Where Does This Business Model End (LA 942)

Where Does This Business Model End (LA 942)

Transcript:

Steven Butala:                   Steven and Jill here.

Jill DeWit:                            Hello.

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

Jill DeWit:                            And I’m Jill DeWit broadcasting from sunny southern California.

Steven Butala:                   Today Jill and I talk about this topic, where does this business model end?

Jill DeWit:                            Oh, I have a road map.

Steven Butala:                   This topic came from-

Jill DeWit:                            I made a road map.

Steven Butala:                   … a question by Jermaine.

Jill DeWit:                            Really?

Steven Butala:                   In the last weekly call, he says, “Has anybody out there ever sell their company?”

Jill DeWit:                            Oh, exit strategy. Oh yeah.

Steven Butala:                   “Do you ever build it all up and sell it?”

Jill DeWit:                            Got it. I forgot about that.

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:                            Marcus asks, “What should I be doing while waiting for my first mailer to hit?” It’s good.

Steven Butala:                   So there’s two weeks, but once you send a mailer out, it takes two weeks for office owners-

Jill DeWit:                            Yep, and you’re sweating it.

Steven Butala:                   … to get it to where they’re opening the mail, potential sellers are actually opening the mail in the office, so he’s asking.

Jill DeWit:                            That’s kind of funny. “What do I do? What do I do?”

Steven Butala:                   First of all-

Jill DeWit:                            I’d start getting ready. Get your systems in order.

Steven Butala:                   No matter how much you study and no matter what you listen to, how many podcast episodes you listen to or how seriously you take this, around the second week, the middle of the second week, and I swear to God I do this too-

Jill DeWit:                            Yeah, he does.

Steven Butala:                   You sit there, you look in the mirror and you say, “This didn’t work.”

Jill DeWit:                            Yep, “I failed.”

Steven Butala:                   “I failed.”

Jill DeWit:                            “The phone’s not ringing.”

Steven Butala:                   “I must’ve missed something.”

Jill DeWit:                            He does that, too. It’s so funny. You’re right.

Steven Butala:                   Jill laughs every time.

Jill DeWit:                            Yeah. I’m like, “Sit tight.”

Steven Butala:                   To this day.

Jill DeWit:                            “How many times do I have to tell you? You did it right. I promise,” and then another week goes by and we’re overwhelmed.

Steven Butala:                   We’re buying dirt.

Jill DeWit:                            Yeah, and he’s like, “Oh sorry, yeah, I guess I overreacted there, didn’t I?” Yeah, you kind of did.

Steven Butala:                   Everybody wants something to just smack them in the face and for it to be great and easy. That’s how we all want our lives to go.

Jill DeWit:                            Exactly.

Steven Butala:                   This is easy and great and profitable.

Jill DeWit:                            “I don’t have to do any work.” That’s right. All right, so let’s go ahead. We’ll talk more about what we think I kind of did, but some of our members put in some replies, so I’m gonna read some of the responses.

Jill DeWit:                            Robert replied: “Congrats on your first mailer. That’s a big step and I totally understand the feeling you’re having right now. Sure, there’s lots of things that you can be doing while you wait. Of course, which things would actually be of value to you is a determination you’re going to have to make, but here are a few things that I can recommend. One, organization.”

Steven Butala:                   Yes.

Jill DeWit:                            “Consider your deal flow and making a checklist or standardized explanation of how you got to this point. The idea being you will be training someone eventually to help you as an assistant or maybe even a VA, virtual assistant.”

Steven Butala:                   This is brilliant.

Jill DeWit:                            “Also, when it is time for you to do this again, you’ll have a record of exactly what you did and it’ll be easier to tweak your process.”

Steven Butala:                   I couldn’t have answered that better myself.

Jill DeWit:                            This is great, too. “Number two, social media. Since you will likely be buying property [inaudible 00:02:58] you can start to join Facebook groups in your target area if you haven’t already. I love that. Garage and yard sale groups, classified and swap groups are great key terms along with city and or county names to search for when looking to join.”

Steven Butala:                   Great things.

Jill DeWit:                            I also look for too, like I mentioned on another call, who might be the user of this. What if it’s [inaudible 00:03:22] property wherever you’re doing your mail or it’s-

Steven Butala:                   Preppers.

