Deals Where We Lost Money (LA 774)
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: I’m Jill DeWit, broadcasting from sunny Southern California.
Steven Butala: Today, Jill and I talk about deals where we lost money. Wow, how can we make that interesting?
Jill DeWit: Yikes, I did not realize that’s what we were talking about until I’m sitting here right now reading that.
Steven Butala: I have to say there are not too many, but man, when we do it, we do it.
Jill DeWit: Man, if you’re going to do it, do it at what you’re safe. You’re going to make a mistake, do it at 100 miles an hour.
Steven Butala: Exactly right. Before we get into the topic though, let’s take a question posted by one of our members on the Land Investors online community. It’s free.
Jill DeWit: Neal asks, “Hi, everyone. I received a purchase agreement in the mail yesterday that was dutifully signed and filled out. But the offer price was crossed out and essentially doubled. It went from $2,250 to $5,000. At what point do you still reach out to the potential seller to discuss this?”
Steven Butala: This happens to us, by the way, all the time. It’s better than getting nothing at all, I think. Anyway, go ahead.
Jill DeWit: “I have no intention of offering more, but it’s worth establishing a relationship since it seems he’s interested in getting rid of it? The $5,000 is what he paid for the land years ago. Similar parcels have sold for $6,000 and up. But after sitting around for hundreds of days, I personally would price the property at $4,500 to sell quickly. Have others had success reaching out in these instances? Thanks.”
Steven Butala: Go ahead, Jill.
Jill DeWit: Yeah, we’ve had this and it’s comical. It ties in a little bit with our question from yesterday about what do I do when I have to call him back and change the offer price? This kind of changes … I understand where the guy’s coming from.
Steven Butala: Me too.
Jill DeWit: He thinks it’s still worth what he paid for it. And we all think our … I say this often around the house and around the office, we all think our asset is priceless, but you know what? It’s not.
Steven Butala: I wasn’t five years old and decided to do a mailer. I came up with this mailer concept in the late 90’s, early 2000’s because it was solving a huge problem for me. Number one, I don’t have to go to auctions anymore. I don’t have to go to tax auctions any longer. Number two, I don’t have to make cold calls. Number three, I don’t drive for dollars. I mean all of those things I’ve done, and they all suck. All of them. Sending letters out was my way of saying … it solved like six problems for me. It solved negotiation, so I send a letter off take it or leave it. This is the price, I’m making you an offer. It solved scalability for us. So, I can send out 25 million offers, literally, as easily as I can send out 500.
Jill DeWit: Right.
Steven Butala: It’s just data.
Jill DeWit: You can’t canvas neighborhoods that fast. It’s impossible.
Steven Butala: So, one of the things that this person … not the caller …
Jill DeWit: The seller.
Steven Butala: The seller is doing, is bucking the stat system. So, if you’re sending enough mail out and you’re getting letters in every day, like us, it’s not worth the phone call.
Jill DeWit: I would.
Steven Butala: I personally think that you should call them back because I don’t think it’s that far off, but I’m just saying that’s not what this is designed for. It was designed to remove negotiations and all kinds of other things out of there. It’s very efficient because you send out 10,000 offers, 50, 100 people call you back and about, I don’t know, 20 or 30 send a letter back. Which deals are you gonna do? You’re gonna do the ones first where it’s just sign and check it and yeah, you agree and that’s it.
Jill DeWit: Couple things to point out though. So, this is kinda like what I was starting to say about the call yesterday. Now you’re gonna call the guy back and go “I know you think it’s worth 5,000 and I know that you spent 5,000 on it, but you know what, the things that we all, I’m sure, were hoping to happen in that neighborhood, it didn’t happen.” Nowadays, sadly, people do understand that in times, real estate can go down. We all remember what happened almost 10 years ago.
Steven Butala: We’re about to explain the horror that we went through during that down time.
Jill DeWit: Okay cool. Alright. So, people understand when things go down. I realize, Mr. Smith, when you bought it, they were gonna put in a beautiful, big mall across the street and this would have been perfect parking lot property or something. Well, unfortunately that didn’t happen, but I can do something with it. And I apologize. You know, it’s like I’ve even said “I really don’t mean to insult you, but this is really what it’s worth right now and what it’s worth to me and if you wanna get something out of it gosh I’m here to do that.” Because this happens a lot.
Steven Butala: All the time.
Jill DeWit: This really comes up a lot. I mean, I don’t know what the percentage is, but …
Steven Butala: 20 or 30%.
Jill DeWit: It’s a pretty high percentage that people when we’re buying property from are buying it for less than they paid and they know that, but you know what that’s just the way that it happens.
