Creative Deal Structuring (1521)
Creative Deal Structuring (1521)
Transcript:
Jack Butala:
Steve and Jill here.
Jill:
Hello.
Jack Butala:
Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.
Jill:
And I’m Jill DeWitt coming to you from the job site in Paradise Valley, Arizona.
Jack Butala:
If you’re watching this, not listening to us, we’re starting to take delivery on all kinds of stuff that’s happening to this rehab house that we’re in.
Jill:
Yes, you’re going to be watching mounds of Hickory, real wood flooring show up over my shoulder here in just a minute.
Jack Butala:
Today, Jill and I talk about creative deal structuring. One of my favorite topics. Before we get into it, though, let’s take a question posted by one of our members on the landinvestors.com online community it’s free. And if you’re already a Land Academy member, join us on Discord.
Jill:
Anne Marie wrote, general newbie question here. “I’ve been a member now for about seven weeks and I’ve spent many hours studying Land Academy, Land Investors, Discord, et cetera. I love hearing get the mail out from Steve and Jill. I’ve chosen my counties and have scraped the data of for sale and sold properties on Land & Farm, Zillow and Redfin. Is it naive of me to think I can get ahold of a good price per acre.”
Jack Butala:
Price per acre.
Jill:
Familiar with that code. Thank you very much, sir.
Jack Butala:
How are you familiar with that though?
Jill:
That’s awesome.
Jack Butala:
BFF.
Jill:
Are you familiar with some of the hand gestures I’m about to hold up?
Jack Butala:
Pretty familiar with OMG.
Jill:
Pretty sure. Yeah. All right. Are you familiar with BTW?
Jack Butala:
By the way?
Jill:
Oh, you are. Good, good. Wasn’t sure.
Jack Butala:
Gosh. [crosstalk 00:01:49].
Jill:
Oh, my gosh. Anyway, “Is it naive of me to think I can get a good price breaker comp to price my first mailer? I’ve averaged out the price breaker on all three platforms and have a good average. Is it unreasonable to price it for 20% of the average value? Please confirm it is better to be under than overpriced.” Oh, heck yeah.
Jill:
Unlike our… What’s that?
Jack Butala:
I don’t know.
Jill:
I don’t know What that is.
Jack Butala:
Unlike our choices where.
Jill:
Overdressed is better than underdressed. Got it. “I know the market very well. People are flocking towards these areas. There are few more properties sold than compared to list it.”
Jill:
This is all great stuff.
Jill:
“I’m not sure how to check the wholesale for wholesale competition, but my state is X. I don’t see a lot of the Thursday will you do this deals properties in this area? I’d love to know how to check that though, and I’d be more comfortable in negotiating up.”
Jill:
Okay. Can we tackle these a little bit at a time?
Jack Butala:
You please answer all the questions you want. I’m going to answer the question about, “Is it reasonable?”
Jill:
Well, good.
Jack Butala:
“At 40%”
Jill:
You start with that one. I’ll do the other stuff.
Jack Butala:
Is it unreasonable to price it for 20% of this average value question mark. There is no way, this question comes up all the time. The question is this, “I have a great price per acre. It’s $1,500. I’m real confident in my data that in this zip code for properties that are between one and five acres, they’ve been listed and sold for an average of $1,500.”
Jack Butala:
So it’s real easy to get to that point. If you’re new, it’s time consuming, but it’s not that hard. Then the question becomes, “How should I price my mailer? Should I price it at 20% of $1,500 an acre? 35%, 40%, 50% am I going to ruin my mailer at 20%? Am I going to ruin my mailer at 70%?” These are the questions that go through a new person’s head, rightfully so. So they seek out an answer. I’m not saying anything negative against Ann-Marie here at all. I’m just using this as an example, because this is probably 50% of the new people that gets to the point where the sending a mailer out, have this question for us.
Jill:
A valid question.
