HI 94 - Building Wealth One House at a Time with John Schaub

Welcome to the Heroic Investing Show. As first responders, we risk our lives every day. Our financial security is under attack. Our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant and we need to take care of our own financial future. The Heroic Investing show is our toolkit of business and investing tactics on our mission to financial freedom.

Hello and welcome to episode 94 of the Heroic Investing show where we focus on those challenges unique to members of the armed. Service. Members, veterans, first responders, individuals that laid down their lives and that put themselves in harm's way. Answer the call so that the rest of us can spend time with our families and have some confidence in our way of life. We also focus on those challenges that we all face out there. Those of us that are looking to back away from that W2 job, to get some time back with our families and with those things that inspire us, those things that we're uniquely gifted at that we would rather be doing. And we know we could provide more value to the world if we had time to do it. And so we're looking for that passive income. I choose income producing real estate, as you all know well. But there are many options out there. There's passive investing, there's being a lender, having royalties from some intellectual property that you've created, whether it be music or a book or pros, whatever you are good at and that people will compensate you for adding value to their lives. Then you should focus on spending time and getting better at that, mastering that genius to provide it to the world. So this talk today is an individual who has certainly mastered a genius. He is a genius at single family income property investing. He's taught it to thousands of people over greater than four decades of operating in the Sarasota, Florida area. Owning rental properties in his hometown sounds like a pretty simple model, but he has been wildly successful. He's endured five or more cycles, economic cycles, and the most recent one was devastating down in the state of Florida, but probably not the worst that he's seen for all of the rest of us. You would have thought that Florida had turned into a ghost town, but he went through all of them. He will attribute a lot of that to some things that perhaps go against what I talk about here on the show and what Jason talks about. One of them is having some paid off houses. And I completely understand his perspective. I also observe in the discussion with him that it seems the more senior individuals become the more I don't know if it's really experienced. It's just kind of longer in the tooth that individuals become, they want to be in a more cash position. So I understand that I'm setting myself up for that one day. But right now I'm still trying to get as many of these amazing 30 year fixed rate Fannie Mae mortgages as I can get because they're an asset. And he also talks, John will talk a bit about that and that helping him out in his early years. So to each their own. I feel you can safely use the right kind of prudent long term fixed rate, important fixed rate debt to your advantage as long as you're using it on a house that still cash flows. But I think you're going to find some incredible value in this interview with John. And then coming up following the interview with John is an interview with a student of his and good friend of mine, Navy veteran Craig Horton. And I think you're really going to enjoy that one as well. So in this discussion with John, we get into really his lessons. That's where he can provide the most value for all of you. He's got a book out there that's I think a wonderful book. It comes highly recommended by Craig. I have yet to personally read it. It's called Building Wealth One House at a Time. Building Wealth One House at a Time. And you can find that at his website, johnshaub.com he also has worked for Habitat for Humanity and he works for the Fuller center created by the same individuals who started Habitat many, many years ago. Fascinating discussion. I think you're really going to enjoy it and I think again you'll also enjoy the one that follows his in a couple of weeks here. So please tighten the seat belt and enjoy this discussion here with John Schaub. Well everyone, please help me in joining John Schaub to the heroic investing show. So John is actually the second, only the second individual that I've had guests I've had on my show that is not someone that I previously knew beforehand. But John brings a wealth of experience and I believe insights for all of you new veterans, military investors, first responders who feel that perhaps it's just a little abridged too far with your difficult, unusual work hours and lifestyle. But I don't believe that's true. I started while active duty, as you know, well in my history. And I think that listening to more and more individuals with approaches and long experience, lots of lessons like John, be very helpful. So John, thanks so much for joining Us.

It's my pleasure. Thank you, Gary.

Yes, sir. So John is coming to us from Florida, as I mentioned in the introduction, and has a few cycles, a few real estate cycles, and a few decades of single family home investing. One question I had, John, is have you remained exclusively with single families?

