What Every Wholesaler Does Wrong (LA 921)
What Every Wholesaler Does Wrong (LA 921)
Transcript:
Steven Butala: Steve and Jill here.
Jill DeWit: Hello, handsome.
Steven Butala: Start the teleprompter again.
Jill DeWit: I’m sorry. Are you all messed up now? Did I totally blow your mojo there?
Steven Butala: Who doesn’t want to hear that?
Jill DeWit: Thank you.
Steven Butala: Who doesn’t want to hear, “Hello, handsome,” or, “Hello, beautiful”? I mean-
Jill DeWit: Thank you. I concur.
Steven Butala: I’m gonna start the teleprompter for the third time. Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.
Jill DeWit: And I am Jill DeWit, broadcasting from sunny southern California.
Steven Butala: Today, Jill and I talk about what every wholesaler does wrong.
Jill DeWit: I love this topic.
Steven Butala: So do I.
Jill DeWit: It’s really good.
Steven Butala: And it’s simple.
Jill DeWit: It really is. Everybody’s kind of going, “Okay, let me think. Do they not get the inspection? Do they miss something?” And it’s nothing like that.
Steven Butala: Yup.
Jill DeWit: It’s really good.
Steven Butala: Before we get into it, let’s take a question posted by one of our members on the LandInvestors.com online community. It’s free.
Jill DeWit: Katrina asks, “Hello, everyone. I have two questions I was hoping you could help me with. Question one: The cash flow from Land program. With the cash flow from Land program, we focus our attention on rural vacant properties in counties with a low census population density. Am I right to assume that with infill lots, we want to avoid the low population density counties? Can you explain in greater detail the type of market we should try to target? Are we looking for a large population, million plus, medium population, 500,000 to one million, or small population, 200,000 to 500,000, or even rural populations?” Do you want to do that one, before I go to question two?
Steven Butala: Yes.
Jill DeWit: Okay.
Steven Butala: The fact is this. This is a great question. Is it Katrina?
Jill DeWit: Mm-hmm (affirmative).
Steven Butala: This is a fantastic question. Where would you logically … Let’s apply reason. You know how we’re all constantly saying, “Just apply some logic. Test for reason.”
Jill DeWit: Exactly.
Steven Butala: Where would you logically want to buy a buildable piece of property, and who are you gonna sell it to? The answer to that question will give you the answer to where you should be sending out mail.
Jill DeWit: I want to buy in an area that there’s building going on, for starters.
Steven Butala: Good. What else? That’s exactly right.
Jill DeWit: I don’t want to buy in a subdivision that somebody started and never finished, and there’s three of 100 homes built, and there’s tons of extra infill lots sitting there. I don’t want that.
Steven Butala: This is awesome. We’re applying linear thinking here.
Jill DeWit: Mm-hmm (affirmative). I want to go where the people want.
Steven Butala: Keep going.
Jill DeWit: Maybe I have a buyer.
Steven Butala: You nailed it.
Jill DeWit: Maybe-
Steven Butala: You nailed it. You could stop right there.
Jill DeWit: Okay.
Steven Butala: You nailed it. In all cases, not just this, you want to buy property that’s in high demand.
Jill DeWit: Yup.
Steven Butala: That’s why we review days on market, DOM, in massive amount of detail for infill lots. So, can you buy super cheap, inexpensive property in a super rural area, that’s totally buildable? Absolutely. And can you buy it ultra cheap? Heck, yes. You just need to put your helmet on, because it’s gonna take a while to sell it. Which is fine. There’s a lot of people that do that in our group. They love sitting on an asset they know they’re gonna make $50,000 on, and it’s gonna take a year to sell it. They just wait. And quite frankly, Jill and I have a couple of assets like that, that we just know they’re long-term holds.
Jill DeWit: It’s okay.
Steven Butala: But we know we’re gonna make a couple hundred thousand bucks on it.
Jill DeWit: Went into it like that.
Steven Butala: Went into it like that, with our eyes open.
Jill DeWit: Exactly. I have a question.
Steven Butala: The large … The very, very large, dense population areas always sell fastest, with the exception of Rust Belt type inner cities like Detroit. You want to stay out of that. Just steer clear of that forever. I mean, I don’t mean … I say that, and then people in our group, they go and make a lot of money doing that. So, the real answer is this: Buy property where everybody wants to buy property. Just buy it cheaper.
