Every Real Estate Deal has Flaws (LA 1349)
Every Real Estate Deal has Flaws (LA 1349)
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 the sunny, Southern California.
Steven Butala:
Today, Jill and I talk about how every real estate deal has flaws, but hopefully not fatal flaws. And we’ll talk about how we sometimes search for the flaws.
Jill DeWit:
Right. And people accidentally kill deals.
Steven Butala:
Yeah.
Jill DeWit:
You know what’s funny about this? I started to take some notes. I’m like, I usually sit and put some bullet points down about every show and have topics I want to cover, but I’m like, you know what? This is going to be more fun. It’s just a total open, free flowing conversation, so I’m excited.
Steven Butala:
I promise this will be interesting because this is one of those things where, after 25 years of looking at deals, daily. Deals pop in daily. It’s like, all right, what’s wrong with it? All right, it’s cheap. I get it. We understand the mail works. We know how many deals are going to come in that day or that week even, within reason. What’s wrong with it today? Oh wait, that’s not wrong with it. Oh wait, that’s not wrong with it. Oh my God. We’re going to do this deal. 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:
Ian wrote, how do you look for the liens on a land parcel before you enter into title? Are there any due diligence standards which people check before entering into escrow? I don’t want to pay for the escrow if there’s something that’s really easy to look up, which would make me walk. I’ve already looked at the county website for back taxes. This is a very good question.
Steven Butala:
This is a fantastic question. It was super popular on land investors. There’s a lot of people that piped in, obviously Kevin, the moderator. I even, I think, answered this. Liens, there’s no easy button for liens. And Jill knows how to do this with TitlePro, and we’ll ask her in a second. But here’s the back picture. Every real estate, every piece of real estate, theoretically, could have liens attached to it. They come in the form of… There are liens that are attached to that piece of real estate itself, separate from the owner, and there’s liens attached to the owner that could affect that asset that they own, that piece of real estate. I don’t want to make this too complicated. And one of each, is an example, is property taxes. If you let your property taxes go, they’re attached to that piece of real estate, they’re not attached to you.
And you can sell that piece of… I could sell a piece of dirt to Jill, that’s got a ton of back taxes on it and she inherits them all. They stay with the property. So that’s a big one for me. How do you find back tax liens if they’re that old? Another one is, IRS liens. Well, IRS liens, if you don’t pay your income taxes, if it gets that bad, you have a lien attached to you and then they name that real estate as an asset, as something you own, that they could potentially go after. So there’s all kinds of crazy liens. There’s mechanical liens that are tied to contractors, if a contractor did some work and didn’t get paid. There’s child support liens, if you have child support and you don’t pay.
So there’s all these liens and it can be a gobbly, gooped mess. There’s no easy button. The answer is, there’s a few sources you can go to, to find these things, but nothing’s for sure, and that’s where people get hung up, even me. There’s no for sure way to look up, go to a website, look up this person’s name, look up this APN for this property. Oh, we’re good, there’s no leins. It just doesn’t work that way.
Jill DeWit:
So that’s the point I’m going to make too, real quick, is that, don’t kill yourself over this. Don’t spend two days on every property, calling every possible place to make sure they don’t own money because that’s going to be a waste of your time. We have had… Because like you said, it’s not 100%. I can give you examples of title company number two, catching something that title company number one, when I bought it, didn’t catch. It’s like, nobody’s perfect, so you do the best you can.
Steven Butala:
That’s it.
Jill DeWit:
And you have a checklist. I’m big on that. I’ve been talking about that a lot. I put something in social media just last week about your due diligence checklist. You should have a round one and a round two. Round one, I look at back taxes. That’s my initial phase. My first thing I’m concerned about my due diligence is, we’re going to need the back taxes.
Steven Butala:
Me too.
Jill DeWit:
That tells a lot about them too, by the way.
Steven Butala:
Probably, any lien problems you’re going to have, are either back taxes or mortgage.
Jill DeWit:
Right, or HOA. Those are my initial, initial on my round one or phase one, or level one due diligence. I call them all the same thing. That’s what I’m looking for, those two things. Now if I dig in, usually there’s a trigger. I’m not usually digging that hard, unless there’s a trigger that tells me maybe this property has changed hands eight times, there was a quick claim deed real quick. There’s sometimes, even the person on the phone will say things that clue you in. Oh, I might want to check into that. He says, “I started to build a cabin and the guy walked.” Okay, well I want to make sure everybody’s on the same page here before I buy this property. There’s all kinds of reports. I think you want to talk about that.
