Jack Thursday – 5 Things Your Father Never Told You About Real Estate (LA 1831)
Jack Thursday – 5 Things Your Father Never Told You About Real Estate (LA 1831)
Transcript:
Steven Jack Butala:
Steven 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:
I’m Jill DeWit, broadcasting from the valley of the sun.
Steven Jack Butala:
Today’s Jack Thursday, and I’m going to, and it turns out Jill is also, talk about five things that your father never told you about real estate. Might not be your dad’s fault. Maybe times have changed. Those guys never had the data access that we have. So, we’re going to talk. There’s a lot of things that have changed. I think my dad would’ve done very, very well in this new information type environment, where you don’t have to guess. You have a lot of resources to make the decisions. Before we get into it, let’s take a question posted by one of our members on thelandinvestors.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:
You know what’s funny? My dad might not have done very well with the data. I have to say that, as you said that about your dad. Knowing my dad, my dad wasn’t a data guy. Guess who his data entry person was? Me.
Steven Jack Butala:
Oh, really?
Jill K DeWit:
Me.
Steven Jack Butala:
Actually, that makes sense, Jill.
Jill K DeWit:
Me. When he got a program early on, I think I was in high school at the time. I want to say early in high school, he got a program to input his flight log, he was a pilot, and put his hours and keep track of it there. I would convert it from the flight. I’m the one that would sit and put in the computer for him. So, yeah. It’s kind of funny.
Steven Jack Butala:
This is going to be a long, interesting, very telling, hopefully funny episode.
Jill K DeWit:
Exactly. Christian wrote, “I’m buying some farmland that is currently growing soybeans. The seller lives out of state and gets pushed a check once a year from the person farming, for a percentage of the crop sales. Seller says there’s no written lease agreement. Does anyone know if there’s anything I should be aware of when buying farmland that is being actively farmed? My plan is to let the farmer harvest the soybeans, and then tell him the property is going to be listed for sale. Anything I should include in the purchase agreement? Thanks.”
Steven Jack Butala:
Oh, I have so much to say about this. This could be the greatest situation ever, or it could be a nightmare. Just like a marriage can be the greatest thing ever without a prenup, or it could be a huge nightmare, depending on how it ends, and how it all goes. Or who you’re with. So, the general… Here’s a conventional-
Jill K DeWit:
No comment.
Steven Jack Butala:
A conventional way to do this is, you either would have a land lease or you would have an option agreement, a revenue sharing option agreement. All in writing with notaries and all that stuff that lawyers have looked over.
Jill K DeWit:
You should have been an attorney by the way, you would make a great attorney.
Steven Jack Butala:
I know, but I would be mad every day.
Jill K DeWit:
Oh, that’s true. I’m glad you’re not an attorney.
Steven Jack Butala:
Exactly. I can’t imagine being a lawyer and just dealing with everybody’s anger all day.
Jill K DeWit:
No.
Steven Jack Butala:
Instead of all we deal with is successes here.
Jill K DeWit:
True.
Steven Jack Butala:
In our entire life, happy stuff happens.
Jill K DeWit:
That’s true.
Steven Jack Butala:
So, in a perfect world, you’ve got this agreement and here’s why I say this, not because I’m not going to get paid or any of that. Farmland and most real estate that is income generating, is valued on that income stream. So, you would value, if you’ve been doing this for five years, you would apply a capitalization rate, which doesn’t happen as often in farmland as it does, let’s say, apartment buildings. So, it’s a way to value it. If you love the price and you think it’s undervalued and you can comp it all out, and you’re going to sell it right after this last harvest, then that’s not so bad. I think that you might be… There’s a bunch of handshake agreements that I have now for other things, not necessarily real estate deals, that I couldn’t be happier. Everybody’s happy with the handshake agreement until something goes wrong. There’s no source document.
Jill K DeWit:
No, you’re not.
Steven Jack Butala:
There’s no source document to go back to and say, you didn’t do this right.
Jill K DeWit:
Yeah.
Steven Jack Butala:
So, I personally, I’m not sure I would… What I would do probably is extend the purchase agreement, and I would put an addendum on there that says, this is your last year. I get 5% of the revenue. Revenue is defined as the market price for a bushel of soybeans. Or I would put a single page agreement in the back that says your agreeing to this basic stuff. Put some dates in there, says, I am going to market the property on April 1st, or whatever the number ends up being.
