Why Most House Rentals Fail (HA 009)
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: That’s a mouthful, and I’m Jill DeWit, broadcasting from sunny Southern California.
Steven Butala: Today, Jill and I talk about wholesaling houses explained.
Jill DeWit: That’s a lot [crosstalk 00:00:20]-
Steven Butala: Wow.
Jill DeWit: That was a lot.
Steven Butala: This seems like such a basic topic. Like, “Yeah, yeah, yeah, you wholesale a house. You buy it for cheap, you sell it for more. Get out of there. Go do it again.”
Jill DeWit: Do you think you use this term when you describe yourself anymore because I thought-
Steven Butala: No, heck no!
Jill DeWit: Yeah, isn’t it funny? I used to say it, it used to mean something. And it used to mean something good. And you know what, there’s always one bad one that ruins it for the rest of us!
Jill DeWit: I’m just kidding. But people have got confused by what wholesaling is, and then some people are, I think, not doing it right and now we have to describe what we do a different way and let them run with that.
Steven Butala: There’s a lot of meat in these deals and because of that, there’s a lot of people who have no shame and no real respect for real estate or money and the process and have come in and really-
Steven Butala: They haven’t even put a dent in the industry, but they just get a lot of notary because they’re not doing it responsibly, so-
Steven Butala: Here’s a prelude to the rest of the show. What we really are, are acquisition experts for people who own a lot of property. Whether they’re landlords or house flippers or whatever. So if you walk into an big company that’s real estate driven, like a McDonald’s or a banks with bank branches, they have buildings. Or a home-builder, they have buildings full of an acquisitions staff that help them buy an expense property that fits their acquisition criteria. And I cut my teeth in that corporate environment and now we do it for ourselves.
Steven Butala: So what the show really should be called is “How to Set Up an Outsourced Acquisition Department for Landlords.” But if we call it that, you will be the only person who’s listening to this show.
Jill DeWit: Could you imagine! That would be awesome! “Hey you gotta check out this show!” “What’s it called?” “It’s great! Little hard to find, because if you misspell one of the words, and there’s a lot of them, you’ll never find it.”
Steven Butala: So then I went to a podcast national event onetime, and we had a show like that. And everybody’s like looking cross-eyed at us.
Jill DeWit: Like what
Steven Butala: Why are you, why do you call it that? What the heck are you talking about! You lost me at the third word. You lost me at acquisitions.
Jill DeWit: That’s my favorite!
Steven Butala: Before we get into the topic, lets take a question posted by one of our members on the houseacademy.com online community…it’s free.
Jill DeWit: Jeff asks, “I just flipped a property in Kansas City and I made twelve thousand dollars. I know I left a bunch of money on the table. How do you deal with this?”
Jill DeWit: Move on.
Steven Butala: You know…I’ll tell you what.
Jill DeWit: Well you surely can’t call back and say “Hey, oops, by the way…”
Steven Butala: Well I think what he’s saying is “You guys”, meaning Jill and I, “what you teach or what you explain on how you do it is to make 10 or 15 or 20 grand on the thing and just keep moving.”
Jill DeWit: Yeah.
Steven Butala: And that’s right. So how do I deal with leaving money on the table? Because Jill and I leave money on the table on every single deal. And land deals too. That’s part of the business model.
Jill DeWit: Yeah.
Steven Butala: You need your buyers to just beat your door down
Jill DeWit: And now they will.
Steven Butala: And yeah!
Jill DeWit: Congratulations! That fire won’t-
Steven Butala: If you’re going to charge them close to retail, they’re going to do one deal with you and never talk to you again. And then you gotta go through the whole thing again instead of just texting them.
Jill DeWit: And what you just did, you just created a buyer for life. Congratulations! That’s what we all want. We don’t want to gouge them. You want them coming back for more and more and more and more and more…
Jill DeWit: And then you guys have each others number and it gets easier and it goes faster. So, every time you have twelve thousand dollars, you might do twelve thousand a week, maybe even more than that. And that’s just fine.
Steven Butala: We live in this culture in this country where we’ve watched our parents or everybody do real estate deals and real estate agents don’t help this at all. In fact, they’re probably the problem. Maximize price.
Jill DeWit: Yeah.
Steven Butala: You know, they believe that, and I don’t know who told them this, but their job is to go in and get the highest dollar price that they possibly can.
Jill DeWit: Isn’t that a bummer.
Steven Butala: Even if it means, you know, taping the whole house together. Slapping a coat of paint on it and charge them more.
Jill DeWit: Exactly.
Steven Butala: And so, and if you ask them about it, they’ll say “you know, I mean, what am I suppose to do?”
Jill DeWit: Isn’t that amazing?
Steven Butala: “That’s what I’m suppose to do. I’m suppose to represent the seller and get as much money as I can!”
Jill DeWit: I know. They want to-every time I hear the terminology about resetting the price in that market, it just makes me sick inside. You don’t want to be that guy.
