How Jack Jill Prepare for Economy Down Turn (CFFL 585)
How Jack Jill Prepare for Economy Down Turn
Transcript:
Jack Butala: Jack and Jill here.
Jill DeWit: Hi.
Jack Butala: Welcome to the show today. In this episode, Jill and I talk about how to prepare for that inevitable economic downturn.
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.
Jill DeWit: Cool.
Billy M … We know who you are, Billy … Asked, or Sham God asked, “I’m looking to close on a deal and start marketing the properties, but the seller is making me wait until January 1st, 2018 to sell to me.” Hmm. Clearly a tax reason.
Jack Butala: Yeah.
Jill DeWit: “Should I give them a check and start marketing the property and tell them to cash the check after January 1st and record after January 1st, or should this be a deal I should pass on since the seller is making me wait until after the new year.” Doesn’t bother me at all.
Jack Butala: No, I think your concept is great. If he needs something, like let’s close on January 1st, which is totally valid. This happens in real estate all the time, by the way.
Jill DeWit: Yup.
Jack Butala: Then you need something. He needs something, you need something.
Jill DeWit: Yeah.
Jack Butala: I think it’s totally fair. Chances are … This member has a track record of doing pretty good deals, so chances are if it fits your criteria then it’s a good deal. If it’s good enough to go all through this then absolutely.
Jill DeWit: Yeah.
Jack Butala: You’ll have it sold by then anyway. And you could tell the buyer can’t convey it until January 2nd.
Jill DeWit: Maybe when that’s the divorce is final. Maybe that’s why.
Jack Butala: Are you thinking about divorce now?
Jill DeWit: I started to think what if I trigger having to have money and things appear on certain dates. First I would think taxes and then next I think divorce.
Jack Butala: It’s that … Divorce day is Thursday for Jill. She wakes up in the morning, and you know how she always says I have little mantras that I have in my head?
Jill DeWit: Yeah.
Jack Butala: It’s Thursday.
Jill DeWit: On the recording days, it’s like “I’m going to kill somebody.”
Jack Butala: It’s Thursday. Divorce is possible.
Jill DeWit: No. That’s so funny. Oh. Truth be told-
Jack Butala: Oh, here we go.
Jill DeWit: Truth be told, we’ve had to make some staffing changes.
Jack Butala: We had a rough week.
Jill DeWit: We did. So, yeah. We’ve got a lot going on right now. No, I’m not going to divorce you or anything, you know that.
Jack Butala: I do.
Jill DeWit: Okay.
Jack Butala: If we decided to split up for any reason …
Jill DeWit: Oh my gosh.
Jack Butala: It would be kind of … We shouldn’t even be talking about this really.
Jill DeWit: This is bad.
Jack Butala: I don’t even like saying it out loud, but it would be a race.
Jill DeWit: I have a really good compliment to say about this. This matter of fact [inaudible 00:02:39] I had a meeting with an employee … It was a group that I was talking to. I was speaking in a group the other night, and one of our staff members was there, and she piped into say, look … It got into a couples discussion about how you and I are, and I said, “Look, this is Jack’s role in our company, and this is my role, and this is what we do.” And it works how it works, and I was explaining how our offices are in different zip codes and everything, and our staff member piped in and said, “Oh my gosh. You should see these two.” She said, “They could not be more opposite” is her thing about how we are. She was describing a meeting that I started out running and Jack took over, and Jack, you-
Jack Butala: I can’t wait to hear this.
Jill DeWit: Oh, yeah. She’s like … All she kept saying was, “Next topic.” Because that’s Jack. So she was describing this story of this meeting, and it was really positive that we are very, very different people, and the way we run things and the way we manage people are very, very, very different. But she goes, “But these two make it work. They’re awesome. They’re great together.”
Jack Butala: Oh, it was a positive.
Jill DeWit: It was totally positive, so I wanted to save this little sidetrack event and make it into a positive event, because it is true even though we see things differently we are obviously very good together.
Jack Butala: You know there’s two types of people that go to work in the morning, and we have both types in our group.
Jill DeWit: I bet we have both types in our home.
Jack Butala: No, actually we only have one type in our home, and it’s the good kind.
Jill DeWit: Okay.
Jack Butala: There are people who go to work. My staff is packed full of people that are just like this, what I’m going to describe. They get here in the morning, they want to get a bunch of stuff done. I mean, they don’t want to like please me or anything. They have it in their gut to do well at the job, accomplish some stuff, and money is almost secondary. And I don’t care about that, because we are famous for paying top dollar if you perform. So, there’s that kind.
