Accumulating Equity in Real Estate Wholesaling (LA 751)

Accumulating Equity in Real Estate Wholesaling (LA 751)

Transcript:

Steven Butala:                   Steve and Jill here.

Jill DeWit:                            Hi.

Steven Butala:                   Welcome to the Land Academy Show. Entertaining land investment talk. I’m Steven Jack Butala.

Jill DeWit:                            And I’m Jill DeWit, broadcasting today from beautiful sunny, gorgeous, south Lake Tahoe.

Steven Butala:                   Yeah.

Jill DeWit:                            I am looking out the window at this view, Steven, and it’s breathtaking.

Steven Butala:                   Jill and I are on vacation, but sort of not. This is what we always do.

Jill DeWit:                            Here we are recording on vacation.

Steven Butala:                   We’re recording on vacation, we’re having a lot of fun, and we’re looking at real estate. This has been our life since we met.

Jill DeWit:                            Yeah.

Steven Butala:                   It turns out, this is long before we even started Land Academy. It turns out people have some fascination with this.

Jill DeWit:                            What? Real estate?

Steven Butala:                   Just with our silly little way we do stuff. It still just cracks me up.

Jill DeWit:                            This is true.

Steven Butala:                   Lake Tahoe in Neva … I mean Devada, has a zero percent income tax. You don’t file a … I don’t know if you do file a tax return here or not.

Jill DeWit:                            There’s no state income tax.

Steven Butala:                   California’s is 13%. If you make a million dollars in real estate, you pay $130,000.

Jill DeWit:                            In income taxes.

Steven Butala:                   In income tax in California. You pay exactly zero in Nevada. Nevada’s actual real estate, property tax rate is literally higher than California’s. Properties cost so much less that it ends up being, from a money standpoint, way less.

Jill DeWit:                            It works out.

Steven Butala:                   That’s why we’re here.

Jill DeWit:                            Yes.

Steven Butala:                   Plus we’re not suffering from lack of fun.

Jill DeWit:                            Exactly. Thank you.

Steven Butala:                   Before we get into the topic … Oh, today’s topic is accumulating equity in real estate wholesaling. Wow. Could that be any more generic?

Jill DeWit:                            Oh my goodness. Exactly.

Steven Butala:                   I wrote the title.

Jill DeWit:                            I’m sure we have a lot of listeners that sought that out.

Steven Butala:                   I promise you we will make this fun.

Jill DeWit:                            Okay.

Steven Butala:                   I promise.

Jill DeWit:                            You promise me?

Steven Butala:                   Yep.

Jill DeWit:                            Okay, thank you.

Steven Butala:                   I promise the three or four people that are listening to this, I promise.

Jill DeWit:                            Oh, good.

Steven Butala:                   Before we get into the topic, let’s take a question posted by one of our members on the LandAcademy.com online community. It’s free.

Jill DeWit:                            Okay. Andrew asked, “I’m having trouble targeting an area by APNs for my next mailer that I entered into CoreLogic with RealQuest Pro,” which we provide. “I was wondering if someone else had experienced sending mailers out by APN. How successful and resourceful is it? What is the next best option?” I mean, do you want to explain an APN?

Steven Butala:                   Yeah, assessor parcel number. What he’s doing is probably taking one of the suggestions that I’ve been making over the years, and actually in the education material that we provide, and looking at APNs, assessor parcel numbers, and doing a micro-mailer. Go ahead.

Jill DeWit:                            One of the reasons-

Steven Butala:                   She raised her hand just like we’re in class.

Jill DeWit:                            I did. One of the things an APN … every property has an APN. An assessor’s parcel number. That’s how it’s tracked, for taxes and everything. Now, not every property has an address. That’s why this is important. A lot of the properties that we deal with, we wholesale, they were all vacant land. They don’t have an address. There’s no mailbox, there’s no doormat, there’s no front door. There’s no way to have a package delivered. Wouldn’t that be funny?

Steven Butala:                   This is a unique identifier.