Jack Butala:
To which my response is, it’s very, very relative. And so you need to type in a number the way that we have these mailers set up, it’s all set up for you. All you do is you type in 20%, and then you go out into that zip code and look at your mailer and test it for reason. And if it looks like, “Wow, at 20%, I’m going to make an incredible amount of money, but I’m only offering $20 an acre, which is not the case at 1500.” Yeah.
Jill:
Test for reason is, when he says test reason and it’s price it, now pull up one property and pretend that offer came back, signed, go look it up and see if that makes sense to you. Did I do that right? Would I still buy it at these numbers? If the answer is, heck yeah, then you did okay. You passed your test for reason.
Jack Butala:
But, it can’t be too cheap.
Jill:
Right.
Jack Butala:
There’s two reasons that I’ve ever had a mailer fail. And, we just talked about this in the advanced group yesterday. Number one, I priced it too cheap. You don’t want to go in so rock bottom low that no one’s going to respond at all. And that means like, I’d like to buy a property for $500 and it’s worth 30 grand.
Jill:
Yeah. Like, come on.
Jack Butala:
If you have a $30,000 retail scenario, when you tested it for price for a reason, I think offering 10 to $12,000 is not unrealistic or 10, maybe nine to 12,000. So, but it really depends on where you are and what you’re trying to accomplish.
Jill:
That’s true.
Jack Butala:
So, that 20% please, there is no hard and fast answer to this. You have to test it and test it and retest it. Just like it took a bunch of time to find that retail price per acre. It’s going to take you a bunch of time and maybe a few mailers to figure out how people are responding and all of that. And, I’ll end it on this and turn it back over to Jill. If it’s not priced too low, you’re going to get a great response. Or you’re going to get at least a one or two deals out of it. If you just follow the instructions and all the education. So I know that it, everybody gets all panicky about this percentage. So, the answer is nobody knows until you send it out, there’s a range.
Jill:
And, then our second question is how do I check for a wholesale competition? I don’t care about wholesale competition in general. I care about all competition. So, let’s just think about that.
Jack Butala:
Wow, that’s a great way to say that. That’s an excellent way to say that, Jill.
Jill:
And, they way I check for that is I go onto… I sit and spot check, this is before you send out the mail too, by the way maybe before you pick the county, honestly. I want you to go onto Zillow, Trulia, all kinds of different sites. Do a Land Watch, do a Zillow and do one other at least. Let’s just say that. How much is for sale in the exact price or the exact size I should say, and the property type that you’re going for? So, you’re going for land only all the five acres. Do you go on Zillow and see a sea of red? I’m out. You don’t want that.
Jill:
You see not a lot of red, but a lot of the red is the for sale. And if you look at Zillow and in yellow shows us old numbers. And you click over to yellow sold, and you see things moving and there’s more yellow than there are red, like Ann-Marie’s kind of identifying here. I love that. So, even though there’s more yellow than red, I still don’t want a whole lot of red.
Jack Butala:
And this should have been done.
Jill:
Did you pick a county?
Jack Butala:
If you’re brand new at this, and this the first time you’ve ever listened to this show, you probably turned it off by now. This is not… We’ve deconstructed. This Jillian had been doing this for 25 years. There’s a step by step by step by step way to do this. And so what Jill’s talking about is the red, green, yellow test and how you pick a county that should have been done a long time ago. So, I don’t know if Ann-Marie’s getting out of order or if she’s just… I don’t know.
Jill:
Maybe, let’s assume you’ve already done that. So let’s just say Ann-Marie, you’ve already done that, that was part of your choices. Now you’re worried about other people sending mail that area too? Don’t flipping care.
Jack Butala:
That’s what I think.
Jill:
I do not care.
Jack Butala:
God, Jill. You’re exactly right. Exactly right.
Jill:
Because, I’ve had it happen. I’ve been the first one to send an offer. And I know I warmed somebody up for the next guy and I’ve been the third letter somebody [inaudible 00:08:27] and two other people warmed them up for me. You never know.
Jack Butala:
It’s insignificant.
