Is Holding Cash or Holding Property Safer? (CFFL 559)
Is Holding Cash or Holding Property Safer? (CFFL 559)
Transcript:
Jack Butala: Jack and Jill here.
Jill DeWit: Hi.
Jack Butala: Welcome to the show today. In this episode, Jill and I talk about is holding cash or holding property safer? If you had $300,000 of cash in a bag or a $300,000 house free-and-clear, which one would you want? Before we get into it, let’s take a question posted by one of our members on the landinvestors.com online community. It’s free.
Jill DeWit: Okay. Amy asked, at first I was excited to get a call back of interest for an offer I sent out for a piece of rural vacant land. Unfortunately, the offer was too high for this public housing area and the city located in the county that I targeted. Looking at the standard purchase agreement I sent, that is open for another month, I can’t seem to find a way out of honoring the purchase agreement if they sign it.
Here’s Amy’s stipulations: One. Buyer’s confirmation of parcel size.
Jack Butala: Done, you’re out. You’re done.
Jill DeWit: Do you want me to keep reading?
Jack Butala: No. I do, actually, but here’s my point and I don’t mean to interrupt you Jill, I’m sorry. Don’t worry, Amy, because you confirmed the confirmation of the parcel size is not what you want. Go ahead, Jill.
Jill DeWit: Two. Said property is to be sold free-and-clear of all encumbrances with a good and marketable title and with full possession of said property available to buyer at the date of closing.
Jack Butala: Number two, in your opinion, the marketable title condition of this property is unsatisfactory and therefore, you can’t sign the transaction.
Jill DeWit: Three. Confirmation of buyer’s acquisition criteria. That’s one right there.
Jack Butala: I confirmed all the statistics. I went through my due diligence on this property and it doesn’t fill my criteria after all. Number four.
Jill DeWit: Number four. Seller to provide abstract or prior Owner’s Policy, if available.
Jack Butala: Okay.
Jill DeWit: Five. Seller to retain mineral rights at Seller’s request. How do I get out of it or am I on the hook to buy the property?
Jack Butala: No.
Jill DeWit: Does anyone have any suggestions to add more contingencies to the purchase agreement to cover me better? No, you’re fine.
Jack Butala: Yeah, you’re totally fine.
Jill DeWit: I’ve never even had to do this. You know, what’s funny? Here’s a reality, Amy. I think you’re worrying about it and you don’t need to. I’ve never, ever, ever, ever, and I mean, ever, had a seller come to me and say, “Oh, I went through your list, one, two, three, four, five, and I’m sure you have to buy this.” No, they don’t.
Jack Butala: Sounds like there’s a lawyer on the other end.
Jill DeWit: No, they’re not, and because I can say, “Well, I’m not happy with one and I’m not happy with three.” Like three is the bigger one. Here’s what I would say. “My acquisition criteria is that this property is affordable and in this range and what I can mark it up and sell it for.” I mean, it doesn’t meet that.
Obviously, what you just said is, “Look, I sent in an order. It was accidentally too high.” That’s what you’re saying here, Amy. It sounds like I have to do it. No, you don’t, because it sounds like you would buy this property at a different price and that’s what you’d come back with.
If they say, “You need to buy this property.” You might say, and I’ve done this a lot, Amy, “Look, I’m happy with this property at $1,000, not at the $3,000 that the letter says. Now that I’ve looked at it and I got it on the map and everything like that, doesn’t meet my criteria at $3,000, but it does at $1,000.”
Jack Butala: Whose to say what your acquisition criteria is anyway? I mean, the truth of it is, you could say, “The reason that I send a lot of offers out to everybody who owns property with this criteria because I want to put up a self storage facility. It turns out this property is not conducive for that, so have a good day.”
Jill DeWit: Exactly. Don’t worry, Amy. These outs are just fine.
Jack Butala: Yeah. You have complete control. If you have a question or if you’d like to be on the show, reach out to either one of us on landinvestors.com. Today’s topic, would you rather hold a bag of cash or an equal valued property. Which one’s safer? This is the meat of the show. What do you think, Jill? It’s so tempting, isn’t it?
Jill DeWit: Right.
Jack Butala: I’m going paint a little picture.
