How to Raise Capital and How Not To (LA 1106)

How to Raise Capital and How Not To (LA 1106)

Transcript:

Steve Butala:                      Steve and Jill here. Welcome to the LandAcademy Show, entertaining land investment talk. I’m Steven Jack Butala.

Jill Dewitt:                           And Jill Dewitt broadcasting from sunny Southern California.

Steve Butala:                      Today Jill and I talk about how to raise capital and how not to. It seems like a simple topic, doesn’t it?

Jill Dewitt:                           It does, but this is something that hangs people up.

Steve Butala:                      Yeah, sure.

Jill Dewitt:                           They’re really worried about this.

Steve Butala:                      It ties into yesterday’s show about-

Jill Dewitt:                           It kind of does. Like, I’ve got these deals. What do I do? Or I’m afraid to even send it out cause I don’t have the money. What do I do?

Steve Butala:                      It’s a hard thing to get over. It was a hard thing for me to get over a long time ago.

Jill Dewitt:                           We can help.

Steve Butala:                      Yeah. 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 Dewitt:                           [Aristio 00:02:35] asks, “Howdy, folks? I have a signed purchase agreement in East Texas on a 4.25 acre piece of property with good dirt road access. It’s off a major highway. I have to verify the exact location of the parcel given.” Oh, interesting. Title Pro 24/7 and parcel factor showing different parcel locations. I can tell you why in a second.

Steve Butala:                      This is very common.

Jill Dewitt:                           Yeah, I’ll tell you what it is. “I think this parcel would make a great mobile home lot, et cetera for someone or perhaps even establishing a small farm. The gentleman is elderly, an elderly man has been paying taxes on his deceased grandmother’s lot for years. The other family members, uncles, aunts, et cetera, never wanted to contribute or pay for the taxes. We’ve tried to asking this gentleman for any other possible heirs, however, he states they’ve all passed away. I’m considering doing quite a title on this property if I can at least double my offer price. That needs to sell. So $11,465, indeed, I’ve been told I priced this [inaudible 00:01:47] high, was the after cost. Most folks will leave this parcel alone. I think there’s a lot of opportunity for those with those patience to tackle these. Any suggestions or advice would be greatly appreciated. Thank you.” And then “PS, the seller also states he has two other properties in New Mexico he’s needing to sell. My hope is I can tackle those as well. Incidentally, the property is zoned commercial, vacant. Not sure if it makes it difficult to build on.”

Steve Butala:                      Make it easier.

Jill Dewitt:                           Yeah. “There are farms in the area so I’d be surprised that there is an issue. I have another signed offer with the same zoning closer to town, but densely covered in trees.” Okay, we’re going to jump in real quick here and I’ll answer. I’ll put what Kevin put first and then we’ll add our comments.

Steve Butala:                      Sounds good. Kevin, our moderator.

Jill Dewitt:                           Yep. So Kevin already wrote in and said “Aristio, I assume that the property’s not in the seller’s name. So quiet title will cost about two to $3,000 and take about three months. In three months, you could have done at least six more deals. I would only consider this if the comp value was $50,000 or more. Go for low hanging fruit. Work smarter, not harder.” And I really love that.

Steve Butala:                      When has Kevin ever given bad advice?

Jill Dewitt:                           I know.

Steve Butala:                      Not once that I can think of.

Jill Dewitt:                           Exactly. I love it. So well two things I want to tackle. One is just for members out there listening or anyone who’s looking at GPS coordinates, the GPS coordinates that are in Title Pro 24/7 or Agent Pro. I don’t know if it gets it, but I don’t think GPS come in Agent Pro. We use Title Pro and that’s the reason why, one of the reasons why. It gives you the center point, so you don’t really know if it’s a center of 40 acres, right? You got to figure that out. So in Parcel Fact, you have the whole thing and that’s why it’s different. If you take a step back and look at them on the map, you’ll see.

Jill Dewitt:                           Then the second thing is, yeah, there’s ways to do this, like Kevin was saying and it makes sense if there’s a big dollar amount, it’s really going to be worth your time and your energy because it’s going to take that long to do and I’m, lately, especially with the transactions we do, gosh if it’s not an easy slam dunk, what I do is I push it down on the list and you realize it’s down the list so far you never even look at it again.

