Unlikely SFR Deal Killers (JJ 667)

Unlikely SFR Deal Killers

Transcript: 

Jack Butala:                         Jack and Jill here.

Jill DeWit:                            Hi.

Jack Butala:                         Welcome to the Jack Jill show. Entertaining real estate investment talk. I’m Jack Butala.

Jill DeWit:                            And I’m Jill DeWit, broadcasting from sunny southern California.

Jack Butala:                         Today, Jill and I talk about those unlikely SFR deal killers. Single family residential wholesaling deal killers that lurk in the background. And you may or may not be familiar with.

Jill DeWit:                            I can’t wait. I’m sure you have a long list. This is kind of one of yours.

Jack Butala:                         I do.

Jill DeWit:                            So I’m happy to …

Jack Butala:                         We’re going to talk about land killers too, and deal killers. Before we get into though let’s take a question posted by one of our members on the JackJill.com online community. It’s free.

Jill DeWit:                            Okay, Chris asks: Hi all, up to this point I have always used a cashier’s check to purchase my properties with no problems at all. That was until this past week I had a seller back out of a deal after he agreed to sell and all the due diligence checked out. I sent the deed and cashiers check to the notary to close the deal. The notary then contacted the seller to find out that he was not going to sign it and backed out of the deal. There are other details that I should’ve listened to before sending the envelope, but when the seller agreed I was all too happy to run to the bank.

Having the seller back out of the deal caused me to have the bank to put a stop payment on that cashier’s check.

Jack Butala:                         Okay hold on a second, Jill.

I didn’t know that was possible.

Jill DeWit:                            I did neither. You know to be honest with you, I was going to finish the question and then cover this stuff.

Jack Butala:                         Okay go, yeah.

Jill DeWit:                            So yeah.

Jack Butala:                         Yeah, go ahead.

Jill DeWit:                            Researching, after the fact. I didn’t think the bank should have granted this because now they are in a double jeopardy situation that should that check be presented they have to honor it. Well that’s kind of their problem.

None the less, I was wondering if cashier’s checks are the best option or would a business check serve me better in terms of having more control should a seller back out again? Had the bank not place a stop payment on that cashier’s check, those funds can be locked up depending on the bank indefinitely.

Obviously the sellers, having that bank guarantee, can offer them a sense of confidence that their not going to be taken advantage of. I’m sure there will be various views and I look forward to everyone’s ideas on this. Thanks, Chris.

So my first thing was, I personally, do not worry about these situations because the seller never got the money. And this is why we have the unrelated third party, AKA the notary that you hired in their city who’s handling the transaction. They have the money, they have the deed, they have everything. And they don’t hand them that envelope with the cashier’s check until they sign.

So I wouldn’t have even done any of this work. This for me was kind of a couple of extra steps.I kind of understand where you’re coming from. But for me the fastest thing is well hey notary it’s obviously not going to happen. So in that package, remember you already have a prepaid return envelope that you were going to send the deed back in. So put everything back in that envelope and overnight it to me.

Jack Butala:                         Yeah.

Jill DeWit:                            So now, say this was Monday, this all happened on Tuesday, so now Wednesday I’m holding this cashier’s check in my hand. I walk right into my bank, I deposit it, and now I have the money right back in my account. That, for me is the easiest way. So, do you have anything you want to add?

Jack Butala:                         No I mean, you could not have said it better. Is there a better way to do a deal from different states? Not the way Jill described, no. Cashier’s checks, I’ve always been told this about cashier’s checks. It’s like cash.

Jill DeWit:                            Uh huh.

Jack Butala:                         You take it out of your account you’re holding a piece of paper, might be a hundred dollar bill, might be a cashier’s check. If you didn’t spend the hundred dollars on whatever you thought then you go back to the bank and put it back in.

I’m really confused …

Jill DeWit:                            I personally I’m not comfortable, even the bank doing this and everything. I would not be comfortable with that because I know it’s out there. So until the notary overnighted it back to me in the envelope that they have in their hand, you know, and I have it in my possession. I wouldn’t feel comfortable at all.

Jack Butala:                         The situation that you’re describing is the reason we hire a notary local to the seller to manage that for us.

Jill DeWit:                            And we do cashier’s check.

Jack Butala:                         That’s the reason that we don’t just send a cashier’s check and a bunch of documents for a person to sign, like UPS.

Jill DeWit:                            Right.

Jack Butala:                         Because you don’t know that their going to sign, the notary ensures that. Gives you a sense of security anyway that it’s going to be signed.

