Land Academy Membership vs Owning a Franchise (LA 1439)

Land Academy Membership vs Owning a Franchise (LA 1439)

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 awesome Scottsdale, Arizona.

Steven Butala:
Today. Jill and I talk about Land Academy membership versus owning a franchise couldn’t be more different.

Jill DeWit:
But sounds like, well, hey, wait a minute though, well, Land Academy to be an investor, right? So it’s really kind of about being an investor versus this business… What business do you want to be in? You want to be an investor, which is what we teach you how to do and set you up for, versus owning a franchise, which is kind of, they teach you how to run, let’s just say it’s Cold Stone Creamery. You even go to Cold Stone school, and then you have your business. But there’s a lot of different things going on.

Steven Butala:
We teach you how to get free, and autonomous, and independent, and happy and done. We don’t have our hooks in you forever, like, let’s say, Cold Stone.

Jill DeWit:
Well, we’ll talk about that because I made a list and you’re tying into my list. I’m trying to just state the facts, man.

Steven Butala:
I’m not talking about you.

Jill DeWit:
Okay.

Steven Butala:
I just, I’m not a huge franchise fan.

Jill DeWit:
No kidding.

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’m here to tell you, truth time, there’s one and only one franchise this person likes to go to, and it’s Wendy’s.

Steven Butala:
Just because I want to eat for free?

Jill DeWit:
No, just the chilies. No, not because you want to eat for free, I’m here… it’s truth time. You’re like, “I don’t like that, I don’t like… ” You don’t like the franchise, anything, but you’re like, “I do like Wendy’s Chili.” How’s that? Okay.

Steven Butala:
Let’s see. If you had a franchise, it would be a Zales Jewelry or something.

Jill DeWit:
No. What would my franchise be? Oh, Nordstrom.

Steven Butala:
Yeah, that’s for sure.

Jill DeWit:
Well, it’s not a franchise-

Steven Butala:
I know, I know. Neither is Zales-

Jill DeWit:
Oh yeah-

Steven Butala:
… I’m just joking around.

Jill DeWit:
I don’t know what my… Maybe subway? No. I have to think about that.

Jill DeWit:
Okay. Herbert asks, “Hello. I know this isn’t our typical vacant land leasing, single family convo, but I would like some help clarifying some things, and figured what better place to gain information about this topic than from our super knowledgeable and amazing group here at Land Investors?”

Jill DeWit:
Okay. Herbert, are you trying to get brownie points? Because you’re winning. It’s working.

Jill DeWit:
All right. I’m pretty new to real estate in general, never owning a home before. So I’d like your advice on the process slash plan of action for acquiring a four unit, multi-family property to serve as a primary residence. I plan to purchase the four units by using an either FHA or FHA 203(k) loan to renovate, and then live here in Miami, Florida.

Jill DeWit:
My questions are, number one. Am I correct to assume that our direct mail approach to acquiring real estate is also the best way to acquire my first multi-family deal for a primary residence?

Steven Butala:
Yes.

Jill DeWit:
What are some of the differences in the approach that I should be aware of?

Jill DeWit:
Number two. Will House Academy teach me how to acquire multi-families as well as single families?

Steven Butala:
Yes.

Jill DeWit:
Steven. Ready. Go.

Steven Butala:
Yes, but I have to tell you, I think you’re on the wrong path here.

Jill DeWit:
Ah, uh-oh. Well, like you said, Herbert, you really want to pick the brain from the knowledgeable, amazing group here at Land Investors. And one was going to really pick apart your thing, and I’m sure he’s right.

Steven Butala:
You got to live somewhere, I understand that. I’m quoting my friend, Jill. You got to live somewhere. Recently… I got a speech on this.

Jill DeWit:
He’s not sore about it at all too.

Steven Butala:
Can we just have the house that I can move into-

Jill DeWit:
That’s very true.

Steven Butala:
… that’s not going to be for sale two weeks later because the market went up. You got to have a place to live.

Jill DeWit:
Well, I want one that if I want to paint the wall pink, which I don’t, I am allowed to.

Steven Butala:
I don’t know what your situation is, Herbert, if you have kids and stuff, then that really makes sense. And in the long, long, long run, buying a fourplex for a really low amount of money for less than it’s worth, let’s say, and having three other tenants in there that are really good. I think you know where I’m going with this. There’s a lot of things that can go wrong with this.

