Is a Smooth Transaction or Rehab Even Possible (HA 1257)

Transcript:

Steven Butala:
Steve and Jill here.

Jill DeWit:
Howdy.

Steven Butala:
Welcome to the House Academy Show, entertaining real estate investment talk. I’m Steven Jack Butala.

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

Steven Butala:
Today, jill and I talk about, is a smooth transaction or a rehab even possible, buying and selling houses?

Jill DeWit:
Oh, sure. What would you say? I don’t know, North of 90%. Just kidding.

Steven Butala:
I would ask you.

Jill DeWit:
Could you imagine?

Steven Butala:
What’s the summary here?

Jill DeWit:
What’s the summary here? I’m going to describe the perfect scenario and then I’m going to describe what really happens. And then we’re going to talk about, you make the decision, what do you think is the best way to go?

Steven Butala:
Yeah, because I really think this is person specific, because we have people in the House Academy group that are just veterans, seasoned veterans who are so enthusiastic about doing certain deals. And then we have some that are just like, man, I just can’t seem to find my Zen these last couple of months, so.

Jill DeWit:
Some are set up for this, some are not. I’ll give you a hint, if you’ve been raised, and your dad and you’re in a construction environment and you’ve got cheap labor and you get nepotism pricing and you have… Your uncle is a carpenter or your dad can do foundation, whatever it is, and you’re the general, I mean, you might be set up for that. But most of us are not.

Steven Butala:
There’s six talents involved in rehabs and it comes down to personal talent and patience and a bunch of other stuff. And it comes down to a real, like Jill just said, a frank conversation in the mirror about what you want to do for the next 30 to 60 days.

Jill DeWit:
And is it the best use of your time?

Steven Butala:
We know people who have been doing rehabs for a decade.

Jill DeWit:
Right. It’s in their soul. I was just saying, we have a good friend that came and stayed with us a couple of weeks ago. It’s in his soul. He could do so much more volume and make more money, but he actually loves it. So that’s part of it is too, when you’re at the end of this and you talk about this, have your heart to heart with yourself, maybe that’s who you are. You are a half artist, you’re an artist who lets it out by doing rehabs and picking the dream kitchen and then moving on and doing it again and again. And that’s okay, if you’re set up for it and the financial stars are in alignment

Steven Butala:
Do you know what wrecks it for everybody? HGTV, but we’ll talk about that in a second.

Jill DeWit:
Right.

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

Jill DeWit:
Rebecca wrote, do we take into consideration for sale properties versus sold properties on Zillow, or do we just follow Steve and Jill’s criteria and not worry about sold versus for sale? Example, if a County is showing 124 for sale properties in the last six months, but only 52 have sold, do I not use that County?

Steven Butala:
This is an incredibly intelligent question. And the fact that you’re even asking it and looking at these numbers and trying to make an ever more educated decision about whether or not to buy and sell property in an area, which should be my middle name. I am ever trying to improve on how I make these decisions and why, because the market’s ever improving. I read an article.

Jill DeWit:
Read or wrote?

Steven Butala:
Read.

Jill DeWit:
Okay.

Steven Butala:
It wasn’t even an article, I think it was a TV thing, it was a documentary about, the drummer for rush, Neil Peart, who recently passed away. And my jaw was on the ground the whole time, because all throughout his career, right to the last day when he stopped playing drums for physical reasons, he was taking lessons from different types of jazz drummers and different types of musical theory.

Jill DeWit:
We should always be doing that.

Steven Butala:
This can be debated forever, but [inaudible 00:04:01] maybe one of the best, if not the best, rock drummer ever. So at least top 10, let’s just say. So for him to want to constantly improve, like Rebecca here, I think is doing, I just think that’s the greatest compliment there ever was. So if you continue to question this stuff, you’re going to do great. To directly answer your question. If a County showing 124 properties on Zillow, that are for sale, over the last six months, but only 52 have sold, would you use that County? Here’s the answer, the red, green, yellow test that we teach in the program answers these questions for you. So there’s three or four or five stats that we look at in the red, green, yellow test. One of them is, properties that have been listed in the most recent months against properties that have sold. And you want to see a one-to-one, about a one-to-one ratio. In this case-

Jill DeWit:
It’s not one-to-one.

