Rules to Live By in the Land Business (CFFL 0112)
Rules to Live By in the Land Business
Jack Butala: Rules to Live By in the Land Business. Every Single month we give away a property for free. It’s super simple to qualify. Two simple steps. Leave us your feedback for this podcast on iTunes and number two, get the free ebook at landacademy.com, you don’t even have to read it. Thanks for listening.
Steve: Jack Butala here, welcome to our Cash Flow From Land show. In this episode Jill and I talk about the rules to live by as a real estate investor. Specifically, when you’re a new investor and when you become in-seasoned, like us, and you actually kind of make your own rules, or you can bend your own rules when you have enough deals under your belt, like us, I guess.
Jill: We make our own rules.
Steve: I was looking at this before we started and it’s amazing how many the first, the basic, basic rules are just, you know, you start to live by them.
Jill: Mm hm (affirmative).
Steve: We’ll get into that in a second. The show kind of has promise, actually. I just want to make sure it goes sideways. Let’s take a call, Jill.
Jill: Okay. Alisha from Killington, Vermont called in and asked, “Can you send out offers on houses like you guys do for land? Does it work?” Awesome question.
Steve: Yes.
Jill: Steven, take it away.
Steve: That’s the whole answer.
Jill: Yeah, I know. Actually, it’s two parts, yes and yes.
Steve: Yeah. Just like land, you have to do it properly, get the right education.
Jill: Price it properly, don’t send out something silly.
Steve: Yeah. Right, Jill.
Jill: I’ll buy your mansion for $10. No, come on.
Steve: Although, now, here’s a basic rule with houses, first of all, you want to send it to people who have no mortgage. You have to have the right data set for that. Oh, wait, we do have the right data set. We’re a licensed provider of it.
Jill: That’s true.
Steve: You want to make sure that you have rational offers with houses. You can send irrational offers with land and get away with it a lot of times, but houses, you want to price yourself around 40 or maybe up to $40,000 less than you think the finished retail value is, so …
Jill: Maybe a percentage, like how about a percentage?
Steve: … I like dollar amounts with houses because …
Jill: I mean, it’s a huge range.
Steve: … Think of a master plan community that’s got … I only send letters to master plan communities where all the houses are built at one time. There are only three or four styles, and they have real predictable sales values that they give at a given time. Let’s say you know that whoever gets done cleaning it up, the house is going to sell for 150,000 bucks.
Jill: There we go.
Steve: You want to be, it’s not a percentage, you want to be …
Jill: I want to get an idea where the 40,000 comes in.
Steve: … You want to just send letters out for … I would sent letters out for 100, 110, probably, I don’t know, you’d probably send a letter out for $5,000. Knowing you, someone would call you and sell the house.
Jill: Ninety. I might get it.
Steve: Yeah, like 100,000, a $100,000, so you’re $50,000 shy, and in the beginning you want to take ten grand. You want to get it to a guy who’s is a known flipper or renovator in that area, and then he’s going to help pay the, you know, he’ll buy it from you for $10,000 more than you bought it, or he’ll just take the deal off your hands and hand you $10,000, which is if you’re new, is what you should do so it doesn’t cost you any money to get into the business.
Then, make sure that whoever that guy is that you’re dealing with, or the three people that you choose in your A-list, they make more money than you do because it’s a lot easier for you to find deals, deal after deal after deal. You want to keep those people happy. It’s a lot harder for them to renovate. It’s a lot of work and a lot of time. They will beg you. They will call you begging you. Trust me. They still call us.
Jill: I want to point out something really important because this question comes up to me, and I’m surprised someone hasn’t called in and asked this, but what do you mean people out there without a mortgage? There’s a lot of people out there that don’t have a mortgage and those are the ones that you want to talk to.
Steve: 50%.
Jill: Right. People don’t …
Steve: In the area of 50% of the single family residences in this country have no mortgage at all.
Jill: … See? People don’t know that. That comes up often, like, “Wait a minute.” Then you can sort it.
Steve: Do you really get that question?
Jill: I do sometimes; it comes up.
Steve: What about land? Do they ask about that too?