Steve Butala:                      Yep.

Jill Dewitt:                           There you go. And you end up doing the other ones that are ready to go right now. Good people, mom and dad are alive. Happy to sign. Let’s get this done.

Steve Butala:                      If you have any type of job where you deal with the public or you deal with a customer, you know this, like you’re going to laugh when I say this. There’s easy, pleasurable customers and there’s ones that are just high maintenance. Like here’s my example of like a bartender. Guy walks up to the bar, looks at the bartender and says, “I’d love scotch on the rocks.” “Sure thing.” That’s the whole transaction. Woman walks up to the bar and looks at the bartender and says, “Um,”

Jill Dewitt:                           Why a woman?

Steve Butala:                      Hold on, because it’s typically, this is how I see it. Okay.

Jill Dewitt:                           I’ve seen others.

Steve Butala:                      You know what, guy number two walks up to the bar, looks at the bartender and says, “Um-

Jill Dewitt:                           “I had a bad day. What do you recommend?”

Steve Butala:                      “Do you have, I don’t know, I feel like I feel like I’m maybe tequila. No, no, no, no. Um, I’ll have a rum and, no, no, no. Do you have Coors Lite?” “Yeah. Yeah,” bartender says, “Yeah, we have Coors Lite.” “Oh good. Okay. I’ll have a, I have an IPA then.” [crosstalk 00:05:25]. It’s the exact same way with land. This guy, he has a grandmother and a bunch of drama surrounding this property. He’s got all kinds of people involved that don’t want to pay the taxes until it gets sold. Then they want a piece of it. So it’s just like that and what Kevin’s really saying about the low hanging fruit here is, if this bartender that I just mentioned could take all the ums out of these people and just deal with the people that know exactly what they want and then sit there and quietly and enjoy it and pay for it. Wouldn’t the world be a better place? Just like deals.

Jill Dewitt:                           I wrote, I wrote, here’s what I did. This is funny. I put deal drama with a circle and a line through it. That’s it. No deal drama, no deal drama.

Steve Butala:                      I know people in our group, I’m not going to name any names, who create their own deal drama.

Jill Dewitt:                           That’s very true. I know-

Steve Butala:                      They like it.

Jill Dewitt:                           I can think of a few.

Steve Butala:                      They want to know what’s, they want to get to know the person who they’re buying and selling this property from. It’s part of what they like. It’s part of what they like about doing deals.

Jill Dewitt:                           And that’s okay.

Steve Butala:                      And so those are not the people that are going to make a ton of money in this. They might make a living at it. That’s what a real estate agent does. They sit and listen and talk about window treatments and drama. I mean, if you want to do that, go be a real estate agent. I can’t stand this kind of drama. I’ve got a situation where my grandmother’s got this and the things going on over here and no, no, just buy the piece of real estate and sell it.

Jill Dewitt:                           Yeah, I like that. I appreciate where you’re going with this and I understand you’re trying to solve this guy’s problem and he has several of them, so really I would take a step back. I would look at them all and do the math and see if it makes sense. That’s it. Say there’s five of them and you stand to yield over a hundred thousand dollars by the time it’s all done. All right. Maybe.

Steve Butala:                      Adverse possession only works because all of these people are going to get notified. If they theoretically have an interest in the property, they’re going to get directly notified by the person who’s processing the adverse possession action. It’s actually a court lawsuit. And so are they going to just throw it away and say no or write back and say, “No, I don’t want to have interest in this property.” Absolutely not. They’re all going to step up [crosstalk 00:07:47] and say, “If I can get 25 bucks out of this thing, where do I sign?”

Jill Dewitt:                           Right.

Steve Butala:                      So adverse possession really, really works well, you didn’t hear this from me, when all the people are dead.

Jill Dewitt:                           Yeah.

Steve Butala:                      Today’s topic.

Jill Dewitt:                           Oh my god, I can’t believe you just said that so nonchalantly. Like, all right, moving on. I hope they’re all dead. Moving on. What the heck?

Steve Butala:                      You know what’s interesting about this show? We’ve been doing this for years now, you and I.

Jill Dewitt:                           I know.

