How Real Estate Becomes Distressed (LA 1738)
How Real Estate Becomes Distressed (LA 1738)
Transcript:
Steven Jack Butala:
Steve and Jill here.
Jill K DeWit:
Hello.
Steven Jack Butala:
Welcome to the Land Academy Show, entertaining land 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 how real estate becomes distressed.
Jill K DeWit:
You know, I’m a little stressed.
Steven Jack Butala:
You’re distressed?
Jill K DeWit:
Oh, I’m sorry. Is it distressed? I heard stressed. I am a little stressed.
Steven Jack Butala:
Who knows where sayings come from. This word distressed is really, it’s a popular thing. It’s been popular for a while. To throw real estate into this category of everything’s great over here, oh no, this is distressed. We’ll talk about that in a minute.
Jill K DeWit:
Okay. Thank you. You’re going to clear it all up for us?
Steven Jack Butala:
Yes. Yes, I am.
Jill K DeWit:
Okay, good.
Steven Jack Butala:
As complicated topics go, this is a zero.
Jill K DeWit:
Oh, good.
Steven Jack Butala:
This is the least-
Jill K DeWit:
I don’t need to take notes.
Steven Jack Butala:
Nope. This is the most simple thing you’ll ever hear.
Jill K DeWit:
Okay. Thank you.
Steven Jack Butala:
In fact, it’s one of the reasons that we buy and sell land instead of apartment buildings. 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. Did you know that Jill and I personally instruct a handful of new and existing Land Academy members in a live class called Career Path? If buying and selling land is your career, or you want it to be your career, this might be for you. Call us or email us at support@landacademy and see what your real level of involvement is in all this, and we’ll help you.
Jill K DeWit:
I want to add too, because by the time this airs, I may still have a few seats. I’m looking at the calendar right now. The class starts April 23rd. So this is Q2 2022. This is Career Path session four, and it’s amazing. I just sent out an email earlier to a closed group because I realized that they were not real sure about Career Path, what it really was. So it’s not just for someone new and just doing land, by the way. We talk about everything. There’s guys in there that have REITs and manage REITs. There’s guys in there that own mobile home parks and storage facilities.
Steven Jack Butala:
Or subdividers.
Jill K DeWit:
Right, or just doing large commercial deals or, hey, even own house flipping franchises. So this is a professional room, where you have the opportunity to get to know those people. If that’s you, this is for you. If that’s not you and you want that to be you, this is for you.
Steven Jack Butala:
Yeah. There’s always four or five or eight people. We only do this once a quarter for a handful of people, like I said. It’s usually between 15 and 20 people, and about five or eight of them are brand new or they’ve only done a couple of deals. So, we separate-
Jill K DeWit:
But they come from other professional experience or they wouldn’t be in. So, no offense. It’s a screened environment too. We make sure that you’re a good fit.
Steven Jack Butala:
Yeah. I mean, it’s for people who want this to be their career and you’re sure of that.
Jill K DeWit:
Thank you. Jessica wrote, “What kind of value do existing mobile homes,” excuse me, “do existing utilities to a mobile home add”-
Steven Jack Butala:
No, you can say … She says crappy, it’s appropriate.
Jill K DeWit:
Okay. Let me back up. “What kind of value do existing utilities to a crappy mobile home add to a parcel? Is there a number value you assign to it versus a parcel that has never been built on or does it simply make it easier to sell?” Do you want to add.
Steven Jack Butala:
This is a very, very popular question on Discord, tons of responses. And by the way, tomorrow I’m going to screen share live. Jill and I are going to screen share live with you, and we’re going to walk you through Discord, because I’m not sure the whole world knows exactly how cool it is, how we all interact in Land Academy and Discord. This question, I think Jessica asked, warranted probably 10 responses and they were on both sides. So the first-
Jill K DeWit:
Well it happens sometimes. Let me back up. It happens accidentally. We send out all these offers and the next thing you know, someone calls you and goes, “Hey, by the way, I have a falling down mobile home on it.” And you’re like, so that’s how this pops up.
Steven Jack Butala:
So my opinion is, and probably 80% of the people responded the way that I would, which is yeah, I think it does increase the value. I think that if you’ve got water … See, the deal with old structures is that the utilities have been addressed. So the worst looking mobile home or the oldest 1800s house that’s falling down, there’s water to it and they have addressed sanitation in some way, whether it’s some version of a septic situation or they’re connected to a city sewer and electricity.
Jill K DeWit:
Main power, yeah.
Steven Jack Butala:
In a lot of cases, a hard copper phone, which is great for DSL and all kinds of other stuff, not just a phone. So when all that’s addressed, it does add some value. Do I immediately get on the phone and tell the seller that their property’s worth more than I offered? No. How you should treat this is that buy it. Buy it, knowing that you can sell it now for probably more than you thought.
Jill K DeWit:
Or if they come to you and ask for more because of these things, it does warrant further conversation. I will adjust, not retail, but I will adjust if they ask.
Steven Jack Butala:
Put aside doing the deal for a second. Just take your deal maker hat off. The property’s worth more. It’s got improvements to it. There’s other stuff going on.
Jill K DeWit:
It’s true.
Steven Jack Butala:
So you should buy it for a little more and sell for a little more.
Jill K DeWit:
Perfect.