Jill DeWit:                            Could you imagine? That actually would be kind of funny. I’m going to order a Amazon. I’m going to see if I could do it, order an Amazon package, and since there’s no street address, pop an APN in there and see if they could find-

Steven Butala:                   Those poor people. Every time I see Amazon delivery people, I’m like, “Man.” I want to give them a thing of water or something and say-

Jill DeWit:                            I do sometimes, like our mailman.

Steven Butala:                   “You know what? You’re overworked.” Wouldn’t you just sit there and say, “This is endless. When does this end?”

Jill DeWit:                            It’s never going to end.

Steven Butala:                   “When do people stop ordering stuff? When can I just take a break?” To all you delivery people out there, my hat’s off to you.

Jill DeWit:                            Yes, but I wanted to just explain, and so I’m thinking Andrew might be trying to do a strategy like … When you come to this, and you really start studying a county and studying an area, you know a certain APN scheme is tied to a certain subdivision.

Steven Butala:                   That’s correct, Jill.

Jill DeWit:                            Or tied to an area over here that the values are traditionally higher, whatever you’re searching for. That’s probably what Andrew’s trying to do, is just kind of really hit those properties based on the APN scheme, which is so pro-level stuff to-

Steven Butala:                   Yeah, this is a good question, actually, for this show.

Jill DeWit:                            … to jump on the Jack and Steven bandwagon here, but when you get into this, and you start thinking like this, Andrew, it’s awesome.

Steven Butala:                   Yeah. You’re accumulating equity, for sure.

Jill DeWit:                            Exactly.

Steven Butala:                   What he’s trying to do is accurately price a real estate mailer. If you listen to this show at all, or if you’re actually a Land Academy member, you know that pricing is something that is imperative. You live and die by how you price your offer campaign. The more consistent … If you can fill up a dataset, with very like kind properties, houses or land, that are close together, which usually means consecutive APNs, you can really price it … For instance, on land, you could price it at X per acre. Let’s say $850 an acre, some number like that, for APN scheme 103 through 107, because it’s all kind of mapped out in the same area, and priced the same. You’re going to get a much higher yield on a mailer campaign where you really think about it like Andrew’s doing here.

Jill DeWit:                            I love it.

Steven Butala:                   Yes, I have used APNs, an APN scheme, for mailers. Be careful. There’s a lot of other factors to scrub out while you’re doing that. I see a lot of new people specifically missing a lot of opportunity, because they’re too hyper focused on … They take the rifle approach, not a shotgun approach. I think the shotgun approach, you need to do a balance.

Jill DeWit:                            I like this. I think this is a targeted approach versus zip code. That’s the beauty of what-

Steven Butala:                   It’s too far toward shotgun, yeah.

Jill DeWit:                            Thank you. What Andrew’s doing here, thank you for not just going, “I’m going to hit the zip code.” Then, the risk of … What am I trying to say? You could be sending out mailers to the wrong people, because you really can’t accurately price a whole zip code the same way. What you’re doing, Andrew, and you’re hitting the APN scheme, and really getting into it, is awesome. I think you’re on … I’d say, “Don’t stop. Keep going.”

Steven Butala:                   We just looked at … Jill and I just passed through an area in Nevada called Gardnerville, which is just east of … It’s all packed with ranches and subdivisions. It’s kind of cool. It’s a real estate person’s dream. Before the show, Jill was-

Jill DeWit:                            East of where we are in Tahoe.

Steven Butala:                   Yeah, we’re in Lake Tahoe, so yeah, east of Lake Tahoe, thank you. Jill was doing a Facebook Live thing, so I had 20 or 30 minutes to kill, and I priced out all of the ranches that are on the MLS on my phone. It’s crazy-

Jill DeWit:                            The vary-

Steven Butala:                   How the variance is. There’s really good water here, so there’s all kinds of stuff being grown and ranched. It’s a great place to send a mailer. I’ve seen property anywhere from $10,000 an acre all the way down to vacant land that, it looks like most of it’s got water on it. You have to confirm that before you buy it. Down to less than 1,000 an acre. That’s on the MLS. That tells me, if you send an offer campaign out … I’m not going to price it for you, but you’re going to get it for half of probably the lowest price that’s on the MLS.