Jill DeWit: Yeah. Before I get to question two, I would like to ask you, what other situations do you recommend to put your helmet on? I have one, but I just was curious about your-
Steven Butala: Since you brought it up …
Jill DeWit: What’s your list?
Steven Butala: What is it with these helmets these days?
Jill DeWit: What is your list about? Put your helmet on.
Steven Butala: I’m sounding like an old man here. All the stuff that I think you really need a helmet for, people just don’t wear helmets. Like, riding a bike down the street? I don’t think you need a helmet for that.
Jill DeWit: Yeah.
Steven Butala: Nobody wears a helmet skiing. I think that’s the most dangerous thing I’ve ever seen.
Jill DeWit: That’s true. You’re right. Everybody should.
Steven Butala: You should actually wear a motorcycle helmet while you’re skiing.
Jill DeWit: Yeah. Good point. That’s not exactly where I was going, but thank you.
Steven Butala: Did you ever go to Mexico when you were younger, and they put that hard hat on you?
Jill DeWit: No.
Steven Butala: I don’t know if they do this anymore-
Jill DeWit: What were you doing?
Steven Butala: You know, the drinking age is different in Mexico than it is in this country, so … I don’t know about this, by the way. I’ve never personally experienced this. I’ve only read about it.
Jill DeWit: What’s with the helmet thing? They put a helmet on you?
Steven Butala: This is in Mexico, that you can go before you’re 21, and they put a hard hat on you, and they take a mallet-
Jill DeWit: I’ve never seen this.
Steven Butala: … and they do a shot of tequila-
Jill DeWit: Steven, that’s awful.
Steven Butala: … and hit your head on a mallet, on a thing. Kind of like a nest.
Jill DeWit: That’s bad.
Steven Butala: Yeah.
Jill DeWit: That’s damaging. No, no.
Steven Butala: This is a thing. I’m telling you.
Jill DeWit: Oh, no, no, no.
Steven Butala: And you do it in a barber’s chair.
Jill DeWit: That’s awful. I hope that’s done. I’ve never heard of that. The only thing I’ve heard of in Mexico … Again, never done it, only heard of it … is where you do a shot, and there’s a whistle involved, and spinning you around.
Steven Butala: That’s probably the girl version of the hard hat thing.
Jill DeWit: That’s awful. Anyway, back to the show.
Steven Butala: Jill, what was your point with this? Hard hat, with this helmet thing.
Jill DeWit: I just like when you talk about put your helmet on, so I just was wondering where you were going with that. All right, let me get back to Katrina’s second part of her question. Here is question two: “Should we not go below or above a certain home sale price range?”
Steven Butala: Yes.
Jill DeWit: This is a great one. “Meaning, avoid areas where the average list price is less than $150,000, because there’s not enough spread or buyers’ interest. Or, avoid higher priced areas, like over $170,000, because although the profit potential may be generous, the capital outlay to acquire the property is too high, the property may take longer to sell, and the buyer pool may be too small?”
Steven Butala: How well-written.
Jill DeWit: I like this.
Steven Butala: Well-written, this question is.
Jill DeWit: I just red lined-
Steven Butala: We have the smartest people in this group. It’s insane.
Jill DeWit: Yeah, I love it. I was gonna say, I just red lined a property. I’ll tell you real quick right now. With Land Academy deal funding, I had a property come in about a week, or a week and a half ago. It could have been a great property. It really was a great property in a great area, but here was the problem. It was in a part of the country where … They had a negotiated price of $20,000, and the properties directly across the street were selling homes, built out, done, for $98,000 and $100,000. It just didn’t make sense.
Jill DeWit: So my response was, unfortunately, no. There’s no room there, number one. And number two, even if I got it for $5,000, it’s just not in that kind of an area. You know? $20,000 buying it, when the homes are selling for $250,000, $300,000, $400,000 … Now we’re talking. Or even buy it … You know. You get what-
Steven Butala: First of all, we answer all this in Land Academy 2.0, which is included in all of our stuff. It’s done, and people are doing it. It’s included in our program. But, your numbers are almost spot-on. On a low end, $150,000 is just … It’s too hard, unless you’re buying houses for $40,000 or $50,000. I mean, you would have to buy a house for $40,000 or $50,000, which means you would have to get a piece of land for $10,000. Maybe $5,000 to $10,000. Which we do in Phoenix, all the time. So, it’s not out of the question. But $150,000-
Jill DeWit: End sale price is not enough.