Jill:
It’s the day the guy got the letter and he’s, “Yeah, you know…” Because, it could be the third time around the third offer for a property priced. Very similarly that guy might go, “I guess that’s really what it’s worth. And you know what? I threw those other two away. I’m glad I got this one because my car broke down today and I do need the money. So let’s go.”
Jack Butala:
Yep.
Jill:
That’s it. And the third thing is I’d be comfortable in negotiating up. Totally a hundred percent agree. I’d rather you come in lower than higher. It’s so much… Don’t go drastic like Steven just said. The $500 thing, I don’t agree with that.
Jack Butala:
It won’t work.
Jill:
It just sends the wrong message to them, I’m not that guy. But if I sent a real good offer, which is what we do in the ranges of we’re talking about, and I went a little bit under or the guy says, “I really need more.” Whatever it is, I can add a little more money. I’m cool with that. I But to take money away, it’s a lot harder if we come in and there’s always a few that get kind of goofed up in there. Who cares? Because, as they were input wrong by the county, the acreage was off.
Jack Butala:
Always.
Jill:
There’s something weird. Who cares. And they call me, “Oh, I’m so excited. You just offered $10,000 and it’s worth one.” Because, somebody put it in there… The assessor probably put it in at five acres and they meant to put 0.5. That has happened. So I have to go, “Here’s the deal. It was priced that way because you just see on there? It says five acres. It was input wrong I mean half acre. So my 10,000 is really 1000. That’s the best I can do.”
Jill:
So, you can do that too, Ann-Marie and we talk about that too is ways and techniques to help you get over that hurdle. But, it is definitely easier to add money and you’re not nuts. I am more comfortable to negotiating up, than taking it away. It’s a great question, covered a lot.
Jack Butala:
Well, I can tell I’ll leave it on this and we’ll get on the topic the way that this is written and the concerns that you have, you’re going to be very successful with this.
Jill:
Yeah.
Jack Butala:
Just keep at it.
Jill:
Yeah.
Jack Butala:
Oh, the second reason that mailers fail and really there’s only two that I’ve ever had a mailer really fail, is because people aren’t on the other end of the phone line it’s not getting done correctly.
Jill:
If they even answer the phone.
Jack Butala:
Well, Jill, somebody like Jill, isn’t answering the phone. Yeah, they didn’t answer it.
Jill:
They didn’t answer the phone. There was some problem there.
Jack Butala:
Yeah.
Jill:
Yeah.
Jack Butala:
Or didn’t return calls back.
Jill:
Right.
Jack Butala:
Today’s topic, creative deal structuring. This is the meat of the show. I love this topic. I mean it. Think of this for a second, let me paint a picture for you. You send out 2000 letters, they’re reasonably correctly priced you chose a good area. They listened to all the education. You got these 2000 letters that come out, 10 people call you back. They’re angry as heck because they think that you’re insulting them. And then five people in the end, either mail a letter back to you and expect a phone call or they call back and say, “You know what? $12,000 make it 15, you got a deal.” So, you’ve got three to five deals there. Stop. You have so much control over your professional life at that moment. You should get tingly. If you can decide anything to do with these properties.
Jill:
I’ve never heard you use that word.
Jack Butala:
You’re sitting there, you’re staring at purchase agreements and people waiting for you to call them back for assets that are five to eight to $10,000 that you’re going to pay. That are worth 30, 40, $50,000. And the numbers vary widely depending on where your comfort level is. On career path and on the advanced call, all we do is talk about stories like this. Why this was great and this mailer worked. Or maybe this one didn’t work so much, but we’re all in [inaudible 00:12:27] and just serious amount of control. I don’t know how to control my professional life more or I would do it.
Jack Butala:
So-
Jill:
I think you’re doing just fine.
Jack Butala:
So, today’s topic is called creative deal structuring. So based on the deal, maybe if you can drive up right to it and there’s a farm out in front and you’ve got the back property that you can drive right to and you’ve got two of the nicest old people living there and their kids are farming and it’s the most beautiful situation you can describe. And, it shoots well and the drone pictures come back and it’s amazing. Then you sell it for retail because you know it’s going to sell. And maybe you sell it yourself. Maybe you sell it through a broker. There’s all kinds of ways to do this creative deal structuring.