Jill DeWit:                            That’s the point here. That’s why we’re doing this. It’s not MLS pricing ever. That’s not the goal, man.

Steven Butala:                   Right, that’s right. That’s the tip top of the-

Jill DeWit:                            MLS pricing is retail, retail, retail. Not on sale. Boy, I hope some sucker pays this. That’s MLS. I hate to say it, but isn’t that true?

Steven Butala:                   Well, yeah. I mean, it’s not even Walmart-

Jill DeWit:                            It’s not accurate.

Steven Butala:                   It’s not Walmart retail. It’s like-

Jill DeWit:                            Nordstrom retail. That’s what I’m saying.

Steven Butala:                   Yeah. Even higher than that. Is Nordstrom’s the one that’s crazy expensive? You walk in there and it’s like a T-shirt’s $800.

Jill DeWit:                            Oh, like Neiman Marcus, or-

Steven Butala:                   Yeah, it’s like Neiman Marcus retail.

Jill DeWit:                            What was the other one, was it Barney?

Steven Butala:                   Barneys. Neiman Marcus is funny. Sweatshirts, $180.

Jill DeWit:                            I’m not spending $1,000 for a T-shirt. I’m sorry.

Steven Butala:                   That’s what’s listed in the MLS, and that’s where everybody buys stuff. That’s probably why you’re listening to this, to not be a sucker, as Jill says.

Jill DeWit:                            Thank you.

Steven Butala:                   Don’t be a sucker, please. Today’s topic, accumulating equity in real estate wholesaling. This is the meat of the show. As promised, I’m going to keep this not boring.

Jill DeWit:                            You sure?

Steven Butala:                   Yeah.

Jill DeWit:                            Okay, good.

Steven Butala:                   I’m absolutely sure.

Jill DeWit:                            Well, I have some questions. May I ask a question, first of all?

Steven Butala:                   Sure. Sure, that’s a good way to do.

Jill DeWit:                            Equity. Accumulating equity in your real estate wholesaling. It’s kind of a generic topic, which is great. I can ask you all kinds of questions, and I can’t be wrong, so there you go. Are you talking short term equity, long term equity, my whole business equity? What should I be thinking about, Jack? Steven?

Steven Butala:                   Let’s super quickly define equity the way an accountant would. Assets, the stuff you own, like your house. Minus liabilities, the money that you owe on a house. Equals equity. You may have equity in the form of cash in a safe, or in a bank account, or value in a piece of real estate, that’s not necessarily cash, which means you own a property, let’s simplify it, with no debt on it, so there’s value on that. It’s not cash in the bank yet, but it’s got some equity. That’s what I’m talking about. Accumulating equity in real estate.

                                                Here’s how you do it. You buy a piece of property … Or, here’s how we do it, correctly. We’ve done it a lot of ways, a lot of time … spent a lot of time doing it incorrectly, so I feel qualified to say this. Buy a piece of property, buy a nice looking ranch in Gardnerville, Nevada for 100 grand, from somebody who just doesn’t want it anymore. Not from somebody on the MLS, or Neiman Marcus, for 100 grand when you know darn well it’s worth 350. It’s probably worth 600, but you’re going to sell it for 350, because that’s how you roll. Then, you’re going to move right onto the next deal. That’s accumulating equity in real estate wholesale. You buy a ranch for 100 grand, it’s worth 350 … I mean, it’s worth 700, you sell it for 350 because you’re that kind of person. You don’t maximize value at every single real estate deal, the way a real estate agent does. You don’t try to get top dollar for real estate. You want to move it, move it, move it.

