Difference Between a Wholesale and Retail Deal (LA 982)
Difference Between a Wholesale and Retail Deal (LA 982)
Transcript:
Steven Butala: Steve and Jill here.
Jill DeWit: Hello.
Steven Butala: Welcome to the Land Academy Show. Entertaining land investment talk. I’m Steven Jack Butala.
Jill DeWit: I’m Jill DeWitt. Broadcasting from sunny, Southern California.
Steven Butala: Today Jill and I talk about the difference between wholesale and retail transactions.
Jill DeWit: There’s a difference? Hey, you keep saying I’m crowding you. Am I okay? You want to come a little-
Steven Butala: No, you’re fine.
Jill DeWit: Am I okay? All right, good.
Steven Butala: It’s all good.
Jill DeWit: Okay.
Steven Butala: Both of our shoulders are in the frame, it’s perfect.
Jill DeWit: Cool. Nice.
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: Brian asks, “I’m looking at picking up six adjacent parcels in Riverside County, California, in a developed area that has other small apartment complexes in the same block area. This is a high density zoning, as well as SFR residential, and I would like to target developers interested in putting in apartments. How would you recommend finding such potential buyers?”
Steven Butala: This is a great question. It’s the kind of question I love answering on the show, because it’s a complicated question on the face of it, and very advanced, I’d say, but the answer is so simple. The answer applies to every person who’s listening to this that’s ever owned a piece of real estate or aspires to own a piece of real estate. When you find specific use property like this, high density residential apartments, they’re very specifically zoned, typically, or there’s a range of zones, like multi-unit one to multi-unit four, that kind of thing. It’s just for sake of argument.
Steven Butala: In that county, or in that zip code, or the adjacent zip codes, are going to be other owners that own the property that you can see in the data based on how it’s zoned, or being used. I mean, and I’m talking about in less than two minutes you can find these, because you already pulled the data, you sent the mail out. These are the people who are going to buy these properties, and if they don’t, 50% of all property gets sold. All property and all property types gets sold to people who live or work in the immediate one mile radius of that property. Small apartments and specialty use properties, no different.
Steven Butala: If you talk to anybody who owns any type of real estate, or any business for that matter, they’re going to say one of two things. “Oh, this company … if I had two of these companies, I’d be done. I love this company. I love going to work there, and it’s great.” Or, “I hate this apartment building. If I could sell it right now, I would, it’s just not working.”
Steven Butala: So, by sending a letter to these people, whether it’s companies or [inaudible 00:02:43] owners, you’re looking for the ones who say, “Man, I really want another one, or another. I’m looking for another development project, this one’s really close to the one I already own.” You’re going to smoke those people out really quickly.
Steven Butala: This kind of deal is how I started in real estate back in the early ’90’s, before the internet and stuff. It’s a very special … in my case, it was healthcare facilities, like assisted living buildings and stuff. It’s specialty use, there’s only a limited number of owners in certain markets, and they’re going to buy the stuff if they’re happy with the one that they already have.
Steven Butala: So, you can make a little career out of this, I did for a decade, and did extremely well. A huge amount of seed cap we could put in the company that … the companies that Jill and I now have, we’ve never had to take on any debt because of that. So, you put yourself in a great spot, I don’t know if it was intentional or not, but you’re sitting a good situation.
Jill DeWit: That was fantastic, I have zero to add.
Steven Butala: That’s unusual. Today’s topic, the difference between a wholesale and a retail deal.
Jill DeWit: I have zero to add, just kidding.
Steven Butala: This is the-
Jill DeWit: I have one zero, zero to add.
Steven Butala: This is the meat of the show.
Jill DeWit: Uh huh.
Steven Butala: I overtook that question, because I know Jill’s got hours of stuff to talk about the difference between a … let’s define them first.
Jill DeWit: Okay.
Steven Butala: I’ll define it, and then you go.
Jill DeWit: Okay.
Steven Butala: You send out a bunch of mail, whether it’s house, it’s [inaudible 00:04:05], land, no matter what, a bunch of purchase agreements come back, tons of phone calls come back, and there’s two or three or five of them in there that you love, that work financially, and you buy them. You have two choices, you can mark it up and sell it to somebody else who kind of does what you do for a living, but has a different take on it. In the case of a house, it would be somebody who doesn’t really … isn’t a data person at all, but they’re an interior decorator or a contractor, and they love to renovate houses.
Steven Butala: So you sell them your whole … you’d mark it up for a reasonable amount of money and resell it to them very, very, quickly, within weeks. There’s no real estate agents involved. Or, you can say, and we’ve done this recently, “This house needs nothing, and we got a smoking deal on it. Let’s replace the carpet, list in on the MLS, and play the retail game.” It takes months, and there’s heartache and pain, and talking to real estate agents and users, and arguing over [inaudible 00:05:04], and all kinds of stuff. That’s a retail deal.