Jill: Sometimes. They do. They think that, “Is there a lean on it?” I’m like, “A lean for what?” I mean, if it’s undeveloped what do you have a lean on? There is nothing that’s been done to it.
Steve: Just property taxes. I mean, there can be [crosstalk 00:04:26].
Jill: Exactly, but they were talking about, they were thinking …
Steve: I understand.
Jill: … Sometimes you just have to remind them that, no, they’re not making payments to the bank on that, traditionally, and by the way, you can sort for that with our data.
Steve: Yes. Thank you for mentioning that.
Jill: Anyway, so you remove any risk of wasting forty-something cents on a mailer to them.
Steve: Right.
Jill: You can really get that.
Steve: Forty-something cents. I thought a stamp cost 49 cents.
Jill: It does, but our mailers can go out less than that price of a stamp, so that’s why I said that.
Steve: You send out post cards then.
Jill: No. You’re so funny.
Steve: People that call us and ask us stuff …
Jill: No, it is a white, two-paged letter with an offer.
Steve: How can you do that if it’s less than the price of a stamp?
Jill: Yeah, I’m good.
Steve: Did you ever meet somebody who really thinks that if you’re doing well financially that you’re cheating somehow?
Jill: Oh, go-, I hate that.
Steve: I do too.
Jill: That makes me mad.
Steve: Makes me mad too.
Jill: You know? I have to say, because I’m not going to go political, I’m not political, but with all the stuff going on right now and Donald Trump, and they’re looking at his money and everything like that, come on everybody. The guy has always had money. Do we really need to get picky about … Whatever people, I think, are digging for, they’re not going to fine.
Steve: Or, they’re going to find it.
Jill: We all know it anyway.
Steve: It’s not so much what they … Here’s what I think, and I don’t care about Donald Trump one way or the other, I have no opinion, really don’t care, and I know you don’t either, Jill.
Jill: No.
Steve: This isn’t a plug for him, or politicians or any … or it’s not. It’s just an example. Look, everybody has stuff in their past. Every single person, I don’t care who you are. It’s how you deal with it when it comes up. If you fall apart and start lying and lying after lying, or if you man up about it immediately and say, “You know what? I don’t really remember that. I haven’t done my tax returns since 1882, but I’m going to look into this. Thank you for telling me. It this is actually true, what you’re saying, then damn it, I’m going to make an announcement about it and I’m going to make it right.”
Jill: I’m going to fix it.
Steve: That’s what people should … Because stuff happens.
Jill: That’s true.
Steve: It’s all how you manage the crazy … whatever.
Jill: You and I know, with our friends, and with us, the bigger your company gets, the less control you have over a lot of that stuff. Even though it’s a tough one. We’ve all heard of people like rock stars and their managers taking all their money and they had no idea.
Steve: Yeah, geez, what is that?
Jill: What’s that?
Steve: That’s crazy.
Jill: I know, isn’t that sad. That’s like your best friend right there too. That really breaks my heart.
Steve: We all know people who are married to other people that just one person handles all the money and the other person has no idea.
Jill: Sure.
Steve: That scares me too.
Jill: Exactly, that’s what I was …
Steve: Here’s another funny thing since we’re talking about political candidates. This whole Hillary Clinton’s server in my closet, you know that server in my closet thing? Again, I don’t care about Hillary Clinton. I’m not going to vote either way on any of this stuff. It’s just using it as an example. Jill, where is your …
Jill: Where’s my server?
Steve: … where is your email hosted?
Jill: Yeah, I don’t know.
Steve: Where is the server, the physical server, that hosts that email?
Jill: I have no idea.
Steve: I don’t either.
Jill: I would not, especially at her level. She doesn’t know.
Steve: It cracks me up that people are like, “Well, she knew all this stuff.”
Jill: No, she didn’t.
Steve: Plus, she’s like what? 65?
Jill: Yeah, [inaudible 00:08:05].
Steve: She probably doesn’t even know what a server is.
Jill: Exactly. You said, “GoDaddy,” she’d be like, “What?”
Steve: My core logic.
Jill: Right. What? Yes, in their defense. All right, so what are the rules to live by, Steven?
