How to Price Land Offers (JJ 690)

How to Price Land Offers (JJ 690)

Transcript:

Jack Butala:                         Jack and Jill here.

Jill DeWit:                            Hi there.

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 how to price your land offers. Yesterday, we talked about how to price house offers. Today, it’s all about land. 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:                            Cool. I’m not sure who the member is. It just says, member asks. Mark. Mark asks, land contract or deed of trust in California. What do you prefer using in California and have you ever taken a property back after default? I would really appreciate some insider knowledge.

Jack Butala:                         Good question. It’s a question that we get quite often and Jill, I’ll answer it, if it’s alright.

Jill DeWit:                            Please.

Jack Butala:                         Yes, we have taken back property under a land contract and a trust deed, and both in California, I have. I’m not sure if Jill has or not.

Jill DeWit:                            No, I prefer to just give it to them. I walk away.

Jack Butala:                         Jill, do you want to hear …

Jill DeWit:                            It involves work. I’m out.

Jack Butala:                         Before I answer this question, this is a story that Jill told us while we were still in our pajamas that we talked about. I said, “Jill, at times when we go to real estate events and things like that, you really, really, really … I don’t want to steal your thunder or anything, but there’s just a lot of horsing around.” She said, “Let me tell you a story.” Go ahead and tell this story.

Jill DeWit:                            He’s like, “You’ve got to tone it down. You’re just so social. There’s a time …”

Jack Butala:                         This is, by the way, one of the things I love about Jill, I don’t want to stifle any of this, but …

Jill DeWit:                            I got a speech. There’s a time and a place for it. I said, “Listen, it is not in my nature. I’ve known that since sixth grade. Why do you think Mr. … What was his name? Tinman, I think it was, put me in the back of the class and moved a bookcase in front of me, because I could not stop talking to everyone in his stupid sixth grade class.” There’s more to the story, but that was the result.

                                                So Jack, finally … Finally, it’s like, how long have we been together? Finally, goes … You’re asking me to do something that I’m really not sure I can do.

Jack Butala:                         That’s why I love you, for one of the many reasons.

Jill DeWit:                            Thank you.

Jack Butala:                         The basic difference between a land contract and a deed of trust is this. The land contract is an agreement between a buyer, and a seller on a piece of paper that says, “I agree to buy your property for X, and I’m going to pay over $200 a month or whatever it ends up being. At the end of the contract, I’m going to deed it right to you and you’re going to own it.”

                                                You own it the day you sign the contract and you use it like you own it, but it doesn’t actually get recorded until the bitter end. That serves a lot of purposes. You keep everybody out of it. It’s just an agreement between two people. If there’s some trust, it works out great a lot of the time, most of the time.

                                                A deed of trust is where you bring in an unrelated third party like a title company. This is exactly how with your mortgage, this is what they do. All mortgages, that I know of, are deed of trust properties. A title agent’s involved, the property gets recorded in your name, but with a lien on it, just like a car with a loan. So, you buy a house. You buy it. You move in. You start moving your furniture in and making some changes.

                                                On the deed it says, “Jack and Jill own the house, but Bank of America has a lien on it until it’s paid off.” If you have to foreclose on that, it’s a big, huge hoopla. It’s very expensive and there’s a lot of people involved and penal procedures and everything else.

                                                The first way, with the land contract if you have to foreclose on it, you quite simply say, “Hey, Jack, Jill, I just changed my mind. You guys can have the property back. Can you just cancel it?”

Jill DeWit:                            It’s pretty much spelled out in the contract, so there’s no questions.

Jack Butala:                         Right. I’m over-simplifying, exactly. So, we prefer the first way. We’ve gone through both, and I will never do a deed of trust again unless the law requires it.

Jill DeWit:                            Having said that, they’re states that we don’t do these kinds of transactions because we don’t want to go there.

Jack Butala:                         Because the laws, the regs are too intense.

Jill DeWit:                            Yeah, I don’t want to deal with all that. At the end of the day, do I still do deals in those states? Heck, yeah, but what do I do? Cash. I buy it for cash, I sell it for cash. This takes us all out of it. I don’t have to think about it.

Jack Butala:                         Well said.

Jill DeWit:                            Thank you.

Jack Butala:                         Today’s topic. How to price land offers. This is the meat of the show. Yesterday, we talked about how to price house offers and it was complicated. It involves census tracks and algorithms and at least, that’s how we do it anyway.