Steven Butala:
And unfortunately, she’s got six months of data here, so. Six months is a little too long, unless the days on market are that long. If it’s got 180 days on market, then you want to run away from that County anyway. So in this format, whether it’s audio or video, however you’re taking it in, it’s very difficult for me to describe it unless you’re looking at a spreadsheet and I can explain it, which is what all of our education does and what we talk about on our webinars and all that stuff. So the fact that you’re asking that question, it’s a question that I’ve asked some version of, my whole career. And for 25 years, I’ve been developing tools, as technology and the data that’s available allows me to, to get the answers to that, to get to the bottom of which County to buy property in or which zip code, in the case of houses.

Jill DeWit:
Well, that’s great, Steve. Rebecca, let me answer your question now. Geewiz, that took a long time.

Steven Butala:
Why? Really?

Jill DeWit:
Oh my gosh.

Steven Butala:
She appreciates it, I guess.

Jill DeWit:
Yeah, well, you three times told her how smart she is, but you didn’t answer the question.

Steven Butala:
I answered it.

Jill DeWit:
Kidding.

Steven Butala:
Oh my gosh.

Jill DeWit:
You did.

Steven Butala:
Did I?

Jill DeWit:
You did, but could have gone a lot faster.

Steven Butala:
Wow. See what I’m saying? This is what goes on in our house.

Jill DeWit:
Man, dad, please don’t give me the speech again. Just kidding.

Steven Butala:
Jill wants a whole life of soundbites.

Jill DeWit:
Oh my gosh. So here’s the deal, Rebecca.

Steven Butala:
She wants half sentences.

Jill DeWit:
Rebecca, if you’re looking at 10 very specific nearby areas, and this is the best one, then yes. If of all the 10, this is the worst one, then no.

Steven Butala:
How do you know which one’s the best or worst?

Jill DeWit:
Because you’ll be able to tell. And you know what? And by the way, here’s my thing too. If you’re working at 10, you’re lining up 10 similar things, I’m going to say, not even zips, let’s just say… Or not even counties, you’re doing zips. I hope you’re doing zips here.

Steven Butala:
I hope so too.

Jill DeWit:
Because this is the House Academy Show. I’m going to use zips in this example, let’s just say.

Steven Butala:
Zip codes.

Jill DeWit:
Zip codes. You’ve got 10 zip codes and you’re doing all of Las Vegas, for example, and this is the best you got. I’m like, all right, then if I really am doing Las Vegas, this is the best I’ve got, I need to account for this and I got to buy right. And I need to move them, I need to be in one of those 52 that are sold in the last… Maybe over the last six months. So I need to be one of the 10 that’s sold in the last 30 days or whatever it is. I need to make my property that good. I also might be saying, maybe I shouldn’t be doing this area. Maybe I should look at this area or this area. I’m going to, before I even pull the trigger. Now I know the best one’s a zip code in this area, I need to look at that-

Steven Butala:
Who’s taking a long time answering the question now?

Jill DeWit:
At least I’m answering it. Just kidding.

Steven Butala:
Oh my gosh.

Jill DeWit:
I’m sorry. No, no, no.

Steven Butala:
It’s going to be like that tonight.

Jill DeWit:
You’re right. You’re right. You’re right. But then I also need to compare it to some other MSAs just to make sure I’m not going in wrong. That’s my point.

Steven Butala:
Here’s the soundbite that Jill wants.

Jill DeWit:
Maybe like Florida. Maybe Florida stinks right now. Maybe Tampa stinks right now, but Atlanta’s great. Let’s look at all this stuff.

Steven Butala:
The great equalizer in any of this. This is step one and it ends up being the end step also, every single time I do this, it’s the days on market.

Jill DeWit:
Yeah.

Steven Butala:
And so, that’s what you’re kind of alluding to here. My guess is that, you’re kind of new at this but you’re really good at statistics and stuff and data. And so you’re thinking through it that way. When you find a market that has days on market that’s half of what other surrounding zip codes are, let’s just use 30. 30 is really good, 30 is where I start to pay attention. The lower, the better. And then you look at another statistic, like the one you’re alluding to here, which is, how many properties have been listed and how many properties were sold month over month?

Jill DeWit:
Right.

Steven Butala:
If 100 properties are listed and 100 were sold, that’s a real healthy market. That’s a one-to-one ratio. And there’s a couple other things to look at, at the risk of boring the hell out of Jill, I’m not going to bring up right now.

Jill DeWit:
This is, for the record, what you’re doing right now, Rebecca, is why I have Steven. Because I’m like, I don’t-

Steven Butala:
That’s right.

