When Should You Rezone or Subdivide a Property (LA 1256)
When Should You Rezone or Subdivide a Property (LA 1256)
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 Jack Butala.
Jill DeWit:
I’m Jill Dewitt broadcasting from sunny Southern California.
Steven Butala:
Today, Jill and I talk about when should you rezone or subdivide a piece of property?
Jill DeWit:
Well, I have a lot of really good examples. You like that? I hope you have a pen and paper handy.
Steven Butala:
The thick of it is this. It’s really difficult to rezone property, and I’ll hear stories about it. It’s like a unicorn.
Jill DeWit:
It’s funny.
Steven Butala:
You know what? We’ll get all [inaudible 00:00:38].
Jill DeWit:
Here’s the deal. People casually throw this. The South, they’re like “No big deal. Rezone it to this. Here’s what’s possible. Piece of cake.” Yeah, right.
Steven Butala:
Here’s what I tried to go do one time. Then we’ll get to the question. Take a 40 acre property that I paid $4,000 for in Arizona. It’s a hundred dollars an acre. I paid a hundred dollars per acre. I tried to rezone it, or cut it up into 40 one acre properties, which I knew I could very easily and quickly sell for $500, plus fees. $500 times 40 is what? $200,000. I can take a $4,000 investment, cut it all up, and go through the paper process at the county. Is that right? Yeah, it is right.
Jill DeWit:
Mm-hmm (affirmative).
Steven Butala:
No.
Jill DeWit:
That’s right. It’s not 20,000.
Steven Butala:
It’s five times, 20,000. I said 200.
Jill DeWit:
Oh.
Steven Butala:
It’s $20,000. Not bad if you can do that 20 or 30 times a year, which we could do. We were easily buying that a month, and can do. It’s a very, very appealing concept to take. There’s a lot of different names for it. It’s the bottle case method, convenience store buys, cases and cases of stuff wholesale. Then they put them in a refrigerator, separate them all out, then sell them by the bottle. It’s the same thing. The numbers are very, very attractive. The question is, that’s what the show is about, “When do I do that? When do I subdivide my property or cut it all up?” I want to do it too. I want to do it.
Jill DeWit:
All right, chill out. We’ll talk about this. I got there.
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:
I really do have a lot of notes on this topic. That’s why I brought this topic up, we should talk about this today, because I have a lot to say. All right. Luke wrote… Where am I writing?
Steven Butala:
It’s on the letter, dear.
Jill DeWit:
Oh, excuse me. Leonard wrote, “Hello, everyone. I’ve been selling properties in Arkansas, bought from the commissioner. I’ve previously been waiting to have the physical deed before I list the property. However, I bought a couple of which I have received tax and HOA bills and no deed yet. Can I use the previous deed of the property before the commissioner foreclosed to sell the property when making the new buyer’s deed, or must I wait longer? When should I list these properties? Thanks, Leonard.” Then one of our members wrote in and added his personal spin here, “Some of those counties can take months and months and months, if ever. You can call the state and ask them, if you only do a couple at a time and are cool with it. They tell you when they deeded it over.” Sometimes it’s like, “Oh yeah, you got that.” You bought it, it’s like, “Oh yes, it’s already in your name, it’s coming,” basically. I’m sure with virus times too, who knows how long it’s been.
Steven Butala:
That’s where it is.
Jill DeWit:
Yeah. It’s past the redemption period. You’re all clear. You can sell it, waiting on Mr so-and-so to sign this. Love the commissioner of the state land. I don’t know, whatever that. Other times they’ll say, “Yep, we sent it to the county for recording. Call the county. It’s probably sitting on the clerk’s desk waiting for you to send a self addressed envelope.”
Steven Butala:
That’s good.
Jill DeWit:
And such and such. Do you want me to keep going or stop.
Steven Butala:
No.
Jill DeWit:
Okay.
Steven Butala:
Here’s this deal. Here’s the reason that I really included this question. There’s a huge tax deed market out there. It’s very attractive. I’ve done a bajillion tax deeds myself, and we still do it. You shouldn’t stop now. If you’re in the tax deed business, or you want to get into it, now’s a good time. There will be a deluge of properties that will come available about four years from now, four to five years from now. Don’t wait, don’t wait at all. I’m just saying now’s a great time to get into the business because there’s going to be a tremendous amount of land foreclosures all over the country. They are very time sensitive. That clock is starting. People are stopping paying taxes on property now.