Jill DeWit:                            Overseas help.

Jack Butala:                         It all led to one thing. A predictable outcome. A predictable, consistent outcome, which we all love.

Jill DeWit:                            It’s true.

Jack Butala:                         We don’t want inconsistent stuff unless … I’m not going to say it. Sometimes, a certain sex of the human species revel in inconsistency and it’s not men.

Jill DeWit:                            It’s not me.

Jack Butala:                         I know it’s not you.

Jill DeWit:                            It’s not me, man.

Jack Butala:                         What we’re here to talk about is how to price land offers to get that same consistent, predictable outcome and here’s the great news. It’s a heck of a lot easier. When you’re pricing rural, vacant land, and you go into a county. Let’s just pick on Mohave County, Arizona. You can see generally what’s going on, but you can’t see specifically, like you can with houses.

                                                The amount of data that’s available for rural, vacant land as far as sales comparables and all of that, is much less available and it’s much lower quality that it is with houses for a lot of reasons, obvious reasons, I think.

                                                So, here’s what you end up doing. It’s more of a fishing expedition with a net, let’s call it. Let’s say you want to send out … You want to buy five acres in Mohave County, Arizona, and you take a look at it. You say, “You know what? I’m going to send an offer in Mohave County for $500 or $600 an acre, based on the very limited completed sales data, but more importantly, I want to price it so the property that’s existing for sale on the internet or in the MLS, I want to be the cheapest guy when they go to sell it.

Jill DeWit:                            Right.

Jack Butala:                         You do it backwards. You find out what property is for sale. You take that number for five acres, let’s say, it’s $5,000. You cut it in half because that’s what you’re going to sell it for. You’re going to sell it for $2,500. You want to be the cheapest guy in town selling a five acre property in Arizona. Then, you cut it in half, and that’s what you buy it for.

                                                That’s as complicated as it gets for rural, vacant land. We have done thousands, tens of thousands of deals this way.

Jill DeWit:                            It’s so funny that people that come to us that are brand new. They go, “What the heck? That can’t work.” Then they go, “Yep, you’re right. Sorry. Never mind.”

Jack Butala:                         Does it work for land that’s infill lots in a major metropolitan area like Los Angeles? Heck, no.

Jill DeWit:                            There’s one-offs.

Jack Butala:                         She’s looking at me because we have …

Jill DeWit:                            Come on.

Jack Butala:                         Believe me, I’ve made mistakes in mailers in the past.

Jill DeWit:                            Man.

Jack Butala:                         Where I priced it way too low and we end up buying property for next to nothing.

Jill DeWit:                            I’ve paid $1,900 for things people have spent $29,000 on because they needed to get rid of it. There’s always one-offs, but as a rule of thumb, you’re correct.

Jack Butala:                         But, we’re looking for consistent, predictable results.

Jill DeWit:                            Yeah, consistent, no.

Jack Butala:                         Not home run out of the park once a season.

Jill DeWit:                            But those properties, aren’t those infill lots a happy medium? It’s not house pricing, and it’s not a rural vacant way out there pricing. It’s in the middle pricing.

Jack Butala:                         I price urban infill lots that are buildable the same way I price houses.

Jill DeWit:                            Thank you.

Jack Butala:                         It’s harder. That’s really sophisticated stuff.

Jill DeWit:                            Right.

Jack Butala:                         Nobody sends mailers on the planet except us.

Jill DeWit:                            Is there a Zillow comp?

Jack Butala:                         Yeah.

Jill DeWit:                            [crosstalk 00:08:00] comp?

Jack Butala:                         Yep.

Jill DeWit:                            On that infill lot?

Jack Butala:                         Yes, and all of their algorithm-

Jill DeWit:                            How are they?

Jack Butala:                         They don’t account for it.

Jill DeWit:                            They’re a mess. They’re not right?

Jack Butala:                         Yes, they’re a mess, but there’s a total way around it. It’s all covered in House Academy. That, my friends, is why we say, start with land.

Jill DeWit:                            It is a good place.

Jack Butala:                         I can’t express this enough. Jill and I say it probably three times a day. It’s not about the real estate. If you want cute shutters and wallpaper and pick out stuff, this is not the program for you. If you’re a data person and you’re very frustrated by HGTV and have to turn it off and laugh, this is a program for you.

