Renovation Nightmares (HA 1675)

Renovation Nightmares (HA 1675)

Transcript:

Steven Jack Butala:
Steve and Jill here.

Jill K DeWit:
Hi.

Steven Jack Butala:
Welcome to the House Academy Show today. Entertaining real estate investment talk. I’m Steven Jack Butala.

Jill K DeWit:
And I’m Jill DeWit, broadcasting from the Valley of the Sun.

Steven Jack Butala:
Today, Jill and I talk about renovation nightmares.

Jill K DeWit:
Is this not a show? This should be a show.

Steven Jack Butala:
I think it might be.

Jill K DeWit:
If not, it should be.

Steven Jack Butala:
You mean just like a title on HGTV?

Jill K DeWit:
It should be. That would be cool. Speaking of which, I have one of my notes here is the first thing I was going to share is when we have done renovations, it does give you nightmares. That’s a real thing.

Steven Jack Butala:
I’m going to really press [crosstalk 00:00:40].

Jill K DeWit:
Documented.

Steven Jack Butala:
When we get into the topic here, I’m going to give you a mathematical example of all the things you can do with an asset that really make you money, a real estate asset, and all the things that are setting yourself up to fail. It’s basically a roulette situation when you renovate a house.

Jill K DeWit:
Understood.

Steven Jack Butala:
Before we get into it, let’s take good question posted by one of our members on the landinvestors.com online community. It’s free. Understood. And don’t forget to subscribe on the Land Academy YouTube channel and comment on the shows you like. Where does that come from? Do you feel like you’re in the military when we do this show?

Jill K DeWit:
Sometimes.

Steven Jack Butala:
Where do you rank?

Jill K DeWit:
Yes, sir.

Steven Jack Butala:
Do you rank higher or lower than me?

Jill K DeWit:
Oh, I’m way lower. Pretty far down there.

Steven Jack Butala:
Oh, that’s strangely attractive. I don’t know why. Something’s wrong with me.

Jill K DeWit:
Yes. Yes, sir. All right. Luke wrote, “Responding to tire kickers on Facebook is exhausting. I’ve developed a system that works well for selling houses with owner financing on Facebook. It could be used for land as well. So it goes like this. Ad goes up on the marketplace. Regardless of who responds via Messenger or what questions they ask, I respond with a couple paragraphs about the price, address and what the house needs, if work is needed, and then instruct them to drive to the house and call the number on the sign in the yard. When they call me at that number, I know they follow the instructions and are sitting in front of the house. Then I get them inside. Most won’t even do this step and they aren’t serious buyers anyway. So it doesn’t matter if I piss them off.” That’s good.

Steven Jack Butala:
This is brilliant.

Jill K DeWit:
I saw this.

Steven Jack Butala:
Here’s why. There’s an old rule in sales. Not that I should really be talking about sales at all, because that’s just Jill’s thing. But if you want to vet people, ask them to do something. It’s a legal thing too. It’s customer service more than anything.

Jill K DeWit:
We do it for hiring. Yeah.

Steven Jack Butala:
With customer service, if someone just calls livid about whatever you’re selling or why they’re your customer and why they’re upset, your response can be, “I really understand that you’re upset. Please do this, this and this, and we will rectify the problem for you.” And virtually nobody does any of that stuff.

Jill K DeWit:
I do.

Steven Jack Butala:
As a customer?

Jill K DeWit:
Yeah. Oh, I’ll do both.

Steven Jack Butala:
Well, that’s because if you get mad, there’s a real reason.

Jill K DeWit:
That’s true.

Steven Jack Butala:
So I think this is brilliant. Go to the house, sit in front of there, call me on the number and I’ll get you inside, and we’ll talk about … So probably that avoids probably 90% of the garbage. So I think this is brilliant, obviously because I put it on the show.

Jill K DeWit:
That’s awesome.

Steven Jack Butala:
Today’s topic, renovation nightmares. This is the meat of the show. Every time I drive by a piece of land, like an infill lot, where it’s all built up around it, and I just drive by and I see it sitting there waiting, I personify it for some reason. It’s like just waiting to be improved. I get a little smile on my face. I get a kick out of it because that’s what land is. You buy it, you improve it, or somebody’s going to improve it, and make it what it’s supposed to be. That’s called the highest and best use of a concept in real estate. So every time I see a house that’s falling down, I look down, and it’s sad. And renovating it, from a money standpoint, almost never makes any sense. It almost always makes sense to start over, depending on the asset.