Steven Butala:
Well, finding back tax liens is very simple. You go to the County or call the County. Go to the County website or call the County. That’s what I was going to say. There is good news to this.
Jill DeWit:
Yeah.
Steven Butala:
Back tax liens are incredibly simple to find. In very, very small circumstances, you’ll find extremely rural counties that don’t have good back tax records, but that’s very unusual. And they’re mostly in Arkansas. HOA liens, you have to do… What I do is, a Google search. And nine times out of 10, the Google search will show up and you’ll find out, and then you call it. It’s a bunch of people sitting in an office, managing an HOA. That’s a topic for another story. It’s like over government. Anyway, the third one is mortgage liens. The way data is now… When you buy a house and you get a mortgage, you have a lien on your house, just like a car. If you finance a car, if there’s a lien on that asset, until you pay it off and that lien is extinguished, the way data is now and all the data that we provide, you shouldn’t spend a minute on finding out whether or not there’s a mortgage.
Jill DeWit:
A lot of mortgage liens, most mortgage liens show up in Neighbor Scoop.
Steven Butala:
Yeah. Oh yeah, exactly, so that’s just seconds. Then you’ve got these tertiary liens, the secondary liens, like medical liens or IRS or stuff like child support. Man, I’m telling you, it’s like, I’m pulling this number out of my hat, but I’ll tell you, it’s less than 1% of the properties that you look at, so what’s still? If you’re a kook like me and you’re going to spend 10 grand on a property, you want to know that it’s okay. The best way to mitigate risk is diversification, so buy $110,000 properties, you’re going to be good. There’s a tiny, little chance one of them is going to come back. Jill and I have done almost 16,000 deals. We probably will hit 16,000 this year. I have never had a back lien come back and get me, so. Well, Ian, this is a great question and people need to know about this. And Jill does go through this every single time. What do you spend on it? On this part of due diligence?
Jill DeWit:
Five minutes, on my initial thing.
Steven Butala:
Okay, perfect. And that’s what I think. There should be a five minute thing where you check it off a list. County says back taxes are okay. Neighbor Scoop says mortgage situation is okay.
Jill DeWit:
No HOA.
Steven Butala:
Checked for an HOA. I just spent 15 seconds of my life. I’m going to sleep tonight, spending 10 grand on this. This is a very, very good question, and it’s something… I bring this up at the live event all the time, because at the live event, there’s people that, in our group and at the live event, do stuff differently. We all get to the same end, buying property and reselling it for more. And some of the older people at the… Older than me, if you can believe, at the live event, have these complicated ways of solving that lien thing for themselves. Like Nexus Lexus and just the old school stuff that’s leftover from the 80s and 90s. And I’m telling you, there’s better tools now.
Jill DeWit:
Well, the bottom line is, most of the property that we’re buying as rural vacant land, does not have this. Why it’s not improved, it’s really only those few common things. And it’s important for you to understand that you just separate liens with the person, liens with the property. Liens with the person, you don’t care about, and those are easily fixed once they get one phone… If they have to, you just have a phone call saying, they sold it to me. Okay, updating our records. Have a nice day. Not that it would ever come up. It’s never come up for me, anyway. So and don’t get bogged down too much. The other point I want to make is, this is a reason too, why we give you a variety of tools. What’s so interesting is, CoreLogic, Black Knight and First American, AKA Data Tree, they’re racing to the finish line, man, to one up each other with the tools and the things that they’re supplying. And they’re adding things like different lien reports and back tax things and all kinds of stuff.
Steven Butala:
It’s staggering. Jill’s right. They’re staggering the products that these companies are adding.
Jill DeWit:
So you don’t even know what you have at your… As a member, you have this at your fingertips right now. There’s a lot of stuff that you could do, just don’t get bogged down.
Steven Butala:
[inaudible 00:09:11] licensed providers of all three, and we want to see who’s going to win too.
Jill DeWit:
Yeah.
