Due Diligence for Off Grid SFRs (LA 1700)
Due Diligence for Off Grid SFRs (LA 1700)
Transcript:
Steven Jack Butala:
Steve and Jill here.
Jill K DeWit:
Hi.
Steven Jack Butala:
Welcome to the Land Academy Show. Sorry, the House Academy Show, this Wednesday, entertaining real estate investment talk. I’m Stephen 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 due diligence for off grid houses or SFRs.
Jill K DeWit:
This came up because of the one we went and looked at?
Steven Jack Butala:
Yeah.
Jill K DeWit:
Okay, cool. So we’re going to tell you all about that. We drove, gosh, an hour and a half each way to check out a really cool property.
Steven Jack Butala:
Full blown real ranch. Jill’ll tell you all about it.
Jill K DeWit:
Let me remind you, we drove an hour and a half each way. Am I going to do that every weekend, maybe not. And then it was a good least half hour from civilization.
Steven Jack Butala:
Yeah. Easy. So in the end we didn’t buy it. It was for personal use, but is it really ever for personal use? If somebody offers more, you always sell it.
Jill K DeWit:
Right.
Steven Jack Butala:
It’s a lot of work. We’ll explain it. But it was off grid.
Jill K DeWit:
It was cool.
Steven Jack Butala:
It was an interesting due diligence process.
Jill K DeWit:
Really cool.
Steven Jack Butala:
Before we get into it, let’s take a question posted by one of our members on the land investors.com online community. It’s free. Please don’t forget to subscribe on the Land Academy YouTube channel, comment on the shows you liked.
Jill K DeWit:
Erin and wrote, “Hi everyone. After receiving a signed purchase agreement, how often do you try to reduce the price? I got back to signed PAs today. I offered 12,500 and would probably sell for 20 to 24,000. And the other one I offered 7,000 and would probably sell for 12 to 15,000, not including title and agent costs. If they sell at the low end, each deal is a little skinny. At the same time, I have cash sitting around, and I’d like to keep it moving. A 30 to 50% return in a couple of months would be pretty awesome in any other context.”
Jill K DeWit:
You want to go first?
Steven Jack Butala:
No.
Jill K DeWit:
All right. I hate to be that guy. So I’m assuming you came in higher, obviously than you intended to on these offers or maybe you didn’t come in higher, maybe now that you’ve looked at the properties, you realize, oh, because it’s in this area or because the access is this situation or it doesn’t have the attributes I thought it did, something like that means that your sales price is lower than what you were originally expecting. So there’s a couple ways to look at this. There’s a lot of ways to look at this, but first of all, I don’t want you to go, if you have to adjust a sales price for something like that, I get it. But you don’t want to be that guy and try to do that on every deal. You’re going to be miserable with this, by the way, always talking to people down, it’s harder to take away money than it is to add money.
Jill K DeWit:
We always try to come in lower and then add to it when we find out some great things about the property. So you could go back to the seller and point out because I thought it had X and it doesn’t, look, we have physical access, we don’t have legal access. It’s going to cost some money to obtain that. Or X solution, whatever it is, you could do that and try. I’m even wondering, these numbers to me are not bad anyway.
Jill K DeWit:
You are holding back. You’re sitting on your hands. Please, please share.
Steven Jack Butala:
Negotiation, like marriage is too prevalent. There’s too much negotiation going on-
Jill K DeWit:
That’s kind of what I’m trying to say.
Steven Jack Butala:
On this planet. And it’s all because it’s been ingrained in our heads, especially with this personality type, real estate personality type, to try to get it cheaper. When in reality, if you send a bunch of mailers out and they’re priced correctly and they come back and they’re signed, you need to move the deal through. Two days ago, we just did a show called Machining Events. So, no, I hate negotiation. I’ve said this many, many times. I can’t stand it. Jill and I go to Mexico sometimes, there’s all kinds of street vendors with some really nice stuff, artisan type handmade stuff. Yeah, they want $12 and some people, we sit there and watch, will try to get it for eight. I mean, they’ll sit there for an hour trying to get it for eight.
Jill K DeWit:
Yeah. I think these numbers are good.
Steven Jack Butala:
These numbers are great.
Jill K DeWit:
I know. I just looked at them again. 12,500 to sell for. So what you sell for 20? Okay. Throw an escrow in there, whatever, you’re still going to make-
Steven Jack Butala:
That’s 80%.
Jill K DeWit:
Six, eight grand, it was six, let’s just say, come on. You know what? On the low end. Okay. So you’re going to make six to 10 grand on this. I think that’s okay. And you know what? The next time you send out your mailer, I bet you’re going to come in hotter and lower and make sure that you don’t do it like this.
