Establishing Seller Trust

Transcript: 

Jack Butala:                         Jack and Jill here.

Jill DeWit:                            Hello.

Jack Butala:                         Welcome to the Jack and Jill Show, entertaining real estate investment talk. I’m Jack Butala.

Jill DeWit:                            And I’m Jill DeWit, broadcasting again from sunny Southern California.

Jack Butala:                         Today, Jill and I talk about establishing seller trust. The good, the bad, and the ugly.

Jill DeWit:                            I was going to say, we’re going to start with first an example of what not to do, and then we’ll fall into what you should do, yes.

Jack Butala:                         What if we just had a show about just doing it right all the time?

Jill DeWit:                            Oh that would be boring too. You’ve got to show that we even fall down a little bit too.

Jack Butala:                         We just pat each other on the backs all the time and say, “It’s so easy to be a real estate investor. Everything single deal.”

Jill DeWit:                            “Everybody should do it. You win on every deal. Oh yeah and it’s so easy, you don’t need to train people. You just hand them a phone, they’ll figure it out.”

Jack Butala:                         We could make cartoons like Walt Disney and make a theme park called “Real Estate Success”.

Jill DeWit:                            Right. Love it.

Jack Butala:                         What would you name the rollercoasters or the rides?

Jill DeWit:                            The rides in Real Estate Success?

Jack Butala:                         Yeah, the theme park.

Jill DeWit:                            Oh…”Losing My Ass”. “Drop”.

Jack Butala:                         “Fatal Real Estate Agent”.

Jill DeWit:                            “Fatal Real Estate Agent”. “Big Flub 101”. I don’t know. I don’t know.

Jack Butala:                         “Should I Get A College Degree?” That could be one ride.

Jill DeWit:                            Oh that’s a good one. That’s true too.

Jack Butala:                         It’s a small one.

Jill DeWit:                            “I Borrowed All the Money I Could Get My Hands On.”

Jack Butala:                         “I Over-leveraged This House”.

Jill DeWit:                            Yeah that’s it. Oh no. That’s good.

Jack Butala:                         Before we get into it, let’s take a question posted by one of our members on the jackjill.com online community, it’s free.

Jill DeWit:                            I over-leveraged my house, oh my god. I over-leveraged my you-know-what. Okay.

Jack Butala:                         Shouldn’t have married this girl.

Jill DeWit:                            Oh, Jack. Now.

Jack Butala:                         That’s a side theme park.

Jill DeWit:                            Okay. That’s a whole other show.

Jack Butala:                         Did you ever play that board game “Life” as a kid?

Jill DeWit:                            Yeah. I mean, I never played it as a kid, I only played it as an adult. I always thought, as a kid, it was too hard and it was stupid.

Jack Butala:                         It was stupid. Because life is stupid really.

Jill DeWit:                            As a kid I was like, “Why would you want to play this game, where you get married and have kids and there’s college and everything?” I thought that was stupid. That’s not a kids’ game.

Jack Butala:                         See, you’re intuition was totally correct.

Jill DeWit:                            It’s wrong. Don’t do that to your poor kids.

Jack Butala:                         Not even adults really want that.

Jill DeWit:                            Do you know what? The only game that was also up there was Risk. That was kind of hard for me, like, playing –

Jack Butala:                         To this day I don’t like Risk.

Jill DeWit:                            Yeah building wars and armies and doing this stuff. Yeah it’s very complicated. I like easy.

Jack Butala:                         That is one board game I just said, “I’m just not going to learn”. Spent a lot of time playing chess.

Jill DeWit:                            My favorite was Monopoly. We’d drag it out for a week. We put it away, come back the next day.

Jack Butala:                         [crosstalk 00:02:41]

Jill DeWit:                            Exactly. Yep. Good stuff.

Jack Butala:                         Wish I would have known you back then.

Jill DeWit:                            Thank you. You too.

Jack Butala:                         We’d be in prison right now.

Jill DeWit:                            Uh oh. I don’t want to know.

Okay, so Jeff asks, “I’m sure this issue has come up for many of you out there, but I can’t quite find the right answer by Googling or looking through the forum.

When you buy multiple parcels in one purchase, how do you allocate for tax purposes the purchase price across the multiple parcels?”

Jack Butala:                         Fantastic question Jeff.