Jill DeWit:
Mm-hmm (affirmative).
Steven Butala:
That means three to five years from now, all these properties are going to come up for next to nothing all over the country. The counties, as indicated by this brief conversation on Land Investors, can’t handle the volume, especially these really rural counties.
Jill DeWit:
Yeah.
Steven Butala:
Arkansas has counties that aren’t computerized. It’s all paper, copy machines, and stuff.
Jill DeWit:
They are. I’m going to tell you personally too, I know that from our properties. They are really behind. The foreclosure process, which normally is X years, is now you can almost add a year.
Steven Butala:
Mm-hmm (affirmative).
Jill DeWit:
They’ll flat out say, I haven’t even got to that yet.
Steven Butala:
Does that mean…
Jill DeWit:
It’s going to be six months before I even look at it.
Steven Butala:
Does that mean you shouldn’t do it? Heck no.
Jill DeWit:
Right.
Steven Butala:
It’s like we said, yesterday, “Adapt and overcome.” This world is packed right now, full of naysayers with a really loud microphone. They’ll get on, and they will write and complain and argue. Anytime I hear any of that, on any topic… I’m going to put my dad hat on, here for a minute.
Jill DeWit:
Uh-oh.
Steven Butala:
Anytime I hear that, what I hear somebody saying is, “I’m failing.” Because stuff’s going to block your way in whatever you’re trying right now. Whatever you’re trying in life, there’s always massive roadblocks. Right now, it’s a virus. Or in this case, in this micro case here, it’s the county can’t record stuff fast enough, or they never really want to do it anyway. There’s always solutions around that.
Jill DeWit:
Yeah.
Steven Butala:
But you have to get through it. You have to adapt and overcome.
Jill DeWit:
Mm-hmm (affirmative).
Steven Butala:
Today’s topic, “When should you rezone or subdivide a property?” This is the meat of the show. Every property has zoning. Even if the zoning is, “We haven’t zoned it yet.”
Jill DeWit:
Yeah.
Steven Butala:
It’s unzoned, but it is stagnant, that there’s a column in a spreadsheet and it’s associated with that property. There’s agriculture zoning. There’s heavy industrial zoning. If you live in a house right now, it’s zoned single family residential. If you’re sitting in an office building, it’s zoned commercial office. If you’re sitting in an apartment building, it’s zoned multi-tenant. Every county, to make it worse, every municipality has a different opinion about what all this stuff means. That’s the good news, because you figure it out, you’re in the minority, definitely. Other people who have that knowledge, can manipulate it. There’s a lot of value in having a property zoned. Somebody zoned, went through, maybe it’s four assessors ago, were planning and zoning. Selling a property, industrial, but more and more around their properties, getting rezoned, they’re putting in apartment buildings and stuff. Pretty soon, you’ve got this property there that’s zoned industrial, and it’s not like the others. There’s a huge real estate play there to get that zoning changed, go through all this stuff, put up an apartment building or sell the land. In our case, it was somebody who has already put up apartment buildings there.
Steven Butala:
Isn’t that a beautiful story? It never happens that way.
Jill DeWit:
Exactly.
Steven Butala:
Never. To get stuff rezoned, it is a massive undertaking of politics, red tape.
Jill DeWit:
Paperwork.
Steven Butala:
Payments, and patience.
Jill DeWit:
Time. Yeah.
Steven Butala:
Surveys and independent consultant reports, and on, and on, and on. Bear in mind, all the people that are associated with the county, the people that work there, or the people that have put these rules in place are incredibly less intelligent than you are.
Jill DeWit:
Don’t forget. They’re all working remotely right now. They don’t know what’s going on. It’s… Yeah
Steven Butala:
When should you rezone or subdivide a property? Every deal I’ve ever had, we should have rezoned it or subdivided it.
Jill DeWit:
Mm-hmm (affirmative).
Steven Butala:
How many did we do? Three before, I couldn’t take it anymore.
Jill DeWit:
Right.
Steven Butala:
Three out of 16,000.
Jill DeWit:
Because, we know what’s going on. May I jump in please?
Steven Butala:
Done.
Jill DeWit:
Okay. Here’s my thoughts on this, the rezoning. I’m like, “Duh,” in my notes. Really, and the time involved. If you’re lucky, you can get it done in 60 to 90 days. That’s when everybody’s working and showing up, and it’s not the holidays, or the summer vacation.
Steven Butala:
60 to 90 years.
