5 Things That are a Waste of Time Flipping Houses (HA 1670)
5 Things That are a Waste of Time Flipping Houses (HA 1670)
Transcript:
Steven Jack Butala:
Steve and Jill here.
Jill K DeWit:
Hello.
Steven Jack Butala:
Welcome to the land… I’m sorry. Welcome to the House Academy Show, entertaining real estate investment talk. I’m Stephen Jack Butala.
Jill K DeWit:
I’m Jill Dewit, broadcasting from The Valley Of The Sun.
Steven Jack Butala:
Today, Jill and I talk about five things that are a waste of time when flipping houses.
Jill K DeWit:
I’m excited.
Steven Jack Butala:
Me too.
Jill K DeWit:
So we each wrote down our top five, and then I want to do… You want to do yours that way too? I’m doing the order like the Dave Letterman top five lists and countdown.
Steven Jack Butala:
Sure.
Jill K DeWit:
Okay, good. This is going to be fun.
Steven Jack 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 and don’t forget to subscribe on the Land Academy YouTube channel and comment on the shows you like.
Jill K DeWit:
I wonder where we are on our YouTube channel, by the way. I kind of stopped looking in the last week.
Steven Jack Butala:
We hit goal.
Jill K DeWit:
Oh, yeah.
Steven Jack Butala:
We hit 10,000 subscribers.
Jill K DeWit:
That’s awesome. Yay. Luke wrote, “One of the counties I’m researching has a large recreational lake and has a lot of gated communities.” I’m assuming is in an HOA. “Should I avoid this county or continue the research?” Let me go back. Large recreational lake. Lot of gated communities. I would avoid the county but I would search outside of that area.
Steven Jack Butala:
This is a popular topic. A lot of people had a lot of things to say. Most of the comments in Discord are the same as mine. Yes, you should avoid it.
Jill K DeWit:
Hey, if it’s 90%, maybe that’s it. Doing your research, if it is a lot of HOAs, because that will be hard to uncover and dig out. You’re not wrong. When you pull the data, it’s not always accurate about HOA or not HOA. So it would be easier just to put one county over.
Steven Jack Butala:
I included this on the House Academy Show for a reason because it’s the same with houses. HOAs [crosstalk 00:01:49].
Jill K DeWit:
[inaudible 00:01:49] deals.
Steven Jack Butala:
It’s harder to see a variant. Number one, it’s harder to see a variance in HOA community from pricing standpoint. It’s real easy to see and get away with a real good price variance on the buy side versus the sell side, in a non-HOA, non master plan community. You can see one house that was built next to another house built at the same time, completely different style, different square footage. So you can justify buying one for 200 and selling the next one for 400.
Jill K DeWit:
I understand.
Steven Jack Butala:
So in a master plan, HOA community, the same for land, it’s all pretty much cookie cutter. Everything’s priced the same.
Jill K DeWit:
I understand.
Steven Jack Butala:
Today’s topic. Five things that we think are a waste of time when flipping houses. This is the meat of the show.
Jill K DeWit:
All right. I don’t care who goes first.
Steven Jack Butala:
I would love for you to go first.
Jill K DeWit:
Okay. Here’s my personal top five list of waste of time things, when you’re flipping houses. Number five, spending days slash weeks on a home equity line of credit or credit cards calls trying to borrow money.
Steven Jack Butala:
Yeah.
Jill K DeWit:
People do that.
Steven Jack Butala:
Boy that didn’t make my list, but that’s true.
Jill K DeWit:
That’s a waste of time. Don’t start the process by “I need to put some money together. Let’s see if we can take out of line of credit.” Hold on a moment, everybody. That’s not what you should be spending your time on. And I’m glad you like that. Number four, pre-purchasing windows, doors, or carpet or paint since they’re on sale in January.
Steven Jack Butala:
What? This is a Jill joke show.
Jill K DeWit:
This is kind of funny, but hold on a moment. This is stuff. People do. People do this stuff.
Steven Jack Butala:
Look, my number one, I’m going to tap in.
