Neighborhood Specific Pricing (JJ 598)
Neighborhood Specific Pricing
Transcript:
Jack Butala: Jack, Jill here.
Jill DeWit: Hi.
Jack Butala: Welcome to the Jack, Jill Show, entertaining real estate investment advice. I’m Jack Butala.
Jill DeWit: And I’m Jill DeWit, broadcasting this week from sunny southern California, where college tuition is no longer free.
Jack Butala: College tuition used to be free?
Jill DeWit: I had no idea. I don’t even know … When was that, Jack? Do you know?
Jack Butala: It was like in the 50s and 60s when California used to be free.
Jill DeWit: Well, it didn’t apply to me then, and that must be why I don’t know that.
Jack Butala: It didn’t apply to me either, Jill.
Jill DeWit: That’s true. Well, no I didn’t mean you.
Jack Butala: I think it set the stage for the California aura.
Jill DeWit: Gosh, USC has come along way now.
Jack Butala: Love it or hate it, it’s here to stay.
Today Jill and I talk about neighborhood specific pricing, probably much to Jill’s chagrin. Before we get into it, let’s take a question posted by one of our members on the JackJill.com online community. It’s free.
Jill DeWit: Okay. Matt R asks, “Hey gang. My first mailer hit Monday.” I love how specific this is. “October 9th. Here’s the lowdown so far. I mailed 1,550 letters over three different counties in three different states in the Midwest, mid south, and the south. Approximately 500 each in each of these counties.”
Jack Butala: Nice work, Matt.
Jill DeWit: Love it. “County number one bombed. I way underpriced. Offered $1,000 an acre, when in hindsight it should have been $3,000 to $4,000 an acre minimum, if not more. Lot of hate calls from this one, and so far nobody is interested in selling. County number two, a few tire kickers but not much. Not even much hate. Strangely quiet. But once again, I underpriced by at least 50%.”
Jack Butala: Oh, getting this out of the way. Good.
Jill DeWit: This is really good. “County number three has been successful so far. Have bought several properties, and have four to six more in the pipeline buy. There’s been a lot of interested sellers, and I have buyers calling the last few days on my recently purchased properties.”
Jack Butala: Nice.
Jill DeWit: “They will sell hopefully by the end of the weekend. I am buying these properties for approximately $1,000 an acre and reselling for between $3,000 and $4,000 an acre. The first sale will recoup all the start up costs from the Land Academy course, the mailer, etc.” I love it.
Jack Butala: I’m going to just ask you to stop one second here.
Jill DeWit: Okay.
Jack Butala: I included this question for this reason. This is a textbook way to do this. He diversified his risk into three separate counties instead of one, and he’s recouping all of his costs. Our whole program is designed for you as a new business owner to recoup all of your costs, all your start-up costs-
Jill DeWit: Set yourself up.
Jack Butala: And it’s all profit from there on out.
Jill DeWit: Exactly.
Jack Butala: So, he’s doing this perfectly. We really are not here to franchise the heck out of something and make money off of your business forever.
Jill DeWit: Yep.
Jack Butala: In fact, we’re not here to make money on it at all.
Jill DeWit: Go ahead, Jill. Alright, so then Matt … Well, the other thing I was going to say about Matt’s thing about … He was ready for some mistakes. He knew it was going to happen, and that’s why he set it up this way. And he’s like, “One, well got that one wrong, that one wrong. This one I got right.” There you go. That’s the way it works.
Jack Butala: Sweet.
Jill DeWit: Yeah. He said, “I knew to expect it, but the first week or two of hate calls was jarring. Now I couldn’t care less.”
Jack Butala: Yeah.
Jill DeWit: “It’s laughable once you get over it.”
Jack Butala: Outstanding.
Jill DeWit: Yup. “First purchase was a lady who inherited land from parents and wanted to get rid of it, just like everyone else here has experienced. Purchase went as smooth as possible. She was so happy I contacted her, since she had no idea what to do with it. Lots of buyer calls already on it, and it will sell in the next few days hopefully. The Land Academy vets already know, but for a few fellow newbies, diversify your mailers. The system definitely works.”