Steven Butala: Oh it happens probably 80% of the time. Yeah.
Jill DeWit: And they’re happy to get something out of it than nothing out of it.
Steven Butala: So, let me add this and this is very important. This is not trivial. You are not here to be a good Samaritan. We have a woman in our group who is constantly expressing that she feels bad.
Jill DeWit: Aww.
Steven Butala: So, I understand that, but we’re not here to take advantage of people, but the flip side is we’re not here to lose money and …
Jill DeWit: Save everyone.
Steven Butala: If you wanna be a good Samaritan, there’s a ton of things you can do after 6pm all over the place to help people financially and there’s a million things to do, but this is not the place for that. If you have learned well from the Land Academy or wherever else about how to price property, and you send a mail out at 2250, that’s it.
Jill DeWit: Yeah.
Steven Butala: Maybe 3,000. You could help the guy out. Because Jill’s whole thing is this. My price is 2250 or I’ll be a nice guy and say 3,000 if you wanna do the deal today. Otherwise, in 6 months, just like everybody else, I want you to call me back when you still own the property because they have a life. Part of what we offer is a huge convenience service. We’re sending you a cashier’s check and somebody to your door with a contract. They’re gonna hand you money and you’re gonna give us something that you never wanted in the first place anyway.
Jill DeWit: That’s a great point. Explain the service. Explain how it goes. Explain what you’re providing and then leave the ball in their court and then open the next ladder.
Steven Butala: In the first Land Academy program I call it the gallon of milk theory. There are three places you can buy a gallon of milk. You can buy it at Walmart, crazy cheap. You can buy it at the grocery store, a little bit more expensive. Or you can pay through the nose at the 7-eleven down the street. Every single time you’re not asking, you’re not saying “Well this is not … ” You don’t walk into a 7-eleven and say “How can you charge five dollars for a gallon of milk?” No. You know that part of it’s convenience and you don’t have to go to … and at the back of the Walmart to do the whole thing. Absolutely. So, it’s the same thing with this.
Jill DeWit: It’s true.
Steven Butala: Huge convenience component to what we do. That said, we don’t wanna take advantage of people.
Jill DeWit: Thank you.
Steven Butala: Today’s topic, Jill and I talk about deals where we lost money. This is the meat of the show.
Jill DeWit: This is not the most fun topic, but it’s a real topic and we wanna share it.
Steven Butala: We are real people and we make mistakes.
Jill DeWit: Totally.
Steven Butala: And I’ll tell you the number one place where Jill and I have lost money in a real estate deal is renovating houses. We didn’t lose a lot, but when you factor in time and all the stuff that’s involved, Jill and I have done a handful of house renovations and it was a joke.
Jill DeWit: You know what, for other people it’s their thing and I get it and they have three crews and they’re good at it and I wish them well and I’m really glad about that. How we recovered too is we’re happy, we find the deals, flip them to them, they go off and do the renovations and make even more money. Everybody wins.
Steven Butala: Everybody wins.
Jill DeWit: That’s my favorite. I don’t wanna do that anymore. It was fun. It was fun. You had a panic attack every time you had to write a check. I remember that.
Steven Butala: Yeah. That’s not my thing.
Jill DeWit: I know.
Steven Butala: You know why? There’s so much unknown. Tomorrow’s show is called How to Remove the Risk out of Real Estate Deals. You wanna talk about incurring risk in a real estate deal. You’re buying a piece of property, probably all wrong. You’re buying it from a real estate agent in the MLS and then you don’t know what’s gonna happen. Maybe you get an inspection, maybe you don’t. Hopefully you get an inspection, but you get in there and you don’t know what’s gonna happen. And when you’re all done, you end up with for sale property. Who wants for sale property? Nobody. That’s the most risky think in the planet. You wanna know every step of the way exactly what’s gonna happen in that real estate deal and when you’re gonna get your money. That’s what Land Academy is all about and we don’t do any deals, not one single deal where … we know what’s gonna happen. We let the data create a crystal ball for us so we can see right in the crystal ball when the property is going to sell, days on market.
Jill DeWit: Exactly.
Steven Butala: I’m filming House Academy right now and I go through every step of the way to completely reduce all the risk in the whole thing. We have a friend right now who’s trying to sell property. A house that she has long since not lived in in Las Vegas, and so because we’re nice I did a whole workup just like if we were to buy it. I did a whole complete workup on it and there is no way we would buy this thing, but I looked at days on the market. Everything that we look at and the days on market in the zip code she’s in, it’s not in Las Vegas proper, but it’s close to it, it’s like 59 days. We don’t get involved at markets with houses that are less than … it has to be less than 30.
