Jill Friday – Taking Due Diligence with a Grain of Salt (LA 1872)

Transcript:

Steve:
Steve and Jill here.

Jill DeWit:
Hi.

Steve:
Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.

Jill DeWit:
And I’m Jill Dewit coming to you from the home of the 1925. Can you believe it’s almost a hundred years. Grand Old Opry.

Steve:
Nashville.

Jill DeWit:
Yep. Nashville, Tennessee.

Steve:
Neither one of us feel like we’re going to leave here anytime soon.

Jill DeWit:
Nope.

Steve:
Spent about one day in Ohio. That was good enough.

Jill DeWit:
That was good enough. We saw it.

Steve:
Tennessee’s a blast. I wish we would’ve stopped in Kentucky.

Jill DeWit:
Yes. We’ll go back. We have lots of things we’re going to go back and see.

Steve:
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 I hope you know by now hope-

Jill DeWit:
Hope.

Steve:
… Hope. Like yesterday. That we have solved phase one due diligence with a product called parcelfact.com. You quite simply put in the state, the county, and the assessor parcel number. The property in question pops up anywhere in the country and all the stuff that we think is important to complete phase one due diligence, the six As that we talk about in the program, is at your fingertips within seconds. Check it out. Parcel fact, F-A-C-T .com.

Jill DeWit:
Evan wrote, how does one… Oh, I’m testing this. How does one feel about mailing the counties that was hit by the hurricane in Florida?

Steve:
I put this in your show for a reason.

Jill DeWit:
I don’t feel good about that. If I already sent the mail out already… I would explain. I didn’t mean to do that. Who knew? I mean, this one out a week ago or a month ago, whatever it was. It was planned out before the hurricane. But now specifically targeting that community, I’m not a fan. Sure, there’s people that would be loving the cash. I can see positive things to it, but the negative that could be taken from it, it is too great.

Steve:
Yeah. I think it’s an outrage. I think you’re directly kicking people when they’re down and taking advantage of them.

Jill DeWit:
Yeah.

Steve:
Like Jill said, every time there’s a forest fire in the Southwest, we get this question. We got a ton of these questions during Katrina. So no, I don’t think this is okay at all.

Jill DeWit:
Yeah.

Steve:
At all. The only way it’s okay is if you sent the mailer out. Actually we were in this situation where we sent the mailer out-

Jill DeWit:
And then a fire came.

Steve:
… Something happened, a fire came and then people are calling us back saying, What kind of person are you that, you know?

Jill DeWit:
Check the date, Look at the date on the letter.

Steve:
Over and over again.

Jill DeWit:
Who knew.

Steve:
We’re so sorry. We buy property in the area. You can only explain that so many times.

Jill DeWit:
Exactly.

Steve:
Please don’t do this. Not joking around. It’s not okay. Today’s Jill Friday. She’s going to talk about taking due diligence with a grain salt. This is the meat of the show.

Jill DeWit:
So as I sit here in this bug infested bubble.

Steve:
There’s nothing bubble about it.

Jill DeWit:
There’s like a spider here. I don’t know what that was over there. This here. I’ve got two mosquito things on, but we’re having a ball.

Steve:
Yeah.