Jill DeWit:                            Something like that, too.

Steven Butala:                   Tiny house people.

Jill DeWit:                            Exactly. Get yourself in those groups.

Steven Butala:                   Yeah.

Jill DeWit:                            “Three, research future markets. Since you just got done researching your first target market, you’re already in research mode. This is true. You should be prepping your next mailer while you’re waiting for your first mailer to hit.”

Steven Butala:                   This guy’s brilliant.

Jill DeWit:                            Thank you, Robert. This is great.

Steven Butala:                   Brilliant people in this group.

Jill DeWit:                            “So look for your second target market. Familiarize yourself with what makes a particular area attractive. Get onto Facebook and join groups and ask questions in potential areas you are looking into. Say you’re considering buying property in an area for a getaway spot or for weekends and ask what people would suggest you to buy since you are new to the area.” This is kind of cool. “You can learn from the locals a reason a particular area’s attractive or where to avoid. Just a few ideas. Anyway, congrats again.”

Jill DeWit:                            I think that was awesome.

Steven Butala:                   And don’t freak out.

Jill DeWit:                            Yeah, don’t freak out. I was just gonna say too, you know you’re gonna be buying some property. You know the area. You know how the county works. You know you’re gonna be doing special warranty deeds. Start prepping up and being ready to do deeds. Start prepping up and being ready to post a property when you buy it.

Jill DeWit:                            He’s talking about the marketing property, but we still gotta buy the property. Make sure you know where to go to do your due diligence. Get familiar in parcel fact, so when people call you up, you’re going to parcelfact.com, you’re popping in the state, county APN. Get practice looking it up and looking at the properties and getting to know the area a little bit better. What else do you want to add?

Steven Butala:                   Yeah. So when there’s downtime like that, specifically for info lots or for houses, you need to find buyers.

Jill DeWit:                            That’s true.

Steven Butala:                   Unlike real vacant land, which tend to either wholesale out to other people like you or retail it out, for info lots and for houses, you already know who’s gonna buy the house. You already know who’s gonna buy the info lot. It’s the developers in the area or in the case of houses, people that-

Jill DeWit:                            Other flippers.

Steven Butala:                   Renovators.

Jill DeWit:                            Yeah, the flippers.

Steven Butala:                   Not necessarily end users. So two weeks, you should have a fantastic list of when these properties start hitting-

Jill DeWit:                            What you’re gonna do with them.

Steven Butala:                   You should now who’s gonna buy the property.

Jill DeWit:                            Exactly.

Steven Butala:                   You should have maybe a list of five people at least that are already buying property in that area anyway.

Jill DeWit:                            You know what’s funny about this? It reminds me of the first time being pregnant. We all, men and women, okay, when your significant other is pregnant, what do we all do? We study all the books about pregnancy, about the pregnancy, what’s growing, how this works, how it’s gonna happen, and maybe we start to get into about the delivery but we don’t even really get into that so much. We’re really about what’s happening right now.

Jill DeWit:                            Then one thing we never really look for is what to do when the baby’s actually here. We all skip over that part like, “Oh yeah, shoot. I didn’t think about that part. I was so focused on this part.” So thank you for asking these questions, and thank you everyone for thinking about what to do after the baby is actually here.

Steven Butala:                   Every time I have downtime, I don’t know why. I don’t when I picked this habit up. This is about everything.

Jill DeWit:                            Okay.

Steven Butala:                   My gut reaction is document what I’m doing, whether it’s film it, write about it [crosstalk 00:06:38]. I don’t know why that is.

Jill DeWit:                            That’s interesting. That’s not what I do.

Steven Butala:                   What do you do, enjoy it?

Jill DeWit:                            Yeah. Heck yeah. I’m outta here. Does anybody need me? I know it’s 2:00, but I’m leaving. Just kidding.

Steven Butala:                   That’s exactly what’s gonna happen right after this recording for me. Today’s topic, where does this business model end? This is the meat of the show.

Steven Butala:                   When you own a business there’s two financial components to it. This is an accounting concept, and it’s actually very … I don’t know we haven’t talked about it somehow. There’s the income statement part of it, the money that’s coming in, so hopefully there’s more money coming in than goes out, and there’s the balance sheet part, this thing that you’re building and building and building and it’s got his value, right? In the simplest terms, think of a rental house. There’s the money that you make every month theoretically ’cause you charge rent. There’s expenses. You have a little bit left over. But the real juice in rental houses, the thing’s going up in value every year.