Steve: Okay, so I looked it up and I have some of my own, so I made kind of a little bit of a collage and I would love to get … I’m going to say these things. I would love to get your opinion as we go.
Jill: Okay.
Steve: Some of them are rules to live by, and some is a bunch of malarkey.
Jill: Okay.
Steve: Have an exit.
Jill: True.
Steve: What the hell does have an exit mean, like where’s an exit sign? This is what it means.
Jill: Exit strategy.
Steve: Know what you’re going to do with that property. I don’t care if it’s an apartment building, a piece of vacant land, or any investment, actually. Any investment, even stock or whatever you get into, know what you’re going to do with it. When are you going to sell it and for how much are you going to sell it? This is the number one … If you take anything away from this show it’s this, long before you ever buy a piece of property or get involved in any type of real estate investment, you should have an established, full-blown knowledge of how you’re going to sell it, how long it’s going to take to sell, who’s probably going to buy it. In fact, a lot of times this is what we do now, we already know who’s going to buy it from us long … I mean we know the person’s name before we buy it at all. That’s how we base what we’re going to pay. It’s not a game. There’s no risk in this. I mean, there’s a tiny bit of risk, but not really.
Jill: I’ve heard Steven say this applies to everything, including marriage.
Steve: Yeah, know your exit strategy before you get married. Trust me.
Jill: I keep trying to apply that to children. I haven’t found a way yet.
Steve: There’s no doubt about that. Sometimes I laugh at my own stuff.
Jill: You have said that, yeah.
Steve: You know, I can’t be responsible for what I say.
Jill: Yeah, right. Of course.
Steve: Join local clubs.
Jill: Eeh, I don’t know. I’m false. What are you going to get out of that?
Steve: Did you ever, you know, you’re …
Jill: Good coffee and a doughnut?
Steve: … you spend some time with sales people. Did you ever see a bunch of sales people talking to each other all day and then no one sales anything? That’s what I think …
Jill: Yeah, then nobody sells anything.
Steve: … that’s what I think these clubs are.
Jill: It’s a waste.
Steve: Everybody sits around and talks about their own stuff. You’re just not talking to the right people.
Jill: When I have worked in some go get’em sales environments, I remember, because you had some big numbers that you had to hit, and you’re were really responsible. Every time we had a meeting, I couldn’t wait to get out of the meeting. I’m like, “I got to go. I got to go. I got to go do my job.” It’s a waste of my time.
Steve: Some people love them. Some people can’t stand them. I’m in the middle. I don’t know.
Jill: I think if you’re really, really new, and you’re learning, like you want to learn the business, you’re trying to learn the industry, you’re trying to learn who works with who and what everybody’s role is, that might be a good reason to do something like that.
Steve: You’re right, Jill. If you’re new you should go. You know what you can get out of that is if you’re brand new, and you’ve maybe saved up some money, you will find somebody that’ll let you work with them for free, or if you pay them just a little bit of money. It’s a great, fast way to learn as long as you, like everything, you’ve got to chose the right person, make sure it’s not a crook.
Jill: Yeah, like just a mentor. While you … Wait, you don’t have to pay my mentor. I’m going to work for my mentor for free. Is that what you meant?
Steve: Yeah, don’t pay your mentor.
Jill: That’s what you said, “Or pay them something.” Like, why would I pay them?
Steve: No, I mean if the mentor should pay the new person.
Jill: Thank you.
Steve: Thank you for clarifying that. That’s not what I meant at all.
Jill: Okay.
Steve: No, please don’t pay your mentor.
Jill: Unless it’s us. Just kidding. I’m joking.
Steve: First of all, we’re not mentors.
Jill: I’m just kidding. No.
Steve: It’s like paying for a class.
Jill: No, but seriously though …
Steve: The whole thing is cheaper than a [crosstalk 00:12:00].
Jill: … if I really wanted to do something, would I go spend some time with that person, and maybe do some stuff on the side to be around them, and hear and learn some stuff for free? Heck, yeah.
Steve: Yeah, me too. Only after a certain amount of time. Then I’d start to say … You know what I’d really say is, “Okay, I’ve been here for a while. This next deal you’re doing, I want a cut of it.”
Jill: Mm hm (affirmative).
Steve: I wouldn’t even say maybe.