Jill DeWit:                            And it’s easier than wiring the money because you want the seller to feel good. You want them to stand there staring at the check. If you said okay as soon as you sign a notary is going to call me and I’ll wire the money, that’s a huge pain.

Jack Butala:                         Right.

Jill DeWit:                            And that doesn’t lead a lot of, for me as a seller it depends on the situation and what you’re doing. For most of these guys if I’m just selling a couple thousand dollar property and you’re saying you’re going to wire the money and I just signed it. And I’m standing there waiting, that’s a huge pain too. I don’t want that.

Jack Butala:                         I can honestly say from experience. I mean Jill and I have done thousands and thousands of deals. I can’t recall a time where we lost, like the check got lost, or the documents didn’t get signed and we lost the money.

Jill DeWit:                            Correct.

Jack Butala:                         There’s lots of times where they change their minds and they send the stuff back. We redeposit and it’s over, the deal didn’t happen.

Jill DeWit:                            Yeah.

Jack Butala:                         But I can’t. Can you think of a time where …

Jill DeWit:                            No. No.

Jack Butala:                         It’s just like where it all blew up in your face. Where you lost money and didn’t get the property.

Jill DeWit:                            No. No. No.

Jack Butala:                         Neither can I.

It’s a time tested option.

Jill DeWit:                            Exactly. So hopefully that helps Chris, next time don’t bother with the bank. Just have them send it right back. If it happens again. Hopefully this … so … all good.

Jack Butala:                         Right.

Today’s topic? Unlikely Single family residential wholesaling deal killers, this is the meat of the show.

So your traveling around, along the line, doing everything your supposed to do. You get a great data set, you send a bunch of offers out, and the numbers work. You price it correctly and you send out two to three thousand offers to buy a house. And two, or three, or four, or five come back. So you start to look into the houses, just like your supposed to. And there’s things that creep up that can kill the deal that you don’t really think about before you start this. Do you have a list Jill?

Jill DeWit:                            Before the deal?

Jack Butala:                         So if somebody signs an offer, you’re staring at the offer on the desk, you’re looking at the computer. You’re looking at the actual property on the internet, on Google Earth or wherever you check it out. In this situation what I do is I try to find something wrong, right?

Jill DeWit:                            Right.

Jack Butala:                         I know the price is right, because I priced it and they signed it. I know the zip codes good, I know that’s good. I tried Zillow, Trulia, values are all good. But then sometimes we still don’t do deals.

Jill DeWit:                            Well before inspection and physical things? Because that’s one thing … that’s usually our first step. When the offers come back, first thing we’re going to do is a quick inspection. We can do it for under 400 dollars, including termites. And that’s what we’re doing. And then we can sign off on it, once we make sure we got nothing crazy staring at us.

Also we already checked too, let’s back up in the processes. We checked, we pull lien reports, and all that stuff. We have access to all of that, so we do our own title company which is really nice. The deal comes in my team jumps in and we’re pulling our own deal reports, lien reports, making sure everything checks out. We got the right people. They’re able to sign, yup no mortgage, everything’s cool, now let’s order. All while that’s happening we’re going to order the inspection, now I’m really staring at a good deal.

So you’re saying, right before … so those are the things that can go wrong. So I guess that’s what you’re asking. A deal killer would be the guy calls up and he really doesn’t own the house. He might be living there and it’s his uncle’s house and his uncle passed.

Jack Butala:                         You named it, you nailed it. The single number one deal killer that we experience, both houses and land. Is that the person that you’re talking to they don’t even know this, they can’t sign, deed this property over.

Jill DeWit:                            Close. Right.

Jack Butala:                         It’s either that or these crazy liens that you find on a house. And I don’t mean a mechanic’s liens for a guy that fixed the garage 18 years ago. I mean there’s a mortgage on the house, but the guy hasn’t been paying for it and nobody’s started a foreclosure proceeding. A this is five years old. The things that are not … the things that will kill a land or a house deal, you can’t see them. Their all in the basic, the deal structure itself.

But that’s not very fun to talk about. Let’s talk about some stuff that can kill a deal, you know two days before it’s closed.

Like the neighbor is raising 12 sled dogs. There’s no way, no way you can know that.

If you’re buying a house in a different state, unless you have some type of representation there.

Jill DeWit:                            That’s funny.

Jack Butala:                         I don’t mean representation I mean boots on the ground.

