Land Academy Deal Funding 101 – How Deal Funding Works (LA 1470)
Land Academy Deal Funding 101 – How Deal Funding Works (LA 1470)
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, coming to you from sizzling Scottsdale, Arizona. Soon we’ll be saying a lot.
Steven Butala:
Today, Jill and I talk about Land Academy deal funding 101 and how deal funding works. Yesterday we talked about private equity and private lending and the basis of that and why I think it’s the best way, we think it’s the best way to raise capital to get deals done when you don’t have your own money. Jill’s going to walk us through the mechanics of when somebody sends her a deal, how she chooses it, how she analyzes it, why she says yes, why she says no. Maybe I’ll actually submit a couple of fictitious deals to you and you can say, you’re an idiot for this and you don’t ever call me again.
Jill DeWit:
Yeah, I will happily play that game.
Steven Butala:
Or happily do this deal like right now. In fact, let’s all stop what we’re doing and fund it.
Jill DeWit:
Got it.
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. If you’re already with us in Land Academy, join us on Discord. It’s nothing short of amazing.
Jill DeWit:
Anthony wrote, “In using the red, yellow, green test, I have found massive differences in days on market. I searched and found the base formula for days on market. It’s a 12 month sold overactive for sale, then divided by 365. So let’s say there were 3000 properties sold in the last 12 months and they are 500 sale for sale now. So 3000 divided by 500 is six divided by 365 divided by six, we got it, is 60.8 days on market. Zillow, Realtor, and Redfin all have different numbers for days on market. How do you guys account for the variance?”
Steven Butala:
This is very, very important question and it doesn’t just apply to real estate or days on market. Where you have data sets from different sources it’s very important not to mix them up. However, let’s just pick on Redfin. However Redfin came about having properties in their dataset both for sale and sold is the same for sale and sold. But if you just look at for sale property in Redfin and then sold property in Zillow, it’s an apples to oranges situation and you’re mixing up two non-life kind data sets with different definitions. I don’t mean to nitpick here, but this is actually pretty important because you’re spending money on sending mail out based on data. So it’s very important to just apples to apples it. So great, Jack. Steve, why are they different then? The real question is why are there’s three sources of data?
Steven Butala:
I kept them separate. They’re apples to apples to apples, all three. Why are they so different? Because the sources of data for Zillow, Zillow brags about the fact that they have all kinds of data in their dataset for properties. They could be Jill and I posting a property without a real estate agent as a for sale for owner. They could be the MLS. There’s all kinds of places that you can get data to do this. Redfin goes the opposite way. They only have datasets in very specific areas based on which MLS is. There’s three or 400 MLSs believe it or not, little local ones all over the country that roll up into the National Association of Realtors. So there’s only certain local MLSs that participate with Redfin. And why is that? Because Redfin is not really interested in rural areas. They’re really interested in urban areas where there’s huge high volume of transactions.
Steven Butala:
That doesn’t help us as much because we buy rural vacant land. And where that line cuts off, just imagine a boundary of the MLS is all geography based. So where one ends and one starts could be in the middle of a zip code. It could be in the middle of a county. So there’s really, the datasets are not equal. And Realtor.com, which it’s kind of the Empire State Building of all of this, all that data rolls up to them, but they will not allow any type of data sources from anyone except listed property on the MLS from local MLSs. So yeah, you get different data. Here’s my suggestion to get, do all three. If all three come out green, he said the red, green, yellow test, then send some of the other.
Jill DeWit:
That’s a good idea. I love that. We talk about that a lot. We just talked about last week on the ladies group about mixing data. Some people I can see how this would happen. I’m cruising along and using Zillow for everything or let’s just say Realtor, one of the more pickier ones, Realtor or Redfin, and I like shoot this zip code, I don’t have any numbers. I want to jump over to Zillow and I’m going to use Zillow’s and plug that in. So now I’m comparing this zip code, this zip code, Realtor, Realtor, Realtor, Zillow, Realtor, Realtor, and they’re not really going to be accurate.