Steven Butala:
And the truth is, we use all three because they shine in certain areas, and more and more. Well, all three of them are really putting lien reports in a huge way.
Jill DeWit:
All kinds of things. This is the last example. Say I’m trying to find a deed, and the seller doesn’t have the deed. And it’s eight o’clock at night, so the county’s closed. I need to see the dumb D, and I’m getting this done. I’ll go from one source to two sources, three sources. Ding, maybe it’s number three who has it. Maybe number two had it. One of these guys usually has the [inaudible 00:09:45] for me.
Steven Butala:
Yeah. Today’s topic, every real estate deal has flaws. This is the meat of the show.
Jill DeWit:
Did you create this topic around the question? Or did you pick the question to go with the topic?
Steven Butala:
No, you know what? Just happens, honestly. I don’t spend a lot of time tying the question with the topic.
Jill DeWit:
Well, that’s good.
Steven Butala:
It just sort of happens. The truth is, I don’t spend any time on it. I just go to the… This is what I do.
Jill DeWit:
He took the most recent question, just throw it in there.
Steven Butala:
Yeah. I go into land investors, I look at the most recent question. Usually it’s like five minutes ago, and I read it and I’m like, that question sucks. And then I read the next one, question doesn’t make any sense. I read the next one. Oh my God. Ian’s asking about liens, bang, bang, bang.
Jill DeWit:
That’s funny.
Steven Butala:
That’s the whole decision making.
Jill DeWit:
I love it.
Steven Butala:
A deal comes in, we send out all this mail. If you listen to the show, you already know what I’m going to say. We send out all this mail every month, every week, and people who are interested in selling their property, get the offer, call us back. And they either chew us out because they don’t like the number, in which Jill laughs or staff laughs, or they say, you know what? It is time for me to sell this property, and I got your offer and I liked the price. Or add a few thousand bucks, you got yourself a deal. At which time, we’d start to go down the due diligence path. And is, check to see if we actually really want to buy this property, and after… Look, to do 15,000 deals like we’ve done, believe me, we’ve reviewed about 50,000 deals. So you try to look for flaws. I mean, this is not a time to look for a silver lining or be a positive… This isn’t a time to be a positive person.
Jill DeWit:
And I want to say, the reason… I don’t see it as, I’m looking for flaws, but for me, I’m making sure there’s nothing wrong. I’m like, all right. The way we send mail and the way these offers come in, I’m like, okay, this is looking really good. I’m about to pick up 34 acres for 10 grand or something like that. And I’m looking at it, going, what’s wrong? Or what could be wrong? Like you’re saying. So it’s not… And I’m not necessarily trying to kill a deal, I’m just trying to make sure I make an educated decision.
Steven Butala:
Yeah. So the first thing you do is, you check for the four A’s on any land deal. Access. Can you drive right up to it? And even now, it’s mostly two wheel car. A two wheel drive car that, can you drive right up to it? Access. Affordability. Is it cheap enough? So I’ll tell you, this is the number one flaw that I find. It’s just not cheap enough. I love it at 10,000, but for whatever reason, we send out the offer at 25. At 10,000, I can make this work and then sell it for 20 or 25. So affordability, the second A, is a big one. Probably the most prevalent flaw. And that’s self-induced, that’s me not pricing it right. Number three is, attributes. So we’ve all gotten property back in the mail, that’s just a square in the desert. There’s nothing good about it.
Jill DeWit:
That’s true.
Steven Butala:
There’s no view. It’s not close to any cute little town. When you buy land, especially in the beginning, you want it to be like, you can see the ocean, or you can walk to the Grand Canyon or there’s incredible mountain views and all kinds of cool little cabins around. There is something that, if you feel good about the attributes of this property, your buyer’s going to feel great. And the fourth is… Affordability, access-
Jill DeWit:
Acreage.
Steven Butala:
Acreage. Oh, acreage. Large is always better. Large is not always better for the end user, depending on what the situation is, but I’ll tell you, just trust me on this. On the internet, an acre is going to sell better than a half an acre. All those other three A’s being equal. That’s just how it is. Especially because the seller has long forgotten about how big his property is, but we understand that. They’re going to typically price half an acre versus an acre, the same way, because they just want to get rid of it. So that’s your win.