Jill DeWit:                            Yeah, your heart’s … You know, that saying we haven’t brought up in a while, but we all know the saying. You’re either going to win emotionally or financially. You’re not going to get both. What we’re doing here is nothing emotional. It’s only financial. I love the way you explain that, Steven, where you have to see it as a line item on a spreadsheet, and that’s it. You know, when you’re purchasing it, I mean, you’re running to the bank, because you know what you’re paying for, the minute it’s in your name, you have equity, you’ve created positive equity, because it’s already worth more than you’ve just paid.

Steven Butala:                   Right, so let’s do some math on that little ranch deal in Nevada. You buy it for 100 grand. You borrow money from yourself, or from your wife, or from somewhere. You get 100 grand. We borrow it from ourselves. We sell it immediately. Sell it, usually before we even fund it, for 350. We know it’s worth 700, or 600, or 500. We go to the closing, and we get $350,000. We put the $100,000 back. You never want to expense equity. That’s a little advanced, but don’t worry about it. Now you have $250,000 to play with. You can do it two more times now.

                                                You go buy two more 100, probably on the same mailer, two more $100,000 ranches, you sell them both for 300, let’s just round it off, and now you’re longer paying yourself back, but the thing’s just funding itself, and now you’ve got a half a million bucks in the bank.

Jill DeWit:                            What if I can’t double my money, Steven? What if I can buy a $100,000 ranch, and I can only make $50,000 on it. It’s worth 250. I’ve got someone that’ll do that. You know what I mean?

Steven Butala:                   That’s fine.

Jill DeWit:                            That’s what I wanted to say. Sometimes we talk these big numbers, and I don’t want people to get discouraged. I think you can still do well making $50,000 on a transaction. It doesn’t have to be doubling your money. It’s still worth it.

Steven Butala:                   Here’s the most recent infill land deal that Jill and I did, changing gears now.

Jill DeWit:                            Thank you.

Steven Butala:                   Not ranches, but it’s just an infill lot in Mason, Arizona. We purchased the property for $12,500 and we immediately sold it to a buyer, an in town buyer that we have in our back pocket, for $30,000. We more than doubled that money. Would I have sold that property for 12,9 if I knew I was going to … Just, it’s all cash, there’s no contingencies, there’s none of that malarkey that we always talk about, that you don’t want to get involved in. Would I have sold that property for $22,000? Heck yes. Would I have sold it for 20? Yeah.

Jill DeWit:                            Thank you. These are all good numbers, and all good returns, and so I want people to just be realistic, especially when you’re starting out. I know this week is not about people starting out, but I see this week, and your real estate investment career here as your numbers are going to really start to change depending on your property types. You’re not always going to double your money. For example, there’s a guy in our building that I mentored, so funny, very casually kind of pointed the guy into the right direction-

Steven Butala:                   This is the perfect example, because you need to do the numbers on this deal … this guy’s deal in our office building.

Jill DeWit:                            Yeah. This guy just came up to introduce himself one day.

Steven Butala:                   He’s a real estate agent.

Jill DeWit:                            Really, he is. He’s a real estate broker. He’s like, “What do you guys do?” He’s just kind of saying, “Hi, we’re the new people in the building.” Then we started talking. He’s like, “What?” Anyway, started to steer the guy in the right direction, got him some access … Actually, he had temporary access into RealQuest Pro-

Steven Butala:                   Not from us.

Jill DeWit:                            Through a family member.

Steven Butala:                   He’s not even a member.

Jill DeWit:                            What’s funny is it got shut down.

Steven Butala:                   Oh, really?

Jill DeWit:                            Yeah, he’s waiting for House Academy. He’s like, “I want to do your House Academy.” I’m like, “All right, hold on. We’re going to still set you up here.” It’s so funny. Anyway, it was a simple little $1.1 million house worth 1.4 or 5, easy. He made $100,000 on it. Let’s just call it that. It was a 1.1 purchase transaction. He sold it before anything was done. He made $100,000, and he’s thrilled.

Steven Butala:                   Yeah. That’s a perfect example of not even coming close to doubling your money, but that’s cash money.

Jill DeWit:                            Exactly.