Jill DeWit:                            “Or to rephrase in tax language: what basis to give to each of the several parcels? For example, let’s say you find a seller who wants to sell you ten parcels in one county, each a varying size and value, for $10,000 total. You complete the purchase (as you typically do) by sending the seller a check for $10,000. So there’s no real way to say, ‘I paid $4,000 for property X, but only $800 for property Y’, since the purchase was for the whole package rather than each property individually. If, by the end of the tax year, you’ve sold five of the ten for $12,000, do you report a $2,000 profit? If so, the following year, when you sell the remaining five parcels for, say, another $12,000, do you report all of that next $12,000 as profit? Just wondering how you all approach this as I’m sure many of you routinely face this issue.

Thanks all, Jeff.”

Jack Butala:                         Right about the time – this is about a master’s degree-level question, it’s great. And thank you producer for getting it into the show. I had this exact issue right about the same time where you are in your career. And I came across it, and in my situation it was very clear that one property in, what did he use here, five? Ten. One of the ten properties in my case, a lot of years ago, was right on a road. And it was a fantastically valuable property, and the other nine behind it – picture a farm, where the farmhouse is located. That’s one APN. Then all the fields and stuff, back the further you go that are up the hills or up the mountains they get less valuable theoretically. Let’s call it not valuable, let’s call it less marketable, or less desirable by a buyer.

But I’m telling you, to directly answer your question, you just divide by ten. Because you’re going to drive yourself nuts trying to figure this out. And the way that the – for tax reasons, what you’re actually really doing – this is just my opinion – we’re all in the business of creating ordinary income. So check with your tax person, but to directly answer the question, just divide equally by the number that you’re purchasing. So your cost basis is the same, and your revenue is the same. Your revenue will be different if you’re doing everything right. Some of them will sell for a lot more, some of them will sell for less. Just make sure you sell them all, that’s the other point of it.

Jill DeWit:                            Right.

Jack Butala:                         Every year Jill and I stare at a Excel sheet of property that we haven’t sold yet, and it’s like, “Oh my gosh, what the heck?”

Jill DeWit:                            Well it’s our fault. Because sometimes we get distracted. You need to make them known and get it out there and all that good stuff.

Jack Butala:                         I guess my point is – I don’t know what that Disneyland ride would be here, but no matter what you do –

Jill DeWit:                            “I’ve made money, I don’t know how” –

Jack Butala:                         There’s always leftover real estate inventory, and when you really think it would take ten steps –

Jill DeWit:                            I don’t know how to account for the money I’ve been making.

Jack Butala:                         Take ten steps back and say, like literally Jill, and I looked at it recently. We have like 280 properties in our inventory right now. And so we’re making a mad rush, all hands on deck. The staff who’s listening to this, thank you by the way. And I know you’re pulling your hair out, but thank you. We’re trying to put all these properties up for sale. I mean when you add up 280 properties, there’s some equity there.

Jill DeWit:                            That’s true. Exactly.

Jack Butala:                         So I hope that answers the question. That’s a really, really advanced, good question. And if this is – again, a case of, you can just tell who’s going to do well. If you’re asking this kind of question Jeff, you’re doing fantastic.

Jill DeWit:                            Awesome.

Jack Butala:                         Today’s topic: establishing seller trust. This is the meat of the show. It’s also one of the things that Jill is an expert at, and I’m not so much. That’s why I named it this, so I could –

Jill DeWit:                            Thank you. So you could just take a break?

Jack Butala:                         I can have a coffee right now.

Jill DeWit:                            Yeah, take a step back. Take a break.

Jack Butala:                         I’ll lead in by this. It is so important, it’s imperative, when that phone calls and the person says some version of, “I just got this letter. You know, I don’t understand. I’ve owned this property for 20 years, I think your price is a little bit low. Is this a joke? Is this a scam? Because I do want to sell it, but maybe not for this price. But who the heck are you?”

Jill DeWit:                            That’s easy.

Jack Butala:                         Educate us Jill.

Jill DeWit:                            Thank you.

Jack Butala:                         Because my answer would be, “You know what? Go, enjoy your day. I’ll talk to you later.”

Jill DeWit:                            So that’s a perfect example of the person that comes to us. So, here’s the thing. First I was going to lead with a what not to do example, because we just recently had one. And I’m just going to kind of point out the main things that went wrong, which was the communication was broken, and too many people were working on the deal. And even back in the day, remember Jack, there was a time where it was just you and I doing deals years ago, and even with just the two of us you think that we’d communicate everything, which we did, but we couldn’t work on the same deals together because they would go sideways.