Steven Butala: [crosstalk 00:08:04] price is about the bottom for us.
Jill DeWit: Yeah.
Steven Butala: And $700,000 is about the top. The national average is around $250,000, $275,000, to $300,000, $350,000. That’s where you want to be.
Jill DeWit: Right.
Steven Butala: And again, in our red, green, yellow spreadsheet test-
Jill DeWit: That you have, Katrina.
Steven Butala: Yeah, and the equity planner that comes with Land Academy 2.0, the spreadsheet … Just drop the numbers in there, and it essentially tells you what to do. You still have to test it for reason. It’s not an easy button. But you got the gist of it.
Jill DeWit: She’s doing it right.
Steven Butala: Yeah.
Jill DeWit: I think this question is confirmation, “Am I doing this right?” And the answer is yes.
Steven Butala: Yup. I totally agree.
Jill DeWit: You are. You are doing great. Thank you.
Steven Butala: Today’s topic? What every wholesaler does wrong. Here’s a hint: It’s a Captain Obvious situation here.
Jill DeWit: Put your helmet on.
Steven Butala: This is the meat of the show.
Jill DeWit: I think I’m gonna use this today. Now this is gonna be my saying all day today. Well, everyone, put your helmet on.
Steven Butala: That’s probably what the people say when we come in for these meetings in the morning.
Jill DeWit: That’s true. They do say that. I’m sure of it. “Does everybody have your coffee? Everybody have everything they need? [inaudible 00:09:07]. Put your helmet on. Here comes Steve and Jill.”
Steven Butala: I know.
Jill DeWit: It’s very true.
Steven Butala: We have the greatest crew right now I’ve ever had working for us. Ever. And I don’t just say that. They don’t listen to the show, so there’s no reason I would say that.
Jill DeWit: It’s true.
Steven Butala: Except that it’s true.
Jill DeWit: Do you want to do the review? You do the review, and then I’ll add on to what you have to say.
Steven Butala: Yeah. There’s not just one reason, but the number one reason that a wholesaler is gonna fail, and I see it all the time, is they didn’t get there first. A wholesaler … Which is us, and the vast majority of the people in our group … have to get to the seller before anybody else. So if a realtor gets there, they got there first. They’re trying to hock it to you. It’s not wholesale.
Jill DeWit: Right.
Steven Butala: So then the question becomes, can I adjust that concept, and understand and believe it? And why wouldn’t you?
Jill DeWit: Yeah.
Steven Butala: That you have to get there first. The question becomes, “Okay, great. What’s the most efficient way to get to the most people the fastest, so that I can review their deals?”
Jill DeWit: Right.
Steven Butala: All right? Trust me, you’re not gonna go through the MLS, look at 10 deals, and pick one and wholesale it out, unless you’re very, very good at gambling. You might get away with that once or twice, and that’s it. And by the way, that’s the worst thing that could happen.
Jill DeWit: It’s scary. Well, the bottom line is you’re never getting it as low as it could be, because somebody else got there first. Even if you’ve negotiated the smallest commission for that person so you could pick up that property, mark it up and sell it for more, you’re still paying more than you could have-
Steven Butala: So, I’ll cut to the chase-
Jill DeWit: … by dealing straight with the seller.
Steven Butala: The most efficient way to do that is to send out offers to owners.
Jill DeWit: Right.
Steven Butala: Blind offers to owners, by the tons.
Jill DeWit: Right.
Steven Butala: The mail will work itself out. If you send out 1,000, there’s 10 or 15 people that are gonna call back or send them back and say, “You know what? I don’t like the price that much. Don’t care about the price. But, you just caught me at the right time.”
Jill DeWit: Right.
Steven Butala: You can to go a tax auction. You know what? We’ve had a lot of success doing that.
Jill DeWit: Mm-hmm (affirmative).
Steven Butala: It’s not as efficient. You still gotta go out and do stuff, instead of sending all the mail out and having it come back to you.
