Comparing the Private Equity Business Model to the Land Academy Model (LA 1899)

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Transcript:

Steven Jack Butala:
Jack and Jill here.

Jill K DeWit:
Hi.

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, well, I’m going to compare the private equity business model to the Land Academy business model. And as I said yesterday, I didn’t realize it, but I really kind of modeled Land Academy back in the day, back in mid fifteens off of that classic private equity model. And I’ll get into it in detail here in a minute.

Jill K DeWit:
And I’m going to listen intently, while you compare.

Steven Jack Butala:
Before each one of these episodes, Jill and I discussed just very briefly who’s going to do what and she’s like, I’m doing nothing.

Jill K DeWit:
Well, let me back up. We sit down and come up with titles and then by the time that we brainstorm all the titles, some of mine make the cut and some of mine don’t make the cut.

Steven Jack Butala:
They get filtered differently.

Jill K DeWit:
Yeah. This one came up with a different title. And you know what? That’s okay because this is his show. I’m just a guest.

Steven Jack Butala:
Before we get into it, let’s take a question.

Jill K DeWit:
I’m an eight year guest.

Steven Jack Butala:
That’s pretty accurate.

Jill K DeWit:
Yeah.

Steven Jack Butala:
I’m going to take a question posted by one of our members on the landinvestors.com online community. It’s free. But before we do that, I hope by now Jill and I have a full blown commercial printing company to manage from start to finish. Getting your offers in the mail. Whether you’re a member or not, it’s called offers2owners.com. The number two. Offers, the number two, owners.com. We set this company up several years ago, quite honestly, out of frustration because we couldn’t get our mailers in the mail effectively and without errors. So we just decided we would do it ourselves. Fast forward to today, we do probably 800,000 or 900,000 offers every single month. Check out support at offers, the number two, owners.com and they’ll get you all hooked up. Tons and tons and tons of members and non-members do it every month.

Jill K DeWit:
Jack H. wrote, “I’m just getting started and I think I’m going to have a lot of newbie questions. Hopefully we’ll have my first mailer sent out in the next month. So right now I’m trolling for markets. The biggest issue I’m having is zip codes I’m looking at don’t show up in the Redfin data and when I input them it just comes up no matches, but others come up fine. Does anyone know how to solve this issue? Thanks.”

Steven Jack Butala:
So this is a real smart, it’s a very, very good question and it tells me that you’re following the program and you’re going through the steps and you do have some questions along the way that’s perfectly honest and you’re asking them in Discord. Excellent, excellent, excellent.

Jill K DeWit:
Check, check, check. You get a gold star Jack H.

Steven Jack Butala:
Redfin’s business model. Redfin has an amazing data center and they don’t charge anything for it. It’s truly amazing. Their business model involves getting listings and then attempting to through providing all this data and getting listings through their real estate agents, selling real estate through a traditional model, brokers and agents and the whole thing. And that really works in really urban areas. And so they have contracts with a number of the MLSs out there. I think there’s 1,300 MLSs or some number like that. Maybe it’s even more. There’s not just one big multiple listing service. There’s a lot of different tiny little regional ones. Turns out they don’t care too much about the rural ones because they don’t want listings there and it’s just not a profit center for them. Well we do. We care about rural markets because we buy and sell more land.

Jill K DeWit:
That’s who we are.

Steven Jack Butala:
So a lot of the markets that are covered, not all of them. And you’re running into that because you’re following the program, which I think is great. The alternative place to get all the data that you need is realtor.com data center. Nobody really knows about it. They’re not real loud about it, but it is extensive all over the country. And you’re going to have to do a little bit of reformatting that I go over in Land Academy 3.0 chapter four. So the data’s there, it’s just not perfect. And I’ll end on this Jill, this also tells me that you’re choosing the right counties. If there’s not a lot of data in a zip code that you’re looking seriously considering mailing, good for you.

Jill K DeWit:
Isn’t that great? People are like, I don’t have a lot of comps. I’m like, yay. What are you talking about? This is great that nobody knows what it’s worth. This is awesome. Then you make the comp. I don’t know why that’s hard for people to understand them. I’m like, I love this.

Steven Jack Butala:
You’re the expert. You don’t know it but you will become very quickly expert in some of these rural markets.

Jill K DeWit:
As soon as that mailer goes out. That’s a whole nother show by the way that mail goes out. The person that calls you back, you already know more than that person on the phone and everybody’s afraid to answer that first call. I’m like, trust me more than they do.

Steven Jack Butala:
Today’s topic. Comparing the private equity business model to the Land Academy model. This is why you’re listening. Private equity as a business, I have an amazing and tremendous amount of respect for, and I always have. And so I don’t want to dig too far deep back into the history of all this, but I’ll just describe what private equity is.
There’s many private equity companies out there that have loads and loads and loads of money and not very much talent. And if you ask any of them, do you have any talent? They’re going to say no. What we do have is a lot of money. Well where’d you get the money? Well rich people call us because they have all this money and they don’t want to really do any work. And so they just want to give us a ton of money and get some type of return on it because everywhere else we stick our money, the stock market and the bank, certainly banks and mutual funds and all that. It’s just not cutting. Those interest, those returns-

Jill K DeWit:
Slow and low.

Steven Jack Butala:
… Returns don’t work for us. So here’s a couple billion dollars because our family started the cotton gin or whatever their story is, please invest it wisely and let’s get some kind of return on it. So there’s a bunch of very, very, very educated, formerly educated people that work at these private equity groups that don’t have much common sense, but they got great grades. This is all true.

Jill K DeWit:
This is my Jack. Making friends and building bridges. Not. This is hilarious. Making enemies and burning bridges. Just kidding.

