How to Use Private Money to Get Started in Real Estate (LA 1469)
How to Use Private Money to Get Started in Real Estate (LA 1469)
Transcript:
Steven Butala:
Steve and Jill here.
Jill DeWit:
Hi.
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 sweet Scottsdale, Arizona.
Steven Butala:
Today, Jill and I talk about how to use private money to get started in real estate. Jill just sat down. This is what happens. I do all the work, hours of work and Jill sits down at one minute till the time we’re supposed to record and she says, “Okay, what’s the topic? And how do I look?” And I say, this is the topic and you look great. And she gives me an opinion on the topic. And she happened to like this one. It’s a 50/50 shot.
Jill DeWit:
That’s kind of funny.
Steven Butala:
What were just doing before you got on the show?
Jill DeWit:
Oh, so I was on clubhouse. I jumped into this clubhouse group. It was real estate, just kind of like a real estate one-on-one and there were people in there. Everybody’s trying to find houses to like rehab and rent them out. They’re trying to buy them, rent them out. By the way, they’re talking about some markets like Columbus I want to say and Indianapolis and these stupid places. It’s so nuts. You can buy a house for like $40,000 and rent them out for a thousand.
Steven Butala:
That’s what my sister does in Cadillac, Michigan.
Jill DeWit:
It’s brilliant. They’re figuring out these good areas, but where they’re falling down is how to buy the asset. So that’s where I chimed in and let them know how to get the data and what to do. So one guy said direct mail and you better believe I jumped all over that one.
Steven Butala:
Yeah. I think that rental model is compelling. If you can get a good management company and you can buy a lot all at once, it’s still a lot of work. In the end, I would never pull the trigger on it just because land is our thing, but my sister’s got 30 or 40, 45 doors she said the last time I talked to her in Cadillac, Michigan because her husband, this is what he does full time.
Jill DeWit:
He’s kind of the management company.
Steven Butala:
He is the management company and he has patience. So I don’t have any patience for that.
Jill DeWit:
Yes. No, we do not. What do you have patience for babe?
Steven Butala:
Land acquisitions and resales and teaching.
Jill DeWit:
Even then it better go quickly.
Steven Butala:
That’s true. 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. And if you’re with us already in the Land Academy community, please join us on Discord. It’s gets bigger every day and I’m getting a lot out of it for sure and I know just based on the volume that our members are really… it’s a new tool for us. It doesn’t cost anything. It doesn’t cost us anything and it doesn’t cost our members anything and it’s a great way to stay in constant contact with all of us.
Jill DeWit:
Cool. Johanns wrote, “I’ve done some research about closing costs, but most resources I’ve found are related to buying house using a mortgage and not buying vacant land without a mortgage. So what are your typical closing costs on the buy and sell side provided that A, use a title agency when both buying and selling the property B, use an agent to sell the property. Let’s say you buy a property for 30,000 and sell it for 70. My questions are, what would be your average title agency fees when buying property for 30,000? What other closing costs are there? What would be your overall expenses when buying? How much does an agency typically charge? What would be the title agency fees and other fees on the sell side? Who has to typically carry the title agency fees on the sell side? I understand that it’s negotiable, but what is standard? Who typically has to carry the agent’s fees?” We’re getting a little too brainy here, but I’ll answer them.
Steven Butala:
Well, you don’t have to answer them. You can separate this pretty much into two sections. So in general, the short answer is it’s very, very similar if not exact to buying a house with a mortgage. So on the buy-side, you’ve got title agent expense and real estate agent expense. If it’s listed, which it never is. So that real estate agent expense goes away. So let’s say we’re buying the property, the seller, we would probably tell the seller, “Hey, we’re willing to pay you $30,000 for this property because pretty much know us. We’re 70 wholesale.” We’re going to pay for all the closing costs and it’s usually around $1,500.
Jill DeWit:
Even less. You could do-
Steven Butala:
Depends on where you are in the country dramatically.
Jill DeWit:
Yeah. Where I’m doing, I can get it like 1100, $1,200 is my average. So I say $1,200 is my average.
Steven Butala:
I would say between 900, like in the deep South to 1500 or even 1800 to 2000 in let’s say California. And so Jill’s right. $1,200 is average.
Jill DeWit:
I don’t think you should worry about separating out… Did he say what the title costs versus an… Okay, good. Yeah. Just think of the cost overall. That’s it for closing costs.