Jack Butala:
My point is you call the shots. So let’s talk about some of our options, Jill.
Jill:
Well, I looked at it a different way. I looked at it as deal structuring as in deal funding and structuring those deals. Because, so many people are doing different kinds of splits, how they’re working together. It might be two people partnering on the deal to take it down. So, do you want me to talk more about that?
Jack Butala:
You can talk about any of them. I mean, it depends on your circumstance but that farm scenario, maybe I actually don’t have the cash to do that. That’s what Land Academy’s for.
Jill:
Right.
Jack Butala:
Call us or call somebody else in the group. Who said, “I love to fund deals like this.”
Jill:
“I have the money I’m ready to go. What do you have?”
Jack Butala:
Good. You can get the deal done. Great. In the past, if you’re on your own in the past, there’s always a pressure point to a deal. I don’t have the money. I don’t have the time. I don’t understand how to get a drone. I need somebody there with experience.
Jill:
I don’t have the knowledge.
Jack Butala:
Experience, I need somebody with experience to help me.
Jill:
I don’t have the knowledge, the experience. I don’t know how to handle this one.
Jack Butala:
To help me.
Jill:
Yeah.
Jack Butala:
That’s what all the Land Academy members are for.
Jill:
Mm-hmm (affirmative).
Jack Butala:
Maybe you’re not interested in buying the asset at all, but you know that a lot of the people in this group are. So, you just turn it over to them and you’ll get paid at the end. Maybe you say, “You know what? I don’t want to do the deal.” I never want to do deals. I just want to find them like this, get them under contract and pay, fill in the blank, Jack and Jill, 10%, to turn the deal over. There’s all kinds of ways you can structure it. That make money for you. And the beauty is you control the deal.
Jill:
So, that’s the key is putting that all together. So you have all these deals and you have all these people with the money. This is how I looked at this.
Jack Butala:
In experience.
Jill:
And, I was thinking about the advanced group because we’re talking about it. I was really impressed with all the creative ways. It’s not just you found the deal. I’m the bank. I buy the property, we put it into my name. You go sell it. We split it 50/50 and walk away. There’s so many creative ways. It could be, you found the deal. You don’t know what to do. I do know what to do. We’re not going to do 50/50 now. So I’m going to do more of the work. So we’re going to change the variation. You’re going to get it to me, I’ll market it. I’ll sell it. I’ll pay for it. And, then we’ll split this different percentage when we’re done.
Jill:
It could also be something like you don’t have all the money, but you have half the money and you know what to do. You can come to me going “Hey, I don’t want to split this totally because I’m putting up half the money too, and I’m doing the work. I just need this last little thing. Let’s change up the percentage there. Let’s change up the terms. Let’s change up what we’re doing here. Let’s bring in another partner.”
Jack Butala:
Yeah.
Jill:
What if, because we’re in this way too. We have some funky ones where there’s, I don’t know, three or four investors. And the percentages are based on the amount that they put in. So, if you put in 10% of the whole purchase price, you’re getting equal back kind of thing. So, it could be stuff like that. And, the people who are in charge could be getting a different percentage. I’m comfortable with all of it. It’s just… And one of the things I want to point out, which I see new people asking the question, they’re going, “Can you do that?” And my answer is, “You can do whatever you want.”
Jill:
So, this is kind of like a discussion I have a lot of you about title agents. They think title agents tell you, you have to do this. You have to do this stuff to do this. And, no, you don’t. You come to them and tell them, “Here’s how we’re doing the deal. I’m paying cash. I’m going to do this. I’m going to take care of that fee. They’re going to do this fee.” The title agent says, “Okay, that’s their job. However you want to do it? You want to pay for all of that? Okay.”