Steven Butala:
Take that a step further, let’s say there’s no data on all three. Then you start doing alternative sources like landandfarm.com, landwatch.com and some other, some of the more, are like hickey, rural, for sale by owner types of properties or investor properties. And so those datasets are not as fun or reliable or easy to deal with, but you can still pull them. It takes a little more time and they do have a lot, a pretty substantial amount of data in some rural areas. It’s good for us to get a gauge. None of this is perfect. It’s really important to know this.
Steven Butala:
This is very hard for certain personality types to understand. No, I mean, just like, so it was a pilot, I’m going to pick on Jill. She wants everything could be perfect. She expects everything to be perfect. And it’s just not like that. This business or maybe it’s us, it’s probably us attracts extremely intelligent, engineering, accounting type technical people, or a developer, tech developer type personalities and Jill and I have to some degree have that type of personality and it’s a strange personality. We expect stuff to go the way that it’s going to go. And we expect the data to be right. And we expect stuff to get done on time. It’s almost to the point to where it’s a fault part.
Steven Butala:
Part of what makes us so successful, all of this and everybody in it is, is a chill out, just a little bit of a chill out attitude where you say, all right, here’s three data sets, they’re off. Okay, I get it. I’m going to take my dataset, weirdo, OCD, hat off. I’m going to put on my art hat or Bray or whatever type of hat it is. And I’m going to say, I get it. These datasets that are not the same, I’m going to kind of eyeball it. And I’m going to use the data and still send out a mailer. And there’s no equation for this that’s done and it’s a formula and it’s after the clinical trial and the drug gets released. It’s just not how this is. And it keeps a lot of people out of business in a good way.
Jill DeWit:
That’s funny.
Steven Butala:
It’s not the stock market. You can do more data on a stock than you could ever imagine.
Steven Butala:
Today’s topic, Land Academy deal funding 101. How deal funding works. This is the meat of the show.
Steven Butala:
Can I role play with you?
Jill DeWit:
Of course.
Steven Butala:
I’m brand new. I sent a bunch of mail out.
Jill DeWit:
Yep.
Steven Butala:
Do everything I’m supposed to do.
Jill DeWit:
Yep.
Steven Butala:
Deal comes back. It’s 10 acres. I have a signed purchase agreement for $38,000. Here Jill, what do I do? Do the deal. I said you would do it to the deal. That’s why I joined.
Jill DeWit:
Well, that’s not how it works. Could you imagine?
Steven Butala:
I have other purchase agreements.
Jill DeWit:
Every five purchase agreements you just submit to deal funding to see what happens. Three of those, or not even that, one of them, well, you’re just, well, here’s going to happen. It’s not going to get to me, number one. My team’s going to go, that’s nice and send you back a list of questions like, what’s the plan here? That’s good. You want to try it again? Okay.
Steven Butala:
Your funding doesn’t mean we do any work. We’re just acting as the bank. You’re going to do all the work. If you submit a deal to us, you better have every single answer about this deal as if you’re going to spend your own money. That’s not what this is all about. What this is about is okay, here, I’m brand new. I send out a mailer. That deal comes back at 10 acres, it’s $38,000. I spent two entire days before I submit this to Jill.
Jill DeWit:
Yeah, trying to kill it, trying to make sure I’m not seeing something that’s not there.
Steven Butala:
It’s got great access. All the surrounding properties are valued at $122,000. Here’s all the historical sales in the immediate area.
Jill DeWit:
True. Good.
Steven Butala:
There’s very few properties, land like kind properties, if any, for sale in the area. It doesn’t just have access, it had multiple point access on county roads. The property is flat and I had multiple conversations with the county planning and zoning. If it’s in a city, I talked to the city’s planners. It’s buildable, it’s zoned for agriculture. And here are the five things I can put on it according to all the data that I researched, a mobile home, a stick-built house, it’s zoned agriculture so I can grow cherries and marijuana, but not corn. So all this and I lined up a realtor to get it sold. The realtor is telling me, you can list it for $120,000 today and sell it probably in two weeks. In fact, he’s got three people that want to buy it. Do you want to do that deal?