Jack Butala:                         Exactly. So let’s start with maybe two or three or four bullet points of things that you want to do, and then we’ll give a couple of examples of how to do, and maybe how not to do it.

Jill DeWit:                            Okay. So I’ll give you an example, and you tell me how you want this to go.

Jack Butala:                         Okay.

Jill DeWit:                            So one is honesty. Being up front and honest.

Jack Butala:                         Understanding.

Jill DeWit:                            And so you need to prepare them, and tell them if you’re really going to buy it, here’s why. If you’re not going to buy it, here’s why. You need to change your price, here’s why.

Jack Butala:                         Here’s my version of that. “Hey seller. Yeah we are going to buy your property for $4,000. And we determine that we’re willing to pay $4,000. Not that it’s worth $4,000, but we’re willing to pay $4,000. Either you want to sell it for that or you don’t. And we are land resellers, please go see jackjill.com. And check us all out.”

So honesty is imperative. If you want to say, “I’m going to build a cabin on it and it’s going to be my dream house”, I just think keep your lies straight if you’re going to do that.

Jill DeWit:                            Exactly. The other thing, talk to them on their level. To them, $1,000 may be a lot of money. $10,000 may be a lot of money. Whatever transaction price you guys are discussing, you need to know for them, don’t assume anything, and talk to them, figure out where they’re coming from.

Jack Butala:                         Along those lines, Jill and I get calls from regularly, on a monthly basis, people who are settling their estate, settling their parents’ estate, and their stakes are very large. Substantial. And so they say some version of this, you can hear it in their voice, “I’m working my way down a list of assets that my dad owned. Can you guys just take all these properties? We don’t even really care about the value, but I need to go back to work and have my life again.” And so Jill, our staff handles that very efficiently. We’ll pay $1,000 for 10 or 15 properties all across the country.

Jill DeWit:                            Another thing. Communicate, talk to them, let them know what’s going on. “Hey, we’re behind on this, or I know it’s going to be this, we did receive your payment.” Actually, I’m thinking buyers. But for sellers, “Hey, I’m mailing it out today. The notary’s coming.” Whatever happened. “It’s a holiday, now it’s going to be Tuesday. We can record it, not record it. However you do it.”

Jack Butala:                         I personally struggle with this. How much is too much communication? How much is not enough communication? Is it purpose-specific?

Jill DeWit:                            I honestly think there’s never too much communication with this type of stuff.

Jack Butala:                         Do you call a guy five times a day?

Jill DeWit:                            No. I don’t. No seriously, be realistic though.

Jack Butala:                         That’s too much communication. I’m not putting you on the spot, because I honestly really want to know the answer to this question.

Jill DeWit:                            You’re not realistically going to call them, but you might call a person daily. “Hi, just checking in. How are you?” This is a seller, we don’t want them to walk, we don’t want them to change their mind. You want them to feel good about you. So yeah, you’re available. Communication works both ways. You want to be there when they call, and you want to keep them posted about what’s going on. Communication too is like, I don’t have to call you every day, but I could say, “Hey, I am working out the details, this is where we are.” Maybe it’s a big parcel and it’s going through escrow, let’s just say something like that. So, there might be three days of nothing because of escrow. So you tell that person, “Hey. I’m here if you need anything. I’ll call you in three days, I should have an answer by then, and hope that we’ll have the title policy ready to go and we can finalize our close date, whatever it is.” That’s communicating. You don’t have to call them and go, “Okay it’s day two. Okay it’s day one.” But maybe that person does need that, I don’t know. You get it.

Jack Butala:                         Understood.

Jill DeWit:                            Okay thank you. Alright. And then the last thing is – this is all just about trust, not really about deals. It’s just trust and people stuff. And the last thing is just follow through.

Jack Butala:                         Yeah, do what you say you’re going to do.

Jill DeWit:                            Exactly.

Jack Butala:                         We have a glaring example of a property recently where I think we lost the seller’s trust.

Jill DeWit:                            We did.

Jack Butala:                         Without intention. Here’s the whole story. It was a house.

Jill DeWit:                            There was two things that we did wrong. Go ahead. And I’ll say –

Jack Butala:                         Well here’s the back story real quick. As always, we sent a ton of offers out. And this one happened to be the first one that came back in that batch. In a zip code that Jill and I are really familiar with, so I was real excited about it. But the first day it came back, it came back signed. And she said, “Your time was perfect, I really want to sell my house.” And so we went down the path of doing that, ordered an inspection, the whole thing.

