How to Value Land (CFFL 530)

How to Value Land (CFFL 530)

Transcript:

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 how to value land. That seems pretty obvious.

Jill DeWit:                           Yeah … you’d think!

Jack Butala:                         I’ll try to make it complicated though, that’s for sure.

Jill DeWit:                           Okay, good.

Jack Butala:                         Before we get into it let’s take a question posted by one of our members on the land investors online community, it’s free.

Jill DeWit:                           Matt asks, “Hi everyone, I’m starting to close my deals in house and I’d like to make sure that the way I accept payment is as current as possible. I’m up to date on the podcasts and the Thursday afternoon weekly member calls. I can’t tell you how many different things I’ve heard, ha ha. Payment systems seem to come and go. One week it sounds like a company allows real estate, the next they don’t, and so on. I know that Jack and Jill are working to solve this for us, much appreciated, but what is the current state-of-the-art? If you were setting up your payment system for selling properties today how would you approach it? (I haven’t setup my Land Pin account yet but I will be doing so soon).” What do you think Jack? [00:01:03] Yeah.

Jack Butala:                         This is a very, very valid concern, and it’s a big issue. So, here’s the deal. In around 2004 to 2010, everybody’s happily going along collecting payments for properties and their purchase of sell and actually like payments to make payments to pay off the property with PayPal. They woke up one day around, I don’t know, 2010 and said it’s beyond our risk threshold and they cut us all off, all of us. They didn’t give us any notice.

Jill DeWit:                           We were all happily sailing along-

Jack Butala:                         So we all scrambled and found something else … I think it was Stripe, at the time, or Bluepay … there’s a bunch of them. There’s a million … they’re called payment gateways. All of them, for whatever reason [crosstalk 00:01:48] have all agreed-

Jill DeWit:                           One by one … It’s not at the same time too-[crosstalk 00:01:53]

Jack Butala:                         It’s like dominoes.

Jill DeWit:                           It’s like one by one they go … we’re all over here, we’re all happily accepting payments and the next thing they go, no … we changed our mind. Then we go to the next guy.

Jack Butala:                         Yeah, it’s like dominoes. So you have exactly two solutions and Jillpay is one of them, and it’s working extremely hard to get this thing done. The second one, and a couple of our members have done this … very successfully in fact … we’ve done it too … is to go to your bank, and sit down with the branch manager, or whoever is the most appropriate or highest person you can get to … Try and make it a large branch … and explain the situation. They will, especially if you’ve had a bunch of deposits over time, and they’re looking at your bank account and your deposits over the last few years … they will grant you permission to do this. They don’t issue a waiver, but what they really do is say, you seem to be a standup person on this whole thing … we’re gonna let you do this. Several members have had success with that. It’s not an overnight process, which is why Jill and I are solving this, with Jillpay. It all comes down to the backend processor. If you look in on the internet and find out how credit cards are processed and how many people are involved when you buy something on Amazon … it’s actually, relatively silly. The real winners are[crosstalk 00:03:14]

Jill DeWit:                           Like more involved than we realize exactly?

Jack Butala:                         Yeah

Jill DeWit:                           What do the banks issue? Do they give them something that let’s them be like the payment gateway kind of thing?

Jack Butala:                         Yes.

Jill DeWit:                           Okay -[crosstalk 00:03:26]

Jack Butala:                         Specifically Bank of America is known to do this. That’s who we use right now. So, if you’re brand new and you’ve got $0.30 cents in your bank account, it’s probably not gonna work.

Jill DeWit:                           Right.

Jack Butala:                         I’m just being real straight about it.

Jill DeWit:                           Let’s just be honest. Worst case scenario, can people wire you money? Yes. Can people send you checks and do payments like that? Yes. You can get around it if you have to. I remember in the old days, seriously, people would send checks or money orders or cashiers checks and I would tell them “I will mail the deed” … especially if it’s a personal check, that’s all they had … I’d say “when the check clears, I’ve received your check, I’ve deposited … here’s a screenshot, whatever … it’s supposed to clear in three days, and when it clears I’ll send you the deed.” And they understand and it’s okay.

Jack Butala:                         That’s a great point, Jill. You can take ACH payments all day long online-

Jill DeWit:                           Exactly.

Jack Butala:                         That’s a very valid … I don’t know why we don’t do that more often, in fact, I’m gonna look into that.

Jill DeWit:                           Yeah, don’t be afraid. When someone’s … especially with the larger transactions … when we’ve had real real large transactions, I don’t wanna run them through the credit card cause I don’t wanna pay that much – [crosstalk 00:04:36]

Jack Butala:                         It’s expensive.

Jill DeWit:                           Cause I don’t wanna pay that much percentage- [crosstalk 00:04:37]

Jack Butala:                         It’s expensive.

Jill DeWit:                           On the transaction. So I would much prefer that someone … it’s $50,000 dollars, why don’t you just wire it to me, and here’s my bank information. Do I worry about security with that? Have I had any issues with doing it that way? No. I haven’t.