Jill DeWit:
We really love it here. Oh, my goodness. I want to talk about this today for just a few minutes because I wanted to make sure everyone’s really clear on what’s really needed. How much time you should be spending on due diligence. Because I think sometimes people do due diligence overkill. And I get it, but there’s some things that are reliable, some things are not. And that’s where the grain of salt comes in. So let me back up here. What are we talking about?
A deal comes back, I send out the mail. Purchase agreement comes back. Now I’m looking at the deal online. I’m like, Oh, this is great. Now I start to do my due diligence. Remember, we don’t do it beforehand. Why would I waste the time doing all my due diligence on every property I’m going to mail when not everyone’s going to agree to my price? So we send out all this mail by the thousands. This is Land Academy if you’re just tuning in. We wait for the people to call us back or send them back. And then I kick in and go, all right, now let’s get serious about it. This guy’s agreed to my price. Do I still want it? And does this price even still work kind of thing.
So there’s a couple phases that we go through. First, my phase one due diligence is the six As. If you’re watching on YouTube, you can click around and find different YouTube live events where I have specifically gone into my due diligence and showing how to do it in 15 minutes or less. For me it’s five minutes that I spend, if that, on a property. I’m quickly looking at the six As to make sure that it just passes those tests and then I decide to move forward. The six As are access, affordability, acreage, attribute, alive and adjacent. I don’t need to get too much into them right now. There’s other shows that you can learn and you can go on Land Academy and find our stuff that’ll talk about the As. Or get into our online community and people will explain more about the As.
So my first thing I do is I go through those lists. If there’s a fatal flaw in there, like alive, the person I’m talking to doesn’t own the property. He thinks he owns it. He’s the nephew of the cousin of the uncle twice removed. He’s like, I got this letter. I don’t even know how it found its way to me. I started paying the tax bills a while back, but it’s still in grandpa’s name and they got divorced. Whatever it is kind of thing. And grandpa died. Hold on a moment. This person may not even have the thing. Or even access. Good luck. It’s good luck trying to get there. Then that may not be a fatal flaw, but for this property, let’s just say it is. It’s a half acre with no access. Okay? 20 acres, now somebody might be interested in that. Or even a quarter acre or 0.1 acre with no access and no one can build on it because the sides a cliff. All right. Now we got something that might be a fatal flaw.
So that’s the level one of due diligence. And like I said, you can see I’m only spending a few minutes on it. I can tell right then and there. Now if it passes all those, now I’m going to my phase two due diligence. And this is probably 10% of the properties that come back that I’m looking at. Maybe a little bit more, but roughly 10 to 20%. I’m like, all right, now I’m pushing this one forward. Now I’m going to get into it and really do some work. And this is where people get hung up. And this is why I’m saying take it with a grain of salt. They start digging in and can spend hours/days thinking about surveys and soil reports and how much a well is going to cost and what kind of mobile will it support. And if it has to be site built, I’m going to talk to four builders and I’m going to see just who will even work in this area.
You could take it to a level that you don’t need to, to find a good buyer. So you have to have a cutoff point. And in our business, and I think it’s… This all started because of Jack and Jack taught me. And Jack knew early on what’s really important to flip these properties and to move on. And he taught me. And fortunately I’m not cuckoo about due diligence and I’m not cuckoo about digging in. So I can say, do you know what, that’s great. If it’s good enough for you, it’s good enough for me. Hey, if it’s worked for you for how many years before I came along and how many thousands of deals before I even came along, then it’s good enough for me.
And I’m trying to teach the rest of the people too. You’re listening to us because we’ve got 16,000 deals, more him than me. But we’ve done it. And I’m here telling you there’s things that getting all worked up about and there’s things that are not. And some of the things too, take it with a grain of salt, because it may or may not be correct. What one person at the county’s telling you, or one real estate agent or one neighbor next door. Oh, no one can build there. Are you sure about that? Your turn.

Steve:
Let’s run through a pretty real example because we review people’s deals that are in our group every Thursday. 10 or 20 of them. And I can tell by the way that their deals are presented and the questions, the follow up questions by the person who’s presenting it, whether or not they’re taking this with a grain of salt. Or they’re taking it to a place where it doesn’t need to go. You’ve got a purchase agreement for $30,000. It passes all the six As. And so great. Let’s now spend the next five minutes seeing if we can find some fatal flaw. Oh, and we know we can sell it for a hundred grand.
So my initial reaction is, we’re going to do this deal. What happens with certain people, it’s not the majority, but a certain number of people, they start down the path of, well I’m going to find something wrong with this deal. And again, it’s the same accounting/engineering type where they need to know everything about that piece of property. And the intention is, well, if I know everything about the property, I can communicate all of this to the person who’s going to buy it. Man, I’m awesome. I know everything about this property. It’s going to sell faster. I might even be able to sell it more. What ends up really happening is you find something wrong because if you keep digging and digging and digging on any real estate deal, you’re going to find something wrong.

Jill DeWit:
I’m going to add with the grain of salt thing though. Hold on a moment. What’s a fault, what’s an issue to you might not be an issue to me. So as we’re driving around the country right now, as you know, we’re in Nashville, we’re in our RV. You could see it behind us and probably see our bikes hanging off the back there and the pretty water. Someone might have thought this property was dumb.