Jill: I have proven myself now.
Steve: Yes, Jill.
Jill: Now it’s time.
Steve: Cut me in 10%, or whatever the numbers end up being …
Jill: [inaudible 00:12:25].
Steve: … and I’ll find the next one because now I know how to do it. Thank you.
Jill: Perfect.
Steve: Next one, find a special interest. What that means is choose your niche’.
Jill: Yes.
Steve: Some people love office buildings. I can’t stand office buildings.
Jill: Yes, yes. Yes.
Steve: I love land.
Jill: I agree with that.
Steve: I love wholesaling property where you just buy it, you don’t do anything to it, and you sell it for a little bit more.
Jill: Yeah. It’s easier to focus on just one area too, and get really profession-ed and knowledgeable with that niche’, your special whatever you’re going to do whether it’s multi units, whether it’s …
Steve: Yeah, four-plexes, apartment buildings.
Jill: Or, just single family homes, maybe within a certain price range.
Steve: Mobile home parks, that’s a good one.
Jill: You can even be that specific, “I’m only dealing with anything … I deal with everything under 300,000; whatever it is.
Steve: Maybe one neighborhood specific.
Jill: Mm hm (affirmative), and you are the expert.
Steve: I will tell you this about after … now that we have a lot of members, I have noticed when I’ve talked about this with other people, this is true for me, you don’t know what your specialization is yet. You think you do. Right now you’re probably listening to this show saying, “Well, I’m going to go flip some houses. My brother-in-law does it. He makes a ridiculous amount of money.” You don’t know it until you get into it. It’s going to flip a switch.
Jill: You’ll find it.
Steve: It’s like choosing a girl out of a big crowd. You can’t choose it; it just kind of chooses you.
Jill: That’s how it goes.
Steve: No, I mean that’s how it goes for a lot of guys. They end up begging and there this big fiery ball of mess in the end, but for girls, I don’t know, girls must have so much more opportunity than men.
Jill: That’s the way it should be.
Steve: Yeah, I know you enjoy that.
Jill: I do.
Steve: See? I told you this could go sideways really fast.
Jill: Really good. All right.
Steve: Get a ton of insurance. You’re a big insurance fan, aren’t you? I differ a little bit on this.
Jill: You know? In vehicle … I mean, there’s things I will insure, period. Homes, vehicles, valuables, you know, if I was doing a flip, that environment. I mean, I don’t know. There’s some things I’m like, “Do I really need insurance?” Here’s my reasoning why. I’ve actually heard Dave Ramsey talk about this. You can be self-insured.
Steve: Yeah. Sure.
Jill: He’s actually talked to people about, “Look, you’re this age. You just told me you have this much money in the bank. You know that da, da, da, da, da, all things are taken care of. If something happens to you, you don’t need to be paying all this money on this insurance because you are self-insured, period, and I believe that.
Steve: That applies for cars. I mean, you have to have liability insurance, but at a certain point, and it comes up pretty quickly, it does not make any sense any longer, this is just my opinion, to insure a car for collision because it’s not worth it, because you already won.
Jill: Right. Some cars you don’t want to do that. You’re right. You just need the liability, all the stuff that you have to have because …
Steve: That’s self-insurance.
Jill: … at the end of the day, could you replace the car? Yes. Is it worth it to pay for that? No.
Steve: Exactly. A couple more and then we’re going to do some of our, as seasoned real estate people, what our advice, what this ends up being is real [inaudible 00:15:56] advice. Borrow as much money as you can.
Jill: What? Somebody, somebody [inaudible 00:16:04]. What?
Steve: Yeah, leverage. Use leverage. I didn’t say use it. Leverage it wisely. Did you ever hear this, “Other people’s money.” That makes me mad.
Jill: That makes … That’s not nice.
Steve: That’s not cool.
Jill: What do you do? Do you just walk away, “Oh, it didn’t work out. Sorry.”
Steve: Yeah.
Jill: No.
Steve: Some people think they should get a trophy for that because they structured a great deal. A lot of commercial real estate people are … They walk around saying … I know a lot of very successful commercial real estate people. You know this, Jill. They love to have a couple of cocktails and say, “You know what? I did this, this, and this, and I pulled this money out of this deal, and I didn’t have to put a dollar of my own money in there.”