Jill DeWit:
I have an interesting point. I was thinking about this. It used to be, money solved it all. I used to think that, and maybe that was when I was learning how to do this, and it’s just like, okay. And I see people doing this too. They think that, you know what? I don’t care if it has any of the A’s, I’ll get it for affordability, and that’d be awesome. Like a square on the desert.
Steven Butala:
This is a great point.
Jill DeWit:
So and I’m thinking it doesn’t necessarily solve all problems. Just because you bought a square in the desert for $100, doesn’t mean you want… You’re going to do really well competing with the other 1000 of those, for sale on the internet. Number one. And number two, there’s nothing happening there. You got to have more than just that.
Steven Butala:
Exactly. So when does a flaw become a fatal flaw?
Jill DeWit:
That’s a good question.
Steven Butala:
I can tell you, with certainty, lack of access is a fatal flaw for us now. And that wasn’t like that our entire career, we just learned over time that dealing with lack of access, isn’t worth it for us. We have people in our group who seek out properties that don’t have access so they can solve that and create some massive value on the resale.
Jill DeWit:
Right.
Steven Butala:
So you have to decide what a fatal flaw is for you. That’s kind of the trick here. Another fatal flaw, for me, is price.
Jill DeWit:
Yeah.
Steven Butala:
Again, we’re addressing, the flaws are in the four A’s.
Jill DeWit:
Right.
Steven Butala:
So affordability, that if it’s not cheap enough. When a seller just says, you know what? You sent me an offer for 25, now you’re telling me 10, which really never happens because Jill’s involved. Either sell it, want to sell it or they don’t. And there’s just no deal. And then to which you say, you’re right. There is no deal. Call me in six months.
Jill DeWit:
I mean, I really have three things right now that I really will kill a deal over, and you touched on two of them. The one is price. We’re not on the same page. I sent an offer out the other day for 25,000, he countered with 30. I looked at it and like, oh great. I give you 10. And so we weren’t on the same page. And I told him on the phone yesterday, sorry, that was assuming this, this and this, and now you’ve confirmed I don’t have any of those. So I told him, I said, “I wouln’t pay more than five or 10.” I said, “I’ll give you 10.” And he’s like, “Nope.” And so, but I got him thinking.
Anyway, so prices on the same page. Access. And even like this guy the other day, he confirmed four wheel drive access. I could see it. I could see where the road and the path goes. And the whole thing was, it was a good hunting spot, that’s why. It was 34 acres you could hunt on. And that’s what he would use it for. But again, we weren’t [inaudible 00:16:29] price, so I let that go. And then the third thing that I kick deals to the curb right now is, it’s a legal ball of yarn that I don’t want to undo.
Steven Butala:
But Jill, that’s a brilliant one.
Jill DeWit:
And I just walk away from those, and so-
Steven Butala:
Please explain.
Jill DeWit:
So a legal ball of yarn is, it’s husband and wife on the property. It was quick claimed a year ago. Now she’s passed on, and it wasn’t joint tenants. And it’s an estate that I don’t know how to do this in yet. So I have my team right now saying, I want you to spend no more than one hour. Here’s what we’re going to do. So what my point is, if husband and wife were alive and able to sign and everything else checked out, I’m in it. I’m great. I’m happy. But she passed on, and it’s not joining tenants. So he doesn’t automatically, even though there’s a will, he doesn’t an automatically… If there is a well, we don’t even know that yet too. He doesn’t automatically just assume ownership and get to do whatever he wants with it.
So we got to figure this out. So I told my team, this is a new area for us. I said, number one, call the seller back. Ask him, since his wife passed, is the easiest thing, did he have an attorney that did a lot of their estate and helped move the house? Or what are the bank accounts? Whatever it is. If he’s already got an established attorney, he’s in it and it’d be a lot cheaper. And I will even pay for it if it’s the properties… I’m going to make enough money off of it, I’ll do that. And I said too, by the way, if there’s an attorney, see if the attorney will do this, facilitate a transfer for us too, because we can just ball it all up into one, call it kind of an escrow, all thing.
And then if not, I said, call around and find an attorney in the area and ask their advice, ask them what to do. And they will, most of the time, at least for me as a girl, they don’t charge me for these quick little phone calls just saying, hey, here’s the situation, can you handle it? Or what does it take? And they’ll tell you, I’ve had them say, “Hey, Jill, don’t worry about it. You just need to do this and this and this. You could do it yourself. You don’t need me.” Yay, thanks.