Steve:
It was probably dumb.

Jill DeWit:
And here’s an RV park.

Steve:
Yes. It’s a great example.

Jill DeWit:
It’s a beautiful use for it. Maybe it was zoned wrong. You certainly can’t have agriculture stuff on this thing.

Steve:
This might be the only use for this property.

Jill DeWit:
It’s kind of tight to get in so you couldn’t really have a lot of houses here, but it’s perfect for an RV park. So grain of salt too is ying and yang. If you dig too deep in it, you might be excluding some buyers.

Steve:
Where I see this the most, and Jill will back me up here, is soil content.

Jill DeWit:
Oh yeah. I agree.

Steve:
I understand that soil content’s important in Florida.

Jill DeWit:
Right.

Steve:
In places like Florida. Out West, it’s not.

Jill DeWit:
Right.

Steve:
But what’s really important out West right now is water.

Jill DeWit:
Right.

Steve:
And so don’t run a South content scenario where you know it just doesn’t matter. Soil content does not. We’ve done thought tens of thousands of deals out West.

Jill DeWit:
And never talked about it.

Steve:
And never talked about a perk test, not a single time in my entire life.

Jill DeWit:
That we bring it up.

Steve:
You can’t do a deal in the Midwest and most of the South without first, hey, did it perk? And that’s all subjective, don’t get me started. And Jill feels the same way. And so even if you’ve been burned on this perk situation in the past, which I don’t understand, don’t make it contingent on every single deal in the future.

Jill DeWit:
My point is too, especially with this due diligence and some of the specific things we’re talking about, there’s work arounds for a lot of things too.

Steve:
All of it.

Jill DeWit:
I mean, we had a whole discussion a week ago on our advanced call. Okay, so what, it doesn’t perk. And we started talking about all these alternative water solutions and waste and things like that. There’s all kinds of solutions you can come up with.

Steve:
Honestly, I can wrap my part of this up on this concept. And Jill, and we’ve talked about this many times on the show and amongst each other while we’re doing these deals. If I buy a property for 15 to $20,000, I know it’s worth 80. If everything goes wrong, it doesn’t perk. I didn’t even try and I’m not going to try to perk it. Or setbacks don’t work and the only usability is duck hunting or whatever. And I’m into this thing for, what did I say $20,000?

Jill DeWit:
15.

Steve:
15? Can I sell it for 30?

Jill DeWit:
Yeah, I did it all wrong.

Steve:
Is it still a smoking deal-

Jill DeWit:
Yep.

Steve:
… at 30 if the use is not really what I thought. Maybe it’s going to be somebody’s extra backyard. Yes. So money solves all of these things.

Jill DeWit:
Good.

Steve:
And so if you have one of these personality types, and my general experience has been that people who do have that personality type are very, very conscious of the fact that they are one of these people. It’s not like they’re walking around saying, what do you mean I’m a weirdo? No, they know they’re weirdos. So maybe to have a conversation with yourself and don’t do diligence yourself out of a deal.

Jill DeWit:
I love it. That’s a perfect ending. Happy you could join us today, five days a week. You can find us here on the Land Academy Show.

Steve:
Join us next week for another interesting episode. You’re not alone in your real estate ambition.

Jill DeWit:
Oh, that was good. This is a good week. I’m really happy to be here. I’m really happy to be on the road. Do you know what’s interesting about this, is we do more and more of these shows from the road and we’re not going back anytime soon. Right?

Steve:
Yeah.

Jill DeWit:
Or if we do go back, we’ll regroup and head back out again. We might do something like that. Just check on a few things and split again, because this is great. But this is Land Academy. This is what Land Academy’s about. We are buying and selling land all over the country. I don’t have to be there. I don’t have to be at my desk in my office. I need a computer. I need some internet. I need a phone that works. That’s about it. So if this sings to you, check out Land Academy. Go to landacademy.com, send a note to my team, support@academy.com. Schedule a call. We’ll fill you in.

Steve:
Yep.

Couple together:
We are Jack and Jill.

Steve:
Information.

Jill DeWit:
And inspiration.

Steve:
To buy undervalued property.

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