I Survived Real Estate Series 2022 – John Schaub | Part 2

 

 

John Schaub has prospered during three recessions, four tax law changes and interest rates ranging from 6-16% in his 35 years as a real estate investor. His 2016 best-selling book Building Wealth One House at a Time, 2nd edition, assisted more than 100,000 real estate enthusiasts on their way to successful invest­ing.

John recommends buying better, well-located houses rather than cheaper houses and other management-intensive properties.  Better houses are more profitable and far less trouble. He advocates paying off debt, owning properties free and clear, and renting only to long term, high quality tenants. John buys, sells and manages his own properties, and enjoys providing quality housing at fair prices for working families in his community.

He teaches one seminar each year where students learn how to identify the best investment property in their town, how to buy it at below-market prices, and how to negotiate terms that guarantee a profit.

John, a Florida native, is a proud graduate of the University of Florida, where he earned his B.A. from the College of Business Administration in 1970. He is an accomplished boat captain (power and sail), fisherman, skier (snow and water) and an instrument-rated pilot. John loves to travel, especially with his wife Valerie and their young adult children.

 

 

Episode Notes:

 

Narrator  This is The Norris Group’s real estate investor radio show the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever -changing real estate market hosted by author, investor, and hard money lender, Bruce Norris. The Norris Group proudly presents our 15th annual award winning event I Survived Real Estate. Industry experts join Bruce Norris to discuss the evolving industry trends, real estate bubbles, inflation and opportunities emerging for real estate professionals. All proceeds from the event benefit Make-a-wish and St. Jude Children’s Research Hospital. See Isurvivedrealestate.com for event details information on all our generous sponsors and to connect with our speakers. We want to thank our Platinum partners, San Diego Creative Investors Association, uDirect IRA Services, White Feather investments, The Collective Genius, MVT Productions, and Realty411.

Joey Romero  Hi, welcome back to the Norris Group real estate radio show and podcast. Once again, we are joined by Rohny Award winner, John Schaub. Hope you enjoy.

Bruce Norris  Well, how did you get involved teaching other people because that’s not always what real estate investors do. It’s rarely what investors do.

John Schaub  Yeah, it’s interesting that you know, I look back through my high school speech class and what a dunce I was there. You know, I didn’t like stand in front of a crowd. I didn’t like talking to people.

Bruce Norris  Me neither.

John Schaub  And most people don’t, you know, most of us have a big fear of a lot of people have. But I took a class while I was in college to get my broker’s license, a salesman’s license. And it was taught by a fella, his name is Bert Rogers. And he had a statewide organization of teaching, and he would teach people how to get the real estate license. Well, I liked this guy. And he was funny, he taught really well. So, I got to know him a little bit. And he hired me after I got out of college to start teaching for him. So, I started teaching the class to people who wanted to get a real estate license. And, and I had a good time doing it. Because it was information I really understood. One nice thing about teaching is you really have to understand the information you’re putting out because people are going to ask you questions about it. If you’re just reading off a cue card. You don’t know what the words mean, you’re in trouble.

Bruce Norris  You know that, that statement is so true. I am a big proponent of that I, when someone does a presentation, you haven’t told me anything about what you know, it’s q&a that I know.

John Schaub  Yeah, yeah. Yeah. And, and that’s the fun thing about teaching, I think and that’s why I love teaching to this day is because people do ask your questions, they challenge you. And some of my most successful students, I can just see this person sitting in the class would challenge me all about on every point did not agree. And we’ve, we’d wrestle all the way through the class. And then she came back into the class again, it came back into the glass again. And finally the lights went on and on. And she bought into the program. And today, she’s my most successful student by far.

Bruce Norris  Oh, wow. That’s fantastic. You know, you guys teach you teach every year, at once a year is that…?

John Schaub  We try to, we try to, you know, the COVID thing to us a little bit. And we did a zoom class one time, but we did get together this year in the spring and taught a class. There’s a lot of fun. So, hopefully we’ll do that again next year.

Bruce Norris  What percentage of your audience would you say is repeat?

John Schaub  Oh, I’d say 2/3.

Bruce Norris  Yeah, that’s…

John Schaub  A big chop. Big chop.

Bruce Norris  Now, that’s a huge compliment.

John Schaub  Yeah. Well, they like to come back we’re somewhat entertaining, I think. But you know, we’re in the business. And we like what we do, and we’re good at it. So, we tell real stories, and we tell people what we’re doing now, you know, so they, they say you guys have done a well, we you know, if we do what you’re doing we’ll probably be okay.

Bruce Norris  Well, and you’re different to your approach is different. So, it’s, it’s an interesting combination, yours and yours in his…

John Schaub  Yeah, these are totally different people.

Bruce Norris  It’s fun to watch that, that pairing in a day, you know, so…

John Schaub  We love each other. We’re good friends, but I mean, we are totally different. And that is fine. And we just see things differently.

Bruce Norris  Well, you know, we had a seminar one time where we put Jack Fullerton was was part of the five people because they were very successful, but approached the business so differently because of their their skill. So Jack was literally door knocking everything he owns in Orange County, you know, when he when he was here, he door knocked and, and did it that way. So, when we had this three day event, he went out with people in a neighborhood you know, and did what he did. And there was a guy that door knock foreclosures and that was, that was his thing. And it was interesting because there was what I was trying to say is you got to match, maybe your skill set and your personality with maybe one of these. Not worry about doing all of them, but doing the one that matches you, you know. So, that was that was fun.

John Schaub  Yeah, that’s good advice.

Bruce Norris  Jack Miller getting, you know, getting the Rohnt award this year.

John Schaub  Yes. Yes. That’s wonderful.