And there’s another kind who come to work for some other reason. Let’s just keep it at that. I’ll just leave it at that.
Jill DeWit: Hiding from their home life.
Jack Butala: Could be that.
Jill DeWit: Just kidding.
Jack Butala: Could be that they want to vent. There’s a lot of people, I’m realizing … I don’t know if it’s this west coast office that’s relatively new … That just want to talk. They want to talk and vent.
Jill DeWit: Oh.
Jack Butala: We’re getting some new office space.
Jill DeWit: That’s your office. You know what, I’ve got to tell you, my office isn’t like that. It’s pretty darn quiet.
Jack Butala: What?
Jill DeWit: You’d be surprised. You walk in my office, it’s pretty much dead silence.
Jack Butala: Not when I’m there.
Jill DeWit: We’re like heads down working.
Jack Butala: I hear a lot of venting when I’m there.
Jill DeWit: Oh, well when I’m there it’s quiet. I don’t know what it is.
Jack Butala: Oh my gosh. Alright, well good.
Jill DeWit: No, we’re like heads down working. I’m the one … I feel like I’m the troublemaker when I’m in my office. I’m like hey, you guys, and I’m interrupting everybody.
Jack Butala: That’s good to know.
Jill DeWit: Yeah, okay. Anyway.
Jack Butala: Let’s just not go to each other’s offices.
Jill DeWit: That’s a good idea. I’m not going to tell you where my next one is. Just kidding.
Jack Butala: If you have a question or you’d like to be part of this circus, reach out to either one of us on LandInvestors.com.
Today’s topic: How Jack/Jill prepare for the economic downturn. This is the meat of the show. Jill’s just … I can hear it. Even though she’s saying and doing nothing, I can hear it in her soul going why do we do these negative shows? Could there be anything more negative than talking about an economic downturn? Everything is going great right now.
Jill DeWit: You know what, Jack? I’m going to surprise you.
Jack Butala: Really.
Jill DeWit: No, I’m on the same page. You need to be prepared for whatever it is, and I do think things are going to change.
Jack Butala: They are.
Jill DeWit: Not afraid.
Jack Butala: And then they’re also going to change back. So, the pendulum swings back all the time, but Jill’s familiar with this because she and I got pounded …
Jill DeWit: Have weathered a few storms.
Jack Butala: … In the last downturn. In fact, this next one coming up I think it’s going to be my third or fourth … It will be my fourth. Technically my fourth professional downturn, time working during a downturn.
So, there’s a few simple things that you can implement and that you can watch for to really plan for it pretty easily. This is the good news. So, let’s turn this thing into a real positive. You listeners should be one of the few people who are keeping an eye on it and planning for it, and you’re not going to be to affected by it.
Number 1, micromanage any type of debt that you have, including mortgage debt. So, this is personally and professionally. You don’t want to end up with a bunch of debt. You do not want to end up with a lot of expenses, let’s say, like rent …
Jill DeWit: Car payments.
Jack Butala: Not even personally, but like professionally, office buildings and stuff.
Jill DeWit: Yeah.
Jack Butala: And what we teach here and what Jill and I live by it to the end is not leveraging property. That’s how you get in a real lot of trouble during an economic downturn. If you own a bunch of assets that were good enough for you to purchase, and all of a sudden the sales market for those assets is no longer the way it used to be, the worst thing that can happen is you sell them to liquidate them, maybe even for less than you purchased, but you still are in business, and you’re still cash … There’s money coming in. It may not be positive, but you’re eating, let’s say.
Jill DeWit: Can I-
Jack Butala: Yeah, Jill’s going to share, and then after that we’re going to talk about what to look for so you can predict when this is going to happen. Go ahead.
Jill DeWit: Well, I was going to say, like you said, you’re paying cash for these. Pay cash. That’s my big thing. Pay cash, pay cash, pay cash. And like Jack just said, so you didn’t double your money on the deal because of the downturn because you paid cash for this asset and you’re sitting on it, so maybe you made 70% profit. That’s okay. Like Jack just said, you’re going to be just fine. You’re still way ahead. But if things really go south, alright I only made 50% profit. You’re still going to be fine. That’s all good.
I was going to add one little note-
Jack Butala: Or you lose money. You and I … It hasn’t happened too often, maybe a handful of times, where we’ve like … This is during the absolute depression in like 2011. We sold assets that were less … Or about, let’s say, what we paid.
