Creating Immediate Equity with Property Acquisitions (LA 708)
Creating Immediate Equity with Property Acquisitions (LA 708)
Transcript:
Steven Butala: Steve and Jill Here.
Jill DeWit: Hi!
Steven Butala: Welcome to the LandAcademy show, entertaining land investment talk, we hope. I’m Steven Jack Butala.
Jill DeWit: I’m sure it is, and I’m Jill DeWit, broadcasting from sunny southern California.
Steven Butala: Today Jill and I talk about creating immediate equity with property acquisitions. I know of no other way, other than printing money in your basement, to create immediate equity.
Jill DeWit: Isn’t it awesome?
Steven Butala: In a business.
Jill DeWit: It’s so exciting, you know it. That’s the fun part.
Steven Butala: Here’s a spoiler alert: when you buy a piece of property that’s worth $100,000 bucks, for $40,000, you just created $60,000 worth of equity.
Jill DeWit: Yep.
Steven Butala: The old school guys say, “Hey, buy low, sell high.”
Jill DeWit: Huh, really?
Steven Butala: If you’re running short on time today, you can just turn off the show.
Jill DeWit: There you go.
Steven Butala: We’re going to talk all about that.
Jill DeWit: You got it.
Steven Butala: Before we get in to it, let’s take a question, posted by one of our members on the LandAcademy.com online community, it’s free.
Jill DeWit: Cool. Mike asks, “I have a buyer of one of my properties in California, that has asked that I provide an NHD, which is a national hazard disclosure. I’m familiar with these on residential and commercial properties, does anyone get this disclosure when they purchase? Do you have your buyer pay the applicable fees? Split it? Or pay it yourself? It’s small dollars to get it done, so in the end, I’ll split it with the buyer, but I wanted to see what everyone’s practice is typically. Thanks!”
Steven Butala: Mike, this is nothing short of a joke. And, I can feel my face getting red about how this kind of stuff really angers me. In any given transaction, we just went through a deal like this, where, depending on whose orchestrating the deal, or who’s involved in it, usually it’s real estate agents who require all this CYA, cover your bottom, signatures, and disclosures, and lead-based paint, and all of this stuff. The first thing I ask everybody, and I actually don’t ask it very nicely, is, “Am I required by law to do this?”
So, that’s my question here.
Jill DeWit: No.
Steven Butala: It costs … Jill did the research, it costs $75 to get one of these things, and that’s somebody’s business.
Jill DeWit: And, it’s just their opinion. So, I’ve got to tell you, I just looked up a little bit before we’re doing this show, and I found this website, I’m not going to say what it is, because I don’t-
Steven Butala: It’s nothing.
Jill DeWit: They don’t deserve the advertising.
Steven Butala: Nothing short of a freaking joke.
Jill DeWit: It’s a total scam. So, on the front page, on the front page of their website, it shows a two story house, shaking, because there’s an earthquake, there’s a big crack coming out of the house …
Steven Butala: They’re inciting fear.
Jill DeWit: … Fire on the house, it’s all animated. There’s an animated person on the second floor with a helicopter fire hovering overhead. And then, for $74.95, we’ll provide a report to see if your house is, whatever. That’s hilarious.
Steven Butala: I’m glad you can have a good attitude about it, because it off-sets what I really think about this.
Jill DeWit: This is mean. This is just like, evoking fear when it’s not needed, and just trying to get money out of people for silly stuff.
Steven Butala: I owned an office building for a long time, and we were the primary tenant, and it went a bunch of other tenants. I was looking over the financial statement one day, and I could see all these monthly charges from this company called Fire Emergency, LLC, or something.
Jill DeWit: Mm-hmm (affirmative).
Steven Butala: So, there was a guy who showed up, every month, this went on for a year, without me knowing about it, showed up in the building, checked all the fire extinguishers and charged us $120 a month.
I had no idea this was going on, it was not my staff’s fault, the guy’s all dressed up, with a badge, and he shows up in his red, little truck.