Steven Butala:
There are not a lot of things that can go wrong with buying a vacant piece of property for 20 or 30% of what it’s actually worth in its current state and reselling it.

Steven Butala:
And so, while I applaud this approach and I think there was, certainly, a point in my life where I wanted to do this too, and I heavily went into it. Had I known about direct mail, I would have done it that way. And I never felt followed through on it.

Steven Butala:
So you’re dead on about, yes, this is the best way to buy a fourplex, absolutely the best way. And the 203(k) loans process, FHA, is fantastic as long as it qualifies. Be careful before you send out mail, because the FHA qualification for a property and its condition is very specific.

Steven Butala:
You can’t buy a fallen down property with an FHA loan, they’re going to make the seller do all kinds of stuff. I did this with a primary residence really early in my professional life, and it was a disaster.

Steven Butala:
I’ve also, inadvertently, sold property on FHA, not knowing that the real estate agent that was representing me was bringing in FHA type loans, buyers with that. Their appraisal process is very different. There’s a lot of stuff, so please research it. But it shouldn’t stop you from sending out the mail. Maybe you just buy a fourplex, send mail-out, buy a fourplex, resell it.

Jill DeWit:
So here’s what I was going to say. I would say, firstly, I understand where you’re going with this, but I’d like you to take this plan all the way to the end and really think about… Do the numbers. We do this in our own world. I want to see the HUD-1 when I buy it and the HUD-1 when I sell it.

Steven Butala:
The closing statement she means, yeah.

Jill DeWit:
Right. And really think about what am I going to get out of this? And how long am I going to hold this, and what’s my right going to be? I’d like to really see, Herbert, in a spreadsheet after one year, like, I’m going to buy it, here’s my budget, here’s how much I’m expecting to put into it, I’m going to buy this year. I want all those details figured out.

Jill DeWit:
I’m going to go no older than this and no younger than this, because I know the renovations I can keep them in this range. This is the square footage. I’ve done all the math, I’ve figured it out price per square footage, what it’s going to be. So I know that after I put this money in and I do the renovations, and I’m all done and [crosstalk 00:06:42].

Steven Butala:
Pay the real estate fees. FHA is going to have… I don’t mean to interrupt you, a whole slew of appraisers and inspectors that are all going to find stuff. You’re a long way from accomplishing this.

Jill DeWit:
Right. And you need to account for, I mean, we only have four units and one’s vacant, that’s 25% of your revenue. So you need to really think about that. How are you going to handle that? Can you afford to handle that? So all the way to the end. Okay.

Jill DeWit:
And I really would like to see, really a five and ten year plan, and… where are you going to start? It’s going to be a million dollars, and in five years am I going to have 1.5, or am I going to have three? And I don’t think it’s going to be three, realistically, so I want to see.

Jill DeWit:
And then I… because I would really highly encourage you, and this is where I think Steven’s going with this, now do another plan, do another spreadsheet going, all right, if I put this million dollars into properties-

Steven Butala:
Land.

Jill DeWit:
… and I flip them for cash, where would I be in five years?

Steven Butala:
You’d probably have five [crosstalk 00:07:41].

Jill DeWit:
And by the way, now I don’t have to deal with FHAs, or these inspections, or dealing with a tenant-

Steven Butala:
Tenants.

Jill DeWit:
… that moved out. Or they can’t pay their thing because they lost their job because of COVID. Or all of the possible, crazy scenarios. No matter what, I want you to go with your eyes wide open and make a really good decision, and not be going, “Shucks. Darn I didn’t account for that.”

Steven Butala:
Madam’s right here.

Jill DeWit:
Thanks.

Steven Butala:
Every single thing you just said, Jill, and there’s more, which we won’t get into. This is a long path. And here’s the problem with FHA, why FHA 203? I’m asking. Well, I mean, it’s just because you don’t have to put any money down. It’s like 3% or 5%, it’s a very small amount of money down, which is attractive if you can find the right property.

Steven Butala:
It’s also putting you in a position where you’re almost immediately over leveraged out of the box. So now you’re paying interest on 98% of what you’re borrowing instead of what you should be… it’s 20 to 75%.

