I’m Steven Jack Butala.

I’m Jill DeWit, and this is the Land Academy Show.

This is episode number 2,104, and Jill and I are talking about why you shouldn’t probably fund your real estate deal with your Aunt Tilly’s money. All week this week, we’re talking about the five ways that you can fund your real estate deal, and all between Monday and Friday. Some of them are what Jill and I think you should do, and, as always, probably should avoid. How do we know this? We’ve done all the wrong ways.

Are we talking just land this week or all real estate?

That’s where it gets tricky. I’m glad you brought that up because funding a piece of land that you’re acquiring to build a regional mall is a lot different than buying a piece of property and reselling it for more, which is what we’ve built an entire company on. There’s a lot of variables and a lot of things to talk about, and there’s a lot of things to avoid and a lot of basic rules for yourself to follow so you can make sure you succeed.

I’m glad we’re talking about this this week because most people, when I say most, I use the term loosely, everyone I see on social media, they’re all in, or in Bigger Pockets and things like that. Everybody’s like, “I’m going to the bank, and I’m taking out this home equity line of credit. I’m bargaining against my fill in the blank.” Everybody thinks that that’s the only way to get money, like you have to have a bank or some kind of lending institution involved. My goal this week is to let everybody know that there are so many other options that are way better, and you’re not going to have your feet to the fire and have personal liability or whatever that is. You know what I’m talking about.

A personal guarantee.

That’s it. You’re not going to have that, other than your aunt might hang you up by your toes. I don’t know how that would go, but we have a lot of things that we can share.

Understanding The Complexity Of Borrowing Money

If you’re new in this business, maybe you’re in your early 20s, or maybe you’re done with a different career and you’re starting in real estate, it is confusing as hell out there. Now more than ever. I used to tell our kids it’s never been more confusing. There’s so much bad information on the internet. Borrowing money, if you type in borrowing money on any social media platform or on Google, you’re going to get a lot of opinions.

This is our opinion, and it’s based on a lot of experience, and it’s a very conservative one. As you’ll see this entire week, this is about leverage. It’s about leveraging your time and the resources that you have, your capital resources, to make some money for yourself. There are real, effective ways to do that. There are ineffective ways, and they all have a different risk, depending on your personality, associated with them. This is not a simple topic, but I can assure you that Jill will make it funny and light.

You have to leverage your time and the resources you have, including your capital resources, to make money for yourself. Share on X

Thanks a lot. I’ll try, anyway. Thanks.

Each day on the show, we answer a question from our Land Academy member Discord forum. We take a deep dive into land-related topics by popular request.

Evaluating Commercial Property Value

Vahid wrote, “I have a developed 3.5-acre property under contract in central Pennsylvania, which is zoned commercial. How would you approach gauging the value of this property? There could be serious potential here. Many thanks.” I have a question, how far developed is it? What do you think? In between the lines, do we know?

No, we don’t know.

What are you thinking?

I think developed here probably means it’s got utilities to it, and it’s in a designated commercial property park, like an industrial park or whatever. The deal is, how do you gauge the value of a commercial property? Commercial property is different. It’s different than residential property. You can’t quite simply value a piece of commercial real estate the way that we value other types of real estate by looking at the values immediately around it. You’ve got to go out onto the internet and use resources like LoopNet or Crexi and, as best you can, find like-kind property that has been sold or is actively for sale.It’s a lot harder.

It’s also, like he says, there could be some value here, it can be a lot more profitable. Jill and I have done a bunch of commercial real estate deals, and they rank up in the top 5% of profitable deals that we’ve ever done together. It’s just a different animal, and my question is this, and this is for everybody, was this type of property in your acquisition criteria? You’re going to hear me say that all week this week. Probably not. It probably was not.

What we teach at Land Academy is, long before you ever send a mailer out, one of the first things I want you to do is develop in your head an acquisition criteria. “I would like to buy a piece of property that has the following uses for about $30,000 and sell it for $100,000.” It might be rural vacant land. It might be conducive to building a house, like an infill lot.

He did what he was supposed to do. He sent out all the mail and got a great property back, but just know now that this may or may not be within that actual acquisition criteria that you’re having. At this point in my career, we only do deals that are within our criteria because I don’t want to go out and engage in more risky real estate.

I’m going to counterbalance, but I’m going to vote. He did everything you said and left all that zoning stuff in there and just sent it for the size. One of the things you preach is don’t make your mailer too small. I like to think he left it in there, probably pulled out industrial, maybe. Maybe. If not, just see what comes back. Regardless of how this landed in your lap, I’m excited. What Jack said, it’s very different. There are different places to go look and value it. My main big thing is something like this, you’re going to probably be selling it with a commercial-specific type broker.

While you’re on Crexi and LoopNet, or wherever you’re playing around looking for this property, hopefully someone’s going to pop up like, “This guy just sold a property just like this in the next zip code over, same county. I’m calling him.” Hopefully, there’s a couple of them that you can do. That is my number one easiest way to get started in valuing this, find someone who knows that property. Those guys are really cool. Most of these types of brokers, they’ll type something up. They’ll give you a formal page-and-a-half idea of what they think it’s worth, how they would sell it, and where they would market it.

They may even drop in, like, “I’ve got guys that didn’t get this one that would love that one” kind of thing. I have it ready to go because they really are serious about grabbing your business. That’s where I would go, and hopefully, you’re going to get a big broker out of it, and then you guys can just work together to get it sold.