I didn't start in single family. I started in a land business. I sold lots and then I bought some duplexes and some apartment buildings and a commercial building and a motel and a restaurant. So I've owned a little bit of everything, actually. And I bought my first house by accident and I still have it. And what I noticed with the houses is they required less work. You know, everything else I owned was really a business operation, a motel or restaurant. Even duplexes and apartments took a lot of time to manage and I got where I didn't have enough time to do all of it well. So I was looking for something more passive and the houses were more passive. The people tended to stay longer and, you know, a whole different kind, a lot of different types of houses, a lot of different price ranges of houses. So I finally found a sweet spot in my town where people like to stay long term. Yet my profits were, you know, higher than some other investments. So the combination of a higher return and lower management was very attractive to me. Plus there was a lot of inventory when I was buying motels and restaurants and that type of property, there was very little inventory. Actually, my partner, a guy I was in business with back then, he took off on another tangent. He bought mobile home parks. But his problem was he only bought one every three or four years because it was so hard to find one that made sense. And then when he found one, he had to raise a lot of money because his average down payment was four or five million dollars. So it was a whole different game. And today we stay in touch and, you know, we've both been successful. But I wouldn't trade with him. I like what I have. You know, I have my houses still have most of the ones I bought and most of them are paid for now. And the cash flow is good and the management is pretty light. You know, I can manage them in one or two days a month, so doesn't take a lot of time.

So, John, thanks for that. And you have all of your properties locally there and you personally manage them, Is that accurate?

That's true. I've owned property in 10 states. Gary. When I first got started, I thought it would have been a good idea to diversify. But that experience taught me that it was Better to stay closer to home because you have better information. Now folks in the military, they get transferred around. Sometimes you buy a house in one city and you get transferred across the country and many of those folks have held onto those houses and it's worked out. But of course, management is more of a challenge when you're a long way away. But you know, the military connection's a good one because, you know, if you're renting somebody else in the military, you know, you know how the system works and they do it too. And you know, you have a little bit better information than you would on some folks.

Yeah, absolutely. So I've noticed that in my decade here of real estate investing, which is, you know, not, not even through one correction yet, I just bought coming out of the previous one. But I've noticed that if I had to put people into buckets, I would say that individuals who've been in real estate a really long time are ones that would tend towards paid off houses, cash flow, no debt. Individuals who are either in multifamily or have been in maybe a little bit shorter period of time are more into carrying more leverage so that they can have more properties. And I kind of, and I'll be the first to admit that I talk about that I'm in that category. Can you give me a little bit of feeling about why or if you do, you know, feel that it's best to have them fully paid off?

Sure. Well, you know, when I started like you, you know, I had, I had no money. I was putting as little down as I could and taking subject to, and then finding investor money and doing all the things I could do to, to buy into properties, you know, and I did that with all kinds of properties. So, you know, when you start leverage is your friend. First of all, you don't have much to lose. If you're starting off broke and you go broke again, you didn't change much. You know, true. Started with sort of like playing poker. Once you start winning, you want to pull some money off the table. And in a real estate, the way you do that is you look for safer debt. You get smarter about how you borrow money and go for safer debt. The folks that went broke during the last recession were typically people that had a lot of bank loans and the banks wouldn't negotiate with them, so they took property away from them. I've always advised people to stay away from banks when they borrow money just because it's more dangerous. I have some bank loans, but I don't have many. The ones I have are loans that I've refinanced after I bought a property, subject to or something. But most of the houses I had to start with were not with banks. They were with individuals or private parties who would finance them for me. So when we had bad recessions, and I've been through five really serious recessions, we were able to survive because I was able to renegotiate with people and I had private money who would work with me and actually give me more money during the recessions. Not everybody is poor during a recession. You know, there's some people, the rich people still have money. And of course that's when the best buys show up. So if you have access to some money during a recession and who knows when we'll have a next one, but you can count on the fact that we will have another one. They come every so often. It's like hurricanes. They just show up every so often when you least expect them. You just want to be prepared. So if you're highly leveraged during a recession, you know you're at risk. If you had even one house paid for or one house paid way down where your payments are very low, then you'd be in stronger position and you'd have some cash flow and you'd be able to make some really good buys during the next one.

Yeah, I think that's great advice. That's awesome advice. I have a couple other related questions. How can really anyone accumulate $1 million worth of houses debt free? I think that's one of the things that you talk about during some of the seminars you do.

Well, it's pretty simple actually. You buy $2 million worth of houses and you sell half of them, pay the other half off. You wait for them to go up.

Okay, how do you get the $2 million of the houses?

Well, you buy them one at a time. You know, my book talks about buying houses one at a time and that's. It sounds oversimplified, but it's absolutely the best way to do it because you learn every time you buy one. Yeah, you're rarely going to get a hit a home run. And hopefully you don't hit a home run your first time at bat, you know, because then you'll think you're good.