Steven Jack Butala:
So there’s two sides to effectively-

Jill K DeWit:
They’re stupid. Here it is. They’re stupid and they’re rich.

Steven Jack Butala:
They’re rich stupid people. I think amazing grace.

Jill K DeWit:
Let me just clarify for everyone. If you got didn’t understand that fluff, I will translate for you. If you’re stupid and rich, keep listening.

Steven Jack Butala:
Or if you want to be stupid and rich.

Jill K DeWit:
There we go. This one’s often stupid and rich. Just kidding.

Steven Jack Butala:
As evidenced by this episode.

Jill K DeWit:
Yeah. Continue on please sir.

Steven Jack Butala:
So these companies are a packed full of office buildings full of people that are on the prowl for… They have two major functions. Number one, find companies that, or people. Really companies. Find companies that are, they look pretty good but they have had tough times. And so maybe they manufacture a part for the military or maybe they have a 500 pizza locations or whatever. It’s any type of company that maybe the founder’s usually gone, the founder of the company who started it and realized what it took to operate the thing. Now his heirs are running it or maybe he sold it or she sold it and it’s not tip top. Might not be losing its shirt but it’s not tip top. So that’s one function of private equity companies is to locate these companies that are grossly undervalued or under being underperformed function number one.
Function number two is to find a person who is an entrepreneur in their soul. And as a turnaround expert goes into the company, assesses what’s going on, it’s got a fresh view of it. Maybe they’re younger, they understand computers, they computerize it, do some stuff. Usually takes a few years and then they turn that company around so it is performing and then they sell it. So find a debilitated company, get a new person in there, clean it all up, exit, sell it. And honestly they usually sell it to another private equity company or maybe they’d take it public or there’s all kinds of exit ways to do that.
So I’m thinking today, this morning, while we’re going through the topics, sounds a little familiar. Find a grossly undervalued piece of land, buy it, have equitable title or whatever that means to you. Maybe you might get even get a funder because you don’t have the money like that rich person with the cotton gin.

Jill K DeWit:
Stupid.

Steven Jack Butala:
Yeah, well the cotton gin person’s not stupid.

Jill K DeWit:
That’s true.

Steven Jack Butala:
They’re just loaded.

Jill K DeWit:
They just want to put their money out.

Steven Jack Butala:
So you find a funder. You’re the middle person. You find a funder, you find a under valued piece of property, maybe $40,000, $50,000 bucks. It’s worth 150 and you sell it for a hundred. That’s our model. You are either going to find a real estate agent, which is that turnaround guy that I just mentioned. And then exit out of it just like they would exit out of it, only we do it in a matter of months instead of a matter of years. We do it for usually a much lower dollar amount and consequently profit margin amount. But real high percentages.

Jill K DeWit:
Sometimes weeks.

Steven Jack Butala:
Weeks. We’ve done it in weeks. So have you probably.

Jill K DeWit:
You know what the nice thing is? And we have, I don’t know how many volume of them ongoing at the same time, which is nice too. It’s not like I’m buying one, I put all my eggs in this thing and I’m waiting two years, we’re going to exit out of it. We’re going to take a public whatever. This guy’s going to make a couple million for doing the turnaround such and that kind of a thing.

Steven Jack Butala:
So if you are always keeping your eye on the exit as a land flipper and you’re always, this whole thing started because you’re only as good as the people that are involved in this. And maybe you are the best person to do this. Maybe you’re not. Yesterday in career path, everybody got exposed to Jill’s transaction coordinator, Jan and everybody loved it. And I was listening to Jan because I don’t have a lot of contact with Jill’s staff, direct contact. And I’m listening to her give her presentation about what’s a good transaction coordinator, how do you hire one, how much should you pay him, where should you look? All of it.
And she’s describing all the deals that these guys are doing recently and I’m sitting around going, she’s better at this than I am. And she’s a little bit older than me. She’s got more experience. Maybe not transaction experience, but in the trenches experience. And I’m kind of in silently patting myself on the back saying it’s great that we have attracted people that are smarter and better at this. And we know that this is kind of an offshoot of yesterday’s episode on the podcast. It’s you got to get some people in there that know what they’re doing.

Jill K DeWit:
Completely agree.

Steven Jack Butala:
That’s all private equity does. They take the people with the money. They give the money to the people who are really bright turnaround experts. Pay them incredibly well. Split the money on the exit. That’s it.

Jill K DeWit:
Thank you. You happy to 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 to how title and escrow companies actually now want your business again. You are not alone in your real estate ambition. Times are rapidly changing in real estate and all these vendors, real estate agents and escrow companies and all the people that we use to get our deals done, they’re a lot less busy than they were six months ago or even a year ago. That’s good for us.

Jill K DeWit:
I love it. Because all it means is the good ones are going to survive. You think I’m kidding?

Steven Jack Butala:
No, but this is just become a such a broken record topic that we just say it all the time.

Jill K DeWit:
I do. Because I’m trying to hit at home. Thank you for tuning in. Hey, by the way, as we talked about funding here, Jack and I are very aware that not everyone has a couple hundred grand lying around to buy land. We fund many Land Academy members and non-members deals every single week. Where to find out more, at landfunding.com. In addition to us, our members have combined, gosh, I know, 50 or a hundred million bucks in their pockets right now, available to fund Land Academy deals. So if you have any questions, you could always send a note to my team at support@landacademy.com.

Steven Jack Butala:
We are Jack and Jill.

Jill K DeWit:
We are Jack and Jill.

Steven Jack Butala:
Information

Jill K DeWit:
And inspiration.

Steven Jack Butala:
To buy undervalued property.

 

Thanks for listening, and finally, don’t forget to subscribe to the show on Apple Podcasts.

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