Lessons Learned on a RETAIL House Flip (HA 010)
Lessons Learned on a RETAIL House Flip (HA 010)
Transcript:
Steven Butala: Steve and Jill here.
Jill DeWit: Hi.
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 lessons learned on a retail house flip. And I get used to doing a second show.
Jill DeWit: Oh. You know what’s funny about this topic is it could go either way. We can tell you, “Here are all the positive things that we learned, and isn’t this great, and …” or we can go, “Oh, my gosh, this is how this one went.”
Steven Butala: How’s it going to be today?
Jill DeWit: I don’t know. However you want it to go. I have a feeling you’re going to take one direction and I’m going to take the other.
Steven Butala: I know.
Jill DeWit: And you’re going to go, “And that’s why I never do that again, and I don’t do that again,” and I’m going to go, “Well, wait a minute. And here’s how we saved it and how I can help you.”
Steven Butala: Here’s how we made a business, a very thriving business, out of three failed real estate deals. That’s what this should be called.
Jill DeWit: Okay.
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: Jeff asks, “Can I submit a deal to House Academy, which is AKA Steven and Jill, for deal funding?” And the answer is soon. Oh wait, is it open?
Steven Butala: No, the answer is heck yes.
Jill DeWit: It is open.
Steven Butala: Yeah, it’s way open.
Jill DeWit: Oh, it’s House Tank that’s not open yet. I didn’t think about that.
Steven Butala: Yeah.
Jill DeWit: Yeah, you’re right.
Steven Butala: That’s opening too.
Jill DeWit: Oh, yeah.
Steven Butala: Yeah, we’ll fund your house deal.
Jill DeWit: I forgot it is open now.
Steven Butala: Absolutely. Go to HouseAcademy.com and submit it. Just go to deal funding. We do it for land multiple times a day on Land Academy, but if you’re into houses as much as we are …
Jill DeWit: I’m going to back up and just say what this is just so everybody knows. So this is for Jeff who’s a member. He’s sending out offers to buy houses, right? Wherever in the country he is, it doesn’t matter. He gets a deal in, it meets all the criteria, the price is great. He’s got a signed purchase agreement. They’re ready to sell and move it, and Jeff doesn’t have the money. But he’s ready to do the whole transaction.
Steven Butala: And it’s a good deal.
Jill DeWit: And that’s it, right. It passed all his tests obviously. So what does he do? He sends it to us for House Academy deal funding and once we do our little follow-up due diligence, if it all checks out okay, we become the bank and that’s it. Jeff’s going to open escrow. He’s going to follow it all the way through. He’s going to pretend like it’s still his deal. We’re just funding the funds to purchase it. Then Jeff’s going to keep on going. Once it’s bought and paid for, he’s going to post it to sell. He’s going to probably do flat rate listing MLS.
Steven Butala: He’s going to manage the deal like it’s his own.
Jill DeWit: Get it out there, handle all the phone calls as if he were any other wholesaler or even just a for-sale-by-owner person, because really we own this, by the way. We don’t need an agent involved. So he’s going to manage it all the way to the end. Then after it’s all said and done, I [crosstalk 00:02:59].
Steven Butala: We’re going to split it.
Jill DeWit: Yeah. We put up the money, because we paid for the asset. He’s doing the work. Now we’re going to split the profit.
Steven Butala: This is maybe one of the greatest programs we’ve ever released. To be very brief and simple about it, Jeff finds a great deal. He submits it. We agree it’s a great deal. We write a check for all the costs that are associated with the property, with the exception of marketing.
Jill DeWit: All the escrow, yeah.
Steven Butala: Everything. He does the deal as if he’s an owner, because he is.
Jill DeWit: Right.
Steven Butala: And when we’re done, we split it.
Jill DeWit: Yep.
Steven Butala: It’s not hard money lending or big bank financing. You’re a partner. It’s a partnership.
Jill DeWit: Oh, and by the way, there’s no interest on it. That’s two. We’re not saying, every month, “Now you owe me this,” and interest or anything like that. Nope. It’s awesome.
Steven Butala: Today’s topic, Lessons Learned On A Retail House Flip.
Steven Butala: Jill and I did exactly three retail deals before we realized that wholesaling property to people in the real estate business is probably better for us. Am I knocking the retail deals? No. We’re just going to tell you about our experiences and why we decided ultimately to launch a massive wholesale program. And they’re very, very, very different. And I believe truly … And this is how I came up with this episode … that doing retail SFR deals, house deals, destroys a lot of people’s careers before they could even get started.
Jill DeWit: It’s hard.
Steven Butala: So the three deals, Jill, that I’m talking about our Palm, 68th Street, and Leisure World.