Jill: Mm hm (affirmative).
Steve: I don’t know why it’s such a trophy.
Jill: I know. You know, you’re right. That’s not a … I prefer saying, “I paid cash for the whole thing, I did all that stuff, and then this is my return.” Fantastic.
Steve: I paid cash. I marked it up 10%. I didn’t gouge anybody, and sold it. Then, you know what I usually say, “The guy that I sold it to made three times as much money as me.”
Jill: That’s my favorite.
Steve: That is a trophy.
Jill: Mm hm (affirmative). I agree.
Steve: Because now I’m going to go back for more fifty times. This guy loves me and I don’t have to go through any of the crap that that guy goes through, like renovating buildings, or houses, or going to get zoning variances, …
Jill: Right, we don’t do any of that.
Steve: … or earth quakes, or you name it. You and I see eye-to-eye on a lot of this.
Jill: We do. That’s why we’re good partners.
Steve: I appreciate that. Do I say that enough?
Jill: Thank you too. Thank you.
Steve: Here’s the last one and then we’ll get into ours a little bit. You know what? I wrote this. Own your own house, or this is it, your own house and your parents house are not examples of success.
Jill: What does that mean?
Steve: I see this all the time and a lot of places around the internet. “My parents made a $190,000 on their house. All you need to do is four of those and I’m done.”
Jill: That’s like …
Steve: Oh, really? How long did they live there?
Jill: … we all have those stories.
Steve: “They lived there for 22 years. Why do you ask?” “Well, what were their mortgage payments every month?” “I don’t know. Well, they were $1,000.” “Well, what’s 22 years time 1,000, mortgage interest and the whole thing, and the maintenance? They didn’t make any money.”
Jill: Exactly. It’s so funny. That’s really good.
Steve: It’ cracks me up. The purchase price and the sale price are not your margin on a transaction.
Jill: Right. That’s true.
Steve: Do I have to explain that anymore, or is that it?
Jill: I think that we got that.
Steve: It cracks me up.
Jill: I know, and you’re right. Maybe you should explain that.
Steve: Your purchase and your sale price, especially on a house that you live in for a long time, that’s fiction. Then you’ve got to factor in maintenance and interest expense, and realtor fees on the buy and the sale side, and on and on and on and on.
Jill: Taxes over the years.
Steve: It’s very, very, very unusual unless you live in California at the perfect time and maybe …
Jill: Homesteaded.
Steve: No, well, you know, if you leverage a house the way that they want you to, which is 3 or 5, or 8 or 10% down, it’s very tough to make money unless you’re in California where there’s some market that’s crazy and it’s rapidly going up.
Jill: Right.
Steve: Which people seek out, and I get that, through growth path stuff.
Jill: Exactly.
Steve: Or, if you do it like what Jill and I say, and this is what we practice in life, if you just pay cash for the damn thing. Or, you borrow 20 or 30% of the value and you bring $70,000 … We’re going to get emails on this. People have huge issues with putting money in to residential property. I personally have, I mean, the only reason we did it, or didn’t do it, Jill, is because it does matter.
Jill: You know what’s funny about this is that my parents did not see eye-to-eye on this. My … Which is really interesting, my mom was the one that would want to pay cash for things. That’s the way she would try to, but my dad, not so much. We didn’t grow up where we paid cash for everything, but I just thought that was interesting. My mom used to say, “It doesn’t matter how wonderful the transaction is, or whatever it is, if you don’t have the money.”
Steve: Your mom’s dead right.
Jill: Exactly. I don’t really care.
Steve: I’ve got to go with your mom on this.
Jill: Yeah, and I remember the time instant gratification Jill, because I got it from my instant gratification dad, which was … You know, my brother is the same way, by the way, he is worse than me. My brother is the worst. I’ve learned and I’m over it, but …
Steve: My sister and I are exactly the same about money.
Jill: That’s interesting.
Steve: I mean, just exactly the same.
Jill: That’s funny. You know, we have come around on my brother now, owns quite a bit of real estate, as you know. He caught up.
