Recessions Weed Out Unnecessary Businesses (LA 1310)
Recessions Weed Out Unnecessary Businesses (LA 1310)
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:
And I’m Jill DeWitt, broadcasting from sunny, Southern California.
Steven Butala:
Today, Jill and I talk about how recessions weed out unnecessary businesses. And if you listened to yesterday’s show, we will resolve the mystery apparently. The mystery in this title.
Jill DeWit:
Don’t worry, it’s not you. We don’t mean you are unnecessary or your business is unnecessary. It’s a bigger thing.
Steven Butala:
Before we get into it, though, let’s take a question posted by one of our members on the landinvestors.com online community. It’s free.
Jill DeWit:
I hope you we play more truth time. It’s your turn to do truth time.
Steven Butala:
Okay.
Jill DeWit:
Okay.
Steven Butala:
I mean, don’t hold back on that. I love the truth time concept.
Jill DeWit:
That’s funny. Okay, Lucas wrote, “Hi, folks. I’m scrubbing my data on accounting, and I was looking at historical sales prices. There is a pretty wide range from $300 all the way up to $800,000. I was thinking of cutting out all the properties with historical sales prices above a certain threshold. $30,000 as an upper limit, for example. Many of the properties don’t have historical sales prices in the data, so I’ll leave those alone. Does this make sense? Am I missing out on big cash opportunities by omitting these properties? Or is it practical to assume that they won’t be good offers? My gut tells me to delete them from the data. Thanks.” This is all you.
Steven Butala:
This is really, really important. And Lucas is relatively new, I think. He’s pretty vocal in land investors, and I appreciate that. This is a huge issue. The issue is this, the underlying… What he’s saying is this, if I go into a zip code in a rural County, specifically in a rural County, and I look at all the property that’s there, all the land, big Atlanta. And I look at all the historical prices and I narrow it down to, let’s say, a zip code. Because the more narrow you can get, geography wise, theoretically, the more accurate the pricing is going to be, because if you look at any County or any zip code, there’s expensive areas, there’s cheaper areas. There’s waterfront property, there’s property that’s on a County road and on and on and on. There’s things that make properties more expensive based on attributes or less expensive.
So it’s hard to do that when you’re staring at data in a spreadsheet, it’s hard to get a real average, is what I mean. And so he’s asking about this decision. What, should I cut off the tip top? Should I cut off the bottom? Kind of go with that centered, bell curve average and get it all out there, or should I just start really surgically cutting out properties, which leads me to the two theories. There are two theories about pricing mail campaigns, the shotgun approach, and the rifle approach. We exclusively use the rifle approach for sending out mail to houses because houses, we have all these algorithms from Redfin and Truly, and all these other places that say, the house is worth 120, 130, 140, 99, and you average those out and you’ve got a real good offer price, and then you take some money off of that. Real simple stuff when you send out a mailer.
You can try to do that, which he’s alluding to here, for land. But here’s the problem, we just don’t have enough data for land. You just don’t, because it’s not an active market. Properties, people aren’t buying and selling properties the way that they do houses. It’s just, the velocity of the whole industry is a lot slower. So here’s the answer. He’s asking, do you delete the top and the bottom? And the answer is yes, but not seriously. You take the top two or three, because there are anomaly, weird things like $25 million in a rural. Come on. There’s a clerical error.
Jill DeWit:
Something wrong.
Steven Butala:
Or 000, which is usually nonprofits. That’s going to skew your stuff. You take that out or real, real low numbers and real high numbers, you omit that. Then, that’s not enough. Then you got to go in and test it, and I can’t emphasize this enough. So when you’re done and you sit back and you say $1,582 an acre for this zip code in this County, is correct. Take a break and have a cup of coffee. Come back to your desk and test 10 or 20 of them, of the properties as if you were buying them, as if somebody signed the letter, signed the offer, sent it back to you and said, “I’m ready to do this deal. Thanks.”
Are you going to jump up and down out of your chair and say, oh, this is exactly the kind of deal that I want, A. B, are you going to say, “Wow, I overshot this. I sent it, it’s too high. I actually don’t want to buy it. I’m going to send Jill back in and try to renegotiate it.” You don’t want that, believe me, for social reasons in my world, you don’t want that.
Jill DeWit:
That’s definitely truth time.