Jill DeWit: Okay.
Steven Butala: Do you want to describe what happened to Palm? By the way, we made tons of money on all three, so there weren’t financial issues at all. They just took a lot of our time. And in the end, Jill and I decided this isn’t the best way to make a lot of money.
Jill DeWit: Palm was a good one, though. I liked Palm. I had fun with Palm. Palm was one that I wasn’t originally … When you started on this path with another investor who dropped out. So you pulled me in from land and said, “Hey, I need your help over here.” And I took over and kind of managed the project. What this house needed was everything. I mean, we took it from … It was had been the empty. I think it had been empty for quite some time. I can’t remember.
Steven Butala: Yeah, it was vacant.
Jill DeWit: Yeah. The kitchen was completely gutted. I literally moved walls. I put a closet where the bathroom was and put a bathroom where the closet was. Just made it all flow better. We made the carport a real garage, because that really, in this area … This is in the Phoenix area .. it really added value.
Steven Butala: Hey, by the way, House Academy itself is nothing like this. This is what not to do.
Jill DeWit: Right.
Steven Butala: That’s what this whole episode is. What not to do.
Jill DeWit: What not to do, exactly. Yeah. So here’s the thing. I spent … I want to say it was 45 days, just the rental, which was huge with what we got done. I mean we really, like I said, gutted it and moved walls and moved some plumbing and made it beautiful. And I managed the whole project. I would come home dirty and spent days in Lowe’s. I would leave in the morning, pack a lunch. This one is not having fun, because he’s writing all the checks.
Steven Butala: Financial heart attack.
Jill DeWit: Exactly.
Steven Butala: We bought the property for $140,000. We put about 65,000 into it. So now we’re in here for 205, and we sold it for 240. So great, we made 35,000 bucks.
Jill DeWit: Slash however.
Steven Butala: But it was 45 days of heartache. By the way, a cash in cash out 45 days is like to beat the band. It’s an amazingly fast retail flip. So what we learned out of that is this is very inefficient. It’s inefficient use of our time.
Jill DeWit: Right.
Steven Butala: During that 45 days, I could have sent out literally millions of offers, and done probably 40 wholesale flips like we do in House Academy.
Jill DeWit: Right. Exactly. That was the whole thing.
Steven Butala: I think from an interior design standpoint and an HGTV perspective, Jill had a lot of fun, but it was not worth our time financially.
Jill DeWit: Mm-mm (negative). You’re right.
Steven Butala: So on the second deal, we rolled that money into paying cash for a townhouse in Old Town Scottsdale, which we call 68th Street. And by the time Jill got done with just completely gutting it and making it brand new, we decided we’re not selling it, and we still own it.
Jill DeWit: Yeah.
Steven Butala: We paid $80,000 for it from a bank. 1,100 square feet. I think Jill put 20,000 to 30,000 into it. We didn’t have a budget, because halfway through we’re like, “Because of the location, we should just keep this,” and we did. We still own it. It’s probably worth 300 to 340, right now, retail. So again, those numbers, you can’t argue with those numbers.
Steven Butala: Then finally, recently, because we didn’t learn enough in our own mistakes, we bought a house for a fantastic price in a community called Leisure World in Arizona. Go ahead, Jill, and describe what happened.
Jill DeWit: Took forever, because was in a 55-plus community, and it’s … What happened, we found this property. It landed in our laps. It was one of those we weren’t really prepared for it, because it didn’t need anything. Our prior experience and what we … This is our personal favorite is finding these things that nobody wants anymore. We solve the seller’s problem, and then we mark it up just a little, and then sell it to a flipper who wants to make it beautiful and do the retail thing.
Steven Butala: That’s the right way.
Jill DeWit: And take all take on that whole time and expense and energy that we don’t want to do. We just want to be in the middle of there. So here’s what happened. Leisure World. We took this on and all it needed was carpet and a good cleaning. It was funny, because I brought all my buyers in, my regular investor buyers, and they didn’t know what to do with it. Because they’re like, “It doesn’t need anything.” I said, “I know. Isn’t this great?” They’re like, “We don’t know what to do with it,” so it was the weirdest thing.
Jill DeWit: So we said, “Fine. We’re going to do it.” Oh my goodness. And that took months, because when you’re selling retail, like we don’t love to do, they need to come in and see it, and bring their agents-
Steven Butala: Different customer.
Jill DeWit: … and bring their kids, and just spend some time there, and love it. And that’s not what we want to do. So it took us a lot longer to sell than we had liked because of that.
Steven Butala: That said, we made 70 grand.
Jill DeWit: Right.