Steven Butala:
That’s the most legal stuff. We’re just so unfamiliar with it as regular people, as regular citizens that-
Jill DeWit:
Right.
Steven Butala:
All it is, is just filing papers and getting the right stamp and having it recorded correctly.
Jill DeWit:
Right. But my point of this is, after one hour of phone calls and checking, if it turns into a big thing that’s going to be opening attorney and 5,000 bucks, I’m out. I’m not going to spend all that extra money and wait… I don’t know, especially COVID times. Things that used to take 30 days are now 60 to 90 days. I’m not going to wait that long to buy this property. I’m moving on.
Steven Butala:
That is the single biggest… I’m actually considering making the four A’s, five A’s now. That is the single biggest reason that we don’t… We walk away from property, is the legal ball of yarn. That’s a show title, that is. Brilliant.
Jill DeWit:
Thank you.
Steven Butala:
It’s upsetting for everybody. It’s upsetting for the seller. The seller, a lot of times they know. They know that. Someone else has said this to them in the past, we’d love to buy your property, but it’s in your deceased wife’s name, and you got to go through these things, especially… And it’s very state specific.
Jill DeWit:
It’s true.
Steven Butala:
In Arizona, it’s very hard to undo. Not hard, expensive. In California, there’s an affidavit that you attach to a death certificate, that rectifies the whole thing, so it’s cheap and fast. And so, it’s very state specific. And the legal ball of yarn is… I love that.
Jill DeWit:
Thank you. Do you know what’s so funny? I just thought of the fifth A. You know what it is? Alive. And number five, are they all alive?
Steven Butala:
Oh, Jill.
Jill DeWit:
That’s it. Now we have five A’s.
Steven Butala:
Five A’s.
Jill DeWit:
You heard it here first. We just came up with that.
Steven Butala:
You came up with it.
Jill DeWit:
Thank you.
Steven Butala:
It actually was a team effort.
Jill DeWit:
Thank you.
Steven Butala:
Alive.
Jill DeWit:
Alive. Access, affordability, attribute, acreage, alive.
Steven Butala:
And then, you probably have yourself a deal.
Jill DeWit:
Yeah, there we go. Now you’re good. That’s awesome. Happy you could join us today. Five days a week, you can find us right here on the Land Academy show.
Steven Butala:
Somehow the episode on the land Academy show is called, going broke, land investing or not. You are not alone in your real estate ambition.
Jill DeWit:
That’s good.
Steven Butala:
Jill and I interviewed a member yesterday, it’ll air next week, after this airs. And Jill asked her at the end, “Why did you join us? What’s the deal?” Because she’s extremely… She’s made over a million dollars on a single deal. A million and a half, actually. And she said, “It’s because you guys are honest. You have some integrity and there’s no BS about you.” And so we’re not going to read this, thank you for joining us today, like we usually do at the end. If you think we suck, please don’t listen. If you think we actually know what we’re talking about and we are delivering it with truth and you’re getting something out of this, join us today or-
Jill DeWit:
Find our YouTube channel.
Steven Butala:
Find our channel.
Jill DeWit:
And give us some love.
Steven Butala:
And subscribe.
Jill DeWit:
How about, give us some love.
Steven Butala:
Yeah. And whatever form of that it is for you, but it turns out-
Jill DeWit:
Not monetary. Thank you.
Steven Butala:
Yeah, no. Yeah.
Jill DeWit:
We don’t need that.
Steven Butala:
It turns out, we are actually helping people, whether they’re members or not, make a bunch of money and do really well. And we’re getting more and more stories back [inaudible 00:21:59] So we don’t need to read these canned lines about subscribing or liking or anything. If you’re into this, you are, if you’re not, you’re not.
Jill DeWit:
That’s sweet. We’ll just change it to that. The little after thing is, if you like us, give us some love. If you don’t, we’re sorry. This is 20 minutes you’ll never get back.
Steven Butala:
We’re Steve and Jill.
Jill DeWit:
We’re Steve and Jill.
Steven Butala:
Information.
Jill DeWit:
And inspiration.
Steven Butala:
To buy undervalued property.
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