Steven Butala:                   That’s more than most people … That’s more than 95% of the people in this country make a year in salary.

Jill DeWit:                            Right, and that was his net. That’s like done, aside from all of the other costs. Everything.

Steven Butala:                   What’s the big point here? The name of the show is accumulating equity in real estate wholesaling. What’s the deal? You cannot accumulate equity … This is the meat of the show, so this is where you-

Jill DeWit:                            Take notes.

Steven Butala:                   If you’ve listened to our malarkey this far, just remember this sentence. If you are going to maximize revenue on each deal, like every single real estate on the planet says, “Oh, no. I can get more money out of that for you,” you’re not going to accumulate equity. It takes too long, and it’s too much work. The only way … The best way to accumulate equity is to buy a property for less than it’s worth immediately. You immediately walk right into an equity position. That’s the technical term, air quotes, equity position. Then you do it again, and then you do it again, and then you do it again. You don’t wait a year to get the most you possibly can, and then people, there’s mortgages. There’s just so much possibility for failure.

                                                Here’s another way to not accumulate equity. This is what everybody thinks, how you’re going to accumulate equity. I’d buy an apartment building, or I’d buy a house, I rent it out. I rent out all to the renters. I raise their rent, and I wait. I wait for inflation to go up three percent a year. 10 years later, this building’s going to be worth … You know what? That’s all correct.

Jill DeWit:                            Hopefully.

Steven Butala:                   You know how many properties you could’ve flipped in 10 years-

Jill DeWit:                            Hopefully.

Steven Butala:                   … my way, or our way?

Jill DeWit:                            It’s not foolproof.

Steven Butala:                   Yeah, and all kinds of stuff can happen.

Jill DeWit:                            Things can happen. We just talked to a guy the other day, everybody’s making interest rate guesses on how things are going to start changing.

Steven Butala:                   There’s so many factors you can’t control. It’s a total full blown bird in the hand situation.

Jill DeWit:                            You want equity today, not in five years, or 10 years.

Steven Butala:                   Yeah. Plus you’re listening to this show because you’re a deal junkie, like us. You want to just sell it, sell it, sell it. Buy it, yeah.

Jill DeWit:                            I’m slapping my wrist, like I’m a junkie. That’s going to be our new little-

Steven Butala:                   I’ll slap your wrist.

Jill DeWit:                            Thank you. Oh, boy. On that note. Well, you’ve did it again. You’ve wasted another … I don’t know how many minutes-

Steven Butala:                   I lost my place.

Jill DeWit:                            … listening to the Land Academy Show.

Steven Butala:                   Join us tomorrow for another interesting episode where we discuss planning for retirement, and working the numbers backward. The theme this week is your real estate investment career, so it’s all centered around doing these deals.

Jill DeWit:                            We answer your questions. Should you have one, post it on our online community. You can find it off LandAcademy.com, or go straight there. It’s LandInvestors.com, and it’s free.

Steven Butala:                   You are not alone in your real estate ambition. I think we made our point.

Jill DeWit:                            Well, I got to tell you. I see why you lost your place, because it’s very distracting where we are.

Steven Butala:                   We’re sitting right on Lake Tahoe here.

Jill DeWit:                            It’s so beautiful. Okay, I’m staring at a couple of the sea-doos out there whipping it up, which we’re going to do in about an hour.

Steven Butala:                   As soon as we’re done recording.

Jill DeWit:                            Then I just watched about … it looks like the midnight roll in. A good 40, 45 foot, it went to the left there, center console, just rolled by me, too.

Steven Butala:                   We have some friends who have center console yachts, technically, that’s what they are.

Jill DeWit:                            I think I just saw one. I can’t wait to get out on this lake. Share the fun by subscribing on iTunes, or wherever you’re listening, and while you’re at it, please rate us there. We are Steve and Jill.

Steven Butala:                   We are Steve and Jill. Information-

Jill DeWit:                            … and inspiration-

Steven Butala:                   … to buy undervalued property.

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