Real Definition of Deal Flow (LA 1375)
Real Definition of Deal Flow (LA 1375)
Transcript:
Jack Butala:
Steve and Jill here.
Jill DeWit:
Howdy.
Jack Butala:
Welcome to the Land Academy Show. Entertaining land, investment talk. I’m Steven Jack Butala.
Jill DeWit:
And I’m Jill DeWit, broadcasting from Sunny Southern California.
Jack Butala:
Today Jill and I talk about the real definition of deal flow. This phrase, do you ever notice in our little land investment world, there’s catchphrases that go on and off?
Jill DeWit:
Yeah. Too many sometimes, there’s a lot.
Jack Butala:
And some of them are misunderstood.
Jill DeWit:
Mm-hmm (affirmative).
Jack Butala:
And some of them have multiple definitions and it’s like, “No, that’s not good.” One of them right now is a homestead. I did a show, we did a show, whatever about a month ago. It’s like, look, this is what homestead really means because it’s just not getting used correctly.
Jill DeWit:
I got one, when you’re ready.
Jack Butala:
Well, deal flow is the one today, but yes, go ahead.
Jill DeWit:
Wholesale.
Jack Butala:
Yeah, wholesale is not used right.
Jill DeWit:
Correct, exactly. It drives me nuts.
Jack Butala:
Here’s another one, passive income.
Jill DeWit:
Yes.
Jack Butala:
That’s a crack up for me.
Jill DeWit:
This is funny.
Jack Butala:
Jill got interviewed by Mark Podolsky, actually.
Jill DeWit:
I did.
Jack Butala:
Two or three days ago. I don’t know when it’s going to air. He’s a scheduling freak like I am, so he’s probably got five years of interviews lined up and recorded so he can just air. But they use passive income a lot in that, I noticed. Have you noticed that?
Jill DeWit:
Exactly. And every one of us that has “created passive income”. In our world, there’s nothing passive about it.
Jack Butala:
Jill and I are lucky enough to have several rental properties in Arizona, and it’s as passive as it gets. They’re condos for the most part, not all of them. The renters are family friends and over years-
Jill DeWit:
Super easy, they solve their own problems.
Jack Butala:
When they call they laugh and stuff, nobody ever calls and says 12th is work.
Jill DeWit:
Right.
Jack Butala:
And I don’t think that’s passive. I still think there’s stuff that goes on in there.
Jill DeWit:
Oh, stuff goes on. We just don’t hear about it. It’s good.
Jack Butala:
So, is it passive, really?
Jill DeWit:
No. We’re lucky.
Jack Butala:
Is buying stock passive? I don’t think so. Because you look at it [inaudible 00:02:13].
Jill DeWit:
That’s true.
Jack Butala:
Anyway, I don’t know how we got off on that. 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:
Matt W wrote, Hello all, I closed on 18 properties from one seller on Friday, October 30th, for $60,000. They’re mostly one to four acre lots, several are landlocked. Most are in the floodplains, but there are a few nice infill lots. I sent out 54 neighbor letters. And by last Friday, November six, one week after closing, I sold six of those lots for $60,000. So while the remaining 12 will take a little bit longer to sell, I have my money back and I can relax a bit. How cool is that?
Jack Butala:
Mic drop.
Jill DeWit:
Then he brought on and said one more thing. I also had an offer on a 15 acre lot. I purchased for 22 five at the end of July for $62,500. All in all, not a bad week. Holy cow, I love that.
Jack Butala:
I mean, he made-
Jill DeWit:
It’s perfect.
Jack Butala:
He generated $120,000 in revenue on $60,000. And he’s got how many lots left? 12 properties left. So if those 12 properties sell for half of what the other properties did, he’s got $70,000. He created 70,000 plus 40,000. He created about 120, 110, $120,000 of equity.
Jill DeWit:
That’s why you do it.
Jack Butala:
Since July.
Jill DeWit:
Love it.
Jack Butala:
Most of it is cash. Some of its property, which is like all of you know that if you’ve been buying and selling property, you’re out in this constant state of, I have a bunch of cash. I have a bunch of property. I have no cash, I have too much property. And it constantly goes like this and that’s… It’s a glaring example. This is a very real-world deal. Property comes in, they have 18 units. Joe would go in and just pound them on the price probably because some of it’s in a floodplain. You sell the good ones first and you eat the other ones out. Very, very real-world. Congratulations, Matt W. I am very, very happy that Land Academy has worked out for you.
Jill DeWit:
Exactly.
Jack Butala:
That’s why we do this.
Jill DeWit:
I love it. It’s just sometimes getting those comments in there, it just inspires everybody.
Jack Butala:
Yeah.
Jill DeWit:
It makes me want to up my game.
Jack Butala:
Yeah. Today’s topic. The real definition of deal flow. This is why you’re listening. What is deal flow? When you hear deal flow. No wrong answer.
Jill DeWit:
Okay.
Jack Butala:
What does it mean to you?