Steven Jack Butala:
You can do it this way. Or you can send out three times as much mail, price it lower and then pick and choose. We’re going to get more deals this way. Negotiation is a disease. That’s what I think.
Jill K DeWit:
I’m looking at these numbers and I think they’re just fine.
Steven Jack Butala:
It slows everything down. Me too.
Jill K DeWit:
And again, if there’s some really big thing, point it out and bring it up, but only rarely, not every time.
Steven Jack Butala:
I’m not picking you on you at all. And I’m glad I chose this topic because everybody needs to hear this. Is is way too overused. I think it’s a mental concept or mental issue about getting stuff cheaper. Jill and I buy all of our furniture used, this is a personal note, we buy it used and we pay full price. If we like it, we buy it. And that’s it. It could be priced half of what they actually really price it, where they price it and most people, like 90% of the people I know are going to go in and still try to get it cheaper.
Jill K DeWit:
I know.
Steven Jack Butala:
It really bugs me if you can’t tell.
Jill K DeWit:
I do, especially, back in the day, earlier days of Land Academy, that was our thing. Double our money. And I remember people saying, “Oh, I did it wrong.” Because they didn’t double their money. You didn’t do it wrong. Well, what do you mean? Oh, I screwed it all up. What happened? I only made 80%. Knock it off everyone. Those are great numbers. And especially when you start getting into different product types, like things that we’re doing in today’s House Academy, if you’re doing houses, you’re not going to double your money. You’re going to have a number that you need to make. I want to make at least 35,000 or whatever your number is and that’s great. And if you do it, especially inside of 30 days and you have six of them, hello. What’s wrong with that?
Steven Jack Butala:
Here’s the reason you would really negotiate, all kidding aside, because you send a bunch of mail out, a bunch of it comes back, you review the properties, like where you constantly talk about it and you go in and find something surprising, like that doesn’t have access. Love the property, I think I can sell it for more, but it needs to be $5,000 less to make up for some actual physical flaw. Or maybe there’s some probate type work that you have to do because of it’s in the mother’s name or some other version of that, that actually is going to cost real money to remedy, then you go back and say, “Look, it’s going to cost me five to $10,000 to fix all this. And by the way, the next person that comes along to buy this property is going to have to go through the same thing. So how about you just sell it right now, take the 5,000 to $10,000 off. And we go about our merry way.”
Jill K DeWit:
Exactly.
Steven Jack Butala:
They’re people and I’ve experienced these people throughout my career, that this is their job in life. They have assigned renegotiating prices, sometimes at the very, very end of the deal, because it’s fun for them.
Jill K DeWit:
Do you know what’s funny? There’s no chapter anywhere, in any Land Academy program, anything that we’ve done that says, thing like negotiating down to the price that you want or something like that. We do have, and if you’re a member and you’re on a Thursday call with us, we’re going to tell you, “You kind went in too high, I’d rather it be this price.” But we’re not saying that because you need to beat this person up. It’s like, “Shucks, you priced a little high on this one.” And sometimes it’s the opposite. Someone say, “I offered this, they countered it that. Does this make sense?” And we all go look at that number and go, “You know what? I think that does make sense. I know you offered 13,000 and the seller said 20, and that sounds like a lot to you, but you know what, actually it is worth 40, 35 or 40. I think you can make that 20 work.” And so we go both ways and that’s what I want you to think about here. Don’t think about rock bottom dirt, having to eh the deal.
Steven Jack Butala:
Well, I think the cliche is squeeze the last penny out of them. There’s a lot of cliches about this out there. There’s a lot of books about the art of the deal or the art of negotiation and all that. Don’t waste your time. Just price it right correctly. Make friends with the person. Do what you say you’re going to do, make good on your word and buy the property. In the long run, this is going to catch up with you. Every once in a while somebody comes to us and says, “Well, I just renegotiate every single deal we do. I send out letters at 50%.”
Jill K DeWit:
You don’t want to be that guy.
Steven Jack Butala:
And then that’s my job. My job is to renegotiate the deal to the point where everyone’s in tears except you, and then you buy it and smile. That’s the personality flaw.
Steven Jack Butala:
Today’s topic, due diligence for off grid SFRs. This is the meat of the show.
Jill K DeWit:
We’re not meaning to pick on you by the way.
Steven Jack Butala:
No. Yeah. It’s not you. It’s a great question.
Jill K DeWit:
Thank you for, that was a very good question and it gives us a chance to help a lot of people with that.
Steven Jack Butala:
Yeah, exactly.
Jill K DeWit:
Because I’m sure they’re not sure how to do this. Okay. So, you tell about the story, you tell about the property.
Steven Jack Butala:
And my hobby is to troll the MLS for great deals, in addition to obviously what we do and it doesn’t happen very often, but last week or week and a half ago, I found a ranch that was not that far out of town and was in a location and in a situation where we, Jill and I could really make it work. It was our chance to buy a ranch together.