Jill DeWit:
Just tell me where to go buy.

Steven Butala:
Yeah.

Jill DeWit:
Tell me what to buy.

Steven Butala:
This is exactly what goes on in our office, just like this.

Jill DeWit:
So if you’re that person in this group, you need to find someone like this one, because it doesn’t work that way.

Steven Butala:
Or if you’re like me, find Jill, somebody who can just [inaudible 00:09:27] it on the phone.

Jill DeWit:
Right.

Steven Butala:
Once you get the data out, once I get the data out there and it’s placed right and priced right, and I did all the research on where we should be buying. I said, “Why?” And said, “The market’s really moving quickly, stuff’s getting listed and sold.” And her phone starts to ring, we watch our bank balance go up. That’s the truth of it.

Steven Butala:
Because I used to do all this stuff myself and I did okay, but nothing like when I teamed up with Jill. And so, in your career, hopefully you can do it all yourself in the beginning. You’re a pretty good sales person and you understand the data part. You probably wouldn’t be listening to this if you weren’t that person.

Jill DeWit:
Exactly.

Steven Butala:
So if you can do a bunch of deals on your own and do them pretty well, man, when you find a partner who does the stuff… Because you’re going to favor one or the other. I mean, I’ve never heard anyone say, oh, I love doing all of it. You’ll do great. Great question. Question of the week, actually. Today’s topic, is a smooth transaction or rehab even possible? This is why you’re listening. No, it’s not.

Jill DeWit:
All right. That’s this episode. All right.

Steven Butala:
It’s all about what you’re willing to put up with, like a marriage.

Jill DeWit:
Oh no, no, no, no, no. We’re not going there. Or if you want to go there, I will go there but trust me, it won’t be pretty.

Steven Butala:
Anything worthwhile is at least a little bit difficult, even three decades or four decades later. But in the end, you’re going to have to tell yourself yeah, it’s totally worthwhile. Physical rehabs for me, physical rehabs of assets of any kind, whether it’s… Or construction even, are not worth the effort for me.

Jill DeWit:
Okay. You want to play this game?

Steven Butala:
Sure.

Jill DeWit:
Ready? I got this. Here’s the perfect scenario. I’m going to give it to you in a house and I’m going to give it to you in a marriage.

Steven Butala:
This is fun.

Jill DeWit:
Oh, it’s good. Okay. Here’s the perfect scenario. This is why you would be doing a rehab on a house. Everything’s HGTV. It’s beautiful. You buy the house, it’s in the dreamy area, it’s the area that’s coming back to life. It’s like the mother and daughter, I can’t remember their names right now, that do their… They’re bringing this area back to life in whatever state they’re in.

Steven Butala:
Indiana.

Jill DeWit:
Thank you. And they always just buy the little houses there and they pick the cutest little things and they just make them great. And we never talk about all the windows that came in the wrong size. We don’t talk about… They do talk about, there’s some major problems, but they never seem to run out of money. This stuff really does happen. It’s not HGTV, it’s not really how it goes. So let’s just say, but the perfect scenario is, it goes perfectly. You buy it for $20,000 and you sell it for $120,000 and you put 40 into it.

Steven Butala:
Great numbers.

Jill DeWit:
There we go.

Steven Butala:
Great TV numbers.

Jill DeWit:
Those are just like the Indiana girls. They buy things for $20,000 and they’ll put that much in and they’ll sell it. And then by the way, they sell it to this… They say, if you watch the show too, it’s like a potential buyer, it’s not always the actual buyer. So anyway, that’s the thing. And it’s just like in a marriage. You meet Ken, and Ken is dreamy.

Steven Butala:
Like Barbie and Ken?

Jill DeWit:
Yeah, like Barbie and Ken. He’s chiseled, he’s tan, his hair is always perfect, it just is stuck that way. He’s the life of the party, he never argues and he never gets drunk. His car is perfect. He always cleans up after himself and he never stinks. He smells new out of the box all the time. Okay. So there’s the perfect scenario. Now, here’s what really can happen in the house scenario. Things do go wrong. You might have a transaction where you thought that roof looked good. You didn’t see that it was three layers of roof and what’s really going on under there. Or the flooring looks good, you don’t realize that’s not original and oh my gosh, it’s rotted under here. Things like those, happen. Go ahead.

Steven Butala:
Nothing.