Jill DeWit: 30, right, yeah.
Steven Butala: Should be closer to 15. In Seattle right now, days on market is like five.
Jill DeWit: Right. It’s Amazon, isn’t it.
Steven Butala: What do you think, as an investor … think about this for a second, as an investor, you send the letters out into an environment, let’s say it’s in [inaudible 00:10:41] lot’s of our houses and the days on market are 20 and you know that you’re pricing it at least 20% below what you can wholesale a property for.
Jill DeWit: I love it.
Steven Butala: When I say wholesale, I mean never go to see the thing. You’re just looking at square footage, it may even be potentially a tear down. It’s that bad, but you still know you’re gonna make money. You’re removing all the risk from the thing.
Jill DeWit: Exactly. Was there a question there?
Steven Butala: No. I just think that …
Jill DeWit: I’m following along like …
Steven Butala: My point is this, if you lose money in a real estate transaction, it’s because you got over zealous about doing a deal or you’re a good Samaritan or you didn’t slow down and really look at the facts.
Jill DeWit: You know what you just did to me?
Steven Butala: Uh-uh.
Jill DeWit: You just did me like “Okay, Bob gets on the school bus, Carol gets on after him. Bob gets off, Jack’s still on the school bus.” You just did one of those. So, I’m following along, I’m like almost taking notes. I’m like “Where’s the question?” I’m like “Oh, there is none.”
Steven Butala: It was a statement.
Jill DeWit: I was really in … no, it’s okay.
Steven Butala: Oh, you wanted a question. I can think of a question.
Jill DeWit: Think of this situation, how would you handle it.
Steven Butala: Remember we used to do would you do this deal? And everybody loved it.
Jill DeWit: We still do that.
Steven Butala: Yeah, on Thursday, the Thursday thing.
Jill DeWit: Oh, that would be fun to do live.
Steven Butala: Would you do this deal.
Jill DeWit: Oh, what if we had … okay, not adding more. Hey, watch Jill add more work to our list of things to do right now. Would that not be cool? What if we did a weekly or a monthly show for like an hour and did it live, like a Facebook live or a YouTube live and people could submit them ahead of time and so we could have time. Would you do this deal. Oh, that would be so cool to do. Look at all my [inaudible 00:12:36] notepad.
Steven Butala: Yeah. You have to submit the deal ahead of time.
Jill DeWit: So we can kind of look at it and we’ll pick and we could even let them know … just like a real TV show. The five people that we’re gonna review your deals, let them know ahead of time. Make sure they’re gonna be available so they can even chime in and go “Oh great, this is my follow up question.” How cool would that be.
Steven Butala: We could test it on a Thursday call. We could do it today. Today’s Thursday.
Jill DeWit: That would be … it often ends up happening.
Steven Butala: I would watch that.
Jill DeWit: I would too.
Steven Butala: We could even review our own deals and say “We should do this deal.”
Jill DeWit: That’s a great one. Oh, I like this. Okay, that’s a whole other thing. So, deals where we lost money. Is there anything else. I’m trying to think.
Steven Butala: Yeah, the number one … Jill and I, we never borrow any money, even. So, that’s the good new. So, if we lose money it’s our own money. But we lost some dough on some land that we had accumulated when the market down turned.
Jill DeWit: Yeah.
Steven Butala: And so we chose to sell it for a loss. But it was probably 10, maybe 15 properties.
Jill DeWit: Not a big deal. It was just get some cash for other stuff.
Steven Butala: Sometimes we sell property $1 no reserve on Ebay just for the marketing.
Jill DeWit: It’s true.
Steven Butala: To drive people back to our Land [inaudible 00:13:52] website and Land Academy, the whole thing. Once in a great while, it’ll sell for a couple hundred dollars less than we paid, which is no big deal at all. It’s advertising expense.
Jill DeWit: That’s what I think. Actually, you know what, I actually get excited for the person. I’m like “You know what, I know you’re getting a good deal.” I can afford it, so I just look at it like I’m paying it forward to that guy. We’ve done this … well we’ve had some too, by the way, where we didn’t really lose money, but we gave away property for different Land Academy promotion. Actually, we’re about to give away some property at our live event coming up in September and October. We have a lot that we’re giving away. And I look at it like “You know what, have it.” Could I go through and sell it and all that good stuff and make some money? Yeah, but you know, I’ve got enough.
Steven Butala: Enough money?
Jill DeWit: Well, no. Well, property.
Steven Butala: Or enough deals? Yeah, we’ve got enough deals.