Jill DeWit:
Or, a virus thing. Then, as far as subdividing. Okay. Let me talk about rezoning first. You just explained what it is. That was perfect by the way, setting this up. The reality is, it doesn’t go that way. Are you that person? Are you the expert? You’re going to be learning all of this in a new area probably. It’s not your expertise. Here’s what we do. I like to just know what’s possible and pass it on to the guy. Let’s just say in Steven’s example, everything around those apartment buildings, this one’s industrial. Ding ding. How awesome is this property, because this guy has choices. I would buy the property, properly convey what’s possible to my buyer, and any information that I’ve collected along the way about, “Here’s what this guy did, here’s what that guy did, or here’s where this guy did. There’s three uses for this property. How lucky are you?” I pass it on to him. I let him make that decision and do what he wants to do with the property.
Jill DeWit:
The reason why is, I’m not here to… Let me back up. The reason why is, I’m here to quickly buy, resell that property, and make a profit. I’m not here to change the layout of this sweet little city. That’s what those people are doing. If I wanted to make this… Now, maybe I live in a little Mayberry, and this is going to be a whole new retail area, and I want to make a little hotel, I’m in it. That’s usually where your buyers are. They’re in it, where there’s some other reason. They are the hotel gurus or something. By the way, they already have this locked down too. If you think you’re going to teach them something, they probably already know, “I know I can do this. I already did it over here. I know what’s possible. I have the team in place.”
Steven Butala:
That’s what they do for a living.
Jill DeWit:
Right. “I have the survey guy in my back pocket. I’m way ahead of you there.” This is why I’m saying this. We’re all on the same page. It’s just not something we should be doing as investors. My other thing, can I go into subdividing?
Steven Butala:
Of course.
Jill DeWit:
Okay. Sometimes it’s like I have this stuff built up, as you can tell. I’m like, “I have these notes. I want to get it out.”
Steven Butala:
Sometimes?
Jill DeWit:
Sometimes. I apologize if I’m a little brain dump here, but I’ve been quietly waiting and anxious to share.
Steven Butala:
The truth is, Jill feels very strongly about-
Jill DeWit:
Yes.
Steven Butala:
Dumbness and real estate.
Jill DeWit:
Gosh.
Steven Butala:
This is, I feel that-
Jill DeWit:
Yeah.
Steven Butala:
I think it’s a shame.
Jill DeWit:
Sure.
Steven Butala:
That there’s just such a prevalence of rezoning and subdividing discussions out there.
Jill DeWit:
Yeah.
Steven Butala:
When in fact, the amount of work that’s involved…
Jill DeWit:
Go ahead.
Steven Butala:
For what we do for a living, we are not Shea Homes. We don’t have an office building full of attorneys that can take a 40 acre farm property that’s zoned agriculture, buy from a farmer, and rezone it for SFR subdivision.
Jill DeWit:
Right.
Steven Butala:
Is it possible? Yeah. Is it likely for them to do it? Yes. For us? No.
Jill DeWit:
Yep, that 90 days that I could spend doing that. How many deals could I do in 90 days?
Steven Butala:
20.
Jill DeWit:
And make so much more money in this one project, and not have to relearn something?
Steven Butala:
How many weeks are in 90 days? That’s how many.
Jill DeWit:
And it just be so easy? Exactly. That’s the whole point here.
Steven Butala:
21.
Jill DeWit:
Now the whole thing about subdividing, talk about this too, by the way.
Steven Butala:
12, that’s right, 12.
Jill DeWit:
That’s okay. We’re not here to correct your math, not today, or your way.
Steven Butala:
I feel corrected real severely in my math recently.
Jill DeWit:
No, I let it go. It’s okay.
Steven Butala:
It wasn’t you.
Jill DeWit:
Oh, somebody recorrected? Somebody did?
Steven Butala:
Yeah. Like, “Oh my God, come on man. Really? This is it. This is it.”
Jill DeWit:
Oh, I don’t care.
Steven Butala:
I’m like, “Yep. I did math wrong. Sorry.”
Jill DeWit:
I don’t care. Here’s my other thing about subdividing. You may think it’s great. Sure. There are so many things. Yes, I get it. It’s very rare. Some people say, “Well, I just did it in this county. All I did was rewrite the legal descriptions and submit it.” Okay. That’s very, very rare that it’s that easy. If you find that scenario, and you want to do it, more power to you. I can’t tell you how many stories of individuals, of people that I personally know, that we personally know, that has that come back to bite them too. Because if they started to do it at such a volume, that they started to make people mad. The County can and has been known to come back and rewrite rules and make life difficult for you, even after the fact.