Right.

It's better to struggle a little bit. But you know, as you continue to buy property, two things happen to you. You remember your last couple deals and you try to make your next deal a little bit better. Maybe a little bit lower down payment or a little bit lower monthly payment. Or a little lower interest rate, or a little bit better price, or a little bit better property, you just try to make it better in some way. And if you'll continue to do that over time, buying one house at a time, pretty soon you'll be pretty good at this. After you've bought a half a dozen or a dozen houses, you will have a lot of experience and you'll be making better deals and you'll be smarter about what you're doing. So simply, if you ended up with a million dollars worth of houses and a million dollars worth of debt, you know you bought them all with nothing down, you know, you don't want to just start making bigger payments. It'll take you forever to pay off that million dollars doing that. But if you'll keep buying properties until you have another million dollars worth of equity, you can take the first million dollars in equity and pay off the other debt and end up with some free and clear. Time goes by pretty fast in this business. I've been doing it for over 40 years, so I've owned houses for now 40. I've got one house I've owned 45 years. And of course he had a 20 year loan on it, so it paid off 25 years ago. So for 25 years, that house has been giving me a lot of cash flow and I can use that cash flow to pay off other debt. So, you know, you have some choices you can make once you acquire some property. You can either use the cash flow and the excess cash flow that it produces to pay off debt, or you can simply sell a house and use the profit from that house maybe to pay off one or two or three loans. The nice thing about inflation, and it looks like we're going to have some more here in the next 10 years, is that it makes the debt easier to pay off because your rents will go up, but your loan payments stay the same.

Right.

So you know, if you have a loan payment a day of 1200 bucks a month, and your rents are 1500 bucks a month, you may come back in 10 years and your rents may be 2,500amonth. And you know, if you use that excess cash flow to pay off your debt, you'll pay it off faster.

Okay, makes sense. One of the things that I hear you, I read that you talk about a little bit is the difference between a boom bubble. What kind of a distinction are you making there?

Well, a boom is what we're in right now, I think where the economy is strong, where employment is, unemployment's low. A lot of people have jobs. The people that have jobs are starting to make more money. They're working overtime and people are bidding more to get people coming to work for them. So everybody's just making more money now than they were four, five or six years ago. And that's a boom. A bubble is when people are buying because the credit is artificially loose. And that's what happened at the end of that last boom, is that people. I had tenants who didn't have good credit and had no down payment move out of my houses and buy other houses that looked just like the ones they lived in. And they lost them. Almost every one of them lost them because they were paying $300,000 for a house that really was only worth probably two or two and a quarter. But people were paying too much for them because the bank would lend them the money and they could afford the payments because the rates were artificially low. So you get these credit booms or bubbles. Credit bubbles. The other thing that can cause a bubble is oversupply. If we have right now a lot of people are building apartment buildings, they may overbuild them. If they overbuild them, then there'll be too many apartments, too many condos, and prices will come down just because of oversupply.

Yeah, understood. You teach a seminar once a year now down there in your hometown? I think in Florida in the January time frame. I think you entice us to come down to the beautiful Florida in January.

I do. Because I don't want to leave beautiful Sarasota in January.

Yeah. Yeah. So it's a two day seminar. And you go over a lot of the stuff that's in your book. We'll talk about here in a moment. How many people come to that seminar each year?

We limit it to 65 people.

65, okay. So it's really. It's a personal, hands on situation that's pretty neat. And you also do kind of a field trip afterwards, or at least maybe in the middle of it there somewhere. Do you go out to your own properties or what do you do there?

I own properties in eight neighborhoods that I really like here in Sarasota. So my houses are not all on one street in one neighborhood. They're scattered around this town. And it's not a very big town. We're 60,000 to see limits and a couple hundred thousand in the greater Sarasota area. I have the students go out into neighborhoods where I know property values and I know rents and I know they're good places to buy have them identify opportunities in those areas. I have them go walking up and down streets and I tell them what to look for and they find these things and they come back to class and they see that even in a hot we just did this a couple months ago. Even in a hot market, they can find opportunity. So the lesson is when you get home, first of all, know your neighborhoods. You know, I teach them how to find out which neighborhoods are the best to buy in and best to rent in. And then the second thing is once you identify those neighborhoods, there is always an opportunity in those neighborhoods. If you're working enough to find it, take some work. Sometimes you just can't sit home and hope somebody's going to call you. You've got to go out and beat the bushes and talk to realtors and talk to lenders and develop leads. But if you'll do that, there's always an opportunity in those neighborhoods. So it's a two part strategy. First of all, you want to buy good properties in good areas. And second of all, if you look in those areas, you'll find them.