Steve Butala:                      How often we exchange roles, good cop, bad cop, and-

Jill Dewitt:                           That’s very true.

Steve Butala:                      And there’s some stuff that just sets me off and luckily for us and our listeners, the stuff that sets you off is different than mine, so I can be the comic relief sometimes and you can.

Jill Dewitt:                           Yes, that’s very true. It is so funny.

Steve Butala:                      Today’s topic.

Jill Dewitt:                           Wow. If you’re still with us.

Steve Butala:                      How to raise capital and how not to. This is the meat of the show. I’m a huge fan of raising capital deal by deal. So here’s a perfect raising capital situation that I believe that most new people don’t know about.

Steve Butala:                      I send a mailer out, I get a predictable response and I get out, there’s a couple of properties that come back and I offer $22,000, let’s say. We’ve working with a group that’s sending out offers that we know they can’t afford right now. This is a real situation, at all and they know that either and they’re relying on us. And so they’re sending out offers for five to 40 to 60 acre properties that are, they’re sending them off for like 20 to 25,000. I know for a fact, I helped him with the mailer, that these properties are worth 80 to a hundred grand. But if you’re brand new and you don’t have us and you’re doing the same type of mailer, here’s how you raise capital on a deal.

Steve Butala:                      You send out a mailer, you get the predictables out. Let’s say it’s $20,000 for $100,000 property, slam dunk, you know that’s the case and you get the signed purchase agreement back and you open escrow and the seller really wants to sell. And so then there’s this staring in the mirror moment that you have. Like, I don’t have this $20,000 but I kind of knew that going in, but I do have a property that I know I’m going to buy for 20 or 30,000 bucks. I don’t know what the numbers that I said. 20 or $30,000. It’s worth a hundred

Jill Dewitt:                           Yeah, I zoned out, too.

Steve Butala:                      Here’s what you’re doing to raise, what?

Jill Dewitt:                           Nothing. Sorry, I zoned out on the numbers to0. You’re like what number did I say? I’m like, I don’t know. I already forgot too.

Steve Butala:                      You have two choices at this point because you know it’s a good deal. You can go try to find a money partner in our group or on Land Tank or however, there’s a lot of different outlets. Deal Board. We talked about Deal Board with Erin earlier this week.

Steve Butala:                      And you can post it and say, “I got this great deal. It’s worth a hundred grand. I’ve got it under contract for 20.” So it really needs to sell. There’s no drama like our earlier caller or writer, or you can market the property, find a buyer, or get a rational response. Let’s say you post the property in a certain place. You got 10 people that want to buy it. Let’s say it’s just even Craigslist. You had a tremendous amount of response on a reaction. Me, as an investor, I’m going to be a lot happier about fronting this money for you if you’ve got a pool of buyers that are ready to go. So it’s not just, here’s what I see new people doing. Please listen to this, if you didn’t listen to the other the part of the show, listen to this one. Take it the extra mile. I see there’s a whole concept out there of dropping stuff on someone else’s desk, once you think you’ve done your job. And so I see a lot of people who are trying to raise capital, deal capital specifically, at this very point.

Steve Butala:                      They don’t the Craigslist thing. They’re very confident it’s worth a hundred thousand. They have it under contract. They don’t want to do the work, for whatever reason. They just want to go do the fun stuff on the front one, on the next one. And so they drop it on Deal Funding for Jill. They don’t really give ample information. They haven’t really tried to sell it for some reason that they’re not interested in doing that. They know, there’s kind of cutoff there. They lose interest. That’s not, you did, I mean just take it home, drive it home, hit the guy around third.

Jill Dewitt:                           Right.

Steve Butala:                      So that’s one way. Here’s what you don’t want to do when you’re brand new, and I’ve seen people do this, I’m not going to name any names, but almost always ends in a fiery ball of tragedy. You don’t want to raise, go raise a quarter of a million dollars or some number and then start to send your mail out and run your company like a private equity group would do on a startup. Or let’s say a startup equity company would throw a bunch of money at it. Let’s say you’ve got some experience, throw a bunch of money, here’s your salaries, have at it, make sure it’s profitable in a year. This is not set up for that at all. And you’re going to fail.

Jill Dewitt:                           Exactly.