Jill DeWit: And, that’s all he does?
Steven Butala: I went absolutely nuts.
Jill DeWit: Wow.
Steven Butala: Yeah, because it’s not required, none of this stuff is required …
Jill DeWit: No.
Steven Butala: … They are juking you.
Jill DeWit: Oh, my gosh.
Steven Butala: That’s what this is, so the take away, listener, from this is that, especially if you’re new, buyers and real estate agents, specifically real estate agents, because they have to cover … They are so exposed from a liability standpoint, or lawyers, will dream up stuff to make you do so that they don’t get in trouble. Dual representation is a perfect example of this.
Jill and I just lost an office space deal, because I refused to sign dual representation. The agent on it, who was representing the property owner, asked us to sign, to check the box, on a lease that said, “If the seller, for whatever reason, decides that he’s not going to pay me on this, you are.”
And my question was, well, you’re not representing me, are you? Well, if you check the box, I am.
So, believe me, these contracts, with all this language in them, are designed to get you to pay, yet, they’re all bad.
So, I don’t know if this is required by law, I don’t. And, even if it is, I would contest it.
Jill DeWit: Well, you know what, this whole thing, this company, I’m reading through the whole sample report, which is a total thing. All it is, is, they are compiling information that you already know, and stuff that-
Steven Butala: Like what? As in a flight plane?
Jill DeWit: Exactly. Oh, they go even further, it’s hilarious. Critical habitats, within a mile of a mining operation …
Steven Butala: I love California, and I love living here, but I’ll tell you what …
Jill DeWit: It’s really weird.
Steven Butala: … It has gotten out of control, this kind of stuff.
Jill DeWit: Yeah, airport influence area, earthquake fault zone, landslide seismic zone, liquid whatever. Here’s my whole thing too, we all know … You should know what you’re buying, when you’re buying it, obviously, number one. And number two, is, is this going to prevent anything or guarantee, or provide any extra insurance or anything? The answer’s no. It’s not going to do anything.
Steven Butala: It’s truly a buyer beware situation.
Jill DeWit: It’s always that way.
Steven Butala: It’s really too bad that these things are out there, but as a savvy investor … If this happened to us, Jill, I know exactly … Jill would laugh this guy off the phone.
Jill DeWit: This is ridiculous. But, you know, it’s like …
Steven Butala: I’m really glad you asked this question, by the way.
Jill DeWit: It’s like buying a warranty, an extended warranty that covers $100 of nothing. You know what I’m trying to say? Some of these extended warranties, really don’t cover anything. You could buy an extended warranty that covers, should the event of these six things and the stars are all alignment happened, then we’ll pay out. Because, if you look at them, some of them are like that. It’s ridiculous, it didn’t cover anything.
Steven Butala: It’s a true buyer beware situation.
Jill DeWit: Wow. It’s just … It just makes me mad that people are charging money for stuff like this. I don’t know.
You know what, Steven, I’m going to sell you a policy on your car, that you might, someday get a flat tire, just so you know this, you might someday have a scratch on your windshield, you might some day da-da-da. That’s all this is. Great. Do you know that? You own a vehicle, and all these things might happen.
Steven Butala: Thank you very much.
I’m going to flip this in to a positive note, there are some great, value-oriented organizations out there, like AAA, where you pay $50-60 a year, and you can sleep at night because you know if you get a flat tire, someone’s going to come and pick you up.
Jill DeWit: Right. Well, there’s free things that are covered.
Steven Butala: And, here’s the real estate version. You don’t have to do this stuff. You don’t need a real estate agent, you don’t need a lawyer, and you don’t need a title agent. The law is still on your side.
Jill DeWit: It’s true.
Steven Butala: You’re just getting so barraged with all of these awful signals, that you don’t know which way is up, if you’re new.