Jill K DeWit:
It’s kind of a win-win for everybody, don’t you think? That’s a good situation to be in. I would love to not have to… I get to own the land. Know I always own the land, and any moment I want to change it, I can. But this person is actually using the land for probably its highest and best use, and I get money on it.
Steven Jack Butala:
There’s a lot of people in this world, in the business world, that say, ha ha. You didn’t sign an agreement. I’m keeping it all. That’s just how they roll.
Jill K DeWit:
Yeah.
Steven Jack Butala:
I grew up in an environment that was very much like that, in the Midwest. Out West it’s not as much like that for some reason. Maybe it’s just the people I’m hanging with now. Everybody seems to want to do deals together, and prosper together. When something goes wrong, Jill’s a perfect example of this. When something goes wrong, it’s like, oh, we’re in this together, so let’s just figure it out together.
Jill K DeWit:
Thank you.
Steven Jack Butala:
Today’s topic is Jack Thursday. We’re going to talk about the five things your dad probably never told you about real estate. I’m going to do five and Jill’s going to do five, and we’re going to laugh and cry together. This is why you’re listening. I’m going to list five things, not so much that my dad never told me about real estate, but what his philosophy was, and why it’s not necessarily… Not that it was wrong then. But like I said earlier, I don’t think that that generation, my dad’s in his eighties, that generation did not have data tree. In fact, they didn’t really have any type of computers. In fact, in his hay day, there was no MLS.
Jill K DeWit:
Wow.
Steven Jack Butala:
So, it was very, very block by block, and it was all word of mouth. So, my dad, he was an accountant, he was an accountant, he had a tax practice. So, he had people making money, professionally. Some people making too much money. Some people not making enough money. So, there were always these deals. He was always presented a deal like, I’ve got this apartment building. Some stuff happened over here. You want a partnership with it? Do you want to take the apartment building in lieu of all this accounting work and tax work that you have to do? You want a piece of it? Do you want 25% of it for nothing? So, he was always making these strange deals, which blows my mind, in not a good way, because that’s not how I roll.
Jill K DeWit:
Right.
Steven Jack Butala:
Here’s the thing that my dad would say.
Jill K DeWit:
It’s like a crazy barter situation. Like, oh, I have a little of that, and a little of this, and a little of that, and here’s a coffee can and whatever.
Steven Jack Butala:
Here’s a statement my dad would say all the time. “Never buy property that’s not cash flowing.” Well, guess what rural vacant land is? Why would you not buy property that’s not cash flowing? Well, because I’m buying it for 25% of what I know I can sell it for next week. That’s cash flow in my opinion. It’s just a different type of cash flow. “Buy property for the smallest amount that you can,” we all agree there. “Improve it and sell it.” We are all about not improving property here. In fact, we’ll take it to a next level. Jill and I and The Land Academy concept in general is all about never going to see the property.
Jill K DeWit:
Correct.
Steven Jack Butala:
It’s so inefficient. But it’s so inexpensive. How can you lose? If you’re buying a hundred thousand dollar piece of property wholesale, but it’s worth a hundred thousand, you’re buying it for $15,000 and a bunch of stuff goes wrong. Can you sell it for 30 and get out of it? Yeah. That’s the theory. Never leave your desk? For sure. His philosophy would be, “Leverage as much as you possibly can.” Meaning borrow as much as you can, “With as low amount of money down, including zero, as you possibly can.” He used to use this example all the time. I don’t know why I remember this all of a sudden today.
“If I could buy a property for a dollar down and a dollar a month, and for a million years, or a hundred thousand years, then I can’t lose.” Well, you can lose completely on that, because what’s the price? If the price is… Great. So, now I’m in the property, I have equitable interest. Let’s say I own it. A dollar down, a dollar a month. It’s cash flowing at $10,000 a month. Great. I’ve got the cash flow, but if I spend a million bucks on the property, it’s worth a hundred grand, you’re going to lose there. There’s some components that are missing. Are you all right?
Jill K DeWit:
No, I’m fine. I’m paying attention.
Steven Jack Butala:
“Only buy property that has a single use. If you’re going to buy an apartment building, you’re going to sell it as an apartment building.” Well, we don’t do that. We buy land that has as many uses as possible, so that our buyer pool is as open as possible. “Only buy property that’s close to town.” All the things that he said to do, I didn’t do.
