How to Structure Your Land Business (LA 1336)
How to Structure Your Land Business (LA 1336)
Transcript:
Jack Butala:
Steve and Jill here. 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.
Jack Butala:
Today, Jill and I talk about how to structure your land business because it’s business week this week.
Jill DeWit:
It is. I’m thinking of like people and roles and management. I’m sinking. You’re probably thinking numbers and I’m thinking people.
Jack Butala:
I am. Well, I’m thinking of LLC structure.
Jill DeWit:
Exactly. So we all both have some different things to share.
Jack 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:
Greg wrote not a joke this was quick, “Two lots in a county side-by-side, lots 125 and 126, but both are assessed together and have a single tax bill from the county. Any reason to think I could not sell these as separate lots without an issue? Thank you.” I’m curious if it’s one APN.
Jack Butala:
Jill just nailed it. What we’re in the business of is buying and reselling APNs, the way that a car dealer is in the business of buying and reselling VIN numbers. There’s all kinds of ways to title property with legal descriptions and there’s a million ways to buy and sell. Well, actually, you know what? There’s only one way to title and license a car. They have a form, in Arizona it’s green. What color is it here? Yellow?
Jill DeWit:
Which form?
Jack Butala:
Like the car title in California. It doesn’t matter.
Jill DeWit:
I thought it was always called a pink slip, but I don’t know if it’s pink anymore, but yeah.
Jack Butala:
And you can only put one car in the form. The DMV’s got it. And this confusion comes from the DMV because we’ve all titled cars. There’s one form. One way to do it. One VIN number on that form. There’s place to sign. There’s a place to notarize in some states and that’s it. And there’s a process to submit it and you either do it right or wrong and it’s over. With land, it’s completely the opposite. There’s a ton of different ways to do it and it’s up to the recorder to make sure that it’s correct. So you can take a thousand properties and in one case, Jill and I had a deed with 10,000 properties on it, one document with 10,000 properties and a signature page at the bottom. So what Greg is saying here is I’ve got a deed or I have a deal. The legal description says lots 125 and 126 in Garden Estates, Pinel County, Arizona, Maricopa County, APN 1234567. That’s one piece of property period. If it’s one APN, it’s one piece of property.
Jill DeWit:
Then it’s one piece of property. So to divide them up is a process. You have to go back to the county and there’s a process to split them up. And then you’re going to get assigned a separate APN to each property if they can be split as two. There might be reasons why. Sometimes they have building restrictions that you can only build on and this could be one reason that they combined them. I’ve seen this where it’s a 0.1 acre and a 0.34 or something like that, and you have to have a minimum of point whatever to build on it.
So they’ll lump them together, it just makes life easier and to build on because the 0.1’s too small. So that’s why it worked out this way. And it’s probably somebody along the way did this on purpose and combine them into one. I’m restating it in a general way, which is you can’t just willy nilly go in and do it because if you saw 125 with the same APN and you resell 126 of the same APN, now you got a problem. You sold the first guy, not the second guy. The second guy’s got nothing.
Jack Butala:
Secondly, you would never ever be able to send it through title.
Jill DeWit:
They would catch it and that’s good.
Jack Butala:
We have people in our group who have done this, sold properties just like this, parcels taken out, lot numbers out of one APN and five years go by and that person who owns it goes to sell it and it’s a big, huge disaster. I’ve heard all kinds of stories like that Jill and I do. I will also tell you this, to go back to the county and split those back up and get new APNs, you better pack a lunch. In fact, you set your calendar for probably two years. It’s going to take you two years if they do it at all.
Jill DeWit:
Right. Summer, we did Maricopa, but it was still like 90 days I want to say. It was a process 90 days to turn a half acre parcel into 2.25s kind of thing. You had to go to this board and you had to submit that and you had to get a survey out by the way and all kinds of different things.