Jill DeWit: Tell us a story. Tell us a story. Story time with Jack today.
Jack Butala: You’re sitting on a park bench. It’s a beautiful Saturday and a genie pops up and you get a couple of wishes. Would you wish for: A bag full of $300,000 of cash or the house of your dreams for $300,000 and it’s paid for, free-and-clear, and that’s it. You’ve got to go on Monday. You have to get up and go to work, even though you don’t have the mortgage anymore, you’ve got to go to work, but the $300,000 cash, that’s it. Which one would you do?
Jill DeWit: Those are my only choices?
Jack Butala: Yeah. Just a fun little exercise.
Jill DeWit: I kind of want the cash.
Jack Butala: I would take the cash also …
Jill DeWit: Okay, good.
Jack Butala: … and here’s why. Because you and I know how to buy property for $150,000 that’s worth $300.
Jill DeWit: I was going to say …
Jack Butala: That’s my whole point here.
Jill DeWit: I can do more with it. I have a lot more options.
Jack Butala: You have control and options, exactly.
Jill DeWit: Then, at the end of the day, if I had a third wish, if I would pick my own, I’d actually want $150,000 property and $150,000 in cash.
Jack Butala: You can do that with the cash.
Jill DeWit: Well, you can do that with the cash.
Jack Butala: Yeah. That’s what I mean. That’s my whole point here. Also, adding to that, we know how to buy a $300,000 house for $150,000. Very predictable results and the number of letters that we would submit in the mail. What I don’t know how to do and I would love to hear if you know how to do this because we should talk if you can, can you sell a $300,000 house for $450,000? No, nobody can.
Bruce [inaudible 00:05:51] in [Salday 00:05:52] would tell you that they can.
Jill DeWit: I know.
Jack Butala: Buy it for less is way easier than selling it for more. That’s a chapter right there.
Jill DeWit: Right. I don’t like that too.
Jack Butala: I don’t either. I think it’s dishonest.
Jill DeWit: That’s the whole thing. They look for a cash buyer and then, gee, by golly, the appraisal came in at exactly how much cash they have. Isn’t that funny? I’m like, I never like those situations. I don’t think that’s cool.
Jack Butala: The truth is, and you’ll talk to any accountant or any financial planner more than an accountant. They will say, “You should have a healthy balance of cash and you should own your property. You should have a very low loan-to-value.” Low LTV, as it says. I saw a license plate one time that said that. Low LTV.
Jill DeWit: Hey, Dad, I want to ask a dad question.
Jack Butala: Okay.
Jill DeWit: Dad, how else should I diversify my assets. Sell my stocks? Dad should I buy a time share?
Jack Butala: You just pushed my buttons. It was two cents as a dad button pushing.
Jill DeWit: Wait, wait. I want this fancy car. I’m going to buy it new, drive it right off the lot.
Jack Butala: Oh, geez. You did it. You pushed all three. A car is not an investment, so we’re not even going to talk about cars. That’s silly.
Jill DeWit: Wait, what if it’s a classic car?
Jack Butala: If you’re my age and with my balance sheet, knock yourself out.
Jill DeWit: Okay. Or, your name is Jack, and you have curly hair and glasses. Those are the only conditions.
Jack Butala: No, I’m not the only guy around that does this stuff. Look, people, it’s a great business to renovate cars. I’ve tried it and failed at it dismally. There are some people who can keep their emotions out of it. It’s great. I’m not knocking that. I’m just saying the conventional wisdom is this to answer your question, there’s super conservative liquid assets.
It’s all buckets-driven, right? You have a bucket of liquid assets. You have a bucket of what’s called play money and that’s what the stock market should be for. You should set yourself and look in the mirror and say, “If all this bucket of play money’s gone tomorrow, I don’t care, because I’ve got another bucket over here that’s super conservative assets.” Maybe they’re like real estate or tax municipal bonds or whatever, and then in this bucket over here, is just cash in the bank or gold in a closet or whatever version that is for you.
It all comes down to buckets and individual preference. I mean, we’ve made a career out of flipping real estate, Jill, so I’m breaking my own rules here, but we know how to do it so well that it is our play money and that is our conservative money.
Jill DeWit: It’s true.