Steven Jack Butala:
Now put your deal hat back on and see what you can do. Today’s topic, how real estate becomes distressed. This is the meat of the show. What is distressed real estate? So in the world of regular investment real estate, there’s two components. Number one, am I going to make any money on this? Meaning, let’s use the simplest form. I buy a house, I rent it out and I own it. So now I’m winning two ways. Number one, I’ve got this monthly income coming in. Number two, the value of the property of the house is going up.
Steven Jack Butala:
It becomes distressed, and this is largely a lender opinion or an investor opinion. When that cash flow component discontinues, people stop paying the rent or it’s vacant. If it’s an apartment building, there’s a bunch of vacancies. Or number two, the property is physically in disrepair or the regular scheduled maintenance has been neglected. Slumlord stuff. Those are types of distressed real estate. Well guess what? And here’s my whole point to this. That doesn’t happen to land. That’s not what we do. We don’t buy land to lease it out. We only focus on that second component of valuing real estate, which is we buy it cheap and resell it. Along with that, that’s removed, but almost all the headaches in my opinion.
Jill K DeWit:
It’s true. We joke about, if there’s a fire, great. Now the brush is cleared. I can find a silver lining in anything too.
Steven Jack Butala:
Yeah. The whole thing burns down, it’s probably more valuable.
Jill K DeWit:
Yeah. Now it took care of that problem.
Steven Jack Butala:
Land Academy, the members and Jill and I included are a bunch of misfits. I get it. I get buying an apartment building on a cap rate, raising everybody’s rent or kicking them out, cleaning it all up and then reselling it on the same cap rate for more, because it justifies more. I get all that. We could be in that business, doing a show about that. That’s not what we want.
Jill K DeWit:
Well, let me back up too. That’s part of Land Academy. Since you brought that up though, there are people, no matter what your business model is, we can teach you to buy it better, period. Just had to get that in there.
Steven Jack Butala:
Yeah. I mean buying cheap real estate, buying an undervalued-
Jill K DeWit:
We could.
Steven Jack Butala:
… apartment building, all the same stuff that we do applies to that. That’s what we do. We buy cheap real estate. We just happen to love land too, because it’s so easy to manage. You don’t have to go see it. You can do it 50 deals at once.
Jill K DeWit:
I don’t have to work on this stuff or worry about it. I’m always afraid of what’s going to happen when I open up the wall. We’ve done those. And we have, by the way. This is a whole thing too. I’m speaking from stuff I know. It’s not like, oh, you’ve never done that. Yeah, we have. We’ve flipped houses. We’ve flipped all kinds of things. It’s embarrassing. It’s a long list of the different things that we’ve dipped our toes into, but it always comes back to land.
Steven Jack Butala:
So real estate gets distressed for exactly one reason, the person who owns it is neglecting it. They’re not managing the tenant. Renting out anything that generates income requires an active participation, whether it’s hiring a management company or the landlord, or leasing or all of that. There’s nothing passive about it. The word passive is grossly overused next to the word real estate. Passive real estate doesn’t exist.
Jill K DeWit:
It’s true. Yeah.
Steven Jack Butala:
So, we skip that part.
Jill K DeWit:
Right.
Steven Jack Butala:
We don’t give ourselves that opportunity as investors or managers or anything to neglect a property. It’s a piece of land. All we do is focus on buying it as inexpensively as we can within reason and then selling it for more, which in this market right now is not hard. That’s an understatement. It’s crazy how fast Jill and I are selling land, buying it and selling it.
Jill K DeWit:
Exactly. All I’ve got to do is make sure it’s great.
Steven Jack Butala:
So distressed real estate, honestly, I don’t think we’ve ever done a show about this, because we just don’t talk about it and don’t think about it, but it came up in Discord.
Jill K DeWit:
Oh, was somebody working on a deal or they were worried about a deal?
Steven Jack Butala:
I don’t know. They said that it was distressed land. There’s just no such thing.
Jill K DeWit:
Oh, now I get it.
Steven Jack Butala:
My land is distressed. No, it’s not. Your land is the way that the world intended it to be before dinosaurs.
Jill K DeWit:
You might be distressed, not the land. Maybe your process is distressed, or how you’re looking at it.
Steven Jack Butala:
I’ll tell you how you could have a distressed piece of land, is because you paid too much.
Jill K DeWit:
That would be distressing and stressing.
Steven Jack Butala:
And we don’t pay too much.
Jill K DeWit:
Yeah. That’s hilarious. Happy you could join us today. Five days a week, you can find us here on the Land Academy Show.
Steven Jack Butala:
Tomorrow, the episode on the Land Academy Show is called, why it makes sense to make your hobby a business. You are not alone in your real estate ambition. We’re going to do the Discord thing on Wednesday. I forgot.
Jill K DeWit:
Okay. Got it. Teaser, a little teaser there. I get it. Hey, thanks for tuning in. By the way, in case you did not know, we have released in 2022, our newest educational product. It is called Land Academy 3.0, catching up with Land Academy. We spent months creating, writing, filming, producing the most up-to-date education program on the market to help you succeed at buying and selling land. It’s like five hours of how to videos, and it’s always included free to new and existing Land Academy members. So give us a call or send an email to support@landacademy.com to find out more. We are Jack 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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