Jill DeWit:
Having enough deal flow are inbound deals for me to choose from as acquisitions.
Jack Butala:
I’m going to ask you some questions and you can bark back at me, okay? Was perusing the MLS deal flow?
Jill DeWit:
No.
Jack Butala:
Not at all.
Jill DeWit:
That’s searching.
Jack Butala:
That’s right.
Jill DeWit:
Searching. That’s painful.
Jack Butala:
Is looking through back tax lists for tax liens and tax deeds deal flow?
Jill DeWit:
No.
Jack Butala:
Not at all. Is taking a call from your broker once a week, about some secret property that he just found out about deal flow?
Jill DeWit:
Not really. I mean, maybe. It’s inbound. So I’m going to say, yes.
Jack Butala:
So I believe the vast majority of people out there who’ve already been in real estate business in some capacity, believe that weekly call from their broker…
Jill DeWit:
Oh, it doesn’t count for the whole thing.
Jack Butala:
… Is deal flow. And that is their entire deal flow. It’s either that or the VAT. You’re talking about the 1%, a couple of days ago. I think 95% of the real estate… All the people I know that are in real estate, and there’s a lot of them in commercial and a house flipping and all of them who are successful. This is what… They get to have five, four or five brokers they work with, who call them and say some version of, “Hey, I just got out of a listing meeting. I’m going to list this property for 180,000 bucks. I can sell it to you right now.” Then you’re going to save me the trouble of getting the listing. And every one of them say, yes, yes. Awesome. You’re the greatest broker in the world. Thanks for creating my fill in the blank deal flow.
Jill DeWit:
That’s not the exact… What you want.
Jack Butala:
That is-
Jill DeWit:
Because it’s hit and miss. It needs to be consistent.
Jack Butala:
That’s the biggest band-aid and maybe one of the biggest mistakes that you can possibly make in real estate.
Jill DeWit:
What you want to be, is on the other side of that. You’re the person providing it to the broker. That’s usually, that’s really how it goes in our world. I’m the one that my broker is like… Right now I have a guy, I’ve a couple of guys I work with exclusively with real unique property types. And I know they have buyers lined up. So they get excited when they talk to me, they’re like, “Oh, how fast can you close because I got three people that want to look at it.” So you want to be on that side of it, not the receiving side of it.
Jack Butala:
That’s right. So the only real way to establish real deal flow… First of all, that broker thing’s not consistent. That broker could take six months off because he made so much money selling property to you that now your deal flow is gone. You want to accomplish reach, in an internet, social media advertising has long known this. There’s impressions, there’s clicks and there’s success. Click through rate. And so it’s the same thing with what we do. There’s impressions, you send out 10,000 letters. There’s clicks, which are people that respond to the letters. And then there’s success, you’ve sold a property or bought a property or whatever it works. So it’s all based on that reach or impressions. And the only legal way and real efficient way that I know of is to do this through direct mail. Can you text people now these days? Sure. Can you robocall people? Sure. Neither one of those are legal or ethical. In my opinion.
Jill DeWit:
I was going to ask that because we were talking to someone the other day about that and they do robocalls. They have an auto dialer. And they go through these calls. I’m like, well, number one, I’m so curious. I should have asked what the percentages are of that. I can’t even imagine how many calls I have to go through-
Jack Butala:
It’s not one percent.
Jill DeWit:
Just to get even… First, you got to get a live body on the other end of the phone, and then you have to dig through to see, do they want to sell? Okay, that’s hurdle number two. And then number three are they even on the same page with you price wise? Which I would, I just have a hard time with that, with that whole concept. Because the bottom line is, the end goal with deal flow is you want to be… Like you said, reaching. I want to be spending only my time with the serious sellers and buyers. It goes both ways by the way. I don’t want to have eight million tire kickers that I talk to where I can say, great I talked to eight million people today about this property. How was that a good thing? You want to talk to three and then it’s sold.
Jack Butala:
And how is it objective? I mean, if I send out a thousand offers and five or 10 or 20, let’s say 20. 20 is a good number. 20 people contact Joe somehow, I’ve already done all the research and it’s priced right, and I know the location works and I did all that long before I ever sat down and downloaded the data. So we’re at a huge, massive objective winning position on the fact that we’ve established the price, not them. We’ve established that the location works for us from a resale standpoint. And that the property in general is a property that we want to buy. So we’ve already gone through all these decisions and all this data that tells us what to do. By the time it gets to Joe, these 20 people contact Joe, whether they mail them back or email her or call her. We already know we’re winning and it’s objective.
So let’s say in a perfect world, you have 20% purchase agreements for the price that I determined was good in the mailer. She’s going to look at all of those and she’s going to pick three or four or five of them very objectively. She doesn’t have some broker in her ears saying, “Hey man, listen, this is the one deal, I got it. I got a five-hour window here.” Nobody wants to do a real estate like that. Yet they all do. And they all make mistakes because of that. And so we are constantly putting ourselves in a winning position with our deal flow and this isn’t the first chapter of the first Land Academy module in the first program, and it’s called reach. I know that if I send out 10,000 letters a month, Joe’s going to buy about 10 to 20 properties.
