House Academy Member X’s House Acquisition Ordeal (HA 63)
Steve and Jill here.
Welcome to the House Academy Show, entertaining real estate investment talk. I’m Steven Jack Butala.
And I’m Jill DeWitt, broadcasting from sunny Southern California.
Today, Jill and I talk about House Academy members ex’s house acquisition ordeal. It’s actually a really good story.
I like this.
It’s a long time Land Academy member. They’re getting into the housing scenario, very successful at buying and selling land and they’re asking a lot of questions and truly the reason I wanted to do this episode is because they’re using and benefiting from the group. The way that Jill and I kind of set it up and intended it to be used for everybody’s financial benefit. Before we get into it though, let’s take a question posted by one of our members on the houseacademy.com online community. It’s free.
Mabel asks, at what point do you pass on a house because it’s in disrepair? Or look for this house condition?
This is exactly what the show’s about.
I mean, exactly.
I know what I do when I’m-
Well, I think the answer is… I know what you do too.
It’s the same thing I do. But the answer is, it depends on the type of buyer you are. But go ahead.
Well and it depends on what we’re talking. Well, if you send out an offer for a house that it’s smart pricing is that $200,000, because I’ll fix up it’s worth $300,000 let’s just… I’m just giving weird, just ballpark numbers and you’re buying it for $160 and you get in there and you look around and it’s not looking good. You see major foundations flaws, holes in roofs and you get the inspection out there and it’s like, yeah, it’s going to cost you $100,000 to make it livable. Okay, now we’ve got a problem. That I might… Unless we’re on the same page and I have a buyer who’s ready, who’s really interested in doing that, which it takes a certain person that’s interested in doing something. That’s one thing to come in and clean them up, put a new carpet, update the kitchen, update the bathrooms, that kind of thing. But when you’ve got foundation issues and things like that, it’s a whole nother ballgame. That would be something that I would probably pass on.
That’s beautiful. Thank you Jill. Here’s the answer.
Can you feel the love? I feel it. It’s just… It’s great.
Here’s the answer. At what point do you pass on a house because if it’s condition? At the point which the price per square foot … Acquisition price per square foot doesn’t yield the resale price that you want. Nothing else matters. We’ve all been hit on the head with HGTV.
Well back up a moment. So what if… Aren’t we kind of saying the same thing? The price per square foot-
Yes we are, actually-
… I’m just teasing it today.
What the cost is going to be. The rental costs, right? I don’t know. What are you thinking? Where are you going?
It’s a simple, simple, simple math. I send out an offer campaign, we do with the smart pricing. All right? We take the average of all the realtor… Redfin realtor, Zillow, Trulia, divide by that number, come up with a number of $200,000. We send out offers at $60,000, somebody signs it and sends it back. We get in there, talk to the seller and the seller… Let’s say this is member Xs a situation. You know what? Today’s topic, House Academy Show member Xs ordeal, this is why you’re listening.
You’re just going to roll it all in?
It’s the same thing.
I mean, this is perfect question.
The members sent out as they should. And I’ll use the exact same numbers, $200,000 smart pricing, sent out offers for $160,000, the person that owned the house is a landlord with a tenant in there for a lot of years, many, many, many years, and they go to look at the house as they should. Fortunately, they were smart enough to send out offers so that they’re acting as their own boots on the ground and saves a bunch of dough and to learn. This person is an incredibly successful land investor with us and they’re getting into the housing market.. They’re taking our suggestion, which is if you’re good at this, expand your markets, do some other stuff-
… And get another line of revenue going. Put the systems in place, they’re all kind of the same thing. This person went in there and was just horrified by the condition of the house and how the tenants were living in it and what they did and didn’t expect it… They expected it probably because in some way, the person who has very successfully bought and sold land, which you don’t have to spend a lot of time if any, going to see land.
Right. This part-
I think that… Go ahead.
… This part we’re on the same page about and that doesn’t scare me.
To answer Mabel’s question, it rolls back to that. Then you just go in and adjust the price accordingly, that’s it.
If that. Well, let me put one more thing too I want to say. These people that we usually sell properties to, we’re usually finding them, marking them up, giving them to a flipper, selling them to a flipper and they go make them beautiful. I’ll tell ya, the crappier they look, the more trash they are, the more the carpet’s a disaster, I swear the more excited they get.
I love that. I love it personally.
If it’s too nice and all they got to do is update a ceiling fan… Fix a ceiling fan and redo carpet in the back bedroom, they’re like, “I don’t know what to do with this now. Everything else is fine. Everything’s great. I can’t justify pouring that much money into it because it was just remodeled five years ago even though it’s not the latest and greatest right now, but I don’t see… Or even 10 years ago, I don’t really see it.” The really dumpy ones they love-
I’m right there with them Jill.