Jill DeWit:                            I say, let’s make it good. Sled dogs I can work with. Let’s just say their cooking the meth in the garage.

Jack Butala:                         You know meth comes up in our office sometimes as a joke, but …

Jill DeWit:                            It’s breaking bad, there’s too much breaking bad stuff because now you’re going back through the whole series. As if once wasn’t enough.

Jack Butala:                         I’m not sure on the air we should talk about drugs.

Jill DeWit:                            That’s true, I’m sorry.

But it is kind of funny, I got to say, that you have officially decided that kid number three. That this is like a life lesson, or a learning experience that he needs to go through the whole series with you.

Jack Butala:                         What, breaking bad?

Jill DeWit:                            Yes.

Jack Butala:                         Yeah again we’re talking about drugs.

Jill DeWit:                            Sorry, we’re talking about a show!

We’re talking about a show.

I guess so, alright so what else?

Jack Butala:                         Let’s call the deal for us recently, land or houses?

Jill DeWit:                            Well, I mean price? You know that’s one of the things. This is a good note that whether you’re new or your employees are new. You got to learn that not every deal, just because it comes back is close able. You know, that’s the whole thing. And I talked with our team about it recently too. Hey I think the only reason we’re all jumping up and down, trying to make this one work, is because this is the hot one right now today. Hang on a moment, tomorrow we’re going to have five more and we’re not going to care about this one. So lets all take a step back and look at this objectively. Sometimes you’re trying to make a deal happen when there’s really not a good deal. Maybe the price was off, maybe we found something else out like you just said.

Even the stuff we talked about, where the person may not be the right person who can sell the property. But okay now everyone’s scrambling to find who is the right person, oh and convince them.

Is that really the right thing to do?

Jack Butala:                         Yeah and we talked about on the show. You’re seeing something that’s not there.

Jill DeWit:                            Right.

Jack Butala:                         You’re not looking at the deal for what it is without any emotion. You’re just on autopilot just trying to close a deal.

Jill DeWit:                            Exactly.

Jack Butala:                         So that will kill a deal. We had a deal recently where the property the person purchased a solar panel system and they were paying it off over 30 years. If you can believe that. So that got, we think we figured that out and got that out of the way. But there’s still issues that come up. You just have to be thorough.

I would never close a house deal without title insurance. Jill is exactly right. You have to be some version of your own title, title situation.

Jill DeWit:                            That takes a lot of the worry out for us. I can’t imagine if we didn’t, going into this brand new, and not having these tools. What if you just said hey I’m going to … even just these brand new renovators that say, hey I’m going to be a flipper today kind of thing. Okay. They watch HGTV and they think they got this and they run out and they convince their parents and their family and everyone to help them fund this deal. And they don’t have the tools and stuff that we have going into it. That would be scary.

Jack Butala:                         Yeah. Here’s a deal killer, time. The longer it takes to complete a deal the more likely it won’t close. So here’s how we stretch our house deals. Letter comes back, we check all the boxes, we open escrow, this is all within one day and we order an inspection. A physical plan inspection. The inspection comes back within three days. If the inspection clears we fund the deal within five days of the inspection.

So now we’re into the whole thing for maybe two business week, ten business days or 14 calendar days. That doesn’t give the seller a lot of time to change their mind or undo the deal. It doesn’t give us … it pushes our feet to the fire to make a decision. So time can really sneak up and kill it. Kill deals.

For land because there’s usually no escrow and there’s certainly no inspection we close deals in three days sometimes if it’s a great deal.

You remember when we used to say run to the bank. Run to the bank and get the thing done, overnight it and have it sent back and record it in three days.

Jill DeWit:                            But even faster now with online recording.

Jack Butala:                         There’s no other place I can think of, except a garage sale, where you can buy an asset. You can’t do it at a garage sale but the concept is the same.

You can buy an asset for half of what it’s worth.

No other business I can think of. You can do it with cars but it’s real hard.

Buy a 100 thousand dollar piece of dirt in three days and create 100 thousand dollars additional equity.

Jill DeWit:                            Exactly.

Jack Butala:                         Sell it for 200 thousand and it’s worth way more. It’s the stuff we do all the time. It’s a real option.

Do you’re homework I guess is the whole point of this. We’re not your parents telling you to be careful.

Jill DeWit:                            Use protection. Hilarious.

Jack Butala:                         It’s not a be careful, oh my gosh you’re going to get hurt, don’t leave the house today. That’s not what we’re saying. We’re saying, you know, send a million letters out. Knock yourself out, like we do.