Jill:
That’s all up to you. You can change it however you want. And I love that. Get creative. My other point is today, that my head was spinning the other day from this call, “What are you guys doing?”
Jack Butala:
Yeah, me too. It got me thinking.
Jill:
[crosstalk 00:17:04]. I’m, “Well, good, that’s a great idea. Why didn’t I think of that?”
Jack Butala:
Jill’s right about everything. Everything you said was absolutely correct.
Jill:
Oh. I was going to go with I’m right about everything. Everyone, quick rewind.
Jack Butala:
Let’s bring it back down though. And say that there’s two basic ways that we all do deals and they all start with an end with controlling the deal like I described. Number one, that property comes back. You’re buying it for 10. It’s worth 30. You buy it. You buy it for 70 and sell it and you collect your $30,000. And that’s it. The vast majority Land Academy people do that do it that way.
Jill:
Right.
Jack Butala:
And the second major way is you don’t have $10,000, you know it’s a great deal, you call somebody like us or numerous people in this group that are dying to give you the money. They pay the $10,000. You guys sell it for 30. And then everybody splits the profit according to what they think. 50% is popular right now. It’s changing all the time.
Jill:
All over the place.
Jack Butala:
And, so the person who found the deal gets half the person who funded the deal gets half. And there’s no real risk to anybody if it’s a good land deal. Those are the major ways to do it. There’s a million other ways that you can offshoot so that all center around controlling the deal. So, I don’t want you to get intimidated or because there’s a lot of people that come to us and say, “I’ve never done this before. Here’s a deal. I think it’s a great deal. I’m pretty confident. It’s a great deal. I’ve just never done this before.” And, we have a product for you. You know, we’ll pay you to either turn the deal over to over to us or we’ll pay a certain percentage on the south side, out of escrow.
Jill:
I was going to say don’t worry about, “Do I need to do all this extra stuff?” So I’m going to just say, I will end on this. “How do you do it? I’ve never done it before. What’s the legal way to do it?” Well, the best easiest way is make a one or two page contract. If you’re Land Academy, you have a copy of ours. Copy it, change it up, make it your own. I don’t care. Use that quick contract. You don’t need to go get an LLC together to do this transaction.
Jack Butala:
No, none of that stuff. Don’t worry about any of that.
Jill:
Just this one page contract between you and the person is all that you need. And that’s one of my things too. That should be a Jill Friday. Topic is don’t over complicate things. There’s a lot of people that do that. Get creative. Don’t get complicated.
Jack Butala:
Get somebody in this group if you don’t know how to do stuff, get somebody in this group to help you. There’s tons and tons of people that’ll reach out.
Jill:
Yeah.
Jack Butala:
But, the whole thing has got to have a good deal. That’s your whole job in life. If you want to make this, your living really quickly and permanently, your whole job is to source great deals.
Jill:
Yep.
Jack Butala:
The money’s out there. That expertise is out there. The contracts are out there. All of it.
Jill:
Perfect. Happy you could join us today. Five days a week, you can find us right here on the Land Academy Show.
Jack Butala:
Tomorrow, the episode on the Land Academy Show, well, it’s called Jack Thursday. What Jack looks at when doing deals. I’m interested in this too. You are not alone in your real estate ambition.
Jill:
It’s funny how our staff throws out these topics. They’re, “Here, figure it out.” Okay. Which is not hard, but.
Jack Butala:
I can tell you what I look at. I have some funny stories about this, but here’s a sneak peek.
Jill:
I have a funny thing. I want to know what Jack looks like when looking at bad deals. We’ll talk about that tomorrow too.
Jack Butala:
Here’s a guess, I look at the numbers.
Jill:
I know, but it’s funny sometimes. If you need anything sort of access to ownership or property details, including owner phone numbers and FEMA flood map overlays, check out neighborscoop.com created by investors. That’s us for investors like you.
Jill:
We are Steve and Jill.
Jack Butala:
We are Steve and Jill. Information.
Jill:
And inspiration.
Jack Butala:
To buy undervalued property.
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