… It’s the major character. There’re like men.
I can’t wait to hear this. Yeah, that guy needs a new roof.
There are things we can work with, and things we cannot work with.
Oh, what do you have to tell us? Tell me about this.
There are small, small tweaks that we can just look past. But there are-
Come on, give us an example.
When there’s bad emotional baggage…
You got to give examples here. I want you to take a look at a regular asset bar with a man standing next to it. Let me give you the… I’ll say the SFR repair required-
Okay, go ahead.
… And you give me the man example.
All right. All right. All right. This is good.
I thought this was a good deal before… The outside looks great.
The house looks fantastic. The outside’s fine. I’m excited. This might be a good deal.
Right? Because this is a man standing with his lips closed, smiling. He looks good, he’s dressed okay.
I walk into the house-
He’s dressed okay, we could work with this. Okay, go ahead. This is good. Keep going.
I Walk into the house and I immediately… It’s a pungent odor goes on that makes me think there’s something going on in this house that’s probably not right.
Okay, so this is where you’re standing next to the man you pick up. This is actually the same thing. You pick up on an odor, there’s a smell you can’t quite identify and so keep going.
In a house situation it’s very clear that the odor is not temporary, it’s a permanent… It’s been there for years.
Well this man, what happens is you see him, he looks good, his lips are closed, you have an odor, he smiles, he’s missing teeth. And it’ll be just a few.
You start to walk through the house and you realize that the kitchen is in such disrepair that the plumbing doesn’t work.
He thinks his missing teeth are okay because it saves him money, doesn’t have to brush them and he cuts back on dental bills.
After further review, you’re walking through this house, you go to the back bedroom and you look up and you can actually see the sky, it needs a new roof. The whole house needs a new roof. What’s the man equivalent of that?
I thought the missing was bad enough. Where else do I go from there?
I don’t know, I’m asking you. Because I certainly could do the women’s version of this.
Again, he thinks it’s all okay, it’s acceptable. Who cares? Why brush them? They’re going to fall out anyway. I’m going to die someday. Kiss me baby.
Oh my gosh. Here’s what I think, and male or female, doesn’t matter. When something is so flawed that you can’t ever… It’s never going… It’s just the acquisition-
The guy can’t come back.
… The acquisitions not going to work.
You can’t come back.
That’s what you have to decide about dating and people-
Is it so far gone-
… That you can’t… Anyway with houses. So what happened is this member, this happens, they walked through the house and this is new to this person because again, they’ve been doing this very successfully buying land for $40,000 and sell it for $100,000 or whatever the numbers are. Very consistently and repeatedly without actually getting involved in the asset part of the business. That’s a big difference in my opinion, between houses and land. You don’t get involved in the actual asset, with houses you have to, and if you don’t like to, and I don’t, you hire what we call the B-O-G. This person is choosing to be-
Boots on the ground.
Boots on the ground. This person is choosing to be their own boots on the ground. This person got onto WhatsApp because they’re in the advanced group and started saying… It’s only for the advanced group, here’s the story and with pictures, kind of distraught.
I don’t know what to do because the numbers seem to work. I talked about it on the Thursday call with Steve and Jill, they thought it was a great deal. Outside’s perfect, but I get in here and there’s all these problems. Well everybody in the advanced group who’s also buying and selling houses, which is the majority piped in and said, “And it all became… It all… There was some funniness, a lot of funniness, but it all came down to, I looked up the property. I think it’s probably not worth this after. Thank you for taking the interior pictures. If we can get it even for this, then it’s going to be a slam dunk. But please know you’re going to have to do this, this, this, this and this, including bulldoze some of the stuff on the inside.”
My comment on the WhatsApp was, “I think your biggest problem here is going to be getting rid of that tenant if they’d been there for that long, even if they didn’t stop paying, I think it’s going to be a huge…” People are hoarders like that. There’s other things going on.
So I think just saying, “Hey, your lease is up and we’re not going to renew, is going to be a big ordeal.”
Anyway, the acquisitions getting done and it’s all because of this group. And I’m not sure that member X here would’ve gotten a deal done. And I think that they’re actually partnershipping the thing with a very experienced person in our-
I didn’t know that.
It’s all getting done.
That’s cool. But yeah, I guess the point is don’t be afraid of those things. I guess lean on your peers and-
And to say-
… I got to tell you, most of the time are not fatal flaws.
It’s very, very rare.
Press sells everything.