Jill DeWit:                            You know what?

Jack Butala:                         Just exercise some levelheaded caution. That’s really what we’re saying.

Jill DeWit:                            Well let me tell you what we do. Because we’re talking a lot about houses now, because that’s really what we’ve been focusing on a lot. The last few months here as we’re working on house academy. So what we started with is our own basic, we brought in a team, we’ve been doing this for a while but we’re changing up how we do it. We’re building up a team to take it to a big level, okay?

So what do we do? We start with our own basic check list. Maybe I had five things on there, which is; check ownership, let’s get the inspection, open escrow, fund, close deal, pass on to the buyer. You know, that kind of thing. Well it’s probably I got 30 items now. And this is what you should do.

So sit down, spend some time, have a plan in place of what you think are all the steps you’re going to need to do. Whether it’s land or a house, just like we do, and don’t print it out, it’s not in stone. Because you’re going to be scratching all over the thing. You know it’s going to grow, and you’re going to add, it’s through this whole process I have been building this up. I tell my team, alright to the list, okay add that to the list, we didn’t think about that one. Add that to the list. We joke about it, but this solar panel thing.

It’s not like the solar panels are a deal killing issue. This particular transaction had a weird lease on them. And they wouldn’t come and get them even if you bought them off. Even if you paid them out, which everybody was ready to pay them out in escrow. Just pay off the stupid solar panels so it comes free with the house kind of thing. And there was still the equipment on the roof issue. I mean there was all kind of little things that we were like wow.

Jack Butala:                         Solar panels in general are good, it’s just that this deal was really bad.

Jill DeWit:                            Yeah this one unfortunately, this poor seller got one of the … whoever it is not every company is out there to really help people. Surprise, surprise. They were clearly not out there to help her, because even though they were paid off they won’t come get them. They want to go out the full 20 something years and then they may come get them and in the meantime any warranty. It’s weird stuff.

Your list and your due diligence is going to grow, and you’re going to add to it. You’re going to go oh, I’ll remember that one.

I’ll tell you here’s another funny thing. This happens every month, we have a member call with all of our land academy members. And we all talk about different things and we help each other and bring stuff up. And I tell you, it’s like every week there’s one person that says yeah I forgot to check X and I won’t do that again. Like oh like back taxes. That’s a simple easy one, but if you’re brand new you might miss that.

Jack Butala:                         Or if there’s an HOA.

Jill DeWit:                            Yeah or an HOA, or some little thing like that. You’re like oh, oops, and that’s okay. That’s how you learn. We jokingly tell them, you know you won’t do that again. And you usually don’t.

So be ready, and it’s all good.

Jack Butala:                         A lot of it is learn from us, there’s just no replacement for doing it and kind of making a couple of mistakes and saying oh my gosh I’m never doing that again.

Jill DeWit:                            Right. Well that’s the best. Like you just said, learn from us. Learn from someone who’s been there and done it. You know, that’s the thing. One of our big values I know that a lot of our members find from our land academy program is that we arm them with all this stuff. So they have the list, they know what their doing. And if they forgot one of them it’s like aw shoot, I know you said it, I missed it or I forgot. Whatever. But we’re there to help all the way through.

Jack Butala:                         Exactly.

Jill DeWit:                            And here in house academy too.

Jack Butala:                         Well you done it again, you spent another 20 minutes with us on the Jack and Jill show. Join us tomorrow where we discuss the signs that you may see in yourself that you’re in it for the long haul. We’re obviously in it for the long haul. And we’ll tell you why.

Jill DeWit:                            Are we?

Jack Butala:                         This feels like a long time.

Jill DeWit:                            You know Jack, this whole period right now feels like a lifetime. Just kidding.

Jack Butala:                         Jill, I couldn’t agree with you more.

Jill DeWit:                            Alright, and we answer your questions if you have one. Post it on JackJill.com our online community, it’s free, go check it out.

Jack Butala:                         You are not alone in your real estate ambition.

Jill DeWit:                            You know those times when things are going great and you feel great and its like wow this week went by so fast this is so much fun. And there’s times you go wow has it only been a week? It feels like a month.

Jack Butala:                         Yeah, I know.

Jill DeWit:                            And like today.

Jack Butala:                         Today?!

Jill DeWit:                            Just kidding, love you Jack.

But like today. If you feel the same as I do, please share this fun by subscribing on iTunes or wherever you’re listening. And while you’re at it please rate us there.

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