Jack Butala:
All that stuff is very, very, very geography specific. I know in the center states where there’s a lot of agriculture, there’s these old provisions where you can ice out 40 acres into your property because you want to give it as a wedding gift to like your daughter and her new husband. So there are few places where it’s like, it’s a single piece of paper and it just happens. I don’t know offhand where those places are because I’d be doing it. If you can split property easily, it’s always better. There’s a theory. The theory in economics called the bottle the case theory, where you buy the case and you sell off the bottles and you make some money, the convenience store model. That applies to real estate too, it’s difficult to do because the people that work at the county, it’s a lot of work for them to reassign APNs and all that stuff. And then by the time it’s done, everybody got reelected so it’s a new person. There’s a lot of stuff that goes on with this.
Jill DeWit:
In a good way though, often there are counties that are some places that they like it and they appreciate it and they’re excited about it because it’s going to bring in more tax money. They can collect more taxes on 10 separate properties than one big one and they like that. But again, it’s extra work and you got to find them.
Jack Butala:
It’s extra work for people who work for the government. Think about that for a second.
Jill DeWit:
I was trying to nicely say that. I don’t know how to nicely say that.
Jack Butala:
Just like that. Yeah. Today’s topic, how to structure your land business. This is the meat of the show. Jill you had some ideas.
Jill DeWit:
Well, I was thinking it’s funny because I know you often go high and I go low. So I didn’t know how high you were going to go. I thought you were just talking about… I didn’t think about the LLC and the things like that, that I know you’re thinking of. I’m thinking of structuring my land business as in how I should run my land business meaning staffing, what’s my role, who do I hire next and things like that because those are the questions that somehow find their way to me. So I’m going to talk about structuring a land business again in the questions that come to me, which are, “Who should I hire first?” That’s often what comes on right now. Okay, great Jill and Steven.
So I did everything you said I’m two years in. I quit my job. I wish I would have done it six months ago because I would have made so much more money, but no matter what I’m sitting pretty. I have a VA right now that does some of the heavy lifting for me, but I’m the one man show and I am tapped out. I need to grow my business. So how do I structure this so everything gets done and in the way that I grow the right way? So what I would say is we kind of have this in one of our programs. You kind of did I think it was the info lots where it showed you and then transaction coordinators and then start building out your team like that. So the person you have on the side right now is kind of like your assistant.
You need more than that now. Now you need to really push yourself up. I would be thinking about getting someone in place for an acquisitions team and a sales team. I would kind of start with that and then have those. So it’s you and your little assistants helping you with your due diligence on the side. And you’ve got now a sole acquisitions person and a sole salesperson, what do they do? The acquisitions person is a person that when you say, “Yep, I did all my homework, we’re buying it.” They open escrow or they do the self close, however you’re doing it.
They do everything involved and follow all your properties all the way through the system to hand them off to the salesperson. What’s that salesperson do? They’re writing descriptions, getting photographers, they’re getting the properties posted. They are making sure they’re in social media and doing all that stuff. And I say in the beginning, pick whichever one that you feel you’re lacking in the most, someone that can bring more to the table than you can provide right here. Maybe you’re really good with title agents, but you got to have the salesperson, the sales piece which drives you batty, you hate posting property, you can’t stand it. What’s so funny?
Jack Butala:
This is good. I’m actually enjoying this.
Jill DeWit:
Okay. So that might be the position you do first and you’re going to have to train them. It’s going to be a process and it’s going to take time. I’ll tell you right now, it’s probably going to be a six months process before you find, hire, and feel like you could take your foot off the gas a little bit with that salesperson and have them moving in the right direction. And when you hire these people too, I want you to tell them right away, and this is what I do too I’ve learned this, I want you to right away start creating your standard operating procedure to train someone beneath you because if you’re doing it all right, they will eventually lead a team of other people. And in the beginning, who’s going to be their first team people are their VA’s helping them.
So let’s just say, follow me on the sales path right now because you hate all this stuff. So you’ve got one guy who’s learned how to do these things really, really well. Now they can start subbing out the little jobs. They can have a VA start putting them in all the social media places that they deem appropriate, that they identify and how they want it done because they were trained by you. And then for the acquisition person, same thing can happen. Now that kind of [inaudible 00:10:28] rule I’ll tell you, I personally don’t have VAs doing acquisition and title babysitting for me. I keep that here kind of locally and those can be part time positions though too. So my number one acquisitions, a transaction coordinator what I call her is subs out people beneath her. So she’s really only handling the problem deals or the high level dollar amount transactions that kind of a thing.