Jill DeWit: Right. I-
Steven Butala: So-
Jill DeWit: Go ahead.
Steven Butala: You know. There’s some other things that wholesalers really do incorrectly and inefficiently, but we’ll get to that in a second. Go ahead.
Jill DeWit: Well, one of the things that I see happening too, to tie with this, is wholesalers go out, and they make it … In their head, try to make it work. So, here’s what I’ve seen. This all ties together what they’re doing wrong. So, they found this deal. Maybe they negotiate it with the person who’s holding it. And then you know what they do, to make themselves feel better? It drives me crazy. They create this inflated, imaginary ARV number, so it sounds like it’s a great deal. No, it’s not. It’s not. Just because you think the After Repair Value is $500,000, that’s … Boy, that drives me nuts.
Steven Butala: Yeah, I mean-
Jill DeWit: I never believe that number, because it’s always a made-up … It is a made-up number. It’s not real. It’s what you think it can be, with the Corian, or whatever the latest marble whatever countertops are, and-
Steven Butala: Then that taps in to my next point.
Jill DeWit: Like, ugh. Go ahead.
Steven Butala: This will put a wholesaler out of business overnight. Maximizing price, both on the acquisition side and on the sales side.
Jill DeWit: Yeah.
Steven Butala: “You should sell yourself this. I need to make $20,000 in this deal.”
Jill DeWit: Right.
Steven Butala: “I need to make $20,000 per unit on this mailer.” And when the deals start coming back, if one comes in for $15,000, have somebody you can send it to. Have somebody else in our group where you can say, “You know, $15,000 is not gonna be good enough for me right now. $15,000 was me six months ago. I raised the ante.”
Jill DeWit: Right. “I added a zero.”
Steven Butala: And so, I see people … Let me tell you something. Here’s some free, massive free advice. The speed at which you do these deals is infinitely more beneficial to you financially in the long run, than maximizing price.
Jill DeWit: That’s true.
Steven Butala: Whether it comes from maximizing how cheap you buy it, or maximizing how much you resell it. For you to digest that for a second, that requires you undoing in your head everything that you’ve ever been taught, consciously or subconsciously, about real estate, since you could speak.
Jill DeWit: Thank you.
Steven Butala: It is incredibly difficult, even for me today, to look at an asset and say, “I know the retail value on this thing is $750,000. We’re gonna sell it for $350,000.” Those are real numbers. We’re doing a deal like that right now.
Jill DeWit: Right.
Steven Butala: “Well, maybe we can get $400,000. I don’t know, Jill. Maybe we can get $450,000 out of this, if we just wait.”
Jill DeWit: I know.
Steven Butala: These are the conversations that we have.
Jill DeWit: Yeah, totally. “Do we turn down that offer? Hmm.”
Steven Butala: And in the end, we just wasted a bunch of energy and a bunch of time, because there’s gonna be 20 more deals around the corner.
Jill DeWit: Right.
Steven Butala: Spend all your time generating deals, and this $20,000 example I just … It’ll come like water.
Jill DeWit: Exactly. That was beautiful.
Steven Butala: Maximizing price will stop a wholesaler in their tracks, and I see it all the time.
Jill DeWit: Exactly. I love it. That was great. Thank you.
Steven Butala: What else do wholesalers do wrong?
Jill DeWit: Just like negotiating. Those are my things.
Steven Butala: There’s so much negotiation that goes on that’s unnecessary.
Jill DeWit: It’s ridiculous. It makes me mad.
Steven Butala: Oh, my point is, what Jill’s point is-
Jill DeWit: They’re trying to justify their numbers.
Steven Butala: I just read, we get a little … Everybody gets one. But, our little newspaper that’s left over from the 1950’s, in our little beach community. It’s called The Beach Reporter. There was an insert in there. Somebody spent like a tremendous amount of money, some real estate agent, and this is the headline in this four-color bleed insert: “New record set on a home that was sold in beach communities.” And it was $22,500,000, whatever. It was $22,000,000.
Jill DeWit: I put that out for you.
Steven Butala: That boils my blood.
Jill DeWit: Exactly.
Steven Butala: Why do you get a trophy for hosing somebody the most on the price of a property?
Jill DeWit: Exactly.