I’m here to tell you, you can sit down in a coffee shop with the owner of a piece of property, Jill and I do this all the time, or people from our group do. And, provide a deed for them to sign, they sign it, you hand them a cashiers check, or an envelope full of money, in some cases, and you own the property. You don’t need an NHD for a deal like that. You don’t need a lead-based paint disclosure. Nine times out of ten, you don’t even need an affidavit on the deal, on the deed, I mean. It’s just something that helps the assessor do his job. Do I want to help the assessor do his job? Or is he going to charge me more on my real estate taxes? That’s a rhetorical question. Go ahead, Jill.
Jill DeWit: What I was going to say is, you know what I would do, Mike? If this question was posed to me …
Steven Butala: I’d like to see that, I would like a tape …
Jill DeWit: After I got off the floor, because I was laughing so hard, about the Kern County 20-acre property that they wanted NHD for $75, I would say, knock yourself out, and then call me back or just better yet, don’t call me, check out online if you want to buy the property. Go spend the $75, if you’re that in to this, go for it. That’s hilarious.
Steven Butala: I think that someone should call the Attorney General.
Jill DeWit: On these people, this seems like a scam to me, it really is.
Steven Butala: On the NHD company. Yeah, it is. It’s probably the Attorney General will review it, and you know what they would say, “Yeah, it turns out they’re not doing anything illegal.”
Jill DeWit: True, because all they’re doing is providing all of the information.
Steven Butala: Just, buyer beware, yeah, I agree with you. I’ve done this before, I agree with you, it’s really ridiculous, and it’s an outrage, and it’s misleading, and all of it, but it’s not illegal. Unfortunately, I’m sure people pay the $75 bucks for something like this.
Jill DeWit: It’s hilarious.
Steven Butala: For all we know, Mike here, owns this company, and he wants to get it on the internet, on our show.
Jill DeWit: Oh, my gosh.
Steven Butala: So, congratulations, I hope it backfired.
Jill DeWit: Oh, my gosh.
Steven Butala: Hey, today’s topic is … Let’s talk about making money, and some fun stuff, now.
Jill DeWit: Okay.
Steven Butala: Today’s topic is creating immediate equity with property acquisitions of all kind. This is the meat of the show.
Do you ever wonder why there’s these people, with the yachts and helicopters on top of them, and you ask them, what do you do for a living? What the heck is this? What’s the difference between you and me?
Oh, no, I’m in the real estate business.
Well, wait a minute, I’m in the real estate business.
Jill DeWit: That’s a good one.
Steven Butala: Why is my yacht like 65 feet, and yours is like 190,000 feet, and it’s got helicopters and stuff?
Jill DeWit: I want to know why.
Steven Butala: Well, it’s because you’re still horsing around with all this land, and you’re flipping houses and you’re making $20,000, or $30,000 or $40,000 bucks a pop, congratulations. I do the same thing, with 17,000 in Manhattan.
Jill DeWit: And millions.
Steven Butala: Well, I buy office buildings for 5% less than they’re worth, and I re-sell them to people like Samsel, that’s why. That’s the only difference. The concepts are all exactly the same, maybe they are … It’s a little bit more scalable than us, and quite honestly, Jill and I are … I’m just using it as an example. We’re not suffering.
So, that’s the answer. The answer is, they are creating equity. There’s a lot of ways to create equity in real estate. The most popular one, among commercial real estate companies, is this; look at Starbucks, that’s a free-standing Starbucks, where you drive through. That’s called a triple net, it’s a triple net real estate deal, where somebody owns that property, and they triple net lease it to Starbucks corporate, and they sign a lease, and they’re responsible, Starbucks itself is responsible for everything single thing that goes on in that building. If the thing burns down, it’s their fault. The air conditioner needs to be changed, they have to do it. That’s what triple net is. The tenant is responsible for 100% of the property, maintaining it, everything. There’s a few things that they’re not usually responsible for, like property taxes, but that’s a different story.
What ends up happening, is there’s an escalation in the rent, every year 3-5%, or it’s tied to the consumer price index, but it goes, up. It might be tied to inflation. When it goes up, it changes the cap rate at the building. What doesn’t go up for the property owner, is the mortgage amount, the mortgage payment, or the type of financing, or how the deal’s structured, financially.