And then your job now this is freeing you up to obviously handle them picking the counties, pulling the data, getting the data. You still have your assistant over here helping you with some of the little researchy parts. You might be researching a county. You have your VA go out and collect the data for you, so you can sit back and go, “Yep. That’s what I thought. We’re mailing here, here and here. Not those six places. Those are dumb.” Nothing’s happening there kind of thing. And you do the data, you do the scrubbing. The other thing you’re going to start filling in right now too is if you haven’t already a PATLive or somebody answering the calls. So that’s kind of a third piece here that you’re going to be… I can keep going.
Jack Butala:
Go. Listen, I’m telling you. I’m serious. I think this is extremely helpful. Go ahead.
Jill DeWit:
So all of these things too, start with the area that fall down the most that you either cannot stand or you do not feel that you’re as effective as you could and should be. And maybe it’s as simple as answering the phone. Maybe every time the mailer goes out, you hate that. Start with that one kind of thing and get a PATLive and you can have your PATLive person working with the acquisitions person. So here’s a little tip. We have calls come in, get input into our system overseen by a transaction coordinator and hitting all my criteria, access somebody alive, I mean all kinds of stuff before it gets to me to make those decisions. And that’s what you should be thinking about, getting you in that position. So all that’s left is again, you’re doing the data, the scrubbing, the pricing, getting the mail out, you’re reviewing the deals when they come in, you greenlight them, you either have questions or you say, “Nope, not doing it,” and then everybody else kind of does the work for you.
Jack Butala:
Yeah. I mean, there’s no way I can improve on that. The ideal scenario is in what Jill’s referring to in our education is if you have envision a circle, which is Jill at the top, a little line coming down from the circle and then another smaller circle, that’s Jill’s main person. We’ll call it a vice president. She calls it transactional coordinator and then there’s a lot of little lines coming down from the transaction coordinator as she needs them. Some of them are title people. Some of them are photographers, some of them are on the buy side or the sell side. And so now, one of the things Jill didn’t mention is she’s got a single point of contact for everything. She picks up the phone and talks to one person. She may have off of Jill’s circle on the side, an assistant that’s opening the mail and doing some research for her, whatever.
Here’s the math on what Jill just said because a lot of people are saying, “Well, that’s great. That sounds like it cost a fortune.” It doesn’t. There’s fixed costs and variable costs. The transaction coordinator’s a fixed cost person. She’s there whether we do any real estate deals or not. Everything else, every single thing else on the bottom of that transaction coordinator is a variable cost. So if we don’t do any deals, we don’t pay anybody like a title agent. So what’s the math?
Well, we’ll use the math from yesterday. We generate $100,000 of profit a month. Jill pays somebody let’s say six 50, $60,000 a year, $70,000 a year, some number. Maybe there’s a bonus too for how many deals they do. So the math on that is probably five or $8,000 with taxes a month. So now Jill’s making $100,000 a month and paying approximately let’s just be really, really, really, really loose with it, $10,000 in wages and variable costs on a transact, $10,000 in wages and VA costs and maybe two or three or eight… maybe another 10,000 in everything else like title fees and closing costs and survey costs and all that other stuff. So now you’re making a hundred grand and you’re spending 20.
Jill DeWit:
Mm-hmm (affirmative). And that’s on the acquisition.
Jack Butala:
And if she has the right person and it doesn’t happen overnight that’s right below here, she spends two hours a day working. That’s Land Academy and House Academy.
Jill DeWit:
Sorry. So that’s perfect. That’s my acquisition person then exactly what you’re saying, now my salesperson. I’m lucky enough that my sales wing can also be engineering because there’s three parts of this business that we always talk about that Steven spelled out, acquisitions, engineering, and sales. The engineering is the maps and the description and getting everything together that you need to post a property to sell it. And those two by the way, I put those two together because I have found that I can… maybe I’m lucky, I don’t know, but I can find a salesperson that can understand the engineering part.