Steve: What would you … I mean, we’re running out of time here.
Jill: I know.
Steve: What’s the first rule, the first or second rule, or advice, or what would you suggest for somebody who is new? I guess what we’re supposed to be talking about is we’re seasoned, so what are the rules that we live by. What are the things that you’ve learned over the last several years that aren’t really on lists?
Jill: That aren’t really on lists? Do you home work. Thoroughly research your deals no matter how they’re presented to you, or who they’re presented to you. You know? I mean, that’s a little thing for me. I do my own homework and run my own numbers.
Steve: Here’s one for me.
Jill: What’s that?
Steve: Don’t see something in a deal that’s not there just because you hate your job and you want to be a real estate investor so bad, and you want to get started so bad that you’re like, “Oh, this is a little bit more expensive than I want, so I’m going to make it work. I’ll make it up for it on the sales process.” Don’t ever do that.
Jill: No.
Steve: I’ve said this a million times in different ways, your first deal, maybe your first ten deals, you should be running to the banks saying this the whole way, “I hope the seller doesn’t change his mind. I hope he doesn’t change his mind. I hope he doesn’t change his mind.” It should be that good of a deal.
Jill: It’s all ready sold, by the way. As you’re doing it, it’s already sold.
Steve: Yeah, that’s my number too. It’s the same one as the first one, know your exit. Know who’s going to buy it long before you ever make the offer. That’s to be learned. There is this thing called dead air, Jill.
Jill: How about don’t grow too fast?
Steve: Yeah, that’s great advice.
Jill: That’s important because I watch people doing that in our world, that they are so excited to say, “I have an assistant now.” Don’t do that too fast. Wait until the time is right because then you’re …
Steve: You should grow … The big stages of growth in any company, they should be just like the decision you made to quit your job where you really probably stayed in your job too long and you’re sitting there and you wake up. This is what happened to me, I woke up one day and I said, “How much is it going to cost me to go to my job today?”
Jill: Right.
Steve: “If I did this real estate thing over here, instead of going to work this week, I’d probably make 20 grand and I’m going to make about 500-800 dollars at work, whatever the numbers are. The same thing with an assistant, “How much is it going to cost me to do this crap that I don’t want to do today because I should be out doing deals.” That’s pretty good advice, I think, Jill.
Jill: I think that’s great advice. Any last parting words? We’re way over.
Steve: Join us in the next episode where Jill and I talk about you’re all important real estate investment in life. You’ve got to know where you’re going to sell it before you buy it.
Jill: It’s true.
Steve: That’s priceless advice.
Jill: Mm hm (affirmative), it’s true. Have that, that’s what … You know, that, you should almost … Oh, shoot, I wish I would have thought of this. It’s like working a deal backwards and I love that.
Steve: Oh, right, yeah, sure. You say that all the time.
Jill: I do. Even in life, everything we do, let’s work this backwards. We want to end up here, so what do we need to do to get there instead of thinking, Where do we want to go?” Duh.
Steve: You’re exactly right, do that the whole time.
Jill: Yeah, I mean, work it backwards. What I would do in our world …
Steve: I don’t want to be fat, so I’m not going to eat this pizza.
Jill: Right.
Steve: That’s working it backwards.
Jill: Yeah, or just say, I want to look like that.” Working it backwards says, “I want to have that body. Now, what do I need to do to have that body? I’ve got to exercise [crosstalk 00:24:36] four times a week. I’ve got to eat these. I’ve got to knock this off.” That’s working it backwards. Or, as they say, in our world, working it backwards might be, “I’m going to sell to an investor. Okay, first I’ve got to find these investors. Okay, great, got to get that network going. Now, what are they looking for? What kind of properties? What can I test? What can I send out there? Okay, now I know what they want and what they are willing to buy. Now I’m going to go look for that kind of property.” That’s a great way.
Steve: I’ve heard that described as deconstruction. You take the whole process, you completely deconstruct it, and then solve the ways to accomplish that all the way back, from the backwards to the front.
Jill: That’s big, fancy, Michigan State words there.
Steve: Trust me on this point, there is nothing fancy about Michigan State.
Jill: That is great.
Steve: Let’s go buy some property.
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