Jill DeWit:
Yeah. Let me, here’s the point, the point is you’re chomping at the bit, you just don’t have the cash. You’ve done everything, you’re staring at your wife’s car in the driveway. This is how you should think about it. Your toying with-
Steven Butala:
There’s a pawn shop across the street.
Jill DeWit:
Your toying with selling your wife’s car to get the money. Because you know like, holy cow, we got to buy this really fast or submitting it to deal funding. That’s where you are. That’s how it should be. Oh my goodness, I’m all the way in.
Steven Butala:
Deal funding, it hasn’t happened recently. Probably because we do shows like this and we are really, we say this jokingly, but I’m going to use, deal funding when it started, when we started deal funding was, hey Mom and Dad, is this a good deal? Is this a good deal? How about this one? Is this one good? Is this one good? And you just submit. Appear there are people that are no longer with us that submit every single transaction that they came back and they didn’t want to do any work, they should be trading stock because what they should be doing.
Jill DeWit:
Yeah. Well we solve that real quick. My team jumps in and it doesn’t even get to me. They just like, “Hey, I need information. Do you have a signed purchase agreement?” No matter what, the very, very minimum is you have to sign a purchase agreement, otherwise you don’t really know if you have a deal. Even though on the phone, they say, “Yeah, I accept your offer.” And you submit it. Nope. It needs to be signed paper, have some buy-in that I know we can really move forward.
Jill DeWit:
The best possible situation and this has happened to me several times, you submit it to me, you put it on land tank and somebody beats me to it. Then you know you had a great deal, by the way. So I’ve had that where I’m like, I’m looking at it, thinking about it. Maybe I’m busy. Took me a day to get back to you and get my little work in there. And then someone says, “Oh, sorry, Jill, somebody else already funded it.” I’m like, “Good for you.”
Steven Butala:
That’s fantastic.
Jill DeWit:
That’s what it should be. So don’t wait for me too, I want you to do that. Submit it to me and put it on there too.
Steven Butala:
That’s why we created this. There were some people that are again, no longer in Land Academy that got real competitive about running around to all the members, trying to befriend them so that they can get every single deal. That brought in an unwelcome element of competitiveness within our group and they needed to leave. So that’s not what this is. It’s not a Wall street, sweat through your suit, a 22 hour work day. This is, there’s a lot of people with a lot of money in Land Academy. That’s why we created and I think we’re going to talk about land tank later next week, later this week. And there’s some deals that we won’t do, but other members will do immediately. There are some members that’ll do any deal within reason, if you have all your stuff in a row, that’s not us. Jill and I are 80% education and 20% funding. There are some people that are a hundred percent funding and will look at any deal if they know they can make 22,000 bucks on it or some number like that. They take a more of a numbers.
Jill DeWit:
It’s all over the place.
Steven Butala:
Yeah.
Jill DeWit:
And someone will help you. Some will say, here’s my marketing thing. Here’s the steps that work, whatever it is. I want to back up and answer this real quick. Just the basics. Because this is Land Academy deal funding 101. You know how it works. Okay. I think you got the gist of what kind of deal is you should be submitting. It should be, you’re done, you’re in, like I said, you’re staring at your wife’s car.
Steven Butala:
That’s hilarious.
Jill DeWit:
You’re about to pawn something to get the money, but you’re like, that’s not the right thing to do. I’m going to bring in someone and I’m going to split some of the profit. I’m going to give up some of the profit. I’m going to use somebody else’s money. Great. So what do I do? So you go to landinvestors.com at the very and this is for, you don’t have to be a Land Academy member, by the way, to do that. There’s a question in there that says, are you a member? How many deals have you done? What’s your plan here? Just fill that in because I have funded deals for non Land Academy members. Again, we mean it. No good deal should go to waste.
Jill DeWit:
So you go there and you fill out and it asks for everything, all the property information. Give me everything that you’ve got. If you’ve got some comps, give me some links in there. If you’ve got a signed purchase agreement, upload it so I can see it. We can confirm it all. We know really it’s real, kind of thing. It stays internally that doesn’t go anywhere but internally, really to me, my team, and to me, it goes through actually it goes straight into air table. My team reviews it to make sure you filled in all the information. And if it’s all filled in, you got a purchase agreement in there, then they’re going to tag me. And then I go look at it.