Steven Butala:
To spite one or a group of people.
Jill DeWit:
Mm-hmm (affirmative).
Steven Butala:
Just to do it that way.
Jill DeWit:
Exactly. Again, do you want to get involved in that? No. Do you want to be in the politics? Again, you just said it too, is a lot of politics.
Steven Butala:
Yeah.
Jill DeWit:
Do you want to be… I don’t want to be involved in that. I don’t want to… I don’t need to grease any palms to get my stuff done, nor do I want to be worried that I’m going to piss the wrong guy off, and they’re going to take it away from me. It’s just not worth it.
Steven Butala:
All those are inevitable.
Jill DeWit:
Mm-hmm (affirmative).
Steven Butala:
Here’s the deal in summary. Would you make money in real estate? If anybody, does that completely included us and every single one of us in this group? The only way you make money in real estate is by creating equity. There’s only two ways to create equity and that’s it. I’m going to make this so super simple. You can decide listening to this, which one you are. You can buy property for cheaper than it’s worth right now, and resell it. That’s what we choose to do that day, usually. We created equity. How do we create equity? We created it by finding a buyer who just doesn’t want it anymore, or the price isn’t their real priority. The priority is getting it out of their life. They don’t want to pay the taxes anymore, somebody passed away, they need some money. It doesn’t matter why, but that’s what we do. We buy it for cheaper than it’s worth that day.
Steven Butala:
Or, and your second option is to improve the property. You buy this piece of property, and let’s say not for less than what it’s worth. You buy it for retail value or, the value at the time, that everybody theoretically believes that it’s worth. You do a bunch of stuff to it to make it worth more, thereby creating equity. There’s lots of ways you can do that. You can rezone it, like we’re talking about today. You can rip out the shower and put a new one in. You can tear down an old factory and put up…
Jill DeWit:
Apartments.
Steven Butala:
An apartment building. There’s lots of ways to improve property, and that’s what everybody talks about on TV. That’s what gets the most notoriety. I’m not sure why. When in reality, wouldn’t you rather do 20 deals to that one deal, where you buy it for 10% or 20% less and resell it for the value that it’s worth, so somebody else can go take the risk? Where’s the risk in that?
Jill DeWit:
Mm-hmm (affirmative).
Steven Butala:
Where’s the risk in buying a property…
Jill DeWit:
Yeah.
Steven Butala:
That… Our numbers are like this for land. We typically buy land, that it’s about between 10% and 40% of what we can sell it for. If everything goes wrong, we double our money. If everything goes right, we triple, maybe quadruple our money.
Jill DeWit:
Mm-hmm (affirmative).
Steven Butala:
It never goes right. I mean, it never always goes right. One out of five deals go right. The rest, we just double our money on. Sometimes some stuff goes wrong, but we don’t lose money at that. It’s no risk.
Jill DeWit:
Exactly.
Steven Butala:
How much risk is buying a piece of property for retail value, then hoping that you can subdivide it? Because the people that are now holding the reins in your real estate deal at the county, are in a good mood that day.
Jill DeWit:
Exactly. It’s scary.
Steven Butala:
Subdividing and rezoning is possible, but extremely unlikely and unattractive financially from a risk in a time and money standpoint.
Jill DeWit:
Beautiful. Thank you. Happy you could join us today. Every Monday, Wednesday, and Friday, we’re right here on the Land Academy show. Tuesdays and Thursdays, we are on the House Academy show.
Steven Butala:
Tomorrow, on the episode on the House Academy Show is called, Is A Smooth Transaction Or A Rehab Even Possible? You are not alone in your real estate ambition.
Jill DeWit:
Oh, we got some stories. We’ve been so lucky.
Steven Butala:
The short answer is, yeah, it’s possible.
Jill DeWit:
It is.
Steven Butala:
For the right personality.
Jill DeWit:
Exactly. We’ve been very lucky. We have all of ours. I can’t think of one that we lost money on. Not lost money on the deal, but lost money on what we could have done in the same amount of time.
Steven Butala:
Lost a portion of my soul.
Jill DeWit:
Yeah, well there is that too. The Land Academy Show, it’s commercial free for our loyal listeners. Wherever you’re watching or wherever you’re listening, please subscribe and 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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