If I send out 5,000, it’s going to be half of that. If something goes wrong, desperately wrong. And that has happened, because I mistook the data or it didn’t do something right, or it was priced wrong. It’s happened this year actually. She buys two or three properties instead of eight or 10. So I would, if anybody out there has got a better idea about deal flow, please email me directly. I’d love to hear about a better way to deal flow, not cheaper. And this is what we talked about in the interview.
This is what stops the vast majority of the people ever getting into this business. It costs 55 cents to send a piece of mail out with us, which is about the price of a stamp, but in a very automated fashion. And about 10 cents for the data. So in all and the bitter end, it’s about 60 cents to get an offer in front of somebody and to send out a thousand offers at costs between 500 and $600, depending on how you do it. And I think that stops 95% of the people from ever moving past that, whenever you have upfront money, everybody’s backs up.
Jill DeWit:
How do you start a business without money?
Jack Butala:
The good news is-
Jill DeWit:
I have a lot of questions.
Jack Butala:
The good news is if you’re listening to this-
Jill DeWit:
I’m opening a restaurant but no upfront money. What the heck?
Jack Butala:
If you’re listening to this or I don’t care if you’re seasoned or you’re just brand spanking new, you get it already. You got to spend a little bit of money. And there’s a little bit of risk. What risk is in this? I don’t know, but I don’t see any risk in it.
Jill DeWit:
That’s so funny.
Jack Butala:
Deal flow is imperative to any business. I don’t care if your Target or some convenience store owner, you got to get people to walk through your door somehow. And you usually do it through advertising or some, loss leader type product where it’s cheap or you sell it at a loss. So people buy other stuff. That’s all deal flow. Every single business needs it. And we have, I’m happy to report made it the more efficient than I can… We have a member in the advanced group. Every time I talked to him… He has other companies. He said, “I’ve never seen more efficient advertising and deal flow in any business that we have.” On the other businesses, excuse me, businesses, we have to advertise on cable TV. And he said, “It’s like 50% of our revenue we spend on advertising.” What do you think we spend in the mail?
Jill DeWit:
Isn’t that amazing? It’s shocking. When you think about the return.
Jack Butala:
I bet we spent 2%, yeah.
Jill DeWit:
… that we get from our mail to the deals and our business. It really is. I can’t think of anything better.
Jack Butala:
Direct mail equals deal flow.
Jill DeWit:
It does.
Jack Butala:
That’s what I should have called this.
Jill DeWit:
That’s okay. Happy you could join us today. Five days a week and find us right here on the Land Academy Show.
Jack Butala:
Tomorrow, the episode on the Land Academy Show is called, chasing false due diligence. You are not alone in your real estate ambition. Tell me that story that you told me when we were writing these titles earlier today.
Jill DeWit:
I have someone who’s brand new to Land Academy and they submitted a deal. It really is their first deal. To deal funding. And I looked at it and I said, “Eh, eh. No. Price way too high.” And they’ve come back at least twice, maybe three times saying, “But what about this, what about that, what about this?” And I keep saying, “No.” The whole point is stop it. Whatever price they had, it was like in the 30,000, I said, you know what? I’d give them five maybe. If I liked it, I’d give them five, but I don’t like it. So no. And then they came back and they said, “What about this comp, what about that comp?” And they’re chasing this. And I don’t know why, I said, “Look.” I was about to say, “All right, maybe I’d consider 10 based on maybe some new information that you found.” But they’ve talked to the seller and the seller won’t go below 20.
I’m like, “Okay, then that’s it. Case closed.” And I had to say, and I just keep saying, “Open the next letter.” And I think it’s just, they’re brand new. And it’s really as the first person that said, “Sure, I want to sell.” So they want to make it happen. And you have to walk away because if you don’t, then you’re just going to make a mistake. And luckily they have me. They’re running it by me personally, just so you know, it is me looking at that deal. And I’m telling you stop it.
Jack Butala:
I have so many questions [inaudible 00:15:47]-
Jill DeWit:
Open the next envelope.
Jack Butala:
… I’m going to save them for the next.
Jill DeWit:
We’ll talk about it tomorrow.
Jack Butala:
[inaudible 00:15:52] I have like 10 questions for you.
Jill DeWit:
Thanks for tuning in. We hope you find our content valuable and we do appreciate your support. So if you would… And you want to watch this too, because it’s kind of fun. You could see the nuttiness going on behind us in the background, on the beach.
Jack Butala:
And it’s funny.
Jill DeWit:
Oh yeah. Fun and funny. Get over to our YouTube channel and hit the subscribe button.
Jack Butala:
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Jack and Jill:
We are Steve and Jill.
Jack Butala:
Information.
Jill DeWit:
And inspiration.
Jack Butala:
To buy undervalued property.
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