Steven Butala:
Or number three, you sent the person to ridiculously low offer, like $600 for a property that’s worth 30 or 40,000. It’s not going to get anybody’s interest, they’re just going to crumple it up and throw it away.
Jill DeWit:
Right.
Steven Butala:
So there’s an art to this, and all this leads me to this point. There are these pricing mechanisms out there that people are coming up with.
Jill DeWit:
I was going to ask that exact thing. Do those work?
Steven Butala:
No.
Jill DeWit:
Thank you.
Steven Butala:
No, you have to look at this like a human. You can automate a lot of this. I’m a huge… We have a macro that weeds out properties that are owned by the USA and owned by any, the city of, and the County of. Macro exec can really make your life easy. What you can not automate, is pricing. You have to human test it at the end.
Jill DeWit:
Thank you.
Steven Butala:
It’s a very, very intelligent… Lucas, wherever you are, you are going to be fantastic at this. Every once in a while, somebody asks questions that are crazy intelligent. I can just tell how you’re thinking about this and how you want to price these mailers. Your soul is in the right place.
Jill DeWit:
Yep, good.
Steven Butala:
Today’s topic, recessions weed out unnecessary businesses. This is why you’re listening.
Jill DeWit:
By the way, did I mention I’m in the John Deere club?
Steven Butala:
No, what’s that all about?
Jill DeWit:
Apparently.
Steven Butala:
Of all the people, what’s the John Deere club?
Jill DeWit:
I’m like a John Deere… It’s not like you’re a frequent shopper, it’s a land thing. I hit whatever threshold.
Steven Butala:
This is some classic stuff.
Jill DeWit:
I;m realizing, what’s going on here? And it has to do with some of my… I’m heavily into the white tail properties community, working with these brokers that, it’s right about the time that I guess, now the VP or the CEO or somebody reaching out to me and don’t think I’m not going to write them back by the way, because I am going to, I just haven’t figured out what I want to talk to him about, because how big I want to take this with him. But anyway, about the time I started getting these emails, I’m like, these John Deere things are popping up and then I’m getting all kinds of deals and I have all these points in there. So apparently, with my relationship with Whitetail properties, I am the lucky recipient of John Deere gold level stuff.
Steven Butala:
So you hit the threshold of probably selling a bunch of property through them.
Jill DeWit:
I guess.
Steven Butala:
And they made you an honored member.
Jill DeWit:
I’m a John Deere… Yeah, it’s kind of cool. So I haven’t got my free hat and t-shirt yet, but when I do, I want to wear it proudly.
Steven Butala:
Sow hat do you get? You get a discount-
Jill DeWit:
Well, I get discounts, yeah. I got like… Do you want to ride on a mower? I can get one at a great price.
Steven Butala:
If we had grass.
Jill DeWit:
I know.
Steven Butala:
Get 10% off a [inaudible 00:00:07:43].
Jill DeWit:
I’m still learning what all our other perks… I’m just saying, I just am proud-
Steven Butala:
They’ve got to send you a hat.
Jill DeWit:
I’m proud of my John Deere rewards status. I’m the only girl I know that has that.
Steven Butala:
It is pretty badass. Really, it is. What other clubs are you in?
Jill DeWit:
Oh, that’s a good one. That’s funny. Well, I’m in the Nordstrom.
Steven Butala:
Nordstrom rack club.
Jill DeWit:
I’m in that one too. Those are my two biggies. Let’s just go with that.
Steven Butala:
The John Deere club and Nordstrom rack. Boy, that’s going to confuse Google. They’re not going to know-
Jill DeWit:
That’s right. What to send my way. That’s awesome.
Steven Butala:
That’s outstanding.
Jill DeWit:
That’s cool. Thank you very much. All right. So we were talking about this a little bit at the end of the show yesterday. I know what this means.
Steven Butala:
Go ahead.
Jill DeWit:
Well, I’ll let you explain what that means. What I was explaining is what it doesn’t mean. You are not an unnecessary business and-
Steven Butala:
No, geez.
Jill DeWit:
And you’re not going to be weeded out in this recession, if you’re… For me, it’s the opposite, because what’s happening, in case you hadn’t noticed, if you kind of look around, I think everybody notices here. It’s pretty hard not to go on any selling site, and I’m talking houses primarily, not just houses, but you know what I mean. Maybe you go on Zillow, Redfin, Trulia, whatever. All you see is pending, sold contingent, it’s pretty easy to see what’s happening. Take it away.