Jill K DeWit:
Let me tell you how this comes to me by the way. It’s Sunday night at eight o’clock.
Steven Jack Butala:
I’m sorry Jill. I know I’m nuts about this.
Jill K DeWit:
Sunday night at eight o’clock, I get a message. “We got to go look at this tomorrow.” Like okay. Get us in there.
Steven Jack Butala:
It’s totally true.
Jill K DeWit:
And then it’s like, “You got to get us in there.”
Steven Jack Butala:
Totally true.
Jill K DeWit:
Okay. So here I am. This is why I woke up, I mentioned a couple days ago, I woke this poor broker up at 7:30 in the morning on Monday because we’re about to get in the car. I’m like, “Hey, we’re going to see this property, whether you’re there or not.” We’re either going to break in or someone’s going to let us in. And he’s like, “I can make it happen.” It’s like, “Go ahead.”
Steven Jack Butala:
No. So it all worked out great. Jill did great. She scheduled the whole thing. The property’s priced right. Honestly we probably wouldn’t have, not even in a timely manner, not even negotiate the deal. We get there. The owner’s there, he’s staying in, there’s-
Jill K DeWit:
Outbuildings.
Steven Jack Butala:
Tiny outbuilding that he’s staying in. And then there’s a big house and all this places for horses.
Jill K DeWit:
It was cool.
Steven Jack Butala:
Both of us were just looking at each other in tears saying, “This is the greatest life there ever could be.”
Jill K DeWit:
Yeah.
Steven Jack Butala:
But it was off grid and which doesn’t really matter. But it got me thinking, because I went through, halfway went through the site due diligence, the first viewing. So he’s got solar panels all over the place and this guy did a great job. Professional installation, built the house himself, the whole thing, class A solar and energy operation, doesn’t have air conditioning, which in Arizona is a huge problem. He said they left the state every summer. So we would’ve to deal with that. And so there’s just due diligence for off grid houses is way, way different than due diligence for a city house that’s got, tapped into city water and sewer and it’s got whatever publicly traded power company. It’s just real easy. But when you do due diligence for off grid SFRs, there’s a whole different checklist and you really need to be, get one, maybe two inspectors who know about this stuff, most of them don’t. And look at it and say, “This is going to be okay. Or it needs to be replaced.”
Jill K DeWit:
You know what’s funny, I think about the buyer and I think about me, if I were the buyer. And my first thought that came to mind is, can Amazon get out here? And what if I need eggs? Seriously. It’s funny, but that’s questions your buyer is going to have. So you need to kind of think about that. When I think about these rural and off grid houses and properties, they’re harder to price often. This one was. So when the price, we think it was a really great fair price and we know our stuff, for most people they don’t know. There’s not a lot of comps. There’s no similar like kind comp within 50 miles, 100 miles.
Steven Jack Butala:
Well we know the land value out there really well.
Jill K DeWit:
I know, but most people don’t. It’s hard to do that. And if you’re new to this business, it’s going to be hard for you if you uncover some SFR and it’s way out there kind of thing. This is House Academy, so you’re searching for homes, and you’re not necessarily narrowing the radius, you’re doing the zip code. So this one, some stuff might pop in. So it’s harder to price and it’s harder to gauge the days on market.
Jill K DeWit:
So, the best thing, and then I’m going to hand it back to you, if that’s okay. The best for me is once you figure it out, this is all good. You buy it. You figure it out. It’s the right price. You think it’s great. You’re going to flip it like you do in House Academy, which is awesome. You’re the boots on the ground or you have the boots on the ground. The number one thing you need to do is write the best possible, have the most pictures and write the best possible description that you can for your buyers. Because that’s was a little bit confusing to me.
Jill K DeWit:
This agent, I think did a good job. He could have had more pictures, more maps. He could have conveyed the situation a little bit better. I would’ve liked to see more in the posting about two things. There were two things that he missed. One was travel time. He didn’t properly convey, probably because he didn’t want to probably like, oh this is going to be a negative thing, so don’t do this. You can’t say, “Oh I don’t want to really say it’s 35 minutes because people won’t go look at if it’s 35 minutes.” You know what you’re going to do is piss off people. The wrong people are going to get excited. And you’re going to be forever having people let down. So you properly convey the travel time. What it really is, from here to here is 35 minutes from here to here is an hour and a half. That’s what people need to know. Just do it.
Jill K DeWit:
And the other thing he missed the mark on was the rental opportunities. We didn’t know until we went out there and sat down, had a conversation with the current owner, what was really possible. And that was at the very end. We walked around and fell in love with it.