Jill DeWit:                            Right.

Steven Butala:                   At the end, you sell it, so you get kind of a two for one deal. So when you own let’s say a manufacturing company, you got the money coming in every month, but you’re building this thing and the sales are going up and at the end of the thing, you could have an exit strategy and a solid thing. So, you’re building this land business. Where does your business model end? You’re obviously making hoards of money every month, hoards and hoards of money. Can you sell it at the end?

Steven Butala:                   The easiest and best types of businesses to sell, I’ve bought and sold tons and tons of companies in my life and broke tons as an investment banker and accountant before we got into this. The best companies that you can sell have this profile. They have no real customer concentration, meaning it’s not like a government contractor where you just build one part for a helicopter and that’s it. That’s just one customer and that’s bad. You want lots of customers. Check if this business has that, tons of new customers.

Steven Butala:                   It has diversification of products, so you’re not just making one product like that government contractor. You’re buying and selling, in our house, houses and land and you’re doing it all over the United States so you’re not subject to one economic depressive area, like let’s say Detroit, Michigan. If you don’t want to do it there, you can pack up the stuff in 35 seconds and go do it in Oregon or anywhere else you want.

Steven Butala:                   It’s scalable, meaning you can control how much you sell or don’t sell. You’re not subject to, let’s say a convenience store or a restaurant where you have 22 tables and breakfast, lunch, and dinner. That’s it, unless you open another location. Check.

Steven Butala:                   And then finally, the new person who buys the company is going to effectively be able to run the thing without you. Fail. That’s the problem with this business model. 95% of it’s all positive, but the new person, the person who buys this company from you and you turn over all your social media accounts and give them the usernames and passwords to everything and you teach them how to do a mailer, it’s still you.

Jill DeWit:                            Right.

Steven Butala:                   It’s still your face. So Jill and I talk about selling Land Academy. We never talked about it. I think about it.

Jill DeWit:                            We’ve never talked about it.

Steven Butala:                   We’ve never talked about it and never will.

Jill DeWit:                            Don’t worry. Yeah, don’t worry.

Steven Butala:                   Land Academy will not ever get sold.

Jill DeWit:                            No.

Steven Butala:                   In that case, if we had to sell Land Academy or if you had to sell your land business, you’d probably sign an agreement that says, “I’ll continue to do the mailers for you but you do everything else.”

Jill DeWit:                            Right.

Steven Butala:                   So an institutional buyer who’s got tons of money might come to you and say, “We buy apartment buildings in Illinois and I don’t think we’re doing it right anymore. We want to buy your company, but we want to have you send the mail for us indefinitely, and let’s sign a contract so you’ll be a full-time consultant for us,” and I don’t know.

Steven Butala:                   So you can sell it. You can also franchise it. There’s all kinds of stuff you could do. But it is not a very good business. The balance sheet part of your land business is not typical for a business owner.

Jill DeWit:                            Right.

Steven Butala:                   The income statement, in my opinion, and this is why we do this for a living, more than makes up for end of the business model.

Jill DeWit:                            Right. Is it my turn?

Steven Butala:                   Yeah.

Jill DeWit:                            I took this topic and I wrote down kind of a roadmap of what I see the majority of us doing, us included. So where does this business end? I just took it like, where would I end? What’s gonna happen for me in the next couple years? How is this gonna change? I’m not gonna keep doing buy for 500, sell for 2000. I will die. Somebody will die. I can’t do that, right?

Steven Butala:                   Probably me.

Jill DeWit:                            Exactly. Something’s gonna happen. You can’t do that. You can’t sustain that. So, what’s the roadmap? So I say and what we do, as you progress and move along, you might stay with your same property type. We have so many members that just love land. This whole house thing? Who cares. Don’t want to do it. Don’t want to do it. Don’t want to do it. They love land.

Jill DeWit:                            What are they doing and what have we done? Moved onto bigger deals, either larger properties or more money involved, higher dollar amounts. Usually it’s the same. Not always, but that’s what you do. So you move onto higher properties. I’m doing maybe the same number of deals, but I’m making more money on those deals.