Jill K DeWit:
Don’t tell me what your number one is yet. Save it.
Steven Jack Butala:
Why are we buying windows and doors?
Jill K DeWit:
Hold on because they’re on sale. People do things. People walk into flipping houses and do everything that wrong and everything backwards. I am not kidding. I watched people do this. Hold on a moment.
Steven Jack Butala:
Okay.
Jill K DeWit:
Number three, ordering the DIY channel HGTV and thinking that’s how you’re going to learn.
Steven Jack Butala:
This is a Jill joke episode.
Jill K DeWit:
Well no, but it’s stuff that people really do.
Steven Jack Butala:
Turn off HGTV. She’s right.
Jill K DeWit:
That’s what I am saying.
Steven Jack Butala:
It’s all just entertainment.
Jill K DeWit:
[crosstalk 00:04:01] Show. It’s actually entertainment, but this is two things that people do.
Steven Jack Butala:
Unlike this show. There’s no entertainment value, [crosstalk 00:04:06]
Jill K DeWit:
Huh? That’s true.
Steven Jack Butala:
Only good advice.
Jill K DeWit:
Well, I’m trying to save you right now. My number two is calling your brother-in-law, who’s a real estate agent and setting up a partnership.
Steven Jack Butala:
You had some fun with this.
Jill K DeWit:
I did. This is true too. People go, well, I need to have this in my back pocket. My brother-in-law’s a real estate agent. Let’s open an LLC. Let’s get already. I’ve got my line of credit open. I’ve got wood flooring in the garage and I’ve been watching HGTV. People do this.
Steven Jack Butala:
That’s absolutely the opposite way of how you want to do this.
Jill K DeWit:
That’s what the show is. The top five things are a waste of time. I know my number one is driving for dollars.
Steven Jack Butala:
Oh geez. Jill, you knocked it out of the park on these.
Jill K DeWit:
Thank you.
Steven Jack Butala:
I have some different ones.
Jill K DeWit:
Okay. Let’s hear yours.
Steven Jack Butala:
Mine or not in order number one, but they overlap shows a little bit.
Jill K DeWit:
Okay.
Steven Jack Butala:
Number one, you never.
Jill K DeWit:
Wait, wait, are you going to go 5, 4, 3, 2, 1.
Steven Jack Butala:
No. They’re not in any order.
Jill K DeWit:
Oh, okay. Got it.
Steven Jack Butala:
You just don’t ever want to use your own money with houses.
Jill K DeWit:
See.
Steven Jack Butala:
All right. You just don’t. It’s what you want to do. Here’s your job. When you buy a house to flip it, you want to use data, you want to use, you have to make data driven decisions and send out offers in a data driven way. And I go through this in excruciating detail in the House Academy program.
Jill K DeWit:
And he means excruciating.
Steven Jack Butala:
Yeah. Excruciating for Jill. So you use data to price this stuff out. So when somebody signs the offer just like in our land business and they send it back, it’s already priced as [crosstalk 00:05:31] where is with a few variables because you haven’t seen the asset yet at, you’re going to make a hundred grand on it.
Jill K DeWit:
Yeah, and you might be okay with the hole on the roof because you price it that way.
Steven Jack Butala:
So unlike land, you don’t, land you can fund your own. You can get far fast with your own money,
Jill K DeWit:
Right.
Steven Jack Butala:
With houses, it’s different. You might spend $400,000 to make, to generate 500. And so you get three or four of those going. If you have a few million dollars lying around that, you’re willing to just place like this, then you’re good. But you’re in the definite minority. The fact is you want to use other people’s money to do this and you want to get a partner that you really, that understands you.
Jill K DeWit:
Correct.
Steven Jack Butala:
And so don’t use your own money. That’s number one. Number two and I see this all the time, pricing land and pricing houses is dramatically different. When you price houses, you want to be in it around 70 to 80% of the existing retail value or existing wholesale value. So cheap, cheap, cheap doesn’t work. Works great for land. Works amazing. You can go in at 15% of retail with land and usually do a dealer two with houses. It’s not going to work, especially now.