Steven Butala: No. The fact is, you’re going to pay six percent…as a seller you’re going to pay six percent to that real estate agent. And if it’s a $300,000 house, which is that national average, that’s eighteen grand. And, you know, if you sell your own house, you save $18,000, you don’t have to pay the fees and everybody wins.
Jill DeWit: Thank you.
Steven Butala: Today’s topic: House Wholesaling Explained. This is why you’re listening.
Jill DeWit: I only think $3000, 3%.
Steven Butala: 6% of $300,000.
Jill DeWit: I’m not paying 6%, I’m paying 3%.
Steven Butala: Well, it’s 3% to list and then 3% on the other side as a seller.
Jill DeWit: I’m only doing 3%, the last one I did. Maybe because I spelled it out. You can do 3-6%, how’s that? I tried to stick to that.
Steven Butala: When you list your house, as a seller, and you say “we’re going to pay the buy side…”
Steven Butala: We did a fixed price listing, so it’s only 3%.
Jill DeWit: Right.
Steven Butala: If we did a traditional listing-
Jill DeWit: That’s what I’m saying.
Steven Butala: It would be 6.
Jill DeWit: Yeah! We’re saying the same-
Steven Butala: Oh, oh I’m sorry Jill!
Jill DeWit: Yeah, yeah. Me, I’m always selling- yeah okay.
Steven Butala: If we’re forced to use a broker, which is almost never the case, we do pay the 3%.
Jill DeWit: That’s what we’re talking about.
Steven Butala: And we always regret it.
Jill DeWit: Yeah. We do. So when we’re doing these, and we’re selling our homes, by the way. I’m coming in and I’m the seller, its me. My boots on the ground, putting a lock box on the-
Jill DeWit: I just talked to someone about this the other day. We’re putting a lockbox on the door, we’re making our own flat-rate listing, and MLS and they’re probably going to bring in a realtor on the buyer side and we will totally pay the commission of course. And it’s up to 3%.
Steven Butala: So what is this business of wholesaling houses? What are you guys really doing? You know, there’s probably, if you’ve gotten to this episode of this show and you’re a new listener, you’ve gotten so much conflicting information by now that I’m going to clarify it all in less than twelve minutes here.
Jill DeWit: Thank you.
Steven Butala: Here’s three ways to wholesale a house. Or three types of business that theoretically fall under wholesaling. We explained it a little bit earlier.
Steven Butala: Number one. You send a bunch of mail out or you put banner signs out or however you establish and inbound flux of potential lead pipeline or whatever. There’s lots of different words for it. You contact the seller. The seller does want to sell you his house or her house for $150,000, you know it’s worth two-hundred. So you have now three choices.
Steven Butala: Number one: you can market it up $10,000 and sell it to people that are in the market that are going to do something with it. They’re going to sell it, they’re going to clean it up just like on HGTV and retail it out with they’re real estate agent and they’re going to stage it and light some candles and bake some cookies and take it to the end.
Jill DeWit: And am I doing that as an assignment? How am I doing this?
Steven Butala: Well, you have a couple choices here. That was number one. And you’re just going to get paid out of escrow. You’re going to sign it to this person. Person on HGTV, they’re going to pay $10,000 on the buy side and you’re going to go on your merry way.
Jill DeWit: Am I going to – I have some questions. Am I getting a purchase agreement that gives me equitable title?
Steven Butala: You are getting a purchase agreement that is assignable to the HGTV person.
Jill DeWit: Thank you. Okay.
Steven Butala: Second way is-
Jill DeWit: Cause I’m not representing anybody, I just want to make it real clear.
Steven Butala: Good, good.
Jill DeWit: Okay thanks.
Steven Butala: Second way is to buy the house. And you don’t have too much talk about it with the seller. You just say “I’m going to buy your house for $150,000.” When you’re done, you resell it to a group of people that you’ve already pre-established as credible buyers with money in cash, and they’ll have their own team of probably inspectors and all kinds of stuff. Professional real estate people, but you have the luxury of charging a little bit more than that because you’re in control on the deal.
Steven Butala: Are we price gouging? No, but we control the deal and these deals take slightly longer, but you have- you know, you’re not – you’re making more than ten grand, lets say probably in a case like this twenty-five. And you’re still well below what the house is worth.
Steven Butala: The third way is to institutionalize this. Like I eluded to in the beginning, where you’re really truly acting as an acquisition arm for the HGTV people or the – you know, Jill and I do a lot of land deal with like bank branches and stuff. Where we’re heading up their acquisition of the vanguard part of their acquisition deal. So, really kind of a hybrid of the last two.
Steven Butala: But the confusion comes with this wholesaling business because we get there first and we have control of the deal, but we never gouge. We never ever gouge it. So this is what, this is wholesaling explained.
Jill DeWit: Yeah.