So, the cap rate is always in favor of the landlord. So, if you own the building for five years, you can sell it for a heck of a lot more, than you paid. That’s called creating equity in real estate.
Well, I don’t want to wait five years, Jill.
Jill DeWit: I’ve just stood back, letting you run with this, this is funny. You’re just entertaining.
Steven Butala: That’s beautiful, Jack, that’s great.
Jill DeWit: Steven.
Steven Butala: I don’t have five years. I want to quit my job now.
Jill DeWit: Yep.
Steven Butala: Well, the bad news is this; you can’t do it with a triple net Starbucks probably, you might be able to, but probably not. You can do it with land and with houses and apartment buildings and things that are, what I call, non-institutional real estate. You can buy a piece of dirt, that’s worth $100,000 bucks, right now. Everybody looking at it’s going to agree, oh, it’s worth $100,000 for $40,000 or $50,000 bucks, Jill and I do it all the time. Or it’s worth $22 million, in the case of some of these ranches here in southern California, and you can buy them for $10 million.
That’s how you get the yacht with the helicopter on it. The reason you can create immediate equity, with these property owners, is by sending them offers. You buy a piece of property, because you’re not looking for the piece of property itself, you’re looking for the owner who’s just done with it, for whatever reason.
In apartments case, they’re just frustrated with being landlord, in an SFR case, with houses, it happens every day with us. They’re just done with the property, they need the money, they’re sick of getting the tax bill.
Jill DeWit: It goes with a life situation, usually. It’s like, the kids are gone, we’re done, you know, there’s something, usually, that triggers it, we’re retired.
Steven Butala: The plain truth is that they just don’t want to list it with a real estate agent. They don’t want people traipsing through their house, they don’t want to clean up the basement, they just …
Jill DeWit: Remodel, they don’t want to do the remodel, they don’t have the money, sometimes.
Steven Butala: It’s worth $50,000 to them, in equity, because for whatever reason, they just don’t want to deal with the house anymore.
Jill DeWit: Yeah, I’ll tell you, I just talked to a guy two days ago. He said flat out, he told me, I was going to look it up, but he told me, I paid $80,000 for it, and I’m buying it for $300,000, and we know it’s worth $450,000. This happens all the time.
Steven Butala: Right. So, describe … I mean, because this baffles people. It baffles, even the most professional people that I know in other professions. Tell me about this guy on the phone, on the other end of the phone, he’s a seller. He paid $80,000 for the house a lot of years ago, we’ve bought it for $300,000, we’re going to whole sale it out for probably $340,000, and whoever renovates it is going to make $450,000-$500,000.
Jill DeWit: They want to make $100,000. That’s their thing on it. Because, they want … From when they buy it to the sale, they put their renovations in, so they need that much of a spread, so she’s going to put $40,000 in to it, and make $60,000, is her goal.
Steven Butala: Yeah, but we made $25,000-$30,000, $35,000-$40,000 just on the whole sale flip.
Jill DeWit: Our thing.
Steven Butala: But my question is; describe to me this seller’s logic, not the renovator, the seller. He knows it’s worth $450,000, but he’s willing to sell it to us for $300,000, because this baffles people.
Jill DeWit: He knows it’s worth that much at the end. Number one, he paid $80,000 for it, it’s been paid off for a long time.
Steven Butala: So, he’s going to get a quarter million dollar check.
Jill DeWit: He already has a house ready to go to, he wants to move in with his son, and his wife’s still alive, back east. They don’t want to … They either don’t have the money …
Steven Butala: This is the meat of the show.
Jill DeWit: … Or …
Steven Butala: By the way, go ahead.
Jill DeWit: … They don’t have the money or they don’t want to do the work, pick one, to get it to that point. And, they don’t want to spend the time, by the way. They know it’s going to take months, that’s the funny thing too.