Jack Butala: Nice.
Jill DeWit: “County number three was an afterthought, and I almost didn’t include it. Thankfully I did. I’m definitely spending more time on pricing the next mailer. It was a little intimidating at first talking to interested sellers, but after the first few days you know how it works. Pick up the phone and talk to people or nothing will get done. Aside from the haters, I’ve talked to a lot of really great people. Everyone gets their slice of the pie and wins.”
Jack Butala: Ding ding.
Jill DeWit: “I’m learning a ton every single day. Still have miles to go. This board has helped tremendously.” He’s talking about our online community. “So, thank you everyone for your contributions. If I can do anything to help, please let me know.”
Jack Butala: Outstanding. What a great attitude.
Jill DeWit: This is something that I’m … Back to Trevor from the other day, that when we talked to him he said, “Nowhere else can you go and have like 50 to 200 mentors standing by to help you.” And that’s what we created with our online community, and it’s just so awesome. And it’s so great because, just like Matt here, he’s like you guys helped me. I’m happy to help the next guy
Jack Butala: I just love that. Because that’s what our attitude is. We’re not here to make a bunch of dough on this Land Academy thing. We do just fine buying and selling real estate.
Jill DeWit: Exactly.
Jack Butala: Putting our money where our mouth is, so to speak. I’m happy for you, Matt. That’s fantastic. I let everybody know, by the way, on the forum if I’m going to answer … If Jill I are going to answer the question that you’re asking on the forum or respond to the comment and when that show’s going to air. So, congratulations bud. We’re both proud of you.
Jill DeWit: That’s awesome.
Jack Butala: Today’s topic: Neighborhood specific pricing. This is at several people’s request, this topic. This is the meat of the show.
If you think about flying in an airplane or staring down on Google Earth at a neighborhood or a county or we start at the whole country level, go down to a state and go down to a county. Eventually you’re going to get down into a neighborhood. So, how much pricing is too much? How much do you look at … Like, obviously it’s not realistic to sit down and price every single piece of property or every single house individually. There’s just not enough time. It’s inefficient. So, you have to create some type of equation.
Well, for houses, when we wholesale houses, I prefer to do what I call neighborhood pricing. Everybody can relate to this. Wherever you are right now, two blocks over from where you are right now listening to this, it’s a different real estate market than the one that you’re in right now.
Jill DeWit: Or two doors over where we are.
Jack Butala: Right. Jill and I are two doors from the ocean, and the house that’s on the ocean is priced a little different.
Jill DeWit: Just a smidgen. And they get sand in their bed.
Jack Butala: Yes, they do.
Jill DeWit: We know how that goes. We like not getting sand in the bed.
Jack Butala: Jill and I rented for a whole summer last summer. We rented a house right on the Strand, and I have never had so much sand and salt in everything.
Jill DeWit: Not only that-
Jack Butala: Coffee cup.
Jill DeWit: Let’s be honest, too. I can sit on my porch right now and drink my tea if I want to. When you’re on the Strand, you’re on your porch going, “Hello. Good morning. Good morning. Good morning” as all the bikes ride by.
Jack Butala: Please put more clothes on. Have a good day.
Jill DeWit: That was the other result. Jack was like put something on. Me and the morning coffee have to say hi to everybody jogging by and riding their bikes by. And then comes 3:00 when everybody’s in their bikinis and Jack’s over it. He’s like really? You call that a … You know?
Jack Butala: I mean don’t get me wrong, you can enjoy part of it. But-
Jill DeWit: It gets tiring.
Jack Butala: There’s a percentage of … There’s some …
Jill DeWit: Jack, it’s because you have me. That’s why. I understand. Let’s just call a spade a spade. Every girl that rides by-
Jack Butala: Yep. Not as pretty as Jill. Not as pretty as Jill.
Jill DeWit: That’s it.
Jack Butala: Not as pretty as Jill. Not my girl. Not my girl. Not my girl. Not as pretty.
Jill DeWit: That’s it.
Jack Butala: Yup.