First thing when it came back that I do personally when I’m involved, is I pull it up on Zillow or Redfin or any of those, and look at the property physically and look at the property plan. And this property happened to be on a major road. A major North-South road in Arizona. And I mean major, where you can’t sleep at night noise road. And I said that immediately. And for whatever reason, the price was so attractive that we continued down the path. But both of us, Jill and I admitted to each other recently, “Man, that one deal was bugging me, that was bugging me, that was bugging me.”

Jill DeWit:                            Well, we talked about it. We talked about it.

Jack Butala:                         The price was so attractive, and the deal itself – the house was in such good shape, there’s a lot of things about the deal that would make most people buy it.

Jill DeWit:                            You know what’s funny though? Let me tell you though. There’s this classic dating fail. This is really what happened. It’s like, “But he’s cute. Oh, but he doesn’t have a job. But he’s cute.” This is really what was going on. There were all these red flags that came up with this property, and we ignored every one because he was cute. That was it. “He doesn’t have a job. He doesn’t have a car. He lives with his mom.” All those things we ignored. You wouldn’t do that in dating, you would have been gone. We should have been gone.

Jack Butala:                         Well how does it end with that cute guy?

Jill DeWit:                            Oh it’s painful, and everybody’s unhappy in the end. He’s like “You led me on.”

Jack Butala:                         Was it fun for a week?

Jill DeWit:                            No.

Jack Butala:                         Not even for a week?

Jill DeWit:                            No.

Jack Butala:                         It wasn’t worth it?

Jill DeWit:                            No, it wasn’t worth it. No. Because – you know.

Jack Butala:                         No I want to hear it.

Jill DeWit:                            Because you know what? It’s never fun, you were just pretending it’s fun. Every time you have to drop him off and pick him up at his mom’s house for a date, that’s really not fun. But you’re telling yourself it’s fun. You’re telling yourself, “Oh this is sweet.” No it’s not.

Jack Butala:                         So, you can finish the story yourself. Got contracts, went down the path, and started very diligently pulling in all the established A list buyers that we have all over the place. Every single one of them, imagine what they said.

Jill DeWit:                            Yeah.

Jack Butala:                         “Oh great house, great price, love it. It’s on the road, I’ll get back to you. It’s on the main road, I’ll get back to you.” Because investors never say, “No, no, I don’t want that at all.” They’re all deal makers. Including us. Deal makers – Jill’s middle name is “Can’t Say No”. They just can’t say no.

Jill DeWit:                            Right. Thank you.

Jack Butala:                         So, the seller finally said, “You know, this is taking too long. I’m going to take another path.”

Jill DeWit:                            And that’s fine.

Jack Butala:                         And it is. That’s it. But my point is –

Jill DeWit:                            And I’m glad. Because we were trying to do the right thing. You’re only supposed to be back up.

Jack Butala:                         She did.

Jill DeWit:                            We were trying to do the right thing. We were trying to follow through. You even said, “Hey, let’s for karma’s sake. If we find somebody let’s just assign it to them and walk away so at least she can move on and get this house out of her life. We’ve already lost money, we’re cool with that. We’re not hurting.”

Jack Butala:                         We lost a bunch of money.

Jill DeWit:                            We did, I know. We had five people, I counted it out, five people working on it for a couple of weeks, paid for inspections and things like that. We really were trying to do the right thing. She pulled the plug and that’s okay.

Jack Butala:                         Sounded major rough.

Jill DeWit:                            I know. That’s the thing. I knew it when we were going down the path, when we were like, “We’re on plan D now.” Trying to make this work, and it just wasn’t working. And I don’t even think that there was any magic price that would really, really work, unless it was a dollar. Any person still, at any price, they have to find a really certain person that’s okay with that location.

Jack Butala:                         Yeah that’s a topic for a different show. I’m writing that down. Who buys assets like that? That really, they just settle.

Jill DeWit:                            Isn’t it interesting?

Jack Butala:                         Constantly I’m driving around – because I always look at real estate, obviously, and I’m constantly saying, “Who the hell lives there?”

Jill DeWit:                            Who would live right here? Exactly. You’re staring at the freeway.

Jack Butala:                         And I think they just renovated that house. And I think they put like $1.2 million into that thing. But it’s right on the expressway.

Jill DeWit:                            Right. Well these are freeways out here. They don’t have expressways Jack. I don’t know what that is.

Jack Butala:                         I think it’s the Midwest version of a freeway.

Jill DeWit:                            Oh my goodness.