Steven Butala:
So it puts you in a situation where, Jill’s right, you’ve got to cost cover not only the maintenance and all the stuff, you’re going to have mortgage insurance at that loan value level, and on and on and on. So there’s a lot of stuff that can go wrong, and it will, unless you’re buying a new building in Miami, which I highly doubt.

Jill DeWit:
Right. There’s so much. We have friends that are in this world that are trying to get out of it as fast as they can.

Steven Butala:
A very, very close friend, he’s also in Land Academy for a reason, because LA County in Los Angeles City, this was his business model for years and years, and it’s no longer feasible because the rent laws and the landlord tenant laws have so dramatically changed in LA County, specifically.

Jill DeWit:
That’s a whole nother thing you can account for. They could change stuff on you-

Steven Butala:
I think it’s Dade County, isn’t it?

Jill DeWit:
And then you can’t even do the stuff you think you’re going to do. So, that’s crazy.

Steven Butala:
And if they don’t want to pay… If the tenant, I know in LA County, I’m sure Dade County is different.

Jill DeWit:
Right.

Steven Butala:
I think Miami’s in Dade County. I hope it’s different. I mean, tenants in California, in general, have six months to a year before they are required to leave the premises without paying. And they’re taking advantage of it. It’s killing her buddy.

Jill DeWit:
It’s true.

Steven Butala:
It’s devaluing his whole asset portfolio that he’s built for a lot of years.

Jill DeWit:
Mm-hmm (affirmative). And will we teach you how to do it? Yes. So the question is, will House Academy teach me? Sure. You could do House Academy for all kinds of properties. What’s different, in a nutshell, with House Academy is pricing.

Steven Butala:
Mm-hmm (affirmative).

Jill DeWit:
That’s really kind of the thing. It’s really all about the pricing, because it’s very different. You don’t go in like we do with land, you’re not going to get stuff like that. And you’re dealing with bigger transactions. There’s more involved.

Steven Butala:
Pricing’s a lot easier. You have algorithm based pricing versus how we do it with land, which is a little bit more vague, only because there’s so much more information available for houses and for multi-type properties and commercial.

Jill DeWit:
Exactly. Good question though. I’m curious, by the way, was this put in there recently?

Steven Butala:
Very, very.

Jill DeWit:
Oh, okay. Got it.

Steven Butala:
Why do you ask?

Jill DeWit:
Because was it pre-COVID or post-COVID.

Steven Butala:
Oh no. Jeez-

Jill DeWit:
I Thought this was an old question that somebody dug up and threw in here for us to ask, to answer-

Steven Butala:
This is less than all of it. Then this whole recording session is less than three days.

Jill DeWit:
Because in my little bubble, I’m not even thinking about this property type, and I’m not picking on you at all, but I’m just saying, if it were me, this is not something I would be seeking out, especially one of four. One of 400 units, I’m going to buy it, and then maybe, because I could take the hit if a couple of them aren’t rented out, that’s fine if I got 400 doors. But four doors, and one’s not paying, oh that’s huge.

Steven Butala:
You know what?

Jill DeWit:
You are paying, because one of them, I live there, by the way, that’s scary.

Steven Butala:
Here’s how apartment owners get rich, and here’s how they file bankruptcy. Number one, apartment owners get rich because they’re buying class A, fully leased up apartment buildings that are one, two, three, 500 units on a capitalization rate. And they’re using private equity because they know people, and they clink glasses with the right people and they buy it. And it’s leveraged properly, mostly with equity, that’s what private equity is.

Steven Butala:
So there’s not a lot of the huge debt service coverage ratio. They bring in an extremely experienced property manager who renovates or does something to the property. And in some cases right now, just allow pets to broaden the rental base, and they increase the rent.

Steven Butala:
A small percentage leave, they stick their middle finger up and say, “I’m not doing it.” The vast majority pay. And then the vacant apartments get filled up with pet owners. I’m just using that as an example, sometimes they renovate their units if it’s an older building.

Steven Butala:
It resets the capitalization rate, and they resell the property to another private equity group. All of this causes lack of affordable housing, which is the uproar about that. That’s how you win in a multi-tenant building.

Steven Butala:
You can’t really win with four units, unless you’re in a market that’s so rapidly appreciating, like California and probably Florida too. So I hate to see people, young, intelligent people, try to make this work with a four unit building.