Jill DeWit:
And then what am I going to do? I’m going to do my homework. I look at it like it’s my deal. Like would I buy this? I’m looking at it. Please don’t use me as, oh, Jill will catch something. I want you to do your best ahead of time. But I am a good, if there’s something there, I’m a second pair of eyes, I’ll make sure. I have one right now that I’m like, why didn’t she sell this before? It’s checking all the boxes. It’s land. It’s got mobiles on it. It sounds great, but it’s also been for sale off and on since 2008. So I’m even doing a test. I’m doing one last test for reason right now. And haven’t decided what’s really going to happen with this yet.
Steven Butala:
I wouldn’t do that deal. I know what you’re talking about. I passed on it.
Jill DeWit:
So anyway, the point is, so I’ll go through and I’ll check the A’s, check the access. I’m not going to do the taxes and all that good stuff, I trusted you on that. I’m kind of looking just to make sure the numbers work because at the end of the day, it’s either my money or our money that are going into it.
Jill DeWit:
So if you want me even just to do 50% of the deal or Jill, I’ve got all but the last $25,000, something like that, please submit it. It’s not a black or white thing. And I actually prefer to fund deals where you have something in the game, like Jill, I’ve got 5,000 to put into it. So here’s how I propose we do the split. That’s great. And give me your suggestions. It doesn’t have to be 50 50. If you’re like, hey, I’m going to put 75% into this. I only need you to fund the last $25,000. I’m doing everything. So I want to get 75, you get 25 or whatever it is, what you suggest, I’ll sure look at that and consider that. Absolutely. I’d be nuts not to. Everybody’s going to win here.
Jill DeWit:
So once it passes my tests, there might be one or two questions that I will send through to you. We call you the manager because you submitted the deal, send you as a manager and then I’ll just say approved. I had one the other day, it was so funny, this guy is new. He’s not new to this. He came from somebody else’s program, but he’s new to Land Academy and he submitted the deal and I’m like, what the heck? It’s fantastic. So wait, let me take it a step further. So I go, wait a minute. He was going to sell it himself. So I wrote a note back for my team to pass onto him. I said, “Hey, would you consider running this by a broker that I had been working with in this area for a while now, just get his eyes on it and see what he thinks. And then would you be open to maybe even letting him do the deal? Because I know this guy and he’ll make it easy on both of us.”
Jill DeWit:
So he called the guy, the guy answered back. I think we’re buying it for like, I don’t know, $25,000 plus escrow fees. And then our guy said, “I can sell it for 60 easy, between like 65 and 89.” He’s like, “Let’s list it for 89 and I think we can get probably, it would be somewhere in the middle there.” I’m like, “Done, done and done.” And it was so funny because I just bypassed my team. Usually I write a note. I was so excited on this one. So I bypassed my team and I just flat out called the guy. We have never even spoken to him. I’m like, “Are you a member?” He’s like, “I just joined.” I’m like, “Well, welcome to Land Academy. I’m calling to tell you absolutely yes. And how fast can we get this deal done?” Kind of thing. And we just had a good laugh about it.
Jill DeWit:
I’m like, “Keep doing what you’re doing.” I think his name is Preston and we had such a good laugh and a good chat. And anyway, so you never know, I might call you and go, “Heck yeah, hurry up. This is a run to the bank thing.” Anyway, so once I approve the deal, you’ll get back a quick, our little contract is like one or two pages, just kind of spelling out, if it’s my money, if it’s your money, whatever the combination is, who’s in charge of each task, usually it’s you’re going to do the marketing. You’re going to pay for the marketing. If you want to see this contract also, go to landinvestors.com and go on the deal funding and you can get an example and see just how simple this contract is. You’ll have my name on there, your name on there. Black and whites. We all know how it’s going to go. And when it sells, how would the money’s going to be split? So you’ll get that quick little thing back.