Jill DeWit: Right what we paid.
Jack Butala: We don’t lose money.
Jill DeWit: Right, but I didn’t make a lot. Just kind of covered everything, and I got the cash in my pocket.
Jack Butala: Yeah.
Jill DeWit: It’s nice to have. It’s like having a safe full of gold. That if you need to go into it, you can. You don’t want to, but it’s there kind of thing. We’ve kind of done that.
Well, I was going to say what you were talking about like personal and mortgages and make sure you’re set up right and all that good stuff. I think that sometimes … I recently filled out an application for a new office for our team, and as I’m spelling out our economic situation, because landlords all want to see that, anyway, I don’t think they almost even believed us, if that makes sense.
Jack Butala: No, I know they don’t.
Jill DeWit: Yeah, because when I really say we have no debt, we have no liabilities, they’re like this can’t be real. Yeah, homes are paid for, cars are paid for. We really don’t have anything, and I almost think it’s funny that, like I said, they don’t believe us. And I think that’s nuts.
Jack Butala: Yeah, but I’ve been doing this my whole life.
Jill DeWit: Really?
Jack Butala: This exact same thing, yeah.
Jill DeWit: Okay. And it’s funny because … And you’ve helped me a lot. If I can’t pay cash for it, if you can’t … Even like cars. Save up and pay cash for a car. Your life will be so different. It’s such a good feeling.
Jack Butala: You can buy a really good car for $1,500.
Jill DeWit: I was going to say 5,000.
Jack Butala: Well, for a girl.
Jill DeWit: Oh. Well, then it’s 15,000.
Jack Butala: You can buy a really good car, if you’re a guy, that has no interior at all but runs good, and for $1,500.
Jill DeWit: Yeah, well that girl that’s $15,000. But, anyway, it’s all good. We’re saying the same thing. So, thank you, Jack.
Jack Butala: Yeah, no it’s good.
So, here’s the good news to make this a positive thing. Hey, by the way this last economic downturn that we had in ’11. I guess technically from like ’07 to ’11, ’07 to maybe … I don’t know. ’07, ’08, ’09 to ’10, ’11, ’12 let’s just say … Was the single worst real estate depression in the history of this country, including 1929 with the great stock market crash before the government had a lot of stop-gaps to avoid that stuff. I am going to go on record here and say in our lifetimes, including very young listeners, you won’t see that kind of downturn again, unless there’s a real serious political problem, which there never seems to be. That’s the good news. You won’t see something like that again where there’s just 15 foreclosures on every block all around the country.
Jill DeWit: Right.
Jack Butala: And when you really go back and look at the national statistics, it’s the squeaky wheel that gets all the attention.
Jill DeWit: It’s true.
Jack Butala: It wasn’t that bad.
Jill DeWit: Some areas were not hit that hard.
Jack Butala: Unemployment was only like 11%, which is really actually bad. It’s usually around 5, but still. When you look at the actual number of people who were just blowing through it. As my attorney says, weathering the storm, and just getting through it, it’s a vast, vast, vast majority of people were doing that. Getting up and going to work. There were some sectors that got hit real hard, real estate was one of them, which is what we happen to be in.
So, let’s stay on track here. How do you predict this thing? What do you look at? Here’s what I look at:
You can set your clock by the types of real estate that go down first, and the ones that follow. So, in general people will stop buying unnecessary real estate or stop getting involved in that first.
Jill DeWit: Like vacation homes and all that stuff.
Jack Butala: Well, office space. Office space is a fantastic indicator of when things start to go south, because if you’re sitting around the kitchen table with your spouse and some stuff’s getting tighter and you’re wondering what’s going to happen at work, the first thing you start to do, if you own a business, is let’s start cutting costs. So, ah, do we really need all this office space? No. So, that’s a real good indicator. And national statistics are published all over the place about occupancy and vacancy for commercial property.
The second thing that starts happening is people stop buying houses. Specifically stop buying houses that are new. So, every state … You’ve got to dig for this information. Every large municipality, like Maricopa County, which is Phoenix, and LA County in Los Angeles, publish entitlement application, because it’s a matter of public knowledge, just like real estate ownership records, censure data. And you can find out which large new home builders are applying for entitlements, or new home permits. Once that starts to, month over month, go down dramatically, you’re heading into some problems. So, these are not difficult things to see and to make the future.