Jack Butala:                         No, and there has to be some trust too, so, I’ve given that speech over the years several time. There has to be a little bit of trust and you have to show some history on the internet, that you’re actually here to stay.

Jill DeWit:                           Right.

Jack Butala:                         It’s called common sense stuff. 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 value land. This is the meat of the show. So this would fall under the category of captain obvious here. The topic came up because I got in a light debate with somebody that’s not even a member on counterinvestment – [crosstalk 00:05:27][inaudible 00:05:28]

Jill DeWit:                           That’s hilarious-

Jack Butala:                         And here’s what happened.

Jill DeWit:                           I missed this! Is it there for all of us to go see?

Jack Butala:                         If you’re brand new to this show … Jill and I, our hobby, well now it’s become our career … is to dispel-

Jill DeWit:                           Yes

Jack Butala:                         the myths of regular real estate. It’s-

Jill DeWit:                           Yes.

Jack Butala:                         Regular real estate is bought and sold like it’s 1953.

Jill DeWit:                           Totally.

Jack Butala:                         How you value real estate is still straight out of 1953 in my opinion – [crosstalk 00:05:55]

Jill DeWit:                           Swear … I’m gonna show up in a gold jacket … Don’t you have a photo of us with a gold jackets? Really …

Jack Butala:                         People are obsessed in this industry, across the board. From skyscrapers, all the way down to rural vacant land. Obsessed with completed sales. I have to argue that because … while completed sales are valid, they are absolutely valid … the more you dig into complete sale, on any given deal … the more you’re gonna find errors. There’s only about two places that you can get good completed sales date. Number one, the MLS slash Zillow slash Trulia. And that’s only as good as how the real estate agent inputs it.  [crosstalk 00:06:39]

Jill DeWit:                           If they input.

Jack Butala:                         Ding ding, if they do it at all.[crosstalk 00:06:41]

Jill DeWit:                           Exactly.

Jack Butala:                         Cause they already got their commission check. They’re not really much more motivated.

Jill DeWit:                           They’re not going to follow-up on the paper work. They’re market sold, take the sign down, and move on. Yeah.

Jack Butala:                         Number two, is assessor data Same thing. It’s only as good as the assessor puts inputs the data. What happens with assessor data in our line of business with this asset type, very, very often deals are completed in what’s called multi-unit transactions. We didn’t just buy one property; we bought fifty or two or ten. That gross amount of that purchase price or sale, the sale amount, gets input and associated with everyone of those APNs, so it really skews the data fast.

Jill DeWit:                           That’s true.

Jack Butala:                         I hate to be the bearer of bad news. Completed sales, while they are valid, are not the end all. Here’s the end all: what’s your property worth? How do you value what your property’s worth? It’s very simple. It’s the value that someone’s willing to pay for it.

Jill DeWit:                           True.

Jack Butala:                         Well, let’s look at what people are willing to pay. It’s right in your face. It’s right in front of you

Jill DeWit:                           Yeah, it’s funny. How many … I know this still happens; we all know this happens. You’re buying a house, you make an offer of, I don’t know, $483,000, then the guy comes out for the appraisal. By golly, he appraises it at $483,000.

Jack Butala:                         How can that be?

Jill DeWit:                           Gee, how did that happen? Huh, let’s all think about this. See, there you go. It’s the sales price that really determines what it’s worth, Jack. Like, that’s a thank you.

Jack Butala:                         I think that the value of an asset like this is looking at …

Jill DeWit:                           … The purchase price …

Jack Butala:                         …other properties that are for sale …

Jill DeWit:                           … Yeah …

Jack Butala:                         … And making sure that you’re below that.

Jill DeWit:                           Right.

Jack Butala:                         That’s how you value your property. Here’s an example: you have a five acre property in Mohave County, Arizona that you’re thinking about buying. This is why this topic is so important, because you don’t want pay too much up front before you flip it.

Jill DeWit:                           Right.

Jack Butala:                         So what do you do? You go look at the other properties that are for sale, and then you make sure that you buy it way below the lower echelon priced property so you can’t get hurt on the resale. That’s the value of your property. If it’s $20,000 you better make darn sure that you buy that thing for less than ten. Or less than half in this asset value. With houses it’s different; it’s a little bit higher. That’s really how you value an asset. It’s not completed sales.

Here’s some examples of what skews completed sales really bad: let’s say … I see this all the time and it makes me nuts when I look at completed sales. So Jill has a company and I have a company. I own a bunch of property and she owns a bunch of property, and that’s just how we done it for years and years for a lot of reasons. And we don’t pick and choose which ones we get. We just do it to split it up so that … For a lot of reasons. For a lot of liability reasons.

Jill DeWit:                           It’s kind of like the kids. You’re in charge of that one.

Jack Butala:                         Oh God, which one do I get?

Jill DeWit:                           I’m out.

Jack Butala:                         That’d be hard.

Jill DeWit:                           Come on. We all do it.  You know we all do it. You’re in charge of that one. I’ll take this one on, alright. You get the tough one; I’ll do this for you. Fair. Done.