Jack Butala: I mean, there’s money we don’t tap in ever, for any reason.
Jill DeWit: That’s true. We’ve talked about this before. I mean and shared this with our members that, hey, if you need cash right now, we all know how to. You could cut some of your prices and get it out there and sell some property and get some cash really fast if you had to.
Jack Butala: Yeah.
Jill DeWit: That’s not crazy. Oh, gee, maybe I only made 75% profit, not 110% profit. I’m still doing just fine.
Jack Butala: Exactly, Jill.
Jill DeWit: If you had to do that really quick because you need some cash.
Jack Butala: Those are the conversations you should have with yourself. Have that, no matter where you are in the career. I have that type of conversation with myself all the time. Hey, am I going to do this deal. If it all goes sideways and the worst thing happens, are you going to be okay? Yeah, then I’ll do the deal.
Jill DeWit: Exactly. That’s a good way to think. That’s a good thing to think about now no matter where you are, when you go into these deals, think like that.
Jack Butala: It’s all about control and controlling the investment and controlling the decision-making and all of that. If you buy a house off the MLS from a real estate agent and go rent it out to somebody and then the renter moves in, I mean, how much control do you have if you have a mortgage on it and all that.
You have to pray, every morning, that the person’s going to pay their mortgage and that the economy’s not going to crash. You don’t ever want to put yourself in that position in my opinion, speaking as your father, because you brought it up.
Jill DeWit: I did.
Jack Butala: I like being Jill better.
Jill DeWit: Thank you. That’s awesome.
Jack Butala: It’s all about control. I know psychologists and psychiatrists out there are cringing right now because they all think control’s horrible. When it comes to financial stuff, no man, control’s the best. You don’t want to just hope for the best.
Jill DeWit: Swing hard. [crosstalk 00:10:27]
Jack Butala: Swing hard and hope for the best.
Jill DeWit: No. That’s not how you should do life.
Jack Butala: That’s how I golf.
Jill DeWit: I got married. I swung hard. I’m just kidding.
Jack Butala: For a bunch of reasons, you do not want to swing hard in a marriage. You can hope for the best, but leave the swinging out.
Jill DeWit: That’s …
Jack Butala: You know what? $300,000 worth of cash on a park bench sounds pretty darn good.
Jill DeWit: Well, when should you ever stop, Jack? Is there a point that you think one of them … That enough is enough or is that for millionaire week?
Jack Butala: That is in millionaire week, which is coming up two weeks from now. Yeah, this is in my book too. You have to is very, very unhealthy. Even really wealthy people will tell you that they’ve made this mistake that they all, and I say this too, “Boy, I should have stopped at X.” Like a gambler, you know? “Boy, I was this far up and I should have stopped.”
The way to do that and even if you’re a gambler, the way to do it is to say, “I’m starting with $2,000 at this Black Jack table. If it becomes $4,000, I am out. I do not care what the circumstances are.” Or, “If I’m starting with $2,000 and it becomes $1,000, I am out.”
Most people don’t have enough discipline. It’s the same thing with really wealthy people. You have to set parameters for yourself. There’s a number and we’ve actually passed it, but Land Academy and the podcast and all that stuff is fine.
Jill DeWit: He keeps in the safe and doesn’t tell me about any of it. This is like … Two years ago, don’t tell Jill. That’s really how it goes.
Jack Butala: Jill, you know everything, trust me.
Jill DeWit: All right.
Jack Butala: The way that I do it is I say this. All right. I’m going to answer you with a mathematical equation. There’s a number, all right, of liquid assets that generate money for you. They generate operationally. Let’s say they generate … If you have a $1,000,000 asset and it generates 10% every year, and let’s say it’s a house. You have a $1,000,000 house and it generates 10%, $100,000 a year, right, which is about $9,000 a month-ish.
That’s very unrealistic because that’s crazy rent. Anyway, let’s say that some investment vehicle for $1,000,000 generates 10%. In land investing, all that is not unrealistic at all. In fact, it’s incredibly low. Now, let’s say that you have a collection of assets that are right around $20,000,000 and it generates 10% a year. That’s $2,000,000 a year, divided by 12, it’s like a quarter of a million bucks a month. Do you think you can live on that?