It goes without saying, the longer ahead you can plan for this thing, the better. But the basic stuff, Jill just hit it. Don’t have any debt. If you’re brand new, it’s hard to do. Oh, great, Jack, that’s really easy for you to say. That’s real easy for you to sit there and say don’t have any debt and have a nice day.
Jill DeWit: Yeah.
Jack Butala: There’s a lot of resources out there to help you do that, and frankly there’s some things that really make that hard. Like having kids makes it hard.
Jill DeWit: It’s true.
Jack Butala: And getting caught up with the Jones’s.
Jill DeWit: That does.
Jack Butala: That will make it real hard. Make that hard on yourself. Or if you’re trying to impress your spouse with the huge house that you live in that you can’t afford, that’s bad. You’re going to get caught bad with that. I think it goes without saying, just have a bunch of cash reserves.
Jill DeWit: I agree. That was my thing. Pay cash, save cash.
Jack Butala: I run all these companies that we have, and I wake up saying this to myself, “If our revenue was cut in half tomorrow, I mean overnight cut in half, would it change my life?” And the answer is no, or I won’t. I make decisions that way. If we’re going to take on a new office space or take on a lot of new staff or something, I’ll eke it out instead of doing it all overnight to make sure that if something happens overnight we’re going to be okay.
Jill DeWit: I love that. Thank you, Jack.
Jack Butala: I also put Jill to sleep during the show.
Jill DeWit: Yeah.
Jack Butala: What do you do? Do you ever think about this stuff?
Jill DeWit: Of course, I do. This is very important. Oh, man. Well, you know what, that’s part of the why we do so well when we buy properties. I’m thinking of worst case scenario what could happen with this property, I’m still going to make money, I’m buying it, if that makes sense. So I’m always that far ahead. And usually I kind of think about that. I’m like, alright, I know it’s worth $4,000 and I’m buying it for $1,000, whatever it is, and I know I can sell it for two. If I’m lucky I might get three. And you adjust the numbers, obviously.
Jack Butala: We had a couple zeros.
Jill DeWit: We had a couple zeros. But I don’t worry. And then I don’t worry, too, because the money that I’m spending … And this is why we’re doing this show. We wanted everybody to think this way. The money that I’m investing in these properties is money that I don’t need right now to operate. I’ve built up my acquisition fund. I have allocated acquisition funds, and if it takes three days or three weeks to sell, I’m not worried. That’s in that budget. And I used to this, I don’t now, but I used to have a budget, an acquisition budget, as we were starting out, and when it was spent it was spent, and then I’d have to hurry up and sell some stuff so I could buy some more. Remember that?
Jack Butala: Yeah.
Jill DeWit: And I would tell people, too, I would tell my sellers that I’m out of acquisition funds this month, and this was true. I wasn’t even trying to pitch them anything. I’m like, look, this is what I have left. I can give you this today, or I can give, if you wait a month, I’ll make it X. Sometimes they might just say, “Fine, I’ll take that.” Just to get the sale today kind of thing. That’s it.
So, you know, Jack, we’re in such a good spot right now. You and I have 19 fallbacks. We have fully paid for residence in Scottsdale. So, what’s to worry, you know? You have really set us up properly, and I really appreciate that, and I’m glad that you’re doing this show for me and for everyone to help everyone think about this.
Jack Butala: That’s really why we’re here. Yeah. It’s not about us, but thank you.
Jill DeWit: Yeah.
Jack Butala: It’s about explaining this.
Jill DeWit: Exactly. If you’re renting … You could rent for years and be just fine. There’s nothing wrong with renting a home for a long, long, long time, by the way.
Jack Butala: That’s a whole different discussion. I’m really talking about, as a business owner, and I completely agree with what you were saying, as a business owner you have now more responsibility to watch this because you’re the one who’s going to suffer if you just figuratively get caught with your pants down.
Jill DeWit: Yes.
Jack Butala: And overnight some stuff changes.
Jill DeWit: You’re right.
Jack Butala: It’s not going to change overnight, but the whole point is this is not a positive thing, not a negative thing. The whole point is you have a lot more control over watching what’s going to happen with this economy than you think.
Jill DeWit: Right.
Jack Butala: So, right around … This is my prediction, and I was right last time, too. Right around 2020 we’re going to see a fairly significant, nothing like last time, significant slowdown in sales for real estate. But the even better news is then you just go buy more.