Steven Butala:
Do we need Sears? Do we need Kmart and Walmart and Target, all of them? Do we? Sears has never met… JC penny.
Jill DeWit:
They’re trying to make it. They’re still doing commercials.
Steven Butala:
They’ve been teetering on bankruptcy. Most of them have already filed some type of reorganization bankruptcy. Do we need these companies? No, no. This is all some propped up wall street thing. Recessions weed out unnecessary businesses. Do we need all these restaurants that are always constantly teetering on not making money that month? It’s 1% margins, 2% margins. Before the COVID, Target announced their earnings and it was 3%, 3% profit.
Jill DeWit:
Before the COVID?
Steven Butala:
Yeah.
Jill DeWit:
What is it now?
Steven Butala:
IN the healthiest day. I don’t know. I didn’t look because I know how that’s going to end.
Jill DeWit:
Oh, okay.
Steven Butala:
The last recession around, between 2008 and 2011, there were tons in Pheonix. Jill and I were in Phoenix buying and selling property and probably 50 to 80% of the people in the real estate business, specifically contractors, were gone. They were weeded out.
Jill DeWit:
That’s true.
Steven Butala:
They couldn’t handle it. They couldn’t take it. They couldn’t… It was that volatile and that fragile. So really think about this for a second. And this topic came up again out of an interview that we did with a couple of guys in our group, because they have a podcast, because they were experiencing single points of failure in their other online businesses, where Google would change some stuff overnight and all the work that they did for a year about selling a specific product, it was just no longer ranking at all. That’s so fragile. Do they deserve to be weeded out? Yeah. Yeah, they deserve. And I’m not picking on these guys because they’re good guys, they’re smart and they’re rebounding. They’re doing… In the end, they didn’t get weeded out. They adjusted and sold it through a different venue and a bunch of stuff.
So, this is Darwinism on wall street. If it’s that fragile, if your business… And I don’t mean your land business, but I’m talking to the CEO of Target a [inaudible 00:11:37] Hudson, is that fragile, or if it’s never made any money ever and you’re just playing a house of cards game on wall street so you can have stock options, which is really what’s going on with a lot of Uber eats and Uber. None of those companies make money at all and they never will. They’re set up to fail. They’re just there to make sure… Help to create shareholder wealth.
Jill DeWit:
So you’re not saying, in general, you don’t deserve to be here.
Steven Butala:
I’m saying, make it count.
Jill DeWit:
Okay.
Steven Butala:
I’m saying-
Jill DeWit:
And I know that, I’m not-
Steven Butala:
Just let me finish here.
Jill DeWit:
Okay, sorry.
Steven Butala:
These same two guys that interviewed us, what they said was, “The business type that you two have set up, is the best business model they’ve ever seen.”
Jill DeWit:
Our type?
Steven Butala:
Yeah.
Jill DeWit:
Okay, got it.
Steven Butala:
Think about this for a second, the anatomy of a land company. You start out, you have a little bit of money, maybe you have a money partner or you have a partner that does the side of the operations that you don’t want to handle, whether it’s the data part or the operation sales. You’ve lost nothing yet. You don’t have any fixed cost,. You don’t have any variable costs from an accounting standpoint. You go and buy a piece of property, you send out a mailer, you’ve lost nothing yet, maybe a couple thousand bucks into this whole thing, which sounds like a lot but in the scheme of things, it’s not. You have all these opportunities now sitting on your desk to buy, you pick the best one, that one that you know you’re going to make 10 or $20,000 on and you do it. What have you really risked? Nothing.
There’s no risk in this business. Risk is that you’re not going to follow through and you’re going to get distracted by something else or something else in your life is going to happen, and that’s it. When you think about these companies that are just competing with each other, there’s 19 restaurants all competing with each other in a row.
Jill DeWit:
Isn’t that amazing?
Steven Butala:
And something like this happens.
Jill DeWit:
Hoping that people are going to walk up pier Avenue and walk into their door and not this other door. That’s scary.