Jill DeWit: You put my head on every person’s body, and nothing compares. And you know what? On the flip side, I do that with you, too.
Jack Butala: Oh, I’m sure.
Jill DeWit: Every male volleyball player that walks by without a shirt on, and their smooth biceps, all I do is … And their tight shorts-
Jack Butala: At least he’s funny.
Jill DeWit: I compare them all to you, and there’s just no comparison. So, Jack-
Jack Butala: Where the hell did this show go?
Jill DeWit: I feel your pain. So, I understand.
Jack Butala: Every guy out there’s going, yeah I wish my girl said stuff like that instead of yelling at me.
Jill DeWit: Exactly. Not my Jack. That’s not my Jack. And oh that looks good, but not my Jack.
Jack Butala: Alright, back to the show.
Jill DeWit: Yes.
Jack Butala: So, how do you get over this? How do you solve this? I can’t look at every single piece of property and price it. You have to do … You have to put together some type of system where if it’s houses, you isolate a neighborhood. It might be a block name, and it might be an APN scheme where you say I think a rationale purchase price for these properties in this little section that I’ve identified is $125 a foot. In the case of land, it’s usually acreage. It’s X amount per acre. $3,000, $4,000, $5,000 an acre. $6,000 an acre. If it’s infill lots, interesting enough, it’s in a developed subdivision and there’s some sporadic land in between houses, for me that’s usually a fixed dollar amount.
So, point to the show if you have to be specific. Your pricing needs to change where the neighborhood changes.
Jill DeWit: How much time does this take, Jack?
Jack Butala: I’ll tell you, I’ve been doing this for a long time, for almost two decades. This is the single thing I spend the most time on.
Jill DeWit: Do people get hung up on it? Is there such a thing as too much time?
Jack Butala: I get reports back that some people do, and I get reports back from certain people, like Luke Smith and Trevor, who the show hasn’t aired yet, we interviewed, who just say they chuck it all and I’m going to offer $1,000 for every property in this area.
Jill DeWit: And just see what happens.
Jack Butala: Yeah.
Jill DeWit: Just let the chips fall where they may.
Jack Butala: I personally … I don’t … I like pricing. That’s the real truth of it. I enjoy data. I enjoy manipulating data. I enjoy learning a lot about the market through this whole process. It’s one of the things that’s the reason I’m in this business.
Jill DeWit: Right.
Jack Butala: There’s a lot of things I don’t like. This is really … I’m being really honest here. Talking to people is not my thing. Fortunately, I have you.
Jill DeWit: Closing the deal is not your thing.
Jack Butala: Yeah.
Jill DeWit: All that … I understand.
Jack Butala: But pricing and sending out mail and generating a tremendous amount of interest and accurately pricing data so people are getting a fair price for their property, but it’s still enough that we can do well on, and the person that we can wholesale to does well on, I hang my hat on that.
Jill DeWit: Okay. So, I want to ask you specific. At your level, if you’re pricing a, let’s say, 2,000 unit mailer in a … It’s a housing. It’s SFR. How much time do you, Jack, spend? Or is enough for you? And when do you cut it off?
Jack Butala: I probably kill a whole eight hour day.
Jill DeWit: Okay.
Jack Butala: Maybe six to eight hours. Probably not the whole day, but about six hours.
Jill DeWit: Okay. So, if someone’s brand new they could expect to spend the weekend.
Jack Butala: Yeah. Maybe two or three days.
Jill DeWit: Like they should spend all day Saturday, all day Sunday, and maybe recap again Monday night after work before they push the button.
Jack Butala: Yeah.
Jill DeWit: Okay.
Jack Butala: That’s actually really accurate.
Jill DeWit: Okay.
Jack Butala: I also would spot check everything.
Jill DeWit: But they’re not going line by line. But they’re going block by block.
Jack Butala: Yeah, neighborhood by neighborhood. So, like we just talked about a little bit. Two houses down is a whole different-
Jill DeWit: The Strand is different than the walk streets is different than six blocks up, which is true. And we’re all in the same zip code when you really think about it.