Jill DeWit:
Oh, but wait, there’s more. Don’t forget in California now they’ve restricted the amount of percentage you can raise the rent. So here’s what’s going on in California. There are falling down buildings that wonderful landlords would renovate, but they can’t renovate the building and raise the rent. So they won’t renovate the building.

Jill DeWit:
And then everybody loses. Everybody’s losing. This is, like, new changes that took effect in the last, I don’t know, year or so.

Steven Butala:
I just got in trouble for ranting on the last show. Let it out. Let it out, man.

Jill DeWit:
What happened to… he’s so funny. Boy, what happened to sweet, sunshine Southern California piece and love? I’m now like, Southern California can take with this and shove it now, this new law. Oh of course they’re going to put more new law on us. Really? You really? Okay. Sorry. It’s my turn to rant, let’s get to the topic.

Steven Butala:
No, I’m not done with that.

Jill DeWit:
Oh, you’re not done with this?

Steven Butala:
Herbert, this is what I want you to do. Reach out to your friends and family. I don’t know what your personal situation is. I don’t want to know. Hopefully don’t have 22 kids or something. But if you’re on your own and you don’t have to provide a healthy environment for young children, all kidding aside, go live in your parents’ basement or something.

Jill DeWit:
Like, asbestos free.

Steven Butala:
Go live in your parents’ garage. I’m really serious about this.

Jill DeWit:
There’s asbestos.

Steven Butala:
And put a plan together. And it says I’m not a derelict. I’m an incredibly intelligent entrepreneur. I don’t care what my friends think, I can always get new friends. And so now you’re living for free or for very small amount of money so you don’t have to have job, or you can have a job, for now, a part-time job.

Steven Butala:
Join a group like Land Academy, or some other place. Give yourself a year. Accumulate a ton of money, and then go live your life.

Steven Butala:
So this fourplex idea is not new, and I get it. I would love to live for free in one unit with three-

Jill DeWit:
They’ll be paying for my bills.

Steven Butala:
… awesome tenants that live next door and high five me every time we see each other-

Jill DeWit:
And they provide beer all the time.

Steven Butala:
Yeah. Free beer in the courtyard.

Jill DeWit:
Yeah. One of them is a chef.

Steven Butala:
Everybody looks like… Everyone’s beautiful.

Jill DeWit:
Oh, it looks like Melrose Place.

Steven Butala:
Mm-hmm (affirmative). They’re all Hollywood quality people.

Jill DeWit:
Oh yeah. That’s awesome. Girls sunbathe topless all the time.

Steven Butala:
I wasn’t going to go there.

Jill DeWit:
Okay. I did it for you. Okay. Let’s move on.

Steven Butala:
Today’s topic, Land Academy membership versus owning a franchise. This is why you’re listening.

Steven Butala:
Man, we’re over on time.

Jill DeWit:
I didn’t realize the membership part, I was just thinking about Land Academy membership, meaning being an investor versus owning a franchise. So that’s how I took it. So that’s how I’m going to answer this, I’m just telling you.

Steven Butala:
Oh, go ahead.

Jill DeWit:
Okay. So you’re at Land Academy, you’re your own investor, you’re building up your own company.

Steven Butala:
[crosstalk 00:16:12].

Jill DeWit:
So what’s going on, good news and bad? I’ll actually put on all the good news. And then we can talk about the bad news.

Steven Butala:
Oh, I’ll cover the bad news.

Jill DeWit:
There we go. That’s perfect. So being your own boss versus a franchise. Okay, what’s great about being your own boss? You get to wing it. And some people that freaks them out, for me, I love it. No one’s telling me what to do. I just as I want. I know what the end goal is, and the thing is all the profits are mine. I’m not sharing with anybody.

Jill DeWit:
So here’s a franchise. Okay, this is not a bad plan. And you’re going to give us all the negatives here. So, all right, franchise, I got a total roadmap. I know exactly what to do. I know what constructions to do. I know T minus 90 days from my door opening, I literally have a habit in my hands, and a checklist to know what’s going to happen, and when to order the inventory, and what fridges to pick out.

Jill DeWit:
I know the build-out plans, that’s been handed to me. I have the equipment list and I have the inventory-

Steven Butala:
And where to buy it.