Steven Butala:
Right. If it’s that fragile where, your revenue gets cut up by 40% because of some COVID thing. Or if you as a person, forget about companies and weeding out unnecessary businesses, if you as a person, have a single job and four or five people at home that are depending on you and your job has a single point of failure like COVID, non COVID proof scenario, that’s a very scary position to be in. And I think that everybody that listens to this show, and it’s definitely who’s in our group, they’re very intelligent people. Please don’t put yourself in a point where you have a single point of failure. Personally, or from a job standpoint. Recessions weed out unnecessary businesses.
Jill DeWit:
What would you say would be a way to diversify in our world?
Steven Butala:
Well, if you have a job and there’s a lot of people that are doing very well… Not well, they’re just not as affected by this environment because they can work at home. And those are usually people that are… Whatever they’re doing at work, they don’t have to touch it or make it or serve somebody.
Jill DeWit:
They’re tax, all online stuff.
Steven Butala:
And a vast majority of the people are unaffected by this. It’s shocking how many people can actually work at home now. And now the kids aren’t going back to school in general, so people are making decisions about where to move. So what was the question?
Jill DeWit:
So we’re talking about, in our world, what’s the best way that you would tell our community to diversity?
Steven Butala:
It’s a classic diversification discussion. Don’t send mail to one place, send it to five places. Don’t have a single point of sales failure. It almost sunk my ship before Jill-
Jill DeWit:
That’s huge.
Steven Butala:
All we were doing was selling property on eBay. So you need to send, sell it in multiple venues. From an employee standpoint, don’t… I’ve made this mistake in the past too. Don’t let one person have so much control that they come to work with the new attitude about how they’re going to tell you how it goes.
Jill DeWit:
It wasn’t me.
Steven Butala:
So it’s all a classic… No, this is before Jill. Classic diversification discussion. If you have a job, keep your job. If you have a job that’s paying the bills, keep your job, do this stuff on the side until you’re completely and totally convinced that this is for you and it’s cash flowing and-
Jill DeWit:
And you’re losing money, because your job is holding you back.
Steven Butala:
Yeah, you’re losing money at your W2 job.
Jill DeWit:
Yeah, yeah.
Steven Butala:
I think, and this is a personal note now, this is what the show is really about for me. There’s too much weakness and potential to fail in over financed, in over leveraged, in over structured companies. And it’s like, every day we turn on the news and it’s like, well, JC Penny’s… I get it. I get it in my feed, probably because I read this stuff, but here’s a list of 10 name brand drug stores that are not going to make it through the COVID. Is it that fragile? Is what you do so full of risk and competition and ways to fail that-
Jill DeWit:
Please tell me that Nordstrom and John Deere are going to be okay.
Steven Butala:
I am sure those two brands… I don’t know about Nordstrom and all, but I’m very, very confident John Deere and Caterpillar are going to be fine.
Jill DeWit:
Okay. Oh, I got to get into the Catepillar club. All right, that’s next. All right. I’m getting in. If someone knows of it, let me know and sign me up. I want to be the Caterpillar club now, too.
Steven Butala:
We can learn a lot from this stuff. This isn’t the funniest, happiest show we’ve ever done, but it’s real.
Jill DeWit:
I understand. Happy you could join us today. Monday through Friday, you can find us right here on the Land Academy show.
Steven Butala:
[inaudible 00:17:12] the episode on the Land Academy show is called qualified sellers will call you in droves. Cold calling is dead. You are not alone in your real estate efforts.
Jill DeWit:
I picked that topic.
Steven Butala:
Yes.
Jill DeWit:
Because I saw somebody going down that path and I wanted to save them before they sunk hours and hours and hours and hours and hours into that, and remind them, there’s a better way.
Steven Butala:
I can’t wait to hear that story.
Jill DeWit:
Oh yes, exactly. Thank you for tuning in. We hope you find our content valuable and we appreciate your support. If you haven’t already, please check out our YouTube channel and hit the subscribe button
Steven Butala:
And your comments and suggestions, help us create the type of content you’re here for. Hitting the like button helps to support our channels algorithms and gauge your interest in our future shows. You know me, it’s all about the data. We are Steve and Jill.
Jill DeWit:
We are Steve and Jill.
Steven Butala:
Information.
Jill DeWit:
And inspiration.
Steven Butala:
To buy undervalued property.
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