Jack Butala: And my point on that is the neighborhoods … So, now I would qualify neighborhood or a section of the mailer as every single property that’s on the ocean. Oceanfront, not ocean view. So, there’s oceanfront, then there’s ocean view, then there’s non-ocean view. And so it’s all kind of in the same area, but I would qualify those as different neighborhoods for the purposes of this.
Jill DeWit: Do I even think about traffic?
Jack Butala: Absolutely.
Jill DeWit: Okay, good. So, I’m thinking about where the retail stuff is. Okay.
Jack Butala: So, completed sales comes into it, days on market. So, the days on market for property that’s extremely expensive right on the ocean is much different, and you need to go into that expecting that. Once in a while we get a question on that, whether it’s on the show or on our Thursday call, open call webinar, where everyone’s experiencing frustration about lack of response. In fact, I think his name’s Matt that asked this today. Yeah, Matt shared with us, and he diversified it perfectly. He had a little frustration for properties that weren’t coming in or callers that weren’t coming in correctly or as fast as he wanted, but-
Jill DeWit: Got over it.
Jack Butala: Yeah.
Jill DeWit: Exactly, and the hate and got over it.
Jack Butala: Right. So, all of that, no matter what county or neighborhood you’re working in, can be avoided if you price it properly.
So, you ever hear that carpenter saying, “Measure twice, cut once.”
Jill DeWit: Mm-hmm (affirmative)
Jack Butala: That’s this. Price twice, send once. Oh, I like that.
Jill DeWit: Oh. That is good.
Jack Butala: I’m going to write that down.
Jill DeWit: That’s really good.
Jack Butala: I’m going to leave it on a high note.
Jill DeWit: Wow.
Jack Butala: Well, you’ve done it again. You’ve wasted about 15 minutes listening to the Jack Jill Show. Join us tomorrow where we discuss Jill’s compelling personality, one of my favorite topics.
Jill DeWit: And answer your question, should you have one, posted on JackJill.com.
Jack Butala: You are not alone in your real estate ambition. Pricing is so important.
Jill DeWit: It is. Well, thank you. I wanted to get into details. Thank you for sharing that, Jack. I wanted to cover that on this show about what time, because I think people think right out of the gate that they should be you and do it as fast as you. And that’s not accurate.
Jack Butala: Right.
Jill DeWit: And then I think some people spend too much time on it, and that’s not accurate. You know what I mean? You don’t want to spend a month on it, because then you’re never getting anywhere. So, I wanted to really say if you do it two to two and a half times as long as Jack does when you’re brand new, then you need to cut yourself off. You probably did the best you could with the information that you have, and then you need to move forward. And you’re only going to get better every time.
Jack Butala: Yeah, well said. It’s appropriate to bring up the fishing analogy again. You can go out and go fishing and not catch a thing, and you can go out and say you know what? I don’t want that to happen to me again. I’m going to change where I fish. I’m going to change maybe the electronics that I bring with me to try to find the fish, and maybe I’m going to put a few more lines in the water this time.
Jill DeWit: Yeah.
Jack Butala: If it happens again, you just have to adjust and you have to get … All the while you’re trying to reduce your risk. But you never do in that situation is question fishing.
Jill DeWit: You know-
Jack Butala: Does fishing work?
Jill DeWit: I do a similar thing, and if one doesn’t work then I use two slot machines and three slot machines or four slot machines.
Jack Butala: Wait, what?
Jill DeWit: And then I have the whole row. And if I’m putting a quarter in six slot machines, I’m going to get something.
Jack Butala: The truth of it about Jill is that I’ve never seen you gamble in my life.
Jill DeWit: I know.
Jack Butala: So, she’s just saying that to be funny.
Jill DeWit: I am doing that to be funny.
Jack Butala: Question gambling.
Jill DeWit: Right?
Jack Butala: You need to question gambling, listener.
Jill DeWit: Oh my gosh, you should question it.
Jack Butala: Gambling is rigged.
Jill DeWit: Yeah, we’re not doing gambling. That’s not what this is about.
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