Jack Butala:                         Yeah, there’s nothing fair about that. It’s a mess. Anyways.  So a lot of times, for whatever reason, Jill needs a bunch of property to be in her name from me. So what do I do? I deed it over to her. Well, I have to assign a value to that. Guess what value we assign? $1. And that’s a completed sell in the assessors database.

Jill DeWit:                           Right, that does screw things up. If you go looking up your thing, and go well, I guess I’m going to place it at $2.

Jack Butala:                         For whatever reason, you never deed me or I never deed you one property. It’s like fifty of them.

Jill DeWit:                           Yeah, a bunch.

Jack Butala:                         Now, all fifty have $1 associated with them.

Jill DeWit:                           Divided by $1. $1 divided by fifty.

Jack Butala:                         You can see how it gets skewed. I’ll explain how to do it. Look at the property that’s actually posted for sale, and just be lower. Under the price.

Jill DeWit:                           I love it. You know what? Jack, thank you. That wasn’t too confusing.

Jack Butala:                         Okay, good.

Jill DeWit:                           You want to throw something in there? Just kidding.

Jack Butala:                         You want me to throw something to confuse it?

Jill DeWit:                           Exactly. Just kidding.

Jack Butala:                         Well, alright, I’ll confuse it.

Jill DeWit:                           Uh-oh.

Jack Butala:                         This is why. I’ll tell you what’s confusing. What’s really, really confusing is looking at completed sales and trying to … If you picture all the data in a spreadsheet of a whole county of data, and you have all the completed sales and there’s properties in there for $1, a lot of them are zero, so what does that mean? They never sold? No, they just never got input. Tons of them are in there for a dollar or $5 or some obscure amount, and then there’s … And these are all like kind properties, and then, at the top several that are $14,000,000, and here’s why they’re $14,000,000. Because the assessor or the inputter added too many zeros.

Jill DeWit:                           Yeah, that …

Jack Butala:                         How many times have you looked at the acreage of a property and sorted and it said four-three-five-six-oh? This is 46,000 acres, this property? No, it’s four-three-five-six-oh square feet, equals one acre.

Jill DeWit:                           Exactly.

Jack Butala:                         Cos the cake eaters, input it wrong.

Jill DeWit:                           Can’t. Oh my gosh …

Jack Butala:                         I defy you to tell me I’m wrong.

Jill DeWit:                           I know you’re right, but you can’t … That’s okay. They don’t listen to this.

Jack Butala:                         Jill won’t let me talk about the people that work at the county and how much cake they eat.

Jill DeWit:                           Cake eaters, oh my gosh. What other names do you have for people? What do you call the people at the post office?

Jack Butala:                         I don’t have a name … No, I don’t go into a post office.

Jill DeWit:                           Okay, what do you call the people at the bank?

Jack Butala:                         I don’t go into the bank.

Jill DeWit:                           What do you call the people in the grocery store?

Jack Butala:                         Nice.

Jill DeWit:                           Whatever.

Jack Butala:                         What do you mean? I don’t walk around here with labels for people.

Jill DeWit:                           Special.

Jack Butala:                         No, that’s what I call you.

Jill DeWit:                           Woooooah, wait a minute. Listen …

Jack Butala:                         This is my special partner, Jill.

Jill DeWit:                           First, you’re telling me I smell like bug spray this morning, and now you’re telling me I’m special?

Jack Butala:                         Are you really going to talk about that on the air?

Jill DeWit:                           Yes! I can’t believe I sat down and Jack’s like, “Are you worried about something?” Why? “You smell like bug spray. Did you just like, douse yourself?” Noooo, it’s a lotion but that’s the last time I use that.

Jack Butala:                         I didn’t mean it like that.

Jill DeWit:                           It’s expensive lotion too. That’s really funny.

Jack Butala:                         I honestly thought there’s like bugs or something.

Jill DeWit:                           Yeah, like, “What’s going on there, babe? You smell like bug spray.”

Jack Butala:                         That’s love.

Jill DeWit:                           Yeah, thank you.

Jack Butala:                         I know what’s good for me so I’m going to say this sentence.

Join us in another episode where Jack and Jill discuss how to use information. That’s me.

Jill DeWit:                           You’re right. And inspiration, that’s me.

Jack Butala:                         To get 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. I can’t believe you.

Jill DeWit:                           Cake eaters.

Jack Butala:                         With the bug spray thing.

Jill DeWit:                           I know. It’s like, … It’s the, whatever, members. I can never say it right, but it’s a fancy lotion that they have, but oh well. I have a travel size I haven’t used. I think I’ll give that away.

Jack Butala:                         You know what, don’t take my word for it. Ask other people.

Jill DeWit:                           Oh, thanks. No ones going to say that. They’re not going to go, “Mosquitoes? Mosquitoes going around today? What’s going on?” No.

Jack Butala:                         Yeah, I’m going to end this while I’m … just not slightly out … Not ahead.  Information inspiration to buy undervalued property.

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