Steven Butala: You can’t price gouge because you got a great deal. You have to spread the fact that that’s a great deal, spread it out with your customers.
Jill DeWit: Yeah, you have to. Or your not going to be doing this very long.
Steven Butala: Yeah.
Jill DeWit: You won’t have buyers, that’s the whole point.
Steven Butala: Right.
Jill DeWit: You could do a couple of them. It’s very different here and this is where you are opposed Steven. Steven has taught me a lot about volume and maximizing volume. And you know, it’s true and this sings to me. I have to tell you, I love doing houses because in my heart, even with land, but in my heart, I want this guy to make more money. I mean we’re going to be best friends for life. He’s calling me all the time, “what do you have? What do you have?” That’s what you should have. And by just mark it up a fair amount and you know what, it’s pretty much out there. Everybody can look up, cause we take total ownership, they can see we bought at 4, they call look up and see if we sold at 4. Nobody’s unhappy.
Steven Butala: Right.
Jill DeWit: I did the hard work, by the way. I set up the mail, I paid for the data, I paid for the mail, I talked to the seller, I’ve handed them a property on a silver platter because it’s an investor to investor, by the way. I did the hard work. So, in their mind too, my 25 or whatever it is, little thousand profit on there is well worth it, because it’s still way below how they could’ve got it with a lot less hassle. And they’re coming in and we get our deals done, you know, in days. Which is great. They come in with cash, I’ve already got the work done, I paid extra for a hold-up policy in escrow and it is quick.
Steven Butala: “So that’s great Steve. I’m just brand new at this or I used to be a real estate agent, which means I failed as a real estate agent and I don’t have any money! I am forced to choose option one. I can send out mail, I’m happy to talk to the sellers, but I have to send it to the guy who’s going to buy it and get paid out of escrow 10% or $10,000 or whatever”
Steven Butala: No you don’t.
Jill DeWit: Right.
Steven Butala: There’s a ton of programs. Our house academy group is packed full of people who just want to be money partners.
Jill DeWit: Yeah.
Steven Butala: So, in that example, what you do is this – you get a whole purchase agreement for that $150,00 acquisition price. You know the property is worth $200,000 in its present condition. You talk to everybody on the house academy forum.
Jill DeWit: And the deal board.
Steven Butala: And a deal board. And you say, “I’ve got this deal, and I’ll split it with you.” And so now, you’re splitting. You’re buying the house, you’re marking it up twenty or thirty thousand dollars. Calmly and collectively and you’re –
Jill DeWit: In control.
Steven Butala: Yes! And you’re not trying to hide stuff until escrow and all that. None of that. You’re splitting a margin, probably making a little bit of more money. And now the money guy is dying for more deals, you’re buyers-
Jill DeWit: Because you did all the work.
Steven Butala: Yeah! And this business of assigning these properties is truly, well it’s truly you’re doing it in haste. You don’t care about now because you’re not buying it. You don’t care about the inspection. In fact, you’re tendency would be to cover the inspection up.
Jill DeWit: Good point.
Steven Butala: So all this stuff gets rushed and it’s wrong. And it not professional and this is what’s giving wholesaling a bad name right now.
Jill DeWit: Right. You’re not taking any of the risk. You’re just quick, like you said. I agree with that. I love the way you just explained it.
Steven Butala: So that’s wholesaling houses. You know, that’s how I explain it. I grew up in an environment – in a professional commercial real estate environment and all everybody was doing was dying for deals. And that’s what I did, over decades, divide the system of having a jam packed pipeline full of transactions so you can pick the best ones.
Jill DeWit: Right.
Steven Butala: And pick the most willing seller and to put the deal- here’s the end game in the whole thing – where everybody wins!
Jill DeWit: Yep.
Steven Butala: You win. The financial guy wins. The buyer wins. And end users got lit candles in their bathroom when they’re done.
Jill DeWit: And a chandelier.
Steven Butala: And a chandelier in their bathroom. Jill puts chandeliers in bathrooms.
Jill DeWit: We’ve done that!
Steven Butala: Hey, we know your time is valuable. Thanks for spending it with us today or a little bit of it with us anyway. Join us next time for the episode called “Why Most House Rentals Fail.”
Jill DeWit: And we answer your questions posted on our online community thehouseacademy.com. It is free.
Steven Butala: You are not alone in your real estate ambition.
Jill DeWit: I want to make sure you know this- if you want us to read your question. You’re listening to us, this is all new to you and foreign to you and you have a burning question, go put it in there and tag it. You know, say “Hey guys, can you hit this up on the show?” And we will!
Steven Butala: You know this is show number eight for us on The House Academy show.
Jill DeWit: Yeah.
Steven Butala: But on our other show The Land Academy show, it’s like show number eleven hundred or something. So, no question will scare us.
Jill DeWit: That’s true! Bring it! Wherever you’re listening or wherever you’re watching, 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.
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