                                                If you’re an accountant or an engineer or a very brainy person and don’t like stress and you don’t like unpredictable outcomes and you hate risk, this is for you.

Jill DeWit:                            The thing about this is that we joke, it’s not sexy. No, it’s not sexy, but having a quick seeing you double your money in a week, that’s pretty sexy. I talk to a lot of people that, “Hey, my goal is to pay cash for a house and rent it out.” Great, but they don’t have the money coming in. I mean, it sounds silly, not sounds silly, but it sounds so far out there, but it’s not.

                                                You could start making a bunch of $2,000 investments. Buy things for $2,000, sell them for $4,000. Buy a couple for $4,000, or just keep doing the $2,000 model over-and-over-and-over again. At the end of the year, you might have $50,000, $60,000, $70,000 in your checking account.

                                                You’re going, “Where did that come from?” Because, you just put your head down. You learned that business model on that exact property type in that area and you just kept doing it. Then, when you come up, now, by the way, now you’re staring at that new bank balance and you can go, “All right. Now, I can make some different decisions. I can do this again with these properties or I can now up my game to these properties.”

                                                Now, the end of year two, you’re staring at I don’t know how much money. I’m talking low numbers. I know people that … Jack, you have a very good plan to do. You could have a million dollars in the bank in …

Jack Butala:                         24 months.

Jill DeWit:                            24 months. It’s not crazy doing just that.

Jack Butala:                         It’s very predictable so when you really start to think about it, if you send out 2,500 letters. Well, we’re talking about land today. Land is so easy. I mean, you send out, let’s just say, if your brand new, 300 letters. You buy a property and you do it correctly, like Jill just said.

                                                We always say, “Start with land.” Then, if you really want to get into houses later, do it, because it’s so much easier.

Jill DeWit:                            It is. It’s really easy.

Jack Butala:                         Get your feet wet and understand the spread sheets. Understand the concepts. Understand that the real estate doesn’t matter.

Jill DeWit:                            Record a deed. How to check the ownership. Not a lot of risk because you’re not spending $150,000 on a house. You’re spending $1,500 on a property. If you make some mistakes, it’s okay. Totally, I agree and see if you like it, like you said.

Jack Butala:                         The people who are going to call you back on these by the way, what you’re fishing for is not a great piece of real estate that’s undervalued. What you’re fishing for is a life circumstance where one spouse says to the other, “You know, I just got this letter in for $1,400 on this property in Oklahoma.

Jill DeWit:                            Oklahoma.

Jack Butala:                         I’ve never seen it. Wow! We guess the same state.

Jill DeWit:                            That’s weird. How’d that happen?

Jack Butala:                         How can that be?

Jill DeWit:                            I’m thinking of pretty lake country and there’s some pretty lakes there. That’s good.

Jack Butala:                         We have like mental telepathy with each other.

Jill DeWit:                            Maybe we do. Wow!

Jack Butala:                         The conversation goes, “You know, and it’s got a number in there. It says I can close. We can get $1,500 for this next week, we’re never going to go to that property. We’ve never been to it anyway. In fact, didn’t we inherit it from your Aunt Sally?”

Jill DeWit:                            Right. The kids don’t want it.

Jack Butala:                         That’s the situation you’re looking for, not the piece of real estate. That’s why driving for dollars and all this other stuff doesn’t make any sense. It’s not about the real estate.

Jill DeWit:                            So true. So true.

Jack Butala:                         Well, you’ve done it again. You’ve spent actually a relatively useful 12 minutes listening to the Jack Jill show. Join us tomorrow where we have even better advice for you.

Jill DeWit:                            And we answer your questions should you have one. Post it on our online community, and you can find it at jackjill.com. It’s free.

Jack Butala:                         You are not alone in your real estate ambition. What do you think?

Jill DeWit:                            Love it. Love it.

Jack Butala:                         These last two shows we really tried to give some advice.

Jill DeWit:                            Answer some questions. Get it out there. Tell what we do. I mean, that’s really, to think of it. The thing of it here, really trying to properly convey what we do. That’s why we’re here.

Jack Butala:                         I think we did.

Jill DeWit:                            I think we did. Hey, share the fun by subscribing on iTunes or wherever you’re listening and while you’re at it, please rate us there. We are Jack and Jill.

Jack Butala:                         Jack and Jill. Information …

Jill DeWit:                            And inspiration …

Jack Butala:                         To buy undervalued property.

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