Steven Butala:
Cost overall.
Jill DeWit:
Yeah. That’s all I want you to think.
Steven Butala:
So then great. You own the property for 30,000. You just paid Jill’s $1,200 fees. So you’re into the thing for $32,000 or less because you didn’t use a real estate agent because you send out direct mail like we teach. So now you’re sitting there you own this property, you list it.
Jill DeWit:
You don’t want to do the work.
Steven Butala:
You don’t want to do the work. You list it for sale with a real estate agent because you know it’s going to go fast and you ask the title agent to hold the file open. And so you’re going to use the same title agent because they just did all the work when you resell it.
Jill DeWit:
Now that I’m finding by the way, truth time, less and less often a thing. They don’t understand it. They’re busy. It’s like a binder or a carry over clause. There’s different things that they call it. So what you’re basically asking me is, “Look, I’m going to sell this as fast as I can, so can I pay a little extra on the front end so it’s cheaper on the backend?” If you’re lucky enough to find that, also please ask for investor fees. So many of them have reduced investor fees because they know that you’re in the business and they want you to do a bunch of deals with them, makes everybody’s life easier. So if you can get one that’ll work with you, then when you go to close it, you could save a couple hundred dollars. Like you spend a hundred or $200 up front and it’ll save you a four or $500 on the backend. And the reason is they did all the title work and you’ve only owned it for five minutes, so it’s pretty easy to do another title policy for the new guy is how it’s saving money.
Steven Butala:
So the short of what Jill just said is you can budget $1200 or $1,500 to close the deal on the resale. And if you don’t want to do the work, you’ll hire a real estate agent. They’re probably going to charge you at this rate, 10% to sell it total.
Jill DeWit:
Yeah. Most of the good land guys are up to… they do 10% up to like a $100,000 sale price and then it’s reduced if it’s a sale price over $100,000.
Steven Butala:
It’s going to be an amazing experience for you and should be. You should choose somebody who’s going to make this an amazing experience for you, not Doris next door who sold 12 houses in her entire career and then she’s going to list your land a thousand miles away.
Jill DeWit:
Even 12 houses this month. I don’t want Doris. She’s busy.
Steven Butala:
No. You want a land person who works for a land type real estate brokerage. And then you can’t write that check fast enough because if they sell it in a week, 10% on 70,000, you’re into it for 3,200, you’re going to sell it for net, let’s say 60. You’ve doubled your money. It’s very quick and you didn’t do have to do a lot of work and you’re onto the next deal. That’s the whole model.
Jill DeWit:
Totally. And I’m going to add to one of the questions, which is kind of nice. When you’re selling and you have… say, you’re selling right through the real estate agent this exact example, they’ll automatically set up escrow where everybody’s paying their own parts where you’ll pay your typical seller things and they pay their typical buyer things, so it’s even cheaper for you there. The buyer will pay for the title policy on the sell side, so it’s kind of nice you save a little money which is good. You’re not just saying, “All right. I’ll eat all of that too.”
Steven Butala:
Today’s topic, how do you use private money to get started in real estate? This is the meat of the show. Jill, you showed a serious interest in this topic early on, so go for it.
Jill DeWit:
I did. Well, no matter what it is, I just mentioned this. We were talking on this clubhouse chat. This guy was like, “I don’t have much money.” I said, “Hold on everyone.” I said, “I’m sure everyone in this room agrees.” There’s like a hundred people in this room. So everyone agrees here, no good deals should go to waste. I don’t care who it is. We’re going to come up with some money. I said, “It might even be me,” so I don’t care what it is. You find something great, you find something that’s worth $100,000 right now and you’re getting it for 70 and then I’ll clean up, it’s worth 180, 200. Who knows? You better believe people are going to be knocking down your door saying, “Yeah, I absolutely want in on this deal,” and us included.
Jill DeWit:
So how to get private money to get started in real estate is having the deal first. There’s a couple of things. The deal really speaks for itself number one, and number two, you need to know your stuff. So you need to come to someone, a private seller and be able to not only present a beautiful deal, easy, teed up, under contract, hopefully an escrow like you’ve done all the work. You just need the funding and they’re just like, “Great. All I got to do is approve this and wire over some money. Done.” But the other thing is you need to come to them with who you are, how confident you are, how well you know this area, how you’re going to sell it, how you’ve been watching this area and you know what’s going to happen and or I have the perfect agent who just sold 10 of these last month, this is going to go quick. We’ve already had 12 conversations about it and they can’t wait to market this property, that kind of a thing. And that’s how you get people like us private money, excited and want to work with you.