I can only think of honestly, two house deals that we passed on for reasons like this. One was, we had a combination of what you just said, hoarder mental and a hole in the roof, do you remember this?
Yeah, I do.
And she was living without… It was either power of running water-
Without utilities, right?
… I can’t remember which one she had, she had one or the other, I don’t remember what it was and she was very honest about it and I’m like, “Oh my gosh.” We too, after, I don’t know how many phone calls I just said, “Call it, we’re not even talking anymore.” She’s got… It was mental issues that were the biggest thing that we’re never going to get her out. Don’t even go there. She’s the owner of the house, so that was one reason we passed it. I couldn’t even get in there, it was so bad we couldn’t even get in there to assess it for ourselves to see the hole in the roof. She shared it, but she was very embarrassed about people going in there.
And then the second one was… Which is very interesting. It was a weird neighborhood and I was just actually reviewing… It was funny because I was just reviewing a deal funding house deal myself that we might fund and I’m looking on the map and I’m zeroing in on the comps. Everything South of the freeway was selling in the $300 and the $400 range. Everything North of the freeway was selling in the $150 to $200,000 range. I’m like, “What is going on?” But if you draw a big circle, you’re like, “Well, shucks, we’re Within five miles. There’s something…” There was some weird thing going on, seriously North of the freeway that was driving down the prices of the properties.
In Detroit, we call that a satellite ghetto.
Okay, so there was something like that. We found one, I remember our numbers were great. Thank goodness for boots on the ground. We sent it, we thought… On paper, it all looked beautiful. And do you remember this? I’m sure you do, it was a couple of years ago, we sent our boots on the ground out there and they’re taking pictures going, “Well, we could probably make it work. However it’s going to be a long haul, a long sale, this neighborhood’s going down, not up kind of thing. Do we want to get into that?” And so we said, “No, we don’t.”
Our boots on the ground in Arizona, they’re our friends and it’s a couple, it’s a male and female and that’s not what he said. He said, “You guys…”
Well, all right go ahead, [inaudible 00:14:09].
That’s what she said to you-
… And he said to me was-
I was [crosstalk 00:14:12].
… “You guys are welcome to do this deal, but I’m not going back into that neighborhood again.”
There we go. See, I was just being nice about it. So, yeah. There you go.
In the end, this member X here has some choices to make. They can continue buying and selling houses or they can say, you know what? I buy and sell a couple pieces of land a week. I can step that up and I don’t have to deal with this anymore. It’s to each his own. We have people in the advanced group who just do houses and they only do a lower level, which I can’t believe in four or five zip codes, they’ve been doing this for years and it’s a smaller, at a lower price point, and he makes it work. Actually he’s the one that’s helping X on this thing. I personally love to see everybody working together.
I never want to see a real estate deal go South because of what I just described. It’s just new to somebody. It’s really not as bad as they. Think they may never do it again just because it’s just they don’t like stink and that’s a good enough reason at this person’s level, at their career to just say… I mean, how much stuff do we pass on? Where we’re like, “Yeah, I know we can make a bunch of money on this. It’s just, I don’t want to do it. Doesn’t fit my thing.”
All right. Happy you could join us today. Every Monday, Wednesday and Friday you can find us on the Land Academy Show. Tuesdays and Thursdays we are right here on the House Academy Show.
Tomorrow, the episode on the Land Academy Show is called Funding Member Deals From Our Own Personal Checking Account. You are not alone in your real estate ambition. People don’t realize this, how we fund these deals and how successful they are.
And Jill’s at the tip top of deal funding. We’re at a point now where it past 12 months in deal funding, our first 12 months, not our last by any stretch. Where I have… I was really involved and very concerned quite honestly in the beginning about this whole thing.
Because you’re just correct.
And we’ve gone from concern to looking over Jill’s shoulder to stressing about it to now I go take a walk on the beach and I don’t even know the deals that she’s doing it’s been so successful. And why was I concerned? It was our personal money. We’re taking this investment money that we… It’s the same money that we use to buy properties for ourselves and investing in these deals, and people don’t realize that. I think they think, “Oh, these guys are… They have a source of capital over there and they’re making money on the triage and they’re probably just at the back of it. They got some rich people behind them-
… And they’re really in disguise. They’re hard money lenders and there’s some backend… Because everybody’s had such a negative experience with lenders and hard money lenders and equity partners and stuff, there’s none of that going on. With deal funding with Jill and I, it is literally a joint bank account, personal bank account from money that we’ve made deals on and we’ve got X amount in there. Sometimes we buy our own property, sometimes we fund other people’s, that’s kind of the whole show… I just did the whole show.
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