Jill K DeWit:
That’s hilarious. That’s probably why he’s still scratching his head going, “What is he doing?”
Steven Jack Butala:
“How does this work?”
Jill K DeWit:
“How are you…” Yeah.
Steven Jack Butala:
My dad became a multimillionaire at a very young age, because this is the deal he did. They ended his career with this last deal. This is back in the day, in the sixties and seventies, he bought a bunch of properties, a bunch of buildings that were leased to a bell company, a Michigan bell company.
Jill K DeWit:
As in telephone?
Steven Jack Butala:
As in telephones with wires that needed to be maintained. They were on, believe it or not, 30 or 100 year leases, really long leases for very tiny, small amounts. He bought it two or three years before the lease was up. So, he paid very little for these buildings on a cash flow capitalization rate basis, and ate it. He financed it correctly and ate it for a few years, and then renegotiated the leases and then sold them on the present value of those really long leases, and made a ton of money. It would be a ton of money now, but it was an amazing amount of money back then. He just stopped.
Jill K DeWit:
Enough that he’s been golfing three days a week for 30 years.
Steven Jack Butala:
I think it’s more like…
Jill K DeWit:
40 years?
Steven Jack Butala:
Yeah. 30, 35 years. You’re right.
Jill K DeWit:
Good for him.
Steven Jack Butala:
I always joke about him every time I see him. I’m like, “Why would you stop? If you figured that out I would go seek out…” I would find every lease that was about to come up and try to negotiate a deal.
Jill K DeWit:
What did he say?
Steven Jack Butala:
I don’t know. He never answers my questions.
Jill K DeWit:
That’s funny. That’s good.
Steven Jack Butala:
He always answers it… If I asked him that he would say, “Why would you go?” “I mean, why would you stop doing this?” He’s like, “Because I don’t want to do any more real estate deals. Why do you continually do this when you don’t need to?” That would be a perfect answer.
Jill K DeWit:
That’s hilarious.
Steven Jack Butala:
With a huge question about how I failed somehow.
Jill K DeWit:
Right. Why are you still working?
Steven Jack Butala:
Yeah.
Jill K DeWit:
Exactly.
Steven Jack Butala:
What’s your list?
Jill K DeWit:
Okay. So, what’s so funny is our dads have totally different experiences. My dad, real estate was always his goal, I know that. But it was never discussed. It was never talked about. It was always just, “Get a good job,” patting me on the head, that kind of a thing. My dad did… Well, we all knew that there was money to be made in real estate. How and why? Because I grew up in Orange County, and he flew people like Don Cole around. I mean, when you’re flying somebody’s plane, and you know he has made a lot of money in Newport Beach, if you’re around that area who I’m talking about, in commercial real estate. You see Cole all over still in Newport Beach. You know there’s money to be made there, you’re just trying to figure out how. So, my dad, here’s my dad’s brilliant idea. He did two deals that I know of. One was buying gold mines in Alaska.
Steven Jack Butala:
Oh geez. Really?
Jill K DeWit:
I am not kidding.
Steven Jack Butala:
Oh, what could go wrong there?
Jill K DeWit:
I know. Apparently he got out okay, because by the time he bought it, it failed and sold, he was able to write it off on his taxes.
Steven Jack Butala:
Oh that’s good.
Jill K DeWit:
The statute of limitations had run out.
Steven Jack Butala:
Well, that’s good.
Jill K DeWit:
So, it was done, done and done. So, talk about scary and whatever. I would never even touch that one. But I just remember getting mail going, “What is this for, dad?” He told me what it was. I’m like, “What?” Anyway, and the other thing he did was later in life, while he was a pilot, yes. He was buying rental houses and doing that. So, those were his firsthand experiences there. So, my five things are, one. He didn’t tell me that rental houses are a ton of work. Thank goodness. I figured that out on my own. He never really talked about it. Mom did, because mom was the cleaning crew. She’d complain about it a lot, when they were doing turnovers.
But dad never talked about it, but he happily would go fix the washing machine. He had 10 at a time. 10 was I think the most he got up to. So, he had 10 washers and dryers, and he was a handyman. He had at least 20 toilets. I can’t even imagine all the things that would go wrong, and he would on his days off go do it. Second thing that he never shared, these could be a positive thing, that I imagine there were some tax incentives. That’s one thing that I think my dad was good at. He never shared with me, never talked about it. They were all in Texas.