That's wonderful. Okay, so let's talk a bit about. You have a few books, your primary or your original book, the one that's still certainly out there and available. And I think probably the one that you would say before you get the others, go get this one. And it's called Building Wealth One House at a Time. And you wrote that one now 15 years ago or so.

I bought Roy in 2006, but I rebrewed it in 2016. So there's a new edition out. The second edition was out last year published by McGraw Hill. So make sure if you buy it on Amazon, you get the new one.

Got it. Okay. Who is this book right for? The new investor, the person who's trying to get to a higher level, more properties. Maybe a little about that.

I didn't hold back when I wrote that book. It's not a teaser book trying to get you to buy something else. I wrote down everything that I could in a few hundred pages. But I'd suggest it for anybody who's investing, especially in single family properties. But I've had a lot of people who buy apartments and other things buy the book and find that my management ideas and financing ideas working different types of properties. So it sounds a little self serving, but I think it's a good book for anybody to read. I really wrote it for my kids because someday I won't be here and I want the kids to be able to know what I know, so in addition to that book, I recorded some courses. I do one day courses and record them on specific topics and you can see all that on the website. I won't talk about it, but the website johnshaub.com and you'll see articles and newsletters, other things on that that I write. So I continue to write, I continue to teach, you know, not at a pretty low level because I'm occupied here with my own properties, I manage my own properties and then I have kids and grandkids all over the world so I travel around and see them all the time.

Sounds wonderful. So for the listeners, it's John Shaub S C h a u b.com and nice website with lots of information and like you said, some kind of home study course options on there. John, you talk about. Well, I mean the title of the book is Building Wealth. It's not just about numbers in a bank account someday to pass on. And you just alluded to the freedom of life to be able to travel around and see the grandkids. What else has building wealth meant for you and your wife?

Well, it's given us the ability to be involved in community activities and give back, be better citizens because of that. What it really does is give you a lot of freedom, you know, to do other things. Attended all my kids plays, all their ball games, all that stuff I coached, I reft I did all that stuff when the kids were growing up and now that I have grandkids, I get involved with them. So it just gives you the time to do things that are important in life, the freedom to go places. I was just in Aspen last week skiing and you know, we do a lot of fun stuff. The wealth helps you do that.

Yeah, I think that's very well said. This is the kind of thing that people who are in our audience, the veterans and more importantly though, the active duty members of the military that are gone for months at a time, the members, the firefighters, police officers and EMTs that are working 24 on or a couple 24 shifts, they have the flexibility but they also are busy and I think they have this, a lot of them have this misconception or this feeling that it's just not achievable with their pace of life. And I am trying to get across the message that it is achievable. And so I appreciate certainly the help from individuals like yourself that provide resources to be able to do that. But it also has enabled you. You mentioned give back to the community, but you're doing a wonderful thing with Habitat for Humanity and some other programs. Can you talk a bit about that?

I got involved with Habitat for humanity back in 1986. At that point, I'd reached all my financial goals. So I was looking for something, you know, to do something that would help the communities. And then in the last 12 years, I've been involved with a group called the Fuller center for Housing. The fellow who started Habitat for Humanity was Millard Fuller, and he split off and started a new organization about 12 years ago. And I chaired that board and served on that board for a number of years. And I'm involved with my local Fuller center board. And what we do locally here is we help people stay in their houses, both the elderly and the infirmed and folks that have maintain their houses. So we do our best to help folks by doing repair work to houses. And we can do a lot of work to the house with a relatively small amount of money because we have all volunteer labor and we have absolutely no overhead. We don't have any office overhead. We don't pay any salaries to anybody. So the cost of us fixing a house up is pretty low compared to most people. So we target people who need our help. Some of them are veterans, some of them are elderly, some of them are ill. But these are people in houses that, without our help, they couldn't stay in that house. So we help them stay in that house on an international basis. Fuller center builds houses in a lot of overseas countries. We're in 60 some houses, 60 some cities in the United States, and we're in 16 countries overseas. So it's a big organization. It's not as big as Habitat, but it's doing good work. Both those organizations are excellent organizations.