They kind of need to. It’s kind of like a good salesperson knows what a pretty picture is, so that’s important. So that’s why I kind of put those two into one role, but then underneath them, they have other things. So like right now my sales team, my main person, has their standard operating procedure for all these different little things, and a lot of them are covered by VAs, which are great because like you just said, another variable cost. There’s days we’re posting property, there’s days we’re not, days we’re posting 10, days we’re posting one. That’s how it goes.
Jack Butala:
That’s how Jill structures her land business.
Jill DeWit:
Yeah. That’s how I read the topic. How do you structure yours?
Jack Butala:
Mine is going to be great.
Jill DeWit:
Well, actually what’s so good about this, this is a beautiful example of how different our roles are in all of our companies. And you know what? He’s not on my side of the sheet and what he’s about to talk about, I’m not on his stuff. He lets me run it. It does great. I know what I’m doing. We’re peachy and I stay out of his world.
Jack Butala:
A lot of new people that come and say, “Well, I’ve got to start an LLC. I’m just starting this. I need to do an LLC. I’ve got to get my tax guy in place.” I don’t know where they heard that. It doesn’t matter where they heard that. Here’s the right way to do it. When you’re starting out for the first year or at least for the first 10 deals, put them in your own name. Don’t worry about tax structure. Don’t worry about anything about taxes or legal anything. Just don’t worry about it at all.
There’s a tiny, tiny little chance that if something really goes wildly wrong, but you’re doing small deals anyway so that’s not how you… What you want to do that first year or at least the first 10 or 12 deals is to learn how to do the business and then at the end of it, see if you want to continue. At that point, you need to go get an LLC and start putting this property, deeding the property under the LLC name to keep it all consolidated and then file a tax return for that LLC that leads up to your personal tax return in the form of an escort. And so that’s how from a legal standpoint and an accounting standpoint, you want to structure it. And that LLC needs to have its own bank account.
Jill DeWit:
Love it. That’s pretty darn good. In less than 20 minutes, we covered both. I’m impressed.
Jack Butala:
Yeah. And I’ll tell ya. All this stuff, Jill’s part you can’t Google it. You can only learn that stuff from a serious professional. My part about how to structure a company and LLCs, just Google it and do some research and find a source out there in addition to us to get yourself educated about some of this ancillary stuff.
Jill DeWit:
Thank you. That was beautiful. Happy you could join us today. Five days a week, you can find this right here on the Land Academy Show.
Jack Butala:
Tomorrow the episode on the Land Academy Show is called Land Business. In the land business… It’s cut off so I can’t read it. How much data do we actually consume in our land business? You are not alone in your real estate ambition.
Jill DeWit:
I thought this was all data.
Jack Butala:
It is.
Jill DeWit:
I know. That’s why I thought it was kind of a rhetorical question.
Jack Butala:
People fall over even really seasoned real estate professionals fall over. The data always tells you what to do.
Jill DeWit:
It’s true.
Jack Butala:
There’s the tiny little part of a emotion to this, but it’s very tiny.
Jill DeWit:
It’s true.
Jack Butala:
And we’ll break that all out tomorrow.
Jill DeWit:
Thank you for tuning in. We hope you find our content valuable and we appreciate your support. If you haven’t already, please zip on over to our YouTube channel and hit the subscribe button.
Jack Butala:
And your comments and suggestions help us to create the type of content you’re here for. Hitting the like button on your favorite episodes helps to support our channel’s algorithm engage your interest in the future shows. We’re Steve and Jill.
Jill DeWit:
We’re Steve and Jill.
Jack Butala:
Information.
Jill DeWit:
And inspiration-
Jack Butala:
To buy undervalued property.
—————————————-
If you have any questions or comments, please feel free to email me directly at steven@BuWit.com.
The BuWit Family of Companies include:
I would like to think it’s entertaining and informative and in the end profitable.
And finally, don’t forget to subscribe to the show on Apple Podcasts.