Steven Butala: The spread between the purchase and the sale price was $70,000. That’s a little bit out of my comfort zone, too. It’s too much. There’s too much profit in that.
Jill DeWit: No. I think it’s really good. And this is going to be fun. As this show evolves, we’re going to talk about this. Like things that we see as a fail, because it didn’t sell in one day. We see it as a failure, right?
Steven Butala: Yeah.
Jill DeWit: Because that’s what we want to do. And that’s what we’re good at. Like, “How fast can we get this done?” And it takes more than a month, we’re like, “Oh, this is awful.”
Steven Butala: Yeah.
Jill DeWit: But it’s really not. The numbers, we always come out on top. So it’s really funny how we describe things. I just want to point that out.
Steven Butala: The issue with these three transactions is not financial viability. It’s just not who we are. We’re data people.
Jill DeWit: Right.
Steven Butala: We’re not interior designers or real estate agents or hand-holders.
Jill DeWit: Right.
Steven Butala: Those deals should have gone like this. If I had to do it all over again on the first one I described, I would’ve bought it for $140,000 and immediately resold it for 165 to somebody who was going to renovate it. And they would’ve made a palace out of it and probably sold it for 350 to 400. Well, probably 300 to 350. So great, we made 15,000 bucks in less than a week, and we’re done.
Jill DeWit: Right.
Steven Butala: On the second one, I wouldn’t have changed a darn thing. I don’t know. I fell in love with that townhouse the day we bought it.
Jill DeWit: Oh, yeah. I know.
Steven Butala: And I love it now.
Jill DeWit: Exactly.
Steven Butala: Jill and I’ve always kind of looked at it like if our whole world falls apart, we could just go back there and live in it and just be happy.
Steven Butala: The third one, in the end, I’m not sure I would have changed anything with Leisure World, because it was such a good lesson to learn, and we use it as an example of what’s possible. If you become a great acquisition person and you’re like an HGTV renovator, you can make this program work for you great. You can make 70 to 100,000 bucks in whatever it ended up being. How many months was that?
Jill DeWit: Which one?
Steven Butala: Leisure World. It wasn’t six, was it?
Jill DeWit: Four-plus, I’m going to say.
Steven Butala: Here’s the good news. It took four months, but if you do 10 of those, you’re going to make $700,000 in a year. You do 10 in a year, which is very, very … We have members who experience that kind of stuff. What we prefer to do, and what this whole show is about, and most of the episodes there are about as … What I describe with that first deal called Palm, we just make 15 to 25,000 bucks on a … We buy it, close on it, market it to all the people who are renovating houses in the area or the people who are landlords, and just move on.
Jill DeWit: There you go.
Steven Butala: We just keep pushing through the system, so it’s not bad. It’s just not for us, and when I say us, I mean me.
Jill DeWit: We’ll leave it at that.
Steven Butala: You know what? The truth is, respectfully, Jill, I respect your time too much to get into another retail deal like this.
Jill DeWit: Thanks. It’s fun. But, yeah, when I … I mean, I came home dirty and sweaty and awful and hungry from doing that, but I did have a good time.
Steven Butala: All inefficiency in real estate investment starts when you leave your desk. Your goal should be just to sit in a dark room and slam deals through the pipeline. Make 15,000 to 25,000 on these houses every single … And build a huge network around you of people that are happy that you’re feeding these transactions.
Jill DeWit: Yep.
Steven Butala: Throw your tools away. I don’t own any more tools after that first deal. My tools are gone.
Jill DeWit: Yep.
Steven Butala: This is why you’re listening. Oh, no. I still have to get really used to this, don’t I?
Jill DeWit: You’re good.
Steven Butala: Join us next time for the episode called The Three Biggest Mailer Mistakes.
Jill DeWit: And we answer your questions posted on our online community at HouseAcademy.com. It is free.
Steven Butala: You are not alone in your real estate ambition.
Jill DeWit: That was good. You just wanted to vent about some of those, right?
Steven Butala: I don’t know.
Jill DeWit: Okay. You’re so funny. Wherever you are watching or wherever you are listening, please subscribe and rate us there. We are Steve and Jill.
Steven Butala: We are Steve and Jill. Information …
Jill DeWit: … and inspiration …
Steven Butala: … to buy undervalued property.
If you enjoyed the podcast, please review it in iTunes . Reviews are incredibly important for rankings on iTunes. My staff and I read each and every one.
If you have any questions or comments, please feel free to email me directly at steven@BuWit.com.
The BuWit Family of Companies include:
I would like to think it’s entertaining and informative and in the end profitable.
And finally, don’t forget to subscribe to the show on iTunes.