Jill DeWit: It’s going to be tight. I’m just kidding.
Jack Butala: It’s not a quarter of a mil. It’s a little less than that, but …
Jill DeWit: No way, yeah.
Jack Butala: After tax and all that stuff.
Jill DeWit: No.
Jack Butala: Let’s just say it’s 100 grand. All I’m saying is, $20,000,000’s not the magic number. Whatever the magic number is. Just have a magic number and after that, whatever that money’s that’s thrown off in the interest investment vehicle, that’s your play money. Go horse around with that. You’re crazy.
There’s people that are out there that are billionaires. I think there’s now … That crosses into a psychological area where why do you need … Let’s say you have $20,000,000 or whatever the number ends up being and it’s generating and you’re happily going along making $150,000 a month after tax. Should you be trying to make more money? That’s the question you’re going to have to ask yourself.
Jill DeWit: Right.
Jack Butala: I think it’s approaching there’s a personality issue.
Jill DeWit: Mm-hmm (affirmative). No, I mean the reality is …
Jack Butala: Til you start a podcast or something like Land Academy and help other people do it.
Jill DeWit: There you go. Ding, ding, ding.
Jack Butala: Yeah.
Jill DeWit: I joke about it, but we live way below our means. I like that. I don’t want to be that person. I was thinking about that the other day. My car is a 12-year-old.
Jack Butala: I know. Both of us.
Jill DeWit: A 12-year-old car, almost 13-year-old car and I’m really happy with that. All my friends’ cars are newer than my car. I don’t care. We got in the car and my friend goes, “You have cassette?” “Yes and I have a DVD too.”
Jack Butala: A DVD? That’s cool.
Jill DeWit: Not DVD. Excuse me. CD. I don’t have DVD. It’s not that fancy.
Jack Butala: You know what’s in my car?
Jill DeWit: I saw the cassette desk. I know.
Jack Butala: An AM radio.
Jill DeWit: Yes, but yours is a little bit different. Yours is a 1970 car. Mine’s at least above 2000. Yeah. Anyway.
Jack Butala: Both of those cars are going up in value, literally, not down.
Jill DeWit: Well, that’s cool.
Jack Butala: Those are the kinds of games I like to play at this point.
Jill DeWit: I know. I think we did a good job. I hope I did a good job answering this question.
Jack Butala: Cash or property? Here’s the real answer. It’s whatever thing or whatever asset, any type of asset, where you have the most control based on whatever you do for a living or your area of expertise. For us, we could make both work, but Jill’s right. Take the $300,000 cash and go spend $150,000 to buy a $300,000 house. Now, you’ve got that and now you’re on your way to building equity and that’s my point.
Jill DeWit: Mm-hmm (affirmative). Perfect. That was awesome.
Jack Butala: Join us in the next episode where we discuss how to become the bad man of investing. I wrote that show.
Jill DeWit: It’s awesome. And, we answer Angela’s question about getting started in the land business.
Jack Butala: You are not alone in your real estate ambition. Good show, Jill.
Jill DeWit: Yeah. That was good. Thank you for it. It’s important to talk about these big … We’ve had a few big topics recently about big picture stuff, being debt free, and you know what? For me, it’s painting a picture and when you paint a picture and you have a plan and you see what’s out there, you can visualize being there and that’s how you got there.
Jack Butala: You know, this show’s gotten pretty big. We get so much mail now. On a daily basis, I either get like one email that says, “Duh, Captain Obvious, do you think, really?” Like sarcastic like that, or I get like heartfelt thank yous, like, “Man, I wish somebody would have told me that 20 years ago.”
Jill DeWit: Yeah.
Jack Butala: Both are funny.
Jill DeWit: I love it. They seem to …
Jack Butala: Once in a while, I get one that says, “Hey moron. Just zip it up.”
Jill DeWit: You should have stopped at Show 200.
Jack Butala: I get it. You guys have a good relationship. Stop flaunting it.
Jill DeWit: Whatever.
Jack Butala: Or something like that.
Jill DeWit: You’re making me look bad in my marriage.
Jack Butala: Exactly.
Jill DeWit: Love it.
Jack Butala: Information and inspiration to buy undervalued property.
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