Steven Jack Butala:
So, you have a choice. If you have 100,000 bucks, buying and selling land, you’re going to turn that into 200,000 very, very quickly, like many, many, many of our Land Academy members. $100,000 doesn’t get you, in this day and age, enough money to renovate a kitchen and the bathrooms in a house. And if you’re renovating kitchens and bathrooms, there’s other stuff going on that’s structurally wrong. So from a risk standpoint, you have no idea what you’re getting into when you get into these houses. It’s almost always twice as much as you think money wise..

Jill K DeWit:
And time.

Steven Jack Butala:
And twice the amount of time. So I don’t know why people continually do this. The only thing that I can … People who do this are not money people like we are. They’re not data people. They’re interior decorators and real estate agents.

Jill K DeWit:
And maybe it’s a hobby, it’s half hobby. So here’s the thing. Like I said, I wrote down a couple notes here. Is this a way to make money fast? No, it’s not, because most of the time, and these guys will tell you horror stories. We’re not making this up. Get on Clubhouse, listen to somebody else’s chat about this and what really goes on. We’ve done these. We have. And we’ve done some really well and really fast, but when we really, again, you’ve probably heard me say this before, when I took a step back and we did the math and the time and the energy, I could have made way more money. I wouldn’t have had all this crap in my hair every day from being on the job site, and I would’ve just been sitting at my desk. It would’ve been so much easier. And/or I could have done it from the back of the boat. I could have done it from the RV.

Jill K DeWit:
You think you can get up and travel in the middle of a renovation? Heck no, because if you don’t show, they don’t show. You’ve got to really watch these projects. So, the downside and the risk of home renovations, as dreamy and cool as it looks, it’s a lot. I would love someone to really do some numbers. Like you did a thing last week on our Thursday member call. You pulled up this really great, funny to us article about real estate agents and how much they really do make, how many there are, the median income and how many deals they are getting, because right now the real estate agent community’s huge. Everybody’s jumped in. So I’m sure they’re scrambling for deals. So the average number of deals that each person gets to do is not a lot. So the money’s not a lot, but it looks glamorous, but you’ve got to get in there.

Jill K DeWit:
I wish someone would do a thing like that on renovations, like the average. Boy, if we could all see the average number of renovations and who’s made money and who’s lost money, that’s the big thing. You will look at it differently. And then the only positive thing, if you don’t mind me to finish this and hand it to you, is the positive of this is if it’s for your personal use, I totally get that.

Steven Jack Butala:
I totally get that too.

Jill K DeWit:
That makes sense to me.

Steven Jack Butala:
Me too, because that’s emotion.

Jill K DeWit:
Right. Or you find a home that you know this is it. I love it. It’s got nine out of 10 things. I love it. The bones are great. The location rocks. This is awesome. It’s good for the school district for my kids. I’ve got access to all the things that I want. The people are amazing. It’s got all those things, but you’re like, doggonnit, it’s an older house, it needs some work. All right. But you’re starting with a good foundation, that I can sign off on. Totally get that. You may be in there to make money at some point, but you’re not in there to make money overnight. That’s not your goal.

Steven Jack Butala:
So back to that piece of property while you’re driving around and it’s just vacant and everything else is built up around it. This is an academic exercise, but I’ll make it reality here in a minute. So imagine that you haven’t spent a dollar yet, but you get out of the car, you take a picture of it and you’re standing there looking at it, not spent a dollar. What if you did all the research on connecting utilities for a structure, drove to another part of town where they sell mobile homes, ordered one, got it three weeks later and had it installed on the piece of land. Bought the land, installed it. And now you’re into the whole thing for 150 to $200,000 and you know it’s worth 400, and the whole thing took less than six months. Why wouldn’t you do that? You have a brand new structure. And if you haven’t seen mobile homes lately, you can’t tell the difference between a mobile home and a stick-built house. The whole thing just comes all done. It comes with the appliances.