Steven Jack Butala:
Number three, I see this happen all the time. And this is a systematization thing that I talked about yesterday. Jill and I did one deal one time last year, maybe the year before it was before COVID she held an open house because it happened to be in a market that were really from familiar with and it was close to us.
Jill K DeWit:
Right.
Steven Jack Butala:
We collected, I don’t know, nine or 10.
Jill K DeWit:
Good buyers,
Steven Jack Butala:
…buyers that and.
Jill K DeWit:
One bought the house.
Steven Jack Butala:
Still. Yeah, that still don’t leave us in low..
Jill K DeWit:
Just from that open house.
Steven Jack Butala:
…cause they’re renovators. So you want to make sure you’re collecting a good buyer’s list.
Jill K DeWit:
What number are we on?
Steven Jack Butala:
Number four-ish. You have to make sure that you have some version of the boots on the ground. So when people transfer or cross over from the land business, there’s not a lot of onsite stuff that happens with land.
Steven Jack Butala:
You can buy it. You look on Google earth, you call a real estate agent. They list it, you get a drone pilot, the whole thing, you can do it from your desk. With houses, you need boots on the ground. You absolutely need a presence to help. Whoever is moving out of the house or selling the house because they all have issues. Like I need to move all this stuff out of my basement or, or whatever so that they needs to be addressed. And we address that. There’s two ways to address it. One, you get a really good real estate agent that’s into it or number two, you get partners. And so we’ve done both. This is a final, I see everyone make this mistake, everyone. They don’t, for some reason, this is different in houses and not in land. They don’t establish a purchase price, before they start doing the deal.
Jill K DeWit:
God, it drives me nuts.
Steven Jack Butala:
I don’t get it.
Jill K DeWit:
Drives me nuts, even now and then it comes up with land, but more with houses. Everybody gets all excited. They want to sell, they want to sell. And they’re like, don’t do anything yet. That’s what’s the price you, they could be. They could be in their head thinking retail because the guy across the street just sold for $1,100 a square foot. And that’s what they’re thinking. And you’re thinking $500 a square foot. There’s a big difference.
Steven Jack Butala:
Exactly.
Jill K DeWit:
There. You can’t get excited yet.
Steven Jack Butala:
Here’s my final point…
Jill K DeWit:
…do anything.
Steven Jack Butala:
…I know I went over my five, but this is really, really, really important. If there’s one takeaway, it’s this I think do not ever, ever renovate a house, never renovate a house, buy the property and resell it to somebody who’s going to renovate it and mark it up. How you think is appropriate.
Jill K DeWit:
Yeah. I mean, that’s the whole point here. If it’s your hobby, if you have a lot of money and a lot of time and a lot of energy and that’s what you want to do,
Steven Jack Butala:
And you love failing.
Jill K DeWit:
[inaudible 00:09:09] you just that’s what you want to do. Cause you know what? Hold on a moment. Some people usually like primary residents, some people are going to lovingly put in like our brother, my sister and brother-in-law lovingly just did their downstairs put in floors. It took like a year. They because he did it himself. He wanted to, that’s not to make any money. That’s a whole different thing. So if you really want to make some money here, get in, get out. Let somebody else take that time and energy and whatever. I don’t want to say the word risk, but whatever you want to call it, that responsibility on and you move on to the next deal.
Steven Jack Butala:
Yep. Your job is, is the same job that you have in your land business, which is buy and sell assets. Make sure that you buy them correctly, meaning inexpensively and that you’re the orchestra leader and you and you’re sitting there telling everybody what to do when and when to do it, how much it’s going to cost and then reselling the asset. Your job is not to get in there and pick up a hammer.