Jill DeWit:
And then I expect you to open escrow and you to kind of manage it. You are the manager of the whole deal. My team is just there to submit whatever paperwork that escrow needs. My stuff’s going usually in the name of one of our companies and that escrow company might want to see operating agreement or something for the companies. My team’s already for that. So they’ll do that. So my team is not babysitting it and making sure it gets closed, you are. And my team’s not babysitting the seller and making sure they’re happy and on the same page, you are. So I want to make sure you know that, and that’s like at least twice a week, touch base with your seller and touch base with your title agent.
Jill DeWit:
And then when it comes time to do the bank wire, anything signing the bank wire, my team’s going to review it all, give it their blessing and then hand it to me. But I want you to do that first too. You are really running the show. Hopefully you found any mistakes in there and then it’s all corrected between you and the title company. Then it gets to my team and then it ultimately gets to me and I’m wiring the money. So it’s like kind of three, really kind of three conversations is really how it goes between us and you because I’m just the bank you don’t want, I’m not here messing with your deal.
Steven Butala:
It’s three conversations, a little bit of time passes. We get a check.
Jill DeWit:
Yeah. And so then now it’s done.
Steven Butala:
That’s how much we should be involved.
Jill DeWit:
It closes and now you’re running with it. And then at the end, I really in a perfect world, I’m out of your hair. I’m not in your hair. So I’d love for you to just really, it’s kind of a call that cuts to me, which is, “Hey, we just got an offer for 82. That works for me. Does that work for you?” And most of the time I’m going to say, “Heck yes.”
Steven Butala:
Almost never we’ll say no.
Jill DeWit:
Yeah, exactly.
Steven Butala:
I can’t remember if we ever had.
Jill DeWit:
No, because they’ve all been good. I’ve had a few, well, I’m not going to-
Steven Butala:
There’s a couple of times we’ve said no.
Jill DeWit:
A couple of times I’m like, “Then you and I are splitting $2,000. Why are we doing that? We should be splitting way more than that.” And I’ll help you with that. You, as a manager have the, I would like you to kill those deals before that, if it’s we’re splitting $2,000, we thought we’re splitting $50,000, please just go ahead and tell the agent no, and it doesn’t even need to get to me. But when it’s in that range, you’re like, ah, you know what, Jill, I think we should take this one. It’s been three weeks, a lot of interests. This guy’s serious. Let’s go. And at the end, again, you’re opening the escrow. You’re running the show at the very end, with the final HUD one, showing your payout, my payout, you’re reviewing, it gets to my team. And that’s it.
Steven Butala:
We all get paid.
Jill DeWit:
Exactly. Are we talking too long or am I sharing too much?
Steven Butala:
Well we’ve gone way over.
Jill DeWit:
Okay. I get excited about this.
Steven Butala:
I know, I know you do. And we have a couple more shows this week on this that are offshoots of this topic. It’s all about funding. It’s funding week. Last week, we did a show up and we’ll leave on this called leveraging time versus leveraging money. If you’re seeking out money, you must have a lot of time. And we don’t have any time. We have a ton of money. So we choose to leverage money. And believe me, when I started out, I was the opposite. I had a lot of time, very little expertise, but I learned and learned and learned and learned and learned, and it converted it to money eventually. It took me 30 years. It doesn’t need to take you 30 years. You can do it in a few years.
Jill DeWit:
Right. Happy 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 Land Academy Show is called an interview with longtime member, Kevin Farrell. You are not alone in your real estate ambition. Kevin’s always a blast to talk to.
Jill DeWit:
Mm-hmm (affirmative). It was fun talking to him. You may have had a consultant call with him. You may have seen him as a moderator.
Steven Butala:
He’s very loud and involved in Land Academy community. Very smart.
Jill DeWit:
Very helpful, and been with us for years. Kevin brings a lot of experience. We didn’t talk about, we recorded this the other day, we didn’t talk a lot about his past life, but what I love is Kevin has life experience and land experience. And that makes him, I think, a really good teacher. If you’re interested in learning more about what we do, check out landacademy.com or houseacademy.com. We provide the education, tools and support you need to be flipping property like the pros. 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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