Jack Butala:                         What the hell is a freeway?

Jill DeWit:                            Do you call it the filling station too? Where do you go to get your gas?

Jack Butala:                         And the ice box? Sometimes I do.

Jill DeWit:                            Yes. Okay. Just checking. That makes sense now. I got it. Alright so I think we figured out –

Jack Butala:                         To wrap that up, what would you have done differently with that seller and –

Jill DeWit:                            Oh you know what I can tell you real easy.

Jack Butala:                         Hold on. I think you really did establish trust, that’s my version of this. I think that, in the end, it just didn’t – because I think you did a great job at establishing trust.

Jill DeWit:                            Right. Well as a team, we established trust.

Jack Butala:                         We just didn’t deliver on it.

Jill DeWit:                            Well here’s what happened. As a team we established trust. But at the end, we goofed up their trust because another person was working on the deal, which was me, I will be honest, and she had never talked to me before. If she had talked to me –

Jack Butala:                         The seller.

Jill DeWit:                            Yeah. If she had talked to me, and if she had spoken to me from the minute one, we would have time to build up a rapport, and it would have been great. It would have been just fine. But not only was I the new person coming in, but I’m also the new person coming in with bad news. So that’s what happened. Number one that happened. And then number two where we goofed up, we didn’t pull the deal soon enough.

Jack Butala:                         Yeah we didn’t just say no.

Jill DeWit:                            Yep.

Jack Butala:                         Yeah.

Jill DeWit:                            Saved us a lot of time, a lot of money, lots of –

Jack Butala:                         I’ll personally take responsibility for that. I’ll tell you though, this is a learning experience so I mean hopefully listeners won’t have to look at a property that’s right – this is the exact opposite is for land by the way.

Jill DeWit:                            Isn’t that funny? I was thinking about that too.

Jack Butala:                         When land is on a major road, you want to buy it.

Jill DeWit:                            You celebrate. Yeah. Talk about easy. There’s probably utilities right under that road, this is great. Talk about easy. Isn’t it funny? And before you build the house, you want to be right on the road. Once the house is built, forget it, get off the road.

Jack Butala:                         The raw land that we look at that’s on a road or a even on a freeway –

Jill DeWit:                            Oh very good.

Jack Butala:                         There’s a lot of uses for that. Like a filling station. You don’t want to live there.

Jill DeWit:                            Right? And you know what, that’s a great place to buy pop. Alright.

Jack Butala:                         Gosh. I’m going to think of everything in terms of a Disneyland ride now.

Jill DeWit:                            Awesome.

Jack Butala:                         Well you’ve done it again. You’ve spent another 20 minutes listening to the Jack and Jill Show. Join us tomorrow, where we discuss some unlikely SFR deal killers.

Jill DeWit:                            And we answer your questions. Should you have one, post it on our free online community found on jackjill.com.

Jack Butala:                         You are not alone in your real estate ambition.

Jill DeWit:                            We kind of covered a little bit – some of the stuff we talked about today will totally apply to tomorrow too. So that’s going to be really good.

Jack Butala:                         I just think that’s really, really, really valuable information. Seriously.

Jill DeWit:                            Today? Or tomorrow?

Jack Butala:                         If there’s any takeaway – if by some crazy accident you’re actually still listening to this, the end of this show here, don’t buy a house on a main thoroughway. That’s just all there is to it. No matter how attractive the deal is, it’s going to be in your inventory for a while.

Jill DeWit:                            It will. Unless you’re prepared to sit and wait.

Jack Butala:                         Because here’s what happens. You buy the house for half what you think it’s worth, and then you post it for – I’m just going to throw out numbers. If you buy a house for $100,000 on a major street, and it’s worth 300 like, three blocks back from a major street, and you post it for 150 or 170, the whole world’s going to say, “Well what’s wrong with it?”

Jill DeWit:                            Mm-hmm (affirmative).

Jack Butala:                         You’re going to be stuck with that asset, I don’t care what you do, for a really long time.

Jill DeWit:                            You’re right.

Jack Butala:                         So please learn from us. As painful as it is for us to talk about it.

Jill DeWit:                            Exactly. Yep. Exactly. Hey share the fun by subscribing on iTunes or wherever you’re listening, and while you’re at it, please rate us there. We are Jack and Jill.

Jack Butala:                         (Simultaneously) We are Jack and Jill. Information.

Jill DeWit:                            And inspiration.

Jack Butala:                         To buy undervalued property.

 

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