Jill DeWit:
Oh, I thought that-

Steven Butala:
I can’t wait to hear this. I’m sure the listeners are the same way.

Jill DeWit:
Exactly.

Steven Butala:
They can’t wait to hear what your husband turns into.

Jill DeWit:
Yes.

Steven Butala:
After you peel away the three layers, see what’s really going on here.

Jill DeWit:
Yeah. Here’s what goes on in your man.

Steven Butala:
That was the tip of the iceberg on the real estate deal.

Jill DeWit:
Yeah.

Steven Butala:
The stuff that can go wrong, rehabbing a house, is silly.

Jill DeWit:
It’s scary. It really is.

Steven Butala:
Why would you take that risk? You know what’s never gone wrong in a real estate deal, ever in the history of real estate deals that I’ve done? How much I paid for it. Why?

Jill DeWit:
Well, we’re going to get to that in a minute.

Steven Butala:
Because I have complete control over that.

Jill DeWit:
We’re going to get to that. So, back to the house thing too, and the rehab thing. So, that’s just the physical stuff. Let’s not discount all your team, your workers that don’t show up for 30 days because they freak out with a virus and they think they’re safer at home, or someone else has got them tied up on another project. Or the inspector that is late and working remote and they’re a half staffer, 10% of the staff. And you need to get these permits done and these things done, because you’re on a timeline because you financed this, by the way. You did it.

Jill DeWit:
A lot of people go into these rehabs down to the last penny, with all the stars in alignment, and one thing like a virus and their workers and the County say, the building is perfect. But you have these other expenses you didn’t account for and you’re like, great, now I’ve got to pay an extra 60 days of this mortgage that I didn’t account for and penalties and things, if things aren’t… If you don’t have the… You have X amount of days to meet this inspection criteria and your workers aren’t there, you could face penalties. You could have to re apply for these permits and there’s all kinds of things that can go wrong. Same as in a marriage.

Steven Butala:
Yeah. The market could change in the middle, through a marriage too.

Jill DeWit:
He is peachy during football season and you love having your Sundays off, or just say, baseball season. I don’t know, whatever. Anyway, your man is home. You’re all staring at each other now, you’re getting sick of each other. He doesn’t have an office to go to and let it out on the office staff, so guess what? He’s letting it out on you. Just kidding. I don’t know. I’m totally just making this up as I go, but you know what? You get to know him and he does stink. He’s not showering at the gym before he comes home.

Steven Butala:
All chisel effect is going now.

Jill DeWit:
Yeah. Oh by the way, he’s not working out like he did. Because he had the FFP, the future fat potential. His six pack is a doughnut around his-

Steven Butala:
It’s a one pack.

Jill DeWit:
It’s a one pack.

Steven Butala:
It’s a gallon.

Jill DeWit:
Because he’s not hitting the gym every day before he comes home and having a scotch with his buddy. So he comes home in a good mood, ready to tackle you and the kids, with a smile on his face. So that’s what could happen. So the point is, do you really want to put yourself in that situation? Your time is best spent… I guess the question is, what is your time best spent on?

Steven Butala:
Boy, I have a question for you.

Jill DeWit:
Go ahead.

Steven Butala:
I know how to hedge off these rehabs really effectively. I can take all the risk out of a rehab. How do you do that with the man?

Jill DeWit:
Oh my God. Well, that’s a very good question.

Steven Butala:
I know the answer. It’s the same answer with real estate.

Jill DeWit:
You know what? Okay. Well for me, how do I hedge it off with a man? I look inward and I do what I have to do to maintain my sanity.

Steven Butala:
That’s tragic.

Jill DeWit:
Why?

Steven Butala:
Here’s my answer.

Jill DeWit:
Oh, I can’t change you.

Steven Butala:
You buy the house cheap and you own it for two weeks and sell it to somebody else, who’s going to take all the risk.

Jill DeWit:
Well, that’s for that.

Steven Butala:
That’s what you do with a man. Get to know the guy really well for two weeks and then get rid of him. Shove him off on somebody else.

Jill DeWit:
That is also-

Steven Butala:
Go look for another acquisition.

Jill DeWit:
But if you’re in a longterm, committed relationship, it’s not that easy.

Steven Butala:
It’s not too soon to get out, or late.

Jill DeWit:
Oh, okay. I got you. Okay, I’m with you.

Steven Butala:
Go through a lot of deals.