Jill DeWit: Yep. Oh, and don’t forget agents are involved.
Steven Butala: How’s that for a biased description of hotel and retail?
Jill DeWit: Wholesale, the beauty of wholesale I love, is that you’re dealing with like-minded people. You know, I’m an investor, they’re an investor. We all think the same way, we want to get it done, we don’t need to spend money on unnecessary commissions. That money needs to be spent on the assets, so everybody gets more out of it.
Steven Butala: Unnecessary commissions. That’s the name of the show next week. If I was a lead singer of a group, I would call it Unnecessary Commissions.
Jill DeWit: Unnecessary Commissions. That’s awesome. I’ll just get a T-shirt that says, “Commissions,” with a circle and a line through it. So, yes, versus … and that’s the thing, again, you’re dealing with a like-minded person. The retail … and you did a beautiful job explaining it. I think most of us know how that is. You know, we see it on HDTV all the time, where they walk in and go, “Oh, it stinks in here, I couldn’t possibly live in this house.”
Jill DeWit: Really? You don’t think we can’t clean this? We can replace the carpet, we can repaint, we can pull down that ugly wallpaper, we can even move a wall and make a closet there if you want it. You know, all those things can happen, and that’s the retail.
Steven Butala: Here’s the … were you done? I’m sorry. Here’s the financial implications of both. You know, I’m going to use an example, so here’s [inaudible 00:06:34] use the wrong the numbers. We buy a property for $50,000, we know it’s worth $200, I can wholesale it out to somebody for a 100 grand, double my money, make $50,000 in weeks, and move on to the next deal. Get a reputation for that in that environment, by the way.
Jill DeWit: Right.
Steven Butala: I know it’s worth $200,000, I can clean it up, spend some time, not move walls [inaudible 00:06:58], even if it’s just … let’s say it’s a piece of land, you’re not going to do anything to a piece of land. Maybe post it in different places, maybe hire a broker.
Jill DeWit: Yeah.
Steven Butala: Post it in different places on the internet. Spend a little more time on it. Take some drone shots.
Jill DeWit: Professional photographs, professional drone. Yeah.
Steven Butala: List it for 200 grand, knowing that, and how I’m doing this with a broker and stuff, is going to attract an end user.
Jill DeWit: Right.
Steven Butala: That’s where the problems start.
Jill DeWit: And sit and wait.
Steven Butala: The problems start in real estate with the end user, whether it’s the homeowner who’s going to move in and live there, try to never deal with them. Whether it’s the apartment owner themselves, versus the apartment renovator, apartment building owner or manager, and on and on.
Steven Butala: So, dealing with a customer and the end user is a whole different talent, than what we choose … the business that we choose to be in. We choose to just wholesale property out, make a 20% to 100% margin, get a reputation for that in the environment, and just keep doing it.
Jill DeWit: Exactly.
Steven Butala: We’re data people, you know? We’re not sales people in our souls.
Jill DeWit: Mm-hmm (affirmative).
Steven Butala: We just happen to be sales people by default, because we have to get this stuff done.
Jill DeWit: Exactly.
Steven Butala: Retail sucks. Retail is not set up … I’m not set up for … that’s not my personality.
Jill DeWit: That’s the thing, if I wanted to do retail all day long, I would be a real estate agent, because that’s really who they’re working for and with. They’re working with that end user who walks up and goes, “Ah shucks, I really wanted yellow flowers out front,” you know, kind of thing. The curb appeal didn’t appeal … didn’t do it for them, so they’re just going to keep on driving. “Okay, let’s go to the next one, and the next one, and the next one, and the next one.” That’s retail.
Jill DeWit: Wholesale, is really for me too, it’s a spreadsheet, it’s a line item. You’re not looking at the asset like how pretty it looks, you’re looking at, “What are the numbers on that one? Wow.” I mean, you don’t even … I mean, even to this day still with land or houses, we’re not looking at them, we are seeing them as a spreadsheet. What is a price for square foot? If it’s a house, and what is a price for acre? If it’s a piece of land. That’s even to the wholesale mentality.
Jill DeWit: What’s interesting too, is I wish that I could find the right agent, because when we do, sometimes accidentally, you get properties where you just know that it’s going to be sold retail, that’s really the best way to get it done, you know? Or, you don’t even plan that, but that’s who comes to you, is the retail and user/buyer. Then they’ll have an agent, and unfortunately, I wish the agents … You know, what’s interesting, is that I’m dealing with an agent right now, and it’s kind of a bummer, because he had said, “Wow, I want to be a wholesaler, I want to be an investor like you.”