Jill K DeWit:
Here’s the thing we’ve got real numbers. I can show you a flip that we did on a house. These are both here in Phoenix. Cash in cash out 30 days made more money or about the same money, by the way, as one that we did, it was 45 days and that was pretty darn fast moving walls. 45 days for just the renovation. That was really fast. First we had to buy it, do the renovation. Then we had to sell it, right? So I’m even extra time. And when we really sat back into the math and what we could do with A just mark it up a little bit, moving on and B sticking with land, it was like no brainer.
Steven Jack Butala:
Yeah.
Jill K DeWit:
That’s the reality. We are here to save you. Happy to join us today. Five days a week can find us here on a Version of the Land or the House Academy Show.
Steven Jack Butala:
Tomorrow, the episode on the Land Academy Show while it’s Jack Thursday, and I’m going to talk about 2022 land budgeting and goals made simple. You are not alone in your real estate ambition.
Jill K DeWit:
No, I was like, you know me, I spend time on clubhouse. I spend time in social media and things and looking at people that are, they are all into flipping houses. And I can’t tell you how many times I hear people pulling money out of 401ks, pulling in their house and all kinds of things, especially because their houses are worth more right now thinking that’s a good move.
Steven Jack Butala:
Worst idea ever.
Jill K DeWit:
I know and it scares me. So my list is really stuff I’ve seen. Nutty people come up with these ideas. I’m like, I want to save you and help you see a better, safer way.
Steven Jack Butala:
When is taking on debt? A good idea.
Jill K DeWit:
I know.
Steven Jack Butala:
I’m asking you.
Jill K DeWit:
Let me think. I need a minute. I can’t come up with anything.
Steven Jack Butala:
There’s two times that I think taken on debt is a good idea. Number one, when you’re buying an asset that is so much cheaper than you know, that you can resell it next week for a lot more. That there’s an argument that you could take on debt to do that. But…
Jill K DeWit:
But why?
Steven Jack Butala:
…Why wouldn’t you just get a partner instead?
Jill K DeWit:
Yeah.
Steven Jack Butala:
So.
Jill K DeWit:
That’s easy.
Steven Jack Butala:
Is taking on credit card debt to pay for anything ever good idea? No.
Jill K DeWit:
No.
Steven Jack Butala:
Is taking on any type of, not of tertiary debt, which is meaning non-asset secure debt ever good idea to do anything. No, it’s not. It’s always better to take on a partner, in my opinion. Does it cost more to have a partner? Yep, it does. But what it does is allow you to diversify the risk and it allows you to do what you’re good at, which is find assets that are under priced.
Steven Jack Butala:
That’s all we do here using data. That’s what we do.
Jill K DeWit:
Thank you.
Steven Jack Butala:
The second time and this is so…
Jill K DeWit:
I have to sign for that just.
Steven Jack Butala:
Oh, go ahead.
Jill K DeWit:
Okay. I’ll be back. You got this?
Steven Jack Butala:
Yeah.
Jill K DeWit:
Okay.
Steven Jack Butala:
I’ll close for you the second time when it’s okay to take on debt and it’s very, very unusual and it doesn’t happen very often is, is non-recourse debt that is secured by an asset. So for some reason, this is popular or it’s useful or used with in trailer parks, which are an amazing investment. So if you can find a trailer park, that’s worth $4 million, you’ve negotiated a deal where you’re going to buy it for $3 million, it’s worth $4 million. You’re going to buy it for $3 million and your credit’s real good. And you are in the real estate and business. It’s not that hard to go to a bank and get a non-recourse loan, meaning you’re not personally the loan’s only tied to the asset.
Steven Jack Butala:
It’s not tied to you in any way as a personal guarantee. So if something goes sideways, they take back the asset and that’s it. Every, when he walks away and they shake hands and it’s over. So that’s, I really think the only time you should ever really take on debt other than obviously a well purchased primary residence.
Steven Jack Butala:
Thanks for tuning in. We’d love to connect with you tomorrow and clubhouse that’s Thursday. So join Jill every Thursday, 1:00 PM. Every other Thursday, I should say on the… Just look up, go to the Clubhouse and look up Land Investing Club. We are Steven and Jill information and inspiration to buy undervalued property.
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