Jill DeWit:                            The other thing that we do … We’re diversified. We do all kinds of things, but some of our members have also moved on to other property types. Some are going to info lots and said, “I’m done with that. I want to do this, and then when I’m done with that, I’m gonna do the house thing,” whatever it is. They move on to other property types. That’s how you can grow your business, make more money, and be profitable.

Jill DeWit:                            And then the very end, though, you said this and I love it, you can replace yourself with a lot of the tasks but there’s some things you can’t do. You can’t replace yourself, like you just said. The mailer, your face. You’re the front whatever [inaudible 00:13:13]. So there’s some key tasks that you still want ’cause you want this to keep going.

Jill DeWit:                            I’m not worried about it. I’ve never set out to have this be the type of business that we’re never gonna do it. What we have done too is we’re setting this up to make this a legacy, a family legacy. I don’t know if that’s the right term, but a business that we can pass on to the kids-

Steven Butala:                   Yeah, and so should you.

Jill DeWit:                            … and keep it going. So at some point-

Steven Butala:                   Pass on the tribal knowledge if your kids are into it.

Jill DeWit:                            Exactly. So, maybe then we will be backing out of it, but it will still be our family, our business, and it will go on hopefully forever.

Steven Butala:                   For the sake of argument, if you’re the kind of person who’s interested in an exit strategy when you start a company and you’re kind of shaking your head trying to figure this out, where the exit is, here’s what you might want to do. So when you buy a piece of property and you sell it, you have a bunch of dough, you’re converting money into land and back into money.

Jill DeWit:                            Right.

Steven Butala:                   Let’s say for sake of argument, every other property, you just keep it. Buy a piece of property, sell it, now you have a bunch of dough. Buy two pieces of property, resell it, one of them, keep one of them. At the end of 10 years, you’re gonna have millions and millions and millions of dollars worth of real estate accumulated-

Jill DeWit:                            That’s good.

Steven Butala:                   … for nothing, because you’re using the profit margin from the last sale.

Jill DeWit:                            Right.

Steven Butala:                   So there’s something to sell there. You can very easily set an exit strategy-

Jill DeWit:                            That’s perfect.

Steven Butala:                   There’s lots of ways to save for retirement.

Jill DeWit:                            Right.

Steven Butala:                   That’s a real good one.

Jill DeWit:                            That’s perfect.

Steven Butala:                   You have complete control over this.

Jill DeWit:                            Exactly. I love it.

Steven Butala:                   Well, you’ve done it again. You’ve spent another 15 minutes or something listening to the Land Academy Show. Join us next time, where Jill and I interview Justin Sliva on Finance Friday.

Jill DeWit:                            Yeah, and we answer your questions posted in our online community, landinvestors.com. It’s free.

Steven Butala:                   You are not alone in your real estate ambition.

Jill DeWit:                            That was good.

Steven Butala:                   I love talking property.

Jill DeWit:                            That was good.

Steven Butala:                   Oh, you know what I didn’t mention? There’s no law against selling two companies either.

Jill DeWit:                            That’s true.

Steven Butala:                   If this is a great income statement company and it is really is-

Jill DeWit:                            True.

Steven Butala:                   … there’s other companies that are out there that are great balance sheet companies.

Jill DeWit:                            That’s true.

Steven Butala:                   Like a Christmas tree farm. You don’t really make any money doing that, but long haul, it’s really good.

Jill DeWit:                            Exactly. That’s good.

Steven Butala:                   I say that jokingly. Christmas tree farm.

Jill DeWit:                            I don’t think that’s crazy.

Steven Butala:                   Another good non-cashflow company would be real estate in very expensive areas. They don’t make any money, but they accumulate in value. We live in a neighborhood that pretty dramatically accumulates in value but the rent to market, you can’t charge rent on a flat $5 million house. You’re gonna charge $20000 to make it work. They don’t just rent out well. But, the long haul on those houses, if you’re making 8% on a balance sheet, you’re looking at 8% of an increase in value on a balance sheet over a year, on a $4 asset, that’s awesome.

Jill DeWit:                            Exactly. Wherever you’re watching or wherever you’re listening, please rate us there. We are Steve and Jill.

Steven Butala:                   Information.

Jill DeWit:                            And inspiration.

Steven Butala:                   To buy undervalued property.

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