Steven Jack Butala:
So why would you go through all of that personalization? So granted, the truth is municipalities don’t allow mobile homes just to be put anywhere. So you have even more control. If you take four steps back before you do that, do a bunch of research on what municipalities or what counties allow you to put mobile homes, actually even might encourage you to put mobile homes on lots that are pre zoned for that. And then you can do the research on the fact that, yeah, I know I can sell it for $380,000 because all these other ones are selling for three. You have so much control with new construction and specifically with modular and mobile homes. Is that sexy enough? I don’t know. Probably not. There’s nothing sexy about a mobile home if you ask this crew that Jill was talking to on Clubhouse. So it just makes so much sense to me to really look at the data first and put a linear plan together to put a mobile home on some property and make some money.

Jill K DeWit:
You know what? I didn’t mean to interrupt you.

Steven Jack Butala:
Yeah. No, that’s it.

Jill K DeWit:
What if there’s a personal thing that there’s a-

Steven Jack Butala:
That’s what it is.

Jill K DeWit:
… little sense of pride, like I rebuilt this fill in the blank. I don’t need to do that. I don’t have any sense of, I’ve got to get my hands dirty. I’ve got to do this. I’ve got to do that. I’d rather be kicking back with my feet up, with my laptop on my lap looking at my bank balance.

Steven Jack Butala:
Yeah, me too. So the way you make money with stick-built houses is the way these publicly traded companies have figured this out. You buy on the outskirts of town, you buy tons of acreage. Usually it’s a farm. And that farmer’s done forever because they sold the dirt again. Yesterday’s show was everybody I know in dirt makes a ton of money-

Jill K DeWit:
Makes money.

Steven Jack Butala:
… is killing it. So they go in and put 500 homes in there with the infrastructure and the whole thing, and that’s how you make money. But you don’t make money renovating a house. You really, really don’t. The people that have these shows on HGTV make no money doing this. In fact, they lose money. They only just make money on the show.

Jill K DeWit:
Yeah. It’s pretty. They make it look pretty, but I think it’s like the Brady Bunch. It wasn’t a real family, everybody. I hate to tell you this.

Steven Jack Butala:
Back to ’80s TV.

Jill K DeWit:
I know, you’re right. Well, give me … I don’t know of a new current family. Who’s a new current family on TV that everybody’s like, “Oh, I want to be them”?

Steven Jack Butala:
There has to be some sense of there’s something that we don’t-

Jill K DeWit:
Breaking Bad? This isn’t the dream family of Breaking Bad, everyone.

Steven Jack Butala:
No, that didn’t end.

Jill K DeWit:
Okay. I don’t know what to say.

Steven Jack Butala:
I don’t know why we’re analogizing families in renovations.

Jill K DeWit:
Okay.

Steven Jack Butala:
Why are we?

Jill K DeWit:
I don’t know. I don’t know. I guess it’s a sign that we should end this.

Steven Jack Butala:
I think, like a lot of things in life right now, or a lot of things on TV right now, I don’t think people are thinking this through. I don’t think people have a budget at all, most people that renovate houses. I’ve heard people say this.

Jill K DeWit:
It’s true.

Steven Jack Butala:
Oh no, we’re going to reset the market on this block. This is what chefs think. If I make the greatest food in the world-

Jill K DeWit:
They will come.

Steven Jack Butala:
… they’re going to find me. They’re going to smell it 50 miles down the road. They’re going to find me. And they’re going to put me on the cover of a magazine, regardless. Oh, forget I don’t know how much this costs. It doesn’t matter. That’s exactly what’s going on. They’re going to walk into this house, they’re going to fall in love with it, and they’re not going to ask how much it is.

Jill K DeWit:
That’s hilarious.

Steven Jack Butala:
That’s what happens.

Jill K DeWit:
I know. Are you done now?

Steven Jack Butala:
Yeah.

Jill K DeWit:
Okay. Happy you could join us today. Five weeks a week, you can find us here on some version of the Land Academy Show.

Steven Jack Butala:
Tomorrow is Jack Thursday, as if every show is not. I’m going to talk about welcome to your comeback. You are not alone in your real estate ambition.

Jill K DeWit:
That is a good line. I like that.

Steven Jack Butala:
It’s not original.

Jill K DeWit:
I know. It’s good though. It’s awesome. Hey, thanks for tuning in. We would love to connect with you, by the way, on Thursdays like today on Clubhouse. So you can find us on the first and third Thursdays of the month at 11:00 AM Mountain Time, so that’s 10:00 AM Pacific Time. Join us there. We are Steve and Jill.

Steven Jack Butala:
We are Steve and Jill. Information.

Jill K DeWit:
And inspiration.

Steven Jack Butala:
To buy undervalued property.

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