Jill DeWit:
And I want you to not only have the confidence in a plan, I want you to be really understanding of our time and in a perfect world to the right guy. He’s got money and probably not a lot of time and he just wants to write a check and let you run with it, which for the right person, hopefully that’s you, you don’t want a handholding. You’re like, “I got this. Please back off. I don’t really don’t want mom looking over my shoulder anyway or dad. I’d want to just run with this and make you proud.” There you go.
Steven Butala:
There’s two ways to raise capital if you’ve actually put yourself in a position where you found a great deal. That’s what this is all about. It all starts with a great transaction. There’s raising debt, going to get a mortgage from a bank or whatever, or even from a uncle scouting. He loaned you a bunch of money. You pay him back at 8%, he’s happy, you’re happy, or you can raise equity. And private money is the best way in my opinion to raise equity. There’s all kinds of ways to raise equity and it’s very heavily regulated if you go out into the Wall Street ways to do syndications and things like that. But if you have an existing business relationship, let’s say, you’re in a group like Land Academy for more than six months, then all those regulations go away. Jill and I, and most of the advanced members in Land Academy are private lenders.
Steven Butala:
We’re private money, either lenders or equity partners and it’s an amazing situation to be in. All you have to do is find a great deal. That’s it. And we will fund it or we’ll look at the situation on a case-by-case basis. It’s an amazing position to be in. Jill and I have had this conversation regularly. Jill, can you imagine if 20 years ago we had a group like Land Academy where we didn’t have any money or we had very limited money and regular jobs and things like that, and we found a great deal and slammed it into some group and they turned it into $100,000 for us? So private money is nothing short of amazing. It just has to be with the right people and the deals have to be right.
Steven Butala:
And I’ll tell you early in my career, I brought many, many land deals to private money… it was private money lenders back then, but really for us, it’s private money partners. And they looked at me cross-eyed and said, “You’re an idiot. You’re never going to succeed. Land doesn’t work. It doesn’t cash flow. It’s a terrible piece of real estate. It’s out in the middle of nowhere. What are you thinking? I wouldn’t do this deal for any reason.” So my point is, it’s not just a regular private money person. That’s not what we are. We’re private money people who understand land and real estate. So it’s very important if you’re going to seek private money for anything that the lender or the partners really understand that product type or business. I don’t care how great of a convenience store deal somebody brought to me as a private money person, we just wouldn’t do the deal. I would say that, what those people said to me early on. There’s no amount of money… If this was free, I would not lend you the 25 cents that it is for this convenience store. I just don’t want to deal with it. It’s not in my wheelhouse. So it’s private equity. Private money is great with the right people in the right specialization.
Jill DeWit:
Exactly. That was awesome. Happy you could join us today. Five days a week, you can find this right here on the Land Academy show.
Steven Butala:
Tomorrow, the episode on the Land Academy show is called Land Academy deal funding 101, how deal funding works. You are not alone in your real estate ambition.
Jill DeWit:
I guess I should have read tomorrow’s. I didn’t know tomorrow’s topic. I kind of went on and on a little bit.
Steven Butala:
It’s okay. This is funding week. The people who manage the education companies, Land Academy and O2O all that, for whatever reason are getting a disproportionate amount of questions in a good way about funding. I think it’s probably because we talked about it on the show or who knows why?
Jill DeWit:
I’m constantly seeing my checkbook’s open. That’s probably why. Seriously, I do that all the time. I’m like, you did that too when on Thursday calls, you’re going to like, “Hey, you need money for that? You need money for that?”
Steven Butala:
Jill and I, believe it or not, have literally separate checkbooks for this stuff. So there’s some deals that I do. There’s some deals that she does and we talk about them a lot, but it’s pretty funny when we do different deals.
Jill DeWit:
Yeah. And we do not run them by each other sometimes. That’s the best part. I love it. If you need access to any sort of property ownership data or property details, including phone numbers and FEMA flood map overlays, if you’re land people like us, you know that’s important, check out neighborscoop.com created by investors that’s us, for investors like you. We are Steve and Jill.
Steven Butala:
We are Steve and Jill. Information-
Jill DeWit:
And inspiration-
Steven Butala:
To buy undervalued property.
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