Jill DeWit:
And where to buy it.

Steven Butala:
And what price I’m going to pay.

Jill DeWit:
And that’s it. And that’s the thing, you pay for it. Sure. I’m going to make some money, but so are they.

Jill DeWit:
So now you want to continue. That’s my that’s my quick, how I compare the two. It could be pros for some people.

Steven Butala:
Here’s a Domino’s location, pizza location, and here’s Jack’s Pizza, right next door, Jack and Jill’s Pizza. When you open those two places-

Jill DeWit:
We almost had Jack and Jill’s Pizza.

Steven Butala:
When you open those two places, it’s what Jill said, you are told by Domino’s, how much you’re going to pay, how much you’re going to charge, and then a percent of revenue goes to them. You buy all of the food from them-

Jill DeWit:
Probably the uniforms.

Steven Butala:
The hiring policies, right down to how to run your business. What you get in exchange for that is national marketing, theoretically. You get very, very little control over your business, but it theoretically more of a guarantee of profit because it’s just bigger.

Steven Butala:
Jack and Jill’s Pizza place next door, you’re on your own. You can charge whatever you want. You can get creative, you can buy food wherever you want. You can staff how you’d like, and on and on and on.

Steven Butala:
You choose to rent, the build-out, what the place looks like, you don’t have to order the sign from corporate.

Jill DeWit:
The coupons.

Steven Butala:
It’s what it is, you’re free. Don’t we live in the land of the free?

Jill DeWit:
Yeah.

Steven Butala:
Aren’t we supposed to be independent entrepreneurs? So Land Academy is something… it’s kind of in the middle. It’s got a huge amount of instruction. It’s a group of like kind people, and, let’s say, mentors or peers who have been seeing the ins and outs, and we’re all here to help each other.

Steven Butala:
Just spend five minutes on landinvestors.com, or if you’re a member on discord, and you’re going to see how much all of us help each other. And I don’t believe in taking a percentage of your revenue.

Steven Butala:
This whole topic came up because somebody recently asked me, “Well, that’s cool. This whole Land Academy sounds great. How much do you guys keep of the deals that your members do?” And I looked up and said, “That never crossed my mind. When we started Land Academy, I didn’t sit around with Jill and say, “You know, we should take 5% of the profit of all of our members and their deals.” That’s insane.

Jill DeWit:
Right.

Steven Butala:
You know, who would win? Us and that’s it. It’s like a real estate agent. I don’t want to get involved in your deal. I’m not going to stand in the way of you being successful. I want to teach you all this stuff, and provide the tools, get you acclimated, tell you the real deal. Just like this fourplex, the truth about a fourplex, earlier with the question, and then I want you to go succeed.

Steven Butala:
And when you’re done, spread your wings and leave if you need to like a kid, like a child. That’s what I want.

Jill DeWit:
That was beautiful.

Steven Butala:
We’re not here… And then because there’s always going to be new people behind you. That’s what this is for. It’s like an entrepreneurial class in a business school

Jill DeWit:
I was going to add. And then here’s the end goal, which has, and does happen. Someday, some deal is going to come across your desk, and you’re going to go, “Oh I know who’s going to do this with me,” and you’re going to call us.

Steven Butala:
That’s right.

Jill DeWit:
And we’re going to help you get the deal done, fund the deal, whatever it is. And then we’re both going to win.

Steven Butala:
That’s exactly right. That’s why we’re here.

Jill DeWit:
That’s the beauty of all this.

Jill DeWit:
Happy you could join us today. Five days a week, you can find us right here on the Land Academy show.

Steven Butala:
Tomorrow. The episode on the Land Academy show is called, What we Learned in the First Four Weeks of Hosting the Land Academy Accountability Group. You are not alone in your real estate ambition.

Jill DeWit:
That was fun. We had a lot to say today, for some interesting reason. It’s hilarious. So I love it. Need to send out a few thousand offers to property owners like us? Check out offers two, the number 2owners.com. No set of fees, free mail merge, and exceptional service. We should know as it is our company give offers2owners a call today.

Steven Butala:
We’re Steve and Jill. Information-

Jill DeWit:
And inspiration.

Steven Butala:
To buy undervalued property.

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https://ownersdata.com

https://houseacademy.com

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