Steven Butala: Why don’t they just go list it with the real estate agent and move out?
Jill DeWit: Because, they know they’re going to lose money on the deal anyway, because of that. And you know what? We caught them before that. That’s the whole thing, too. You’re whole ‘get there first’, it’s true, Steven. And you’re right, that’s the whole point here, we want to get there first, with a letter, get there before they … While they’re thinking about it, and then get them to call you.
And, what’s really funny, too, is this guy had gotten a letter from us like in January, I want to say. The letter had expired, but he saw a house that we bought nearby, in his neighborhood, that we already flipped, a dumpster in it, and he knew that we were the same people walking around, going around buying them in this area. And he’s like, you know what? I’m ready to do this.
Steven Butala: There’s credibility there.
Jill DeWit: Yeah. I’m ready now. So, obviously, he’s been thinking about it since January, probably before January, but now our offer hit, and now he’s like, yeah, I’m ready to do this.
Steven Butala: That discussion that Jill had with this seller, number one, it never would have happened unless we sent a bunch of offers out to owners. And, no one believes that, that happens. That is really what goes on, that’s why these people have helicopters on their yachts, they just do it with much larger properties.
Jill DeWit: Mm-hmm (affirmative).
Steven Butala: And, they have much bigger financing groups behind them.
Jill DeWit: Mm-hmm (affirmative).
Steven Butala: That’s how you create equity, immediate equity, in a real estate deal.
Jill DeWit: Well, you know, that’s the thing. The day … I already know that I have equity in it, because I already have my buyer lined up, because we’ve been doing deals in this area. So, I know the day that I sign the papers with that guy, I just made $30,000. That was equity to me, and I could do more, but I don’t want to, I don’t want to do that work.
Steven Butala: You just nailed my next point and a huge mistake that I see all kinds of people make is, they bought a property, we’re going to use Jill’s example, here. A piece of property for $300,000 bucks, we all know it’s worth $450,000-$500,000, they start down that path. Instead of just selling it for $25,000 more and moving on to the next deal.
Jill DeWit: They do, they re-think themselves.
Steven Butala: Yeah.
Jill DeWit: Even in the land …
Steven Butala: It never works, I’m telling you.
Jill DeWit: I’m going to bring it back to land. People re-think themselves, well if I put a cabin on there, or if I put a mobile on there …
Steven Butala: Maximizing revenue.
Jill DeWit: Which is not crazy, however, do you want to get in to that business? And there’s so much more you’ve got to think about, now, all right. Versus, this is our land thing.
Steven Butala: Versus, being in the data business.
Jill DeWit: We, all day long, every week, every day, I love it. You’re looking for these run to the bank land situations, it’s awesome. I just had one … It’s so funny, we just bought a little property, $700, sold it for $2,000. It’s not a lot, I could have actually done more, but everybody’s happy, it’s worth way more. Everybody’s happy.
Steven Butala: What ends up happening, is we buy … Somebody calls us on a letter that we send, and they say, you know what, by the way, I’ve got these other 24 properties over here. My dad passed away, he was collecting property. Would you mind doing all these deals for us? And we do. We end up with all this property.
Jill DeWit: Mm-hmm (affirmative). We’ll buy them all. We don’t do the deals for them, we buy them.
Steven Butala: Yeah, we bought it, but we don’t lose money on it, but it’s not … We don’t make a ton. So, yeah.
Jill DeWit: Yeah, it’s … I love it.
Steven Butala: The reality is … You should see Jill’s office.
Jill DeWit: Well, you should know this, this is the whole point for me, of this show, if you can’t immediately hang up the day that it closes, go – cheering.
Steven Butala: The date the acquisition closes.
Jill DeWit: The day the acquisition closes, not the sale closes, the day the acquisition closes, you should be going, “I can’t believe we got that for that price.”
Steven Butala: You should be jumping up and down.
Jill DeWit: Yeah, that’s it.
Steven Butala: Running to the bank.