Jill DeWit: I’ve got enough.
Steven Butala: This is beyond the scope of this conversation. With the exception of once, I’ve lost money on every single primary residence deal I’ve done. And I don’t mean hey, I bought that property for $120,000 and then 14 years later I sold it for 180, oh I made money on that deal. No I didn’t. When you look at the interest expense and the maintenance expense and all the stuff that went on, almost no one, unless you’re in California and you’re buying stuff constantly and quickly, almost nobody makes money on a primary residence deal. You look at real estate taxes and all that.
Jill DeWit: It’s true.
Steven Butala: I wrote a whole technical paper on why you shouldn’t have a mortgage. As you can imagine, it got a lot of …
Jill DeWit: Response. We’ll call it response.
Steven Butala: People hacked it so … well, the first thing they say is “Well … all the taxes.”
Jill DeWit: You should get a mortgage. You should be …
Steven Butala: You missed out on all the taxes … let me tell you something about mortgage tax. It’s like ten cents a year. It’s not gonna offset … nevermind. I’ll talk about it later.
Jill DeWit: Family member have though that. They were trying to give me a speech like “Even if you can afford to pay cash for your house, you shouldn’t because you need to write off that interest and all that good stuff.” I’m like “Wait a minute.”
Steven Butala: That’s the worst advice ever.
Jill DeWit: How does that work? I don’t like [inaudible 00:16:08]
Steven Butala: Plus, mentally, here’s the thing for me. Mentally it’s just like “I’m tied down to this thing.”
Jill DeWit: Yeah. Like a marriage.
Steven Butala: You might four million dollars now and I have to pay it out in the 30 years. No. I just wanna pay as I go.
Jill DeWit: Did you miss my comment?
Steven Butala: Yeah, marriage. [inaudible 00:16:26] down?
Jill DeWit: Yes.
Steven Butala: It’s the same thing.
Jill DeWit: I was waiting for you to throw that in there. I threw it in there for you because I knew it was coming. Trying to beat you to it.
Steven Butala: Well you’ve done it again. You spent another 15 or 20 minutes listening to the Land Academy show. Join us next time where we discuss, as I said before, eliminating risk from real estate deals.
Jill DeWit: And we answer your questions posted on our free online community. Go there, it’s Landinvestors.com.
Steven Butala: You are not alone in your real estate ambition. We covered that.
Jill DeWit: You’re funny. I think that was good.
Steven Butala: Me too.
Jill DeWit: This is one of the things that I love about not just who we are but now our community too and all the people in our world. We are all so transparent, to a fault.
Steven Butala: I wonder about that sometimes. I wonder if it’s too much.
Jill DeWit: Probably a little too … No, I don’t … well you know what, so what. I love you’re thing. Everybody wants the truth and that you’re saying, not mine. I’m giving you credit for that. And so, you know what, we’re real good about telling the truth. So much so that if this is not a good fit for people, oh man we’ll tell them. Listen, I don’t think this is gonna work out, please go save your money and go do this with it or something.
Steven Butala: Yeah. It’s never real estate, it’s all lack of organization or too much stuff in your life.
Jill DeWit: Don’t know Excel.
Steven Butala: All kinds of issues that people have long before they get to us. You don’t know Excel. That’s a big one.
Jill DeWit: Or they’ve never completed anything they’ve started. I hate to say that but there’s a lot of people out there and so why do you think that this is gonna be different? It’s not.
Steven Butala: Land Academy and all the tools and companies that we have is not the place to learn to see if you know about technical data. If you’re already an engineer or an accountant or if you are at the top of a company somewhere and you’re frustrated with the politics but you’re not afraid of crunching some serious data and placing money and taking a very minimal amount of risk, this is the place for you. But if you’re brand new and you’re looking for a hobby and not sure if analyzing data in a specific zip code or a census track market, you don’t really know about those things or don’t care, you just wanna buy a property and put some new wallpaper up and start an HGTV show. How’s renting now? This is not for you. We’re technical people here. Jill’s all inspirational and stuff, let me tell you something, she’s one of the most analytical, data-driven, engineering, left-brain people I have ever met. And I say that as a huge compliment all wrapped up with pretty bows and stuff.
Jill DeWit: Aw, thank you. Share the fun by subscribing on iTunes or wherever you are listening. While you’re at it, please rate us there. [crosstalk 00:19:24] We are Steve and Jill.
Steven Butala: Information
Jill DeWit: And Inspiration
Steven Butala: To buy undervalued property.
If you have any questions or comments, please feel free to email me directly at steven@BuWit.com.
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