry. I really don’t worry.
Jack Batell: Good Jill.
Jill DeWit: Because I …
Jack Batell: I’m doing my job then.
Jill DeWit: Because you are. I know that we have sufficiently diversified our portfolio, if you will. I know that everything is paid for.
Jack Batell: That’s the real deal. That’s how we survived the last one. A lot of people in the land business did not survive because they leveraged themselves and borrowed money. Never, ever buy a piece of real estate by lending in a traditional sense. We only buy it one of two ways, with cash or with a partner.
Jill DeWit: Right.
Jack Batell: For really large deals we’re using an equity partner.
Jill DeWit: Right.
Jack Batell: So as the thing gets turned … And that guy … The main investor that we use … He’s fine.
Jill DeWit: Yeah.
Jack Batell: So, I mean the worst thing that is going to happen there is we wait it out. We buy a piece of property and if the value substantially goes below what we can sell it for, we just wait it out.
Jill DeWit: Um hmm.
Jack Batell: But the vast majority, by leaps and bounds … Those are only really large deals. The vast majority is just pay cash.
Jill DeWit: Exactly.
Jack Batell: I don’t care where you are in your investment career, from a real estate standpoint, if you can afford a $5,000 piece of property, then buy a $5,000 … like this person Allan here in the question earlier.
Jill DeWit: Right.
Jack Batell: If you have $2,100 to your name and you’re buying a piece of real estate and you’re going to double your money, then just keep it at that. Don’t go crazy and borrow money.
Jill DeWit: Right.
Jack Batell: Truthfully, I don’t want to sound like your father, but that’s really truthful.
Jill DeWit: Okay. Let me … I’m going to …
Jack Batell: That’s one way.
Jill DeWit: I want to explain this is my terminology. Really let’s just say you’re buying a bunch of property for $2100. Okay? We all know they’re worth five or 10 let’s just say.
Jack Batell: Forty.
Jill DeWit: So if something like that … I’m going to be conservative, five or 10. So what do you do to survive this thing? You’re sitting with a bunch of properties, maybe you’re not selling for ten, maybe you’re selling for seven.
Jack Batell: That’s right, Jill.
Jill DeWit: Maybe you need cash and you sell them for five, or no maybe you sell them four.
Jack Batell: Maybe you sell it for a thousand.
Jill DeWit: I wouldn’t do that because I don’t want to go backwards, but I’m just saying, I bought it so, right, I paid cash. If I need to liquidate a little bit … Even if I go down to what I’ve paid or just cover myself, I’m okay, so that’s …
Jack Batell: Right.
Jill DeWit: That’s how I survive, if you will, and I never sweat it because banks aren’t looking for me. THere’s no interest due. I don’t have to worry about any of that. No one’s going to come take it away from me.
Jack Batell: Right.
Jill DeWit: So, I’m okay.
Jack Batell: Yeah, so that’s a part of it. Only don’t leverage yourself.
Jill DeWit: One thing I hadn’t thought about, which is what I think of when I … I’m sure a lot of people think this way too. There’s still something to be said for when there’s a little bit of downturn, if you have some cash, buy some stock.
Jack Batell: Yeah, I mean, that was how I was going to wrap the show up.
Jill DeWit: Oh, sorry.
Jack Batell: That’s okay. In a downturn, believe me, the real estate bargains … we were … Jill and I were buying houses during the downturn on the west part of …
Jill DeWit: Phoenix.
Jack Batell: Phoenix for $20,000. Those houses are worth $200,000 now. Buying … So you just shift a little bit. You buy them for 20 and then we were selling them at that time for 40 to 60 so who won? The people who bought them from us.
Jill DeWit: Exactly.
Jack Batell: And that’s how it should be. It’s the same thing. So, you’re going to be fine if you just stick to what you’re good at, which is buying cheap property and reselling it for more. The other thing is that you should never, live above your means. You should wake up and assume tomorrow that however money or income that you have coming in … This is true, I don’t care who you are, if you’re not a real estate investor at all, that you can live on half. If your income goes down … If you lose your job and you have to go get another one for half of what you make, you should be able to cover your bills.
Jill DeWit: Uh hmm.
Jack Batell: You know that’s just a … I’ve said that the kids are probably ready to vomit. I’ve said that to them so much.
Jill DeWit: [inaudible 00:14:52] they need to hear this, it’s such good advice.
Jack Batell: Never live above your means, so then take all the stress out of it.
Jill DeWit: Yup.
Jack Batell: You know? Then you can go have fun. 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 Batell: To get just about anything you want.
Jill DeWit: We use it everyday to buy property for half of what it’s worth then sell it immediately.
Jack Batell: You are not alone in your real estate ambition. Yeah, I noticed you’re not wearing those jeans today. You’re wearing different jeans.
Jill DeWit: That’s not funny.
Jack Batell: No, it’s people get …
Jill DeWit: Careful, careful, careful.
Jack Batell: People get confused about this.
Jill DeWit: Careful.
Jack Batell: What clothes I should put on.
Jill DeWit: Careful, careful.
Jack Batell: After a certain activities they get their clothes mixed up.
Jill DeWit: Clothes mixed up. Yes, I find myself putting on your briefs now and then. No.
Jack Batell: 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.