Jill DeWit:
I was talking like, this is longterm, but you’re right. Let’s just say, it’s a rehab. So I’ve only known you 90 days anyway, I can get out. I can undo this really fast.

Steven Butala:
The front 10% of any relationship, whether you have a relationship with a rehab or a relationship with a person, is always the best. And the last 10%, if you don’t get out of there in time, is always a fiery ball of tragedy, in both of those situations.

Jill DeWit:
You are correct, sir. Totally on the same page. Get out.

Steven Butala:
If it takes you two years to rehab a house, there’s something diametrically wrong with all of it. If it takes you 10 years-

Jill DeWit:
Yes. And if it takes you two years to figure out, this is a bad relationship-

Steven Butala:
Yes.

Jill DeWit:
And they’re stealing from you.

Steven Butala:
Yes, Jill.

Jill DeWit:
That’s on you.

Steven Butala:
Oh my gosh, you’re the girl for me.

Jill DeWit:
Thank you.

Steven Butala:
You can’t take two years to rehab a house. You need to cut it way before that. There’s no such thing, in my opinion, as rehabbing a house on the weekend.

Jill DeWit:
Yeah.

Steven Butala:
Yourself, a DIY rehab by yourself to make 50,000 bucks. It’s just not the right thing to do.

Jill DeWit:
On that note, happy you could join us today.

Steven Butala:
But you know what? Let me make this one last point here.

Jill DeWit:
Okay.

Steven Butala:
Hopefully there’s a certain group of people out there that are completely disagreeing with everything we say, because someone’s got to rehab these houses and make some money.

Jill DeWit:
This is true.

Steven Butala:
And I really think it’s a purse back to the original point. It’s all personality. And Jill and I are joking about this, but we are acquisition people in our souls. Jill’s a deal maker in her soul, she needs to make deals to feel right in the world. I’ve seen it when she doesn’t after a while, and she starts going through all kinds of weird depression withdrawls. So she has… Fortunately we found each other, because I’m just an acquisition person, that’s just it.

Jill DeWit:
Right.

Steven Butala:
A data person. And so I think that there are people out there who are rehab people and they’re happy to buy property off the MLS, do a lot of work themselves, it’s their full time job. I’m describing our buddy in Phoenix here.

Jill DeWit:
I know who you’re talking about.

Steven Butala:
And very successfully, has accumulated a ton of money with very low overhead, and it’s got real expensive labor.

Jill DeWit:
Right.

Steven Butala:
And so, it’s just a personality type.

Jill DeWit:
That’s it. And I think it’s just in his soul, what he likes to do. Because like you just said, we know what we like to do and that’s what he likes to do. And we have had this conversation like, dude, why don’t you do what we do and buy them even cheaper? That’s not my thing, I’d rather just buy it from you guys. I know how you got it, I’m still getting a great deal. I’m getting it better than I would on MLS, because I know how you guys are, and everybody wins. That’s it. So yeah, which one are you and how do you want to spend your time and money and dating? Happy you could join us today. Every Tuesday and Thursday, we are right here on the House Academy Show. Mondays, Wednesdays and Fridays, we are on the Land Academy Show.

Steven Butala:
Tomorrow, the episode on the Land Academy Show is called, what are land brokers really worth? 10%, really? You are not alone in your real estate ambition. Easily. Good land brokers are worth 10% easy.

Jill DeWit:
Isn’t that funny? Isn’t that how we look at them differently? When I look at a regular agent for houses and I’m like, 3%? You’re kidding me. For what? And you didn’t do anything. But these land guys, the ones that I have, that we know, that are really good, I’m like, 10%? Done.

Steven Butala:
Here’s a sneaky, real reason that they’re so different. There’s no built in land market out there, that’s automatic. There’s a built in house market. There’s people that are looking at the zip code for a house anyway, and so residential real estate agents are just getting in the way of that deal. That’s all they’re doing. They’re just a gopher. And land brokers are creating value by exposing properties, land properties. There’s not people already looking in that area for property, typically. They’re finding them, they’re saying, “Hey John, I sold you a property over here a couple of years ago, this is…”

Jill DeWit:
Let’s save it for the show.

Steven Butala:
Yeah.

Jill DeWit:
The House Academy Show remains commercial free for you, all our listeners, so wherever you’re watching, wherever you’re listening, please subscribe and rate us there. We are Steve and Jill.

Steven Butala:
Information.

Jill DeWit:
And inspiration.

Steven Butala:
To buy undervalued property.