Steven Jack Butala:
Your dad was totally right about that.
Jill K DeWit:
Yeah. I’m sure however he leveraged them, he did it right.
Steven Jack Butala:
If you have a W2 job like being a pilot, and then you have a separate entity, where revenue and expenses are happening, there’s a really good… You could argue that that side entity, those houses, didn’t need to make any money except provide an offset loss to his W2 income.
Jill K DeWit:
Exactly. Well, and that ties into my last one, so I’ll make that number three. My number three is, duh. We all should be doing… I really wrote that, duh. Do real estate over the W2 job. Or do it with a W2 job early on, which is what he did. I wish we would’ve talked about that. Would have saved me a lot of time. Number four, how to find deals. I don’t know how he did it, but I do know this. The first house my parents ever owned, they bought when I was 18. They found it, it was a bank foreclosure.
Steven Jack Butala:
That’s good.
Jill K DeWit:
Because my dad talked my mom into going to real estate school, becoming a licensed real estate agent in Laguna Hills, and she found this deal and they bought the house.
Steven Jack Butala:
That’s good.
Jill K DeWit:
So, that was good. So, there’s a lot of good things that he could have shared with me, and we’re sharing with you, and we’re sharing with our kids, by the way. They may not listen.
Steven Jack Butala:
No. The kids don’t listen at all, but-
Jill K DeWit:
At least we’re getting it out there, and we’re talking about it. Then the last thing that he didn’t share with me, which I would’ve liked to know, is just the value of real estate agent broker knowledge. I wish he would’ve talked me into going, taking the courses like mom did. Not necessarily pulling the trigger, I would’ve pulled the trigger anyway. Who knows where we’d be now?
Steven Jack Butala:
Yeah.
Jill K DeWit:
Because knowing me, I would’ve figured out like, well this is not the way to make money, or everybody else is making more money. How can I become one of them and get myself over there? Because we have a lot of agents by the way. In Land Academy, that’s exactly what they’ve done. They got tired of being the agent, only getting commission, watching the investor make more money. So, they come to Land Academy saying, “I’m now going to be the investor. By the way, look how much knowledge I’m bringing to the table because of my experience.” I think it’s the best.
Steven Jack Butala:
So, here’s a big takeaway from both of these lists, and both of these people’s experiences. Make decisions with 21st century resources. There’s so much in real estate and this is largely not most people’s fault. There’s so much perpetuation of, well, this is the way we do things. This is the MLS. We’ve had the MLS since 1958. There are new and amazing… Really young people, this new generation, really understand this the best. That’s the old way of doing stuff. It’s still the most prevalent way, and it’s the most incorrect way. If you’re not making data driven decisions every single step of the way here, and using all the resources that you possibly can.
So, many people like us that are ready, willing to fund your deals, or give you free advice about, “Yeah, that deal is terrible. I know you want to get into this business really bad. I know you want to do a first deal and I get it. I was like that too. This deal’s going to blow up in your face. Trust me.” So, just use your resources, and listen to what your parents said and take it with a grain of salt, like everything. We live in a new world, and it’s a beautiful real estate world.
Jill K DeWit:
Thank you. Happy you could join us today. Five days a week, you can find us here on The Land Academy Show.
Steven Jack Butala:
Tomorrow’s Jill Friday, and she’s going to talk about, it’s too easy to get excited about a deal and miss all the red flags. You are not alone in your real estate ambition.
Jill K DeWit:
I’m going to try very hard not to throw any one person under the bus. I’m just going to talk about different things that I’ve seen. I’m sure there’s some I’ve experienced and you can remind me of them.
Steven Jack Butala:
I’m going to throw myself under the bus tomorrow, because I was absolutely that person who was dying to get into the real estate business, and seeing things in deals that just weren’t there.
Jill K DeWit:
We’ve come a long way, baby. Thanks for tuning in. We hope you found our content valuable, and we really appreciate your support. If you haven’t already, please check out our YouTube channel, hit the subscribe button, and don’t forget. If you’re already a member of Land Academy, make sure you are involved on Discord. It rocks.
Steven Jack Butala:
Totally.
Jill K DeWit:
Want to know more? Check out Land Academy, or send a note to support@landacademy.com. We are Jack and Jill.
Steven Jack Butala:
Information…
Jill K DeWit:
And inspiration…
Steven Jack Butala:
To buy undervalued property.
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