Jill DeWit: He’s never going to get there, because he doesn’t think that way. He cannot think in the numbers part of it. I said, “Look, well all know this is the cheapest price per square foot in the subdivision, and he doesn’t … he can’t comprehend that.
Steven Butala: Really?
Jill DeWit: No, cannot.
Steven Butala: Oh, there’s no hope then.
Jill DeWit: Yes. Exactly, he’ll never get there.
Steven Butala: That’s all you’re buying with houses is price for square foot.
Jill DeWit: Exactly.
Steven Butala: You’re not actually buying a house, I don’t look at it that way.
Jill DeWit: Right.
Steven Butala: If the price per square foot is where it needs to be, the house doesn’t matter at all.
Jill DeWit: Exactly.
Steven Butala: That’s the person who we’re going to sell it to, we’re going to wholesale it to? That’s their issue.
Jill DeWit: Right.
Steven Butala: In the vast majority of the wholesalers of rehabers out there, the people that go clean it up, they want a dead house, they don’t want a half done house.
Jill DeWit: It’s true.
Steven Butala: They just want it to be an absolute tragic mess, because they can go in … if you [inaudible 00:10:27] done a house, you can take everything out anyway.
Jill DeWit: Right.
Steven Butala: Even if it’s 1985 and totally tenantable, you’re still taking it all out and making it 2012 … or 2019. So, I’ve never understood retail at all.
Jill DeWit: I know.
Steven Butala: Retail real estate.
Jill DeWit: You know, what’s funny? What’s kind of nice? Even my parents didn’t operate that way, you know?
Steven Butala: Me either.
Jill DeWit: Which is actually really good. My parents did not operate on the retail thing. Yeah, my parents, we rented our house forever, because that was the cheapest thing, and the person didn’t change the rent, so why bother? So my parents … we stayed there for a long time, through I was graduated high school, and then they had saved up a whole bunch of money, and what did my mom do? She got a real estate license and bought a house from a bank. It was only the numbers, it was a-
Steven Butala: Geez, Jill, I never knew that.
Jill DeWit: Mm-hmm (affirmative). Bought it from the bank. You know-
Steven Butala: That’s why you’re crazy like that.
Jill DeWit: Oh, I have that like, “Ugh, got to win.” I got to win.
Steven Butala: Me too.
Jill DeWit: I got to win financially, I don’t care. I remember my mom and her girlfriends spending, you know, all weekend one time ripping off this horrible, you know, 1970’s wallpaper that was all over the house, because it was all about the numbers. The house needed all kinds of work, but, you know, it was the square footage, and it had a pool, and it was the location that they wanted. It wasn’t even that exact street, again, the numbers did the talking.
Jill DeWit: So yeah, that’s probably where I … I’m sure … I know a lot of that, and you too, is how we were raised. You know, where we got this mindset.
Steven Butala: I mean, there’s value involved, there truly is. We do both types of deals … you know, we do way more [inaudible 00:12:02] than we do retail. But once in a while, one sneaks up, and truth be told, every time it does, I regret it. I regret going down that retail path, because I know what we could have gotten … because here’s what happens at the end of a retail deal for us, we micro look at the numbers involved.
Steven Butala: So, and it always goes back to, “Wow, we got a … we really did sell this house for a lot more, or this piece of land than we purchased it.” But, we had all of these carrying costs, we had all this angst and talking, and there’s agents involved, and they love the process more than the end, like we talked about yesterday or two days ago. So, it’s like, “Man, if we would just would have wholesaled this out like we always do, we probably would have ended up making more money.” I certainly had a lot more fun.
Jill DeWit: Right.
Steven Butala: So-
Jill DeWit: You know, I think-
Steven Butala: But I think there’s a lot of people in our group that do great … the opposite. “Oh man, you know, I do five deals a year, and I make 100 grand on each deal, and I make half a million bucks, and I’m happy as a clam.”
Jill DeWit: I was thinking along those lines that the mindset … the wholesale person mindset like us is, “Let’s just buy it right, sell it right, and move on, and do a lot of them.” I like that, everybody walks away happy. The retail way for me is like, “Buy it good, and then reset the market. I want to sell it for … I want to be the one that gets top dollar, and look at what I did, and I’m justifying my existence, and I’m justifying this home is worth this, because it has the … it’s the only one around that has a tankless heater and a double oven,” or whatever you want to call it.
Jill DeWit: You know, it’s just like, “I don’t … why … I don’t …” What’s so funny?
