Real Estate Investor, Teacher and Author
This week Bruce Norris is joined by John Schaub. John has prospered during 3 recessions as an investor. He has 35 years of real estate investing experience. His 2005 best selling book Building Wealth One House At a Time assisted more than 50,000 real estate investors. His 2007 book titled Building Wealth in a Changing Real Estate Market is available in bookstores and online.
In the early 1980s, we had a crash in real estate. We had high unemployment, high interest rates and a low volume of sales. Every down turn is different, and that is what makes real estate challenging. Charles Darwin once said, “It is not the strongest or the most intelligent of the species who survive, it is the ones most adaptable to change.” You have to be able to analyze a market, and adapt your strategy. Having 35 years is experience is important for being able to determine when change is occurring, and how to deal with that change.
Many of the people who have not survived the down turn have a lot of bank debt. Many of the people who did survive own a property free and clear, have cash in the bank, and didn’t refinance as often.
If you talk to an account and tell him/her that you own houses free and clear, they look at you as if you are making a big mistake. They don’t understand that owning a house free and clear helps you sleep at night. There are some days where it is hard to get work to pay the bills.
There was a time in Riverside County when real estate prices were dropping 4 percent per month. During that time, Bruce was happy to be able to sit patiently on the sidelines until opportunity presented itself. The market does not come out of a recession as fast as people expect, so if sales are going slow, be patient.
Right now is a great time to buy. The affordability index is looking great. If the credit market loosens up, we will have many buyers returning to the market. Unfortunately, the real estate market has some scars from the down turn, and those scars take time to heal. In times like these, when people are afraid to enter the market because of the cash they lost in the down turn, you can make a lot of money from conquering your fear.
Every one is trying to catch the bottom of the market, but that is just as difficult as catching the top. You should be happy with just being able to buy a property that cashflows well. There is a good chance that prices will go up in the next ten years. John was able to raise rent on all his properties this year without losing any renters.
John got into investing because he didn’t want a real job. Prior to investing, he had worked in retail and he had worked as a dishwasher in a restaurant. He knew there were jobs that required hard work and less money, but he wanted something that required less work and was more lucrative. He got his real estate license in college, and he sold an apartment building that he was managing. He used the check from that sale to start his investing career.
John prefers to buy and hold over buy and sell. Buying and holding a property does not require as much skill as buying and selling, because selling is a separate skill set. Also, you cannot be greedy with buying and selling; you have to be willing to accept a smaller profit from each property. Buying and holding requires patience. You have to wait for property values to increase over longer periods of time, and you need to have some sort of job to cover the bills while you are waiting. The properties that have made John the most money are the properties that he bought 30 to 40 years ago.
About ¾ of John’s properties are bought from private owners. John uses a variety of advertising methods. He doesn’t believe you can adequately rely on one method. John keeps track of properties for sale in neighborhoods where he owns properties. He lives in a city with a population of about 50,000, and he has about 12 neighborhoods within 10 minutes of his office. On a daily basis, John looks for empty houses and signs of distress within those neighborhoods. He also talks to neighbors about other people who might be interested in selling. John has not used direct mail or newspaper advertising for many years, but he did do this in the beginning of his career to create leads.
John’s ideal rental property is located within a well established neighborhood, has nice landscaping and is near to good schools. These neighborhoods tend to be more pricy. In order to buy that kind of property, you have to buy far below market value, or you must have a large down payment to decrease your monthly payments. John will not buy a house unless he can gain a positive cash flow from it. John’s ideal home typically sells for $300,000 to $400,000, and he tries to buy them for about $200,000. Those homes usually rent for about $1,550 per month.
If John was a beginning investor, he would look for a less expensive house. It is harder to make an expensive house cash flow, and they require larger down payments. Cheaper homes are sometimes not very pretty, but every house is someone’s dream house. For someone who lives under a bridge or inside a trailer, an ugly house may seem wonderful. There is money to be made even on less desirable properties. Generally, the people selling those homes are anxious to get rid of them, and the people who are interested in buying those homes are really happy to just have a house. John has sold hundreds of houses like this to young families who were willing to put in some sweat equity. John has been involved with Habitat for Humanity for years. Habitat for Humanity helps people get into a house with a small down payment. Because those people have to work their way into those homes, they value their homes more and they are more likely to be successful.
John was mentored by Warren Harding. He was a real estate salesman and a great teacher. When John first started taking classes, he couldn’t imagine that he would get his money’s worth out of the classes he was taking. He eventually realized that the $200 dollars he spent on his education gave him ideas that were worth millions. John still enjoys taking and teaching classes. The excitement of being able to learn new ideas to make money with keeps John motivated.
One of the benefits of being a teacher is that you have a bank of students that come up with their own investing ideas. Some of John’s students have come up with ideas that they have been able to use profitably.
John and his friend Jack Miller began teaching real estate in the 1970s. He was teaching a real estate law class at a local college for people interested in getting their real estate license. Later, he started teaching classes on investing in classes. He currently teaches about 4 times every year. He enjoys seeing people “light up” when he shows them how to make money. John teaches to a repetitive group. He teaches with Peter Fortunato and Jim Napier.
The first time Bruce taught, a man approached him saying, “I really need to figure this out, because my wife has cancer and I can’t afford the treatment.” Education can make a big difference in someone’s life.
When John’s father was in his 60s, he got his retirement benefit statement, and discovered that it wasn’t enough to retire. John was able to help him buy 4 houses. They sold one, and his father kept the other 3. That significantly improved his retirement income. John believes he teaches life changing material. If you follow good advice and find good teachers, you can not only help yourself but other people as well.
The title of John’s course is Making it Big on Little Deals. There are many seminars that try to teach people how to retire on one big deal. Those seminars are very popular, but they are impractical. The slow route has a much higher rate of success. Big deals have big risk. When you buy a highly valuable piece of property, there is a good chance that you will be negotiating with someone smarter than you. You have a major negotiating advantage when you are buying from homeowners, and when you are selling to people who want your house. If you are selling and buying from wealthy people, you need to be very good.
You can buy a house with a relatively small amount of money, but if you buy a bigger property like an apartment, then you had better have a reserve of cash, because something will probably go wrong along the way. If a house is empty for a couple months, you can probably survive. If an apartment is empty for a couple months, there is a good chance you won’t survive. One of the lessons Bruce has learned is to always have a reserve of cash. Having monthly cash flow and a reserve of money allows him to make sane investing decisions. When you have extra cash, you can analyze the market and determine whether or not it is a good time to buy or sell. Also, having extra money puts you into a good negotiating position, because you don’t have to buy or sell. You can just make deals that are good for you, rather than being forced into a deal because you need some quick cash.
Bruce knows some people that lost a lot during the down turn. Some of those people are in make up mode during a time that is difficult to make money. That is dangerous. John believes you need to have a good long term plan. If you buy today and don’t plan to sell for 10 years, then you don’t care about price drops that might occur within the next couple years. This allows you to patiently wait until prices come back to a desirable selling point.
Bruce and John will be teaching together for the first time on November 5th and 6th. Jon will be focusing on how to buy in today’s market. One thing that John does differently from Bruce is he uses a lot of owner financing. He will be teaching people how to buy properties without going to banks and hard money lenders. You cannot cash flow with a hard money loan, because you need a better interest rate, but hard money loans are good for buying and selling. With interest rates this low, owner financing is vey reasonable. John is getting loans for 15 years at 4%.
For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.