Steven Butala: And then on the other side, why would you get a trophy for hosing somebody on the cheapest acquisition price possible?
Jill DeWit: Thank you.
Steven Butala: That’s not why we’re here.
Jill DeWit: That’s true.
Steven Butala: We’re here to respect real estate, respect our careers, respect the people that are buying it and selling it, and within reason, make a reasonable profit margin. But do it very, very, very quickly and efficiently, with a smile on your face, and don’t waste anybody’s time. Real estate agents love to brag about how they reset the price in their market. Because for some reason, it’s a disease.
Jill DeWit: I know.
Steven Butala: For some reason, it just makes them validate their bullshit. Their bullstuff. Sorry.
Jill DeWit: I know.
Steven Butala: This is rated G.
Jill DeWit: It’s okay.
Steven Butala: Validate some kind of insecurity that they have, about the fact that being a real estate agent is a pile of malarkey anyway. Wow, this turned into a rant. Sorry.
Jill DeWit: Do you know what, Steven? I would like to end it on this: Thank you for saying that. You are such a good person, and I really appreciate you.
Steven Butala: You left that out intentionally, like bait.
Jill DeWit: What? I did. I saw that. I’m like, “Oh, wait’ll he sees this.”
Steven Butala: Did it infuriate you, too?
Jill DeWit: It did. I’m like, “This is ridiculous.” And I did. I left it on the coffee table, face up, for you to see that dumb little thing. I’m like, “Are you serious?”
Steven Butala: It worked.
Jill DeWit: Really? I’m like, “God, this is awful. Why are we bragging about that?” It’s awful. But what I was gonna follow-up with is, and just end is, you are such a good person, and that’s how I feel about it, too. And I would like to show you later. Put your helmet on.
Jill DeWit: Well, you’ve done it again. Wasted another, I don’t know, 15 minutes or so listening to the Land Academy Show.
Steven Butala: Join us next time for an episode called 90 Days with a Rehabber, or 90 Days Versus a Wholesaler. We’ll look at the map.
Jill DeWit: And we answer your questions posted on our online community, LandInvestors.com. It’s free.
Steven Butala: You are not alone in your real estate ambition. When you talk like that … Like, I have a lot of stuff to do during this.
Jill DeWit: I know.
Steven Butala: There’s a audio piece and a video piece, and when you say stuff like that, it just totally distracts me. And I think that’s what you want.
Jill DeWit: I do. I do. Yeah. I want to get you out of it.
Steven Butala: You want to just throw me off, you know, and just-
Jill DeWit: No, no. Not like that. I don’t want to mess with your mojo.
Steven Butala: No, I think it’s a positive thing.
Jill DeWit: I just want to, like … No, just like bring out the real. But it is cool, you know? That was a really good point that you made. I’m glad that … We’re not here to hose people. We’re here to do good offers. Lower, heck yeah. Come on. We’re trying to do it right. But still good offers. We’re not trying to take anybody for, whatever.
Steven Butala: Every deal that we do, almost without exception, there’s … And I will give the exception at the end. Every deal that we do, the seller says some version of this: “You know what? I tried to do this myself,” or, “Thank you so much for just taking … I hope you guys make a lot of money.”
Jill DeWit: Yup.
Steven Butala: That’s what you’re looking for. That’s a seller that … You know. Every once in a while … The exception is this. Somebody sends an offer in, signed, and Jill or her staff calls them, and they say, “Send the money here.” The exception is, we don’t know why they sold it.
Jill DeWit: Mm-hmm (negative).
Steven Butala: But the vast majority of the time it’s, “You know, my wife and I are so grateful that you guys made this easy.”
Jill DeWit: Yeah, “Thank you.”
Steven Butala: “Thanks. We hope you make a lot of money.”
Jill DeWit: Yup.
Steven Butala: “We know you’re gonna make 100 grand on this. We just don’t want to deal with the realtors.”
Jill DeWit: “We’re done.”
Steven Butala: “We don’t want to go through the thing. We don’t want to go through all of it.” Or maybe there’s a little cloud in the title that you guys saw. Then, “Thanks, because we couldn’t do it ourselves.”
Jill DeWit: Exactly.
Steven Butala: There’s no tricking anybody here.
Jill DeWit: Yup. Wherever you’re watching or wherever you’re listening, 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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