Steven Butala: I don’t know. A tankless heater.
Jill DeWit: I know. So, I like those, by the way. You can add that on your house, by the way. So, you know, where I’m going with that. It’s just like I don’t have the … I can’t do it. I don’t have the patience. I think it takes patience too.
Steven Butala: It’s patience, and when you really, truly, look at how money works, and how fast it moves, and how to make it and all that, then there’s something driving … people who do retail deals, there’s something else driving it besides pure money.
Jill DeWit: That’s good.
Steven Butala: So, it’s not just that they’re approaching a real estate transactions this way, and that’s their model or their acquisition criteria, there’s something below the surface that wants them to reset the market from a price per square foot, or in the case of land in a subdivision, or in that area, is to reset it. They want to be the person who can high five each other … I always envision the same person who does that, is the same person who works at an auto dealership. Right when they sell a car for, you know, a sticker price, and that customer who drives off, they high five each other and say, “Oh my gosh, we screwed that guy good. We haven’t screwed a guy like that in a transaction in a long time. Congratulations, congratulations, congratulations.”
Steven Butala: That’s how I see retail real estate. You know, and I don’t think that it’s … it’s an extreme example. I do think that there are … there’s a subsection of people who do never … they want to move into a house, the end user, and it is perfect. Their favorite song’s playing, and they, you know, they move in a toothbrush, and it’s done. They’re happy to pay $5,000 more a month, or whatever the number’s up, it’s usually $300 more a month, than they would have if they had to, you know, move into a regular house. They understand that, and maybe they’re off doing some other type of job, and that’s fine.
Jill DeWit: Mm-hmm (affirmative).
Steven Butala: So it’s not that extreme, but we’re in the business, you know? We’re in the real estate business, and I just think hosing people and resetting the market, is just not part of the language that we should ever be just talking about or using.
Jill DeWit: I know. It bums me out, it just makes me sad I don’t think that way.
Steven Butala: Me too. That’s how I see-
Jill DeWit: I can’t get it.
Steven Butala: That’s how I see retail.
Jill DeWit: Yeah.
Steven Butala: That’s how I see real estate agents. You know, I’ve … we’ve all been pitched by a real estate agent to list our house [inaudible 00:16:03], and the first thing they say is, “Okay, we’re going to sit down and figure out how to maximize the price that you get for this house.”
Jill DeWit: Right.
Steven Butala: That’s where I stop, because that’s not the business [inaudible 00:16:13], and I think it’s disrespectful to the person who’s going to buy it, and disrespectful to the real estate industry in general.
Jill DeWit: I agree. I have nothing to add. You’re like … no, it’s perfect, it’s great. I mean, we could go on for hours, and I don’t … but …
Steven Butala: Well, you’ve done it again, you spent another 15 or 20 minutes listening to the Land Academy Show, just before Jill cut us off. Join us in the next episode called Illinois Governor [inaudible 00:16:38] property tax evasion investigation. One of my favorite topics.
Jill DeWit: Really?
Steven Butala: This guy’s a mess, you’re not going to want to miss the show.
Jill DeWit: Okay, good.
Steven Butala: Because like all shows, it’s not just about that, it’s about what motivated him to do this, and how people make decisions and why people make decisions when they are multi-bajillionaires, and they’re messing with the system. I promise it’s going to be interesting.
Jill DeWit: Cool, and we answer your questions, plus on our online community, landinvestors.com, it is free.
Steven Butala: You are not alone in your real estate ambition.
Jill DeWit: Yeah, I’m looking forward to the show tomorrow, because I do not know the whole backstory. I know you’re going to fill us all in.
Steven Butala: When’s the last time you’ve been really wrong in a real estate situation? In a deal? Assuming you ever should really even talk that much to a buyer and seller. What if you just said, “You know what? Man, I made an acquisition mistake on this, or …” Where you really just kind of sit … you know, those moments in life where you sit yourself down and say, “Wait, I took this in the wrong direction for a while.” Can you even think back to a time, real estate-wise?
Jill DeWit: No.
Steven Butala: Either can I.
Jill DeWit: I’m thinking like-
Steven Butala: You know why? Because we’re driven by doing the right thing.
Jill DeWit: Well, and I won’t do the deal, I’ll pull the deal.
Steven Butala: Biggest tragedies I see that people go through in life, is because they see something that’s not there.
Jill DeWit: Right.
Steven Butala: They’re trying to reset the market, they’re trying to date out of their league, or they’re just setting themselves up to fail, be disappointed, and extreme cases, go to prison, which is what we’re going to talk about tomorrow.
Jill DeWit: Wherever you are watching, or wherever you are listening, please subscribe and write 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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