Jill DeWit: Right, I was just going to say that.
Jack Butala: You’ve got cash reserved up. Some of the best deals that Jill and I ever made … The single best real estate deal Jill and I have ever made was in the worst economic situation in 2011 in the history of this country. We were buying tons of properties all over the place for less than $100. $100.
Jill DeWit: That should be the lesson right here, by the way.
Jack Butala: And even in a downturn-
Jill DeWit: This is why you want to build up your cash. If you think about this, like Jack’s saying. So you’re prepared, you’re ready, you’re watching, and you’re quietly stashing away cash to act on this when the time is right. That’s not crazy.
Jack Butala: Yeah, and even in a downturn we were selling property that we’re buying for way less than 100 for $500, which is a smoking deal for people that we were selling it to, and it’s worth 5,000. All those people did great during that downturn that bought the property from us.
Jill DeWit: Right.
Jack Butala: It’s our whole business model.
Jill DeWit: None of this has to sink the ship. You just have to be ready for it and be prepared. There’s a lot of the other wholesalers and land sellers that were around back in that time that they didn’t make it, and it’s interesting because-
Jack Butala: I can name their names.
Jill DeWit: Yeah. When we get calls now from letters sent in 2005 that they still have, it’s interesting their first thing is wow you guys are still here. Yeah, we’re still here. We didn’t go anywhere. Sure we got hit, but who didn’t? But we were ready and prepared, and that’s what we’re doing for you here.
Jack Butala: That’s it. Well said.
Jill DeWit: Thank you.
Jack Butala: Join us in our next episode where we share an interview from MC … How do you spell it? How do you say it?
Jill DeWit: Lopsher.
Jack Butala: MC Lopsher.
Jill DeWit: Yup. Cool. And we answer Bart’s question about multiple owners for one property. Ooh.
Jack Butala: You are not alone in your real estate ambition.
Good show.
Jill DeWit: Yeah.
Jack Butala: I think it came off the way it should.
Jill DeWit: I think so, too. You need to hear this stuff.
Jack Butala: I know. That’s really what it comes down to.
Jill DeWit: You know what it is? It’s stuff that I wish my dad told me, and he never did.
Jack Butala: Yeah. That’s what a lot of these shows are modeled after that. I agree.
Jill DeWit: Yeah.
Jack Butala: Painful. Actually it’s easier to learn how to drive from not your dad.
Jill DeWit: Oh.
Jack Butala: It might be easier to listen to this from your dad … Than your dad.
Jill DeWit: Good point.
Jack Butala: I don’t know.
Jill DeWit: That’s true. Someone could be telling you, like your spouse, let’s be honest. Your spouse is telling you over and over and over again that color looks awful on you or something. Well, they’re not going to say that.
Jack Butala: Your spouse is saying that that’s true.
Jill DeWit: But you don’t listen to them, and then your best friend says not your best look, and you go oh, well I’m going to make a change today. I’m not going to be blonde. You know what I mean? And it’s funny …
Jack Butala: I’m not going to be blonde.
Jill DeWit: You know what I mean.
Jack Butala: That’s awesome.
Jill DeWit: You sometimes have to hear it from a little bit different person, and then you pay attention. I get that. More of an unrelated third-party, maybe? Maybe not someone quite so close to you. I don’t know why that is, but then [crosstalk 00:20:57]
Jack Butala: What else if your spouse tells you, you just kind of blow it off? Give me some examples. It’s funny as hell, Jill.
Jill DeWit: We can’t afford that. I blow that one off right away.
Jack Butala: How about the divorce papers have been on their nightstand for [crosstalk 00:21:15]
Jill DeWit: Oh, no.
Jack Butala: You started the divorce thing, not me.
Jill DeWit: No. What do I say that you blow off? This ought to be good.
Jack Butala: I’ll tell you, it didn’t take long for it to pop into my head.
Jill DeWit: What?
Jack Butala: Where would you like to eat?
Jill DeWit: Oh. Yeah, we have a thing about that.
Jack Butala: Yeah, there’s a big trial ritual, fully awful scenario that goes on every time we go out to eat.
Jill DeWit: Hey, you know, if that’s your big vice with me about my indecisiveness about dinner plans, I think that’s okay.
Jack Butala: I can safely say that is the single worst thing about you.
Jill DeWit: Thank you.
Jack Butala: And that’s it. Everything else is peaches and cream, sweetheart.
Jill DeWit: Alright, thank you very much.
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