And you said Fuller is internationally, they're building houses from ground up, like Habitat? More like the Habitat model.

It's a lot like the original Habitat model. Most. Most. All of us involved in the Fuller center were originally with Habitat. So we've kind of gone back and recaptured that original Habitat model. We're building smaller, simple, basic houses overseas and in. In the United States.

Got it. Okay. Well, that's. I was involved with Habitat for Humanity in the early 90s as well. So that's probably what I'm remembering. It is. I don't know what it is now at the moment, but I'm sure it's still a wonderful organization. I participate and have talked with my listeners about a group called the Siller Foundation. It's a family who lost their son who was a firefighter in New York City during 9 11. He was in one of the towers helping trapped individuals. And that organization has grown substantially and now they focus on building smart homes. So new construction smart homes for catastrophically wounded veterans. And if you haven't John, heard of that organization, so called the Tunnel to Towers race or the Siller foundation, it's a pretty neat organization as well. Again focused on disabled veterans. What else should I be asking or should our listeners know about the idea, the concept of how easy it is or at least how reasonable of a plan it is to start building wealth with single families?

A couple things. Number one, you don't have to go out and buy a whole bunch of houses. I mean, people sometimes have big goals and that's okay, but most people don't need 20 or 30 or 40 houses. Most people just need a couple. My dad came to me when he was in his early 60s and he said to me that, you know, my retirement is not going to be enough for mom and I to live on. So I said, well, let's buy you a couple houses. And we went out and bought three houses for him when he was in his early 60s and we used the extra rents to pay him down. So by the time he retired at age of 70, he had three free and clear houses. And they weren't fancy, they weren't big houses, they were just nice little houses. But those three houses paid him about $1,000 a month apiece throughout his retirement years for a long time. You know, $3,000 a month is a lot of money to most people. So you don't need to buy 20 or 30 houses to make a significant difference in your life or somebody else's life. If you have parents, it's a grand idea to help them buy some houses just like I did my dad. Because when dad died, I inherited the houses. There's no bad news here. You know, I bought the right house, I managed them for him while he was alive. He had some down payment money, so it made it easier for him to buy. So you can think a little bit about the generation ahead of you, about helping them get through. And you only get one chance to inherit property. Most of us do anyway. So when you inherit property, you get a stepped up basis. And of course, if you bought good property with good tenants, they're good investments for you too, so you don't have to make it too big. The other thought I would have for you is that you should be buying in any market. People try to time markets, they try to figure out what's going to happen tomorrow. And honestly, nobody knows what's going to happen tomorrow? I don't know. If I knew, I'd have a lot more money than I have now. So you can't predict the future very well, but you should always be trying to buy because you can find an opportunity in any market and prices will come and go. But what typically happens in a house business is the next low will be probably about the same as the previous high. So they keep creeping up in price. I've been doing this long enough to see my rents go from 250amonth to about 1850amonth on the same house. So time is your friend in the real estate business. When you start to buy, if you can buy the best property you can afford, you'll be happier because you'll have less work and you'll have more money invested in that one property than you would if you buy a really inexpensive house. Sometimes people start in a house business and they buy very inexpensive houses and they're not bad investments, but they do take more time and they don't go up as much. That's one reason they're inexpensive. Find the highest quality property you can make sense out of when you start, I think is a good strategy.

That's awesome advice and I especially appreciate your comment there about helping our parents purchase properties as a retirement solution. I have never really considered that. That's a new one for me, John, and fits perfectly with my current my in laws. Actually my wife's parents and their situation, they live not too far from me there in Florida. And I appreciate also you bringing back around what we talked about before recording, which was that we are certainly in alignment on the concept of newer, nicer homes and that that's just a much better experience for you. Those rehabbed, maybe multifamily older properties sure look good on the pro forma, but they don't play out to be a good experience in my opinion. So I appreciate you bringing that back around. John, thank you so much. I just want to finish up again by mentioning your book Building Wealth One House at a Time and then your website again. All of that and more is available on John Schaub. That's John S C-H-A-U B.com John, thanks again for joining us.

My pleasure, Gary. Thank you for having me.

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