Steve Butala:                      Because if your super experienced, because people come to us like all the time, because we’re super experienced at this. We got a rap sheet you can’t believe. It’s fantastic. They constantly want to throw startup capital at us and we constantly say no.

Jill Dewitt:                           that’s not how we roll. Exactly. But if you want to fund this or that or that, we can look at it that way. That makes sense.

Steve Butala:                      Or we’ll seek financing for a line. Like we’re developed doing infill lots for mobile homes right now with an incredibly experienced partner. And people are throwing money at us, between our land buying expertise and that person’s mobile home infill lot development expertise. We’re not going to miss anything.

Jill Dewitt:                           Right.

Steve Butala:                      So for us that’s the right way to raise capital. But for you, unless you have 10 or 15 years of experience, the right way to do it is to find a great deal. Make sure it works. Get a buyer base somehow and you want to go to your money person and say, “You know what, I’d do this deal myself. I have the seller, I have the buyer. I’m happy to split it with you because I just don’t have the dough.” That’s the sentence to that every money person wants to hear.

Jill Dewitt:                           Ding, ding.

Steve Butala:                      Is that the whole show?

Jill Dewitt:                           That’s the whole show. And that’s what I look for by the way. People were asking me, “What do you guys look for when you do your LandAcademy deal funding?” Exactly this. Like I am out of cash and we can’t let this go. “Jill, look at this. I got these three guys lined up, they’re chomping at the bit. We need to lock this down so we don’t lose a deal.” I mean you’re like close on it tomorrow kind of thing. Because I need to, so no one’s going to get up on me and then we’re going to try and sell it to these guys and it’s going to happen fast. Done. I can’t write a check fast enough.

Steve Butala:                      I agree.

Jill Dewitt:                           Thank you.

Steve Butala:                      Join us next time for an episode called our multimillion dollar Urban Los Angeles Mailer, an Interview with Jill Dewitt.

Jill Dewitt:                           Ooh, and we answer questions posted on our online community found landinvestors.com. It is free.

Steve Butala:                      You are not alone in your real estate ambition. I was telling, I got to tell you this funny story about this LA mailer thing, unless you have something about tonight.

Jill Dewitt:                           No go ahead.

Steve Butala:                      So my assistant, my staff is constantly bugging me because we’re behind in our go-forward mailers for Los Angeles. And I finally told them today, because they don’t know this, they’re the technical people who get the mail out. And I said, “Look, we’ve got I think what, 15?”

Jill Dewitt:                           20.

Steve Butala:                      Really it’s 20 now?

Jill Dewitt:                           Seriously I’ve got 20.

Steve Butala:                      We did 20? We did a 17,000 unit mailer and we’ll talk all about it tomorrow.

Jill Dewitt:                           And we are one, two, three, four, Thursday. Mail hits Saturday. Saturday, Sunday, Monday, Tuesday, five days in.

Steve Butala:                      Jill, I’m trying to think back.

Jill Dewitt:                           I got 20 deals that are good that we’re reviewing right now.

Steve Butala:                      These are multimillion dollar deals.

Jill Dewitt:                           And some are two deals. It’s like, I got this one and this one.

Steve Butala:                      We’ll talk about it tomorrow.

Jill Dewitt:                           And I got this one, this one, and this one.

Steve Butala:                      I don’t remember-

Jill Dewitt:                           It’s huge.

Steve Butala:                      … Ever having a successful mailer like this. Like, I mean, as successful, every mailer I’ve ever set out with the exception of one, at least generates something. I don’t remember this kind of this kind of like-

Jill Dewitt:                           Volume of-

Steve Butala:                      Well, it’s just this is intelligent response. Like, yeah, I mean there’s very, the hate is kind of pretty low.

Jill Dewitt:                           Oh no, it’s there. We’ll talk about tomorrow. [crosstalk 00:16:19].

Jill Dewitt:                           The LandAcademy Daily Show remains commercial free for you, our loyal listener. So wherever you’re watching or wherever you’re listening, please subscribe and rate us there. We are, Steve and Jill.

Steve Butala:                      Information.

Jill Dewitt:                           And inspiration.

Steve Butala:                      … To buy undervalued property.

 

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