Jill DeWit: That’s the part, that’s when you’re celebrating. The rest you already know.
Steven Butala: That’s when you made the equity.
Jill DeWit: You know that, you know how it’s going to sell, you know what it’s worth, you know how fast it’s going to go. You know the value.
Steven Butala: I microscopically look at acquisitions every day. I never look at sales.
Jill DeWit: Nope.
Steven Butala: In the morning, we get a report on the email, I look at our sales numbers, and I say, oh good, it’s up. Or, what’s going on, it’s down. But, I never look at it.
Jill DeWit: You know what’s funny? Here’s a …
Steven Butala: Every day, I look at acquisitions, that’s the life blood of [crosstalk 00:19:58]
Jill DeWit: Do you know what happens to me, though? I’ve got to tell you. Some of the times, these things sell so fast, or they sell at a price and I go, wait. What did I pay for that again? Oh, shucks! We let that one go too low. I often do that. We let that go too low.
Steven Butala: I never do that.
Jill DeWit: But, you know what? Who cares! Move on.
Steven Butala: Because it sold too fast?
Jill DeWit: No, I could just … Sometimes I know that they were just kind of … Sometimes it doesn’t sell that fast, and the market has taken a little bit of an upturn, and I go, oh shucks! I should have re-priced that one, because we could have got more, but you know what? Let it go, who flipping cares? The day that I priced it, or the day that you priced it, or we priced it, however, you want to call it. The day that we priced it, that was what we wanted to make on it, it was more than double and we were good with it.
Now, three weeks have happened, when someone finally checked out, it could have been more, but, who cares?
Steven Butala: You’re cracking me up right now.
Jill DeWit: I know, isn’t that funny?
Steven Butala: You’re funny.
Jill DeWit: Why?
Steven Butala: Because, we just described, over the last two episodes, maybe three, properties where we made four or five or eight times what we paid.
Jill DeWit: I know.
Steven Butala: And a couple times, maybe, let’s say, hopefully, they’re members.
Jill DeWit: Right.
Steven Butala: LandAcademy members, buy some property for less than half of our markup.
Jill DeWit: Right.
Steven Butala: So, it’s all okay.
Jill DeWit: I know that, that’s my point.
Steven Butala: Oh, okay. You know what, it was my turn to take a little nap.
Jill DeWit: Oh. Wow. Your nails look nice.
Steven Butala: You’ve done it again, you’ve spent another 22 minutes with us, listening to the LandAcademy show.
Jill DeWit: You don’t realize it, it flew by because you fell asleep in the middle, thanks.
Steven Butala: Join us tomorrow, where I interrupt Jill. No, join us tomorrow, for another interesting episode about how much wealth can you actually, possibly accumulate buying undervalued land.
Jill DeWit: Awesome. And, we answer your questions posted on LandAcademy.com. We have an online community you can find there, and it’s free.
Steven Butala: You are not alone in your real estate ambition.
Jill DeWit: Hilarious. Well, good, it was your turn this time to zone out.
Steven Butala: So much of this stuff is Captain Obvious stuff, to us, but if you’re in the real estate business at all, every once in a while, probably every week, for us, but probably every month, at least, we hear somebody in the acquisition staff hang up the phone and it’s like, oh my God! We just made like $48,000 on this thing. Every single house we buy, because the market right now, it’s $25,000 in the bank.
Jill DeWit: Mm-hmm (affirmative).
Steven Butala: Immediately. So, those land deals that we’re working on right now, some bigger ones, it takes a little bit longer to sell, but jeez. The sky’s the limit. Actually, that’s what tomorrow’s show’s about.
Jill DeWit: Oh, I can’t wait. Hey, if you can’t wait; share the fun, by subscribing on iTunes, or wherever you’re listening, and while you’re at it, rate us there, please.
Steven Butala: We are Steve and Jill.
Jill DeWit: We are Steve and Jill.
Steven Butala: Information.
Jill DeWit: Inspiration.
Steven Butala: To buy undervalued property.
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