Steven Jack Butala:
There’s horse stables and all kinds of stuff there that you could rent.
Jill K DeWit:
And he shared with us what they used to do and how they would rent out the big house, rent out a couples, or even say, have these outhouses, out properties, right? This one I can rent.
Steven Jack Butala:
It’s on 20 acres.
Jill K DeWit:
Right.
Steven Jack Butala:
It’s limitless.
Jill K DeWit:
This one I used to rent for $2,000 a month and it came with two stalls for horses. You had to pay for your horses. We just provided the stalls. You had to clean them, you had to feed them, you had to do all this stuff, but it’s a beautiful opportunity for some people. That should have been in the post game. So that’s was my final thing. Go ahead.
Steven Jack Butala:
Jill and I grew up in an age where the word sales was synonymous with trickery and that is long, long gone. Sales now is providing information to the right people, because we can do this with the internet now, or the right people will actually find you, and providing the information and making sure stuff is priced right and being cool about it. That’s what sales is now.
Jill K DeWit:
I have to wonder if that’s because you have me. I don’t know if the planet’s doing that. I’m not sure.
Steven Jack Butala:
I’m sure they’re not.
Jill K DeWit:
Okay. So that’s it. Sales for us is making sure the buyer and the property are the right fit. Not jamming it in there and getting it down. Because if you do that, you’re going to get a refund on your hands pretty darn fast. And if it’s not the right fit and if you don’t have the right properties, send them on their way, they will love you. And they will watch for properties and things because they trust you.
Steven Jack Butala:
So back to the topic and I’ll close on this. Well and septic properties that are off grid are nothing to be afraid of this day and age. And solar, here’s a whole trick to solar, solar got a bad rap for quite some time because it was before it’s time, the technology’s changed and it works great now. You just have to have enough panels and the right equipment and the right storage of the energy to make it work depending on how using it. It’s all math. And so living off grid now, more than ever, is easier and cheaper, way cheaper when you really look at it, the whole thing in the long run.
Steven Jack Butala:
But if you’re going to buy some property and specialize in this, make sure you have an inspector or several, that really understand these systems and go in there and give you a really good report. We passed on a deal recently because we got the inspection back and the inspector said, “This guy’s got a homemade septic situation going on here to deal with waste.” And that’s just not something Jill and I wanted to get involved in. It was smoking deal for a property. Beautiful. Again, these rural properties are right out of a postcard. So it’s like I personally, Jill sets me straight most of the time, I’m like ready to buy it and live there.
Jill K DeWit:
He’s all excited. He’s writing a check. He’s got his checkbook in his back pocket. Ready to go.
Steven Jack Butala:
So we could buy this property, reshoot it, photograph wise, present it completely differently on the internet and make a lot of money on it.
Jill K DeWit:
True.
Steven Jack Butala:
But we just chose not to do that.
Jill K DeWit:
Exactly.
Steven Jack Butala:
It’s a lot of work.
Jill K DeWit:
Yeah. Happy to join us today. Five days a week, you can find us here on the Land Academy Show.
Steven Jack Butala:
Tomorrow’s Jack Thursday. And I’m going to talk to you about the concept of deal flow. You are not alone in your real estate ambition.
Jill K DeWit:
The other thing is that agent wasn’t doing a bad job. The reason we went out there would’ve been for personal use, to have a really cool ranch. And I get it. But it just in the end, you know what it is, I just think we’re not in the right time of our, if we were like one foot it into retirement.
Steven Jack Butala:
Well, I was thinking the opposite. If we were 35 and I had the energy to, because the lights are out the middle of the night I can go deal with it and deal with the animals and all that.
Jill K DeWit:
There is that. I just thought we’d hire people for that.
Steven Jack Butala:
I mean, there’s no way I’d live out there with horses and all that. Because that’s how I would want to do it, without a hand. A hand or two living there to do maintenance on everything.
Jill K DeWit:
Exactly. It was cool though. Thanks for tuning in. We would love to connect with you sometime on Clubhouse. Yes, we are there every first and third Thursday. Go check out the Land Investing Club on Clubhouse. Follow that, follow us. And we can chat with you there. We are Steve and Jill.
Steven Jack Butala:
We are Steve and Jill. Inform.
Jill K DeWit:
And inspiration.
Steven Jack Butala:
To buy undervalued property.
____________________________________________________________________________________________________________________________
If you enjoyed the podcast, please review it in Apple Podcasts . Reviews are incredibly important for rankings on Apple Podcasts. My staff and I read each and every one.
If you have any questions or comments, please feel free to email me directly at steven@BuWit.com.
The BuWit Family of Companies include:
I would like to think it’s entertaining and informative and in the end profitable.
And finally, don’t forget to subscribe to the show on Apple Podcasts.