Avoiding Emotional Investment In Real Estate Deals

The people that are involved in commercial real estate are very different than residential real estate. You hear Jill and I make fun of real estate agents a lot on this show. That’s not the case with commercial real estate agents. They usually have some type of financial background or at least understand that stuff.

If you give them a call, they’ll help you value it, especially if it’s a great deal. They’ll want to get involved, and they should have a bunch of people in their back pocket as potential buyers. That’s how you know if you’re talking to the right person in commercial real estate. You don’t see that in residential real estate almost ever. You don’t call a residential real estate agent and say, “I’m thinking about listing my house or my piece of land. What do you think it’s worth?” They’re not wired for that.

Commercial real estate agents say, “How much is it? Where is it? I just did a deal over here. What’s really hot right now is this.” They’ll really give you some good market information, and it’s all numbers-based, which is a whole different deal. If you’re up for that, I cut my teeth on commercial real estate, and I love it, but if you’re wired that way also, congratulations. It sounds like you’ve got a good deal going.

Our topic, why you probably shouldn’t fund your real estate deal with Aunt Tilly’s money. Here’s a spoiler alert. There are two basic ways to fund any real estate of any type, with debt, like a mortgage, or with equity, where you’ve got somebody who’s got a ton of money, or an entity like private equity, that has lots of equity cash and wants to fund your deal. We’ve chosen the latter. We heavily lean on equity-type funding or financing versus debt.

Your Aunt Tilly probably has a bunch of money. Who knows why? Old people tend to have a lot of money, not because they’re smarter, just because they’ve been around longer. They’ve had more time to accumulate a bunch of money, and she’s probably bored. How do I know all this? Because I’ve made all these mistakes. Your Aunt Tilly is not going to just write you a check and then go away. This is a bigger deal for her. I’m not picking on your aunt specifically, it’s just all family members. If they’re retired, they’re probably bored. They want to write you a check, and then they want to be involved.

That’s the hard part. They don’t get it.

There’s a social component that comes with getting money from family members that you don’t get through an unrelated third party.

Building Long-Term Wealth In Real Estate

The problem is you’re going to find yourself explaining the deal to them, explaining the process to them, and then checking in with them. It can be really time-consuming and exhausting. If it doesn’t go exactly how you promised, they’re going to have a lot of questions. That’s the reality, and like Jack said, I can personally say I haven’t done that with a family member or a friend, other than you.

How’s that going?

I don’t want to explain it. It didn’t go exactly how I wanted it to go.

Even with them.

We still made money. Leave me alone. Why is it still for sale? Knock it off or here’s the worst, “You sold it too fast, and you probably sold it too cheap.” That I definitely have got in trouble for, with Jack. But the point is, we have several members that have said, “I didn’t listen to you, and now I know.” It sounds dreamy and easy, like, “How great, they trust me.” I have to think about it. They do trust you, to an extent, but it’s their money. What if Aunt Tilly just gave you $250,000 for a property like Vahid’s commercial property? You better believe she wants to know weekly what’s going on with her $250,000 to make sure she didn’t just throw it down the drain.

If Aunt Tilly gifts you $250,000 for a property, like Vahid's commercial property, you better believe she wants to know weekly what's going on with her $250,000 to make sure she didn't just throw it down the drain. Share on X

She might have second thoughts.

True.

She won’t have her money back. There’s a whole array of awful things that can happen. Let me share a story with you. Jill and I have a good family friend whose entire family has been in real estate for generations. Each of the siblings, as they got older, saw it as a personal challenge to outdo their other siblings. One of the siblings that we know decided that he wanted to be a landlord, a single-family residential landlord. His spouse’s, I don’t know, somebody else in the family, I don’t know exactly who it was, but I think it was his brother-in-law, sold a company for a lot, netted like $40 or $50 million.

For tax reasons, he came to this guy, my friend, and said, “I got $20 million that I have to spend for tax reasons. I know you do this. I know you guys are all successful at it. How about I just throw some money in?” It happened to be during the downturn in 2009. They went out and bought a ton of houses for $40,000, $50,000, $60,000, and rented them out, but to this day, they still own them. Huge money, makes several hundred thousand dollars a month.

They set up a company. The new guy, who knows nothing about this at all, owns 50%, and my friend, who knows everything about it, owns 50%, and great, they spent the money, bought the properties, got them all rented out, never engaged a management company. This guy, to this day, still manages all these properties. Guess what happened? You already know what I’m going to say. It started making money, and the new guy said, “What is this? It’s this easy? You don’t even have to do any work? I want to be involved.”

Now it’s just what Jill said, everything now is under a microscope. You’re going to get your Aunt Tilly, this is a big social deal for her. There are all kinds of other things that are going to happen with funding deals with family members. The financial part of it, to end my story, worked out great for those guys. The social part? Not so much. Now he’s got his wife talking to him about why he’s not been a very nice person to her brother-in-law, also. Jill’s very quiet.

I’ve heard the story.

That’s a good example of equity financing, which I’m a huge fan of, partnership equity financing. Just not with a family member. That’s the whole real point here. Join us on Tuesday, where we’re going to discuss the pros and cons of funding your real estate deal with debt. You are not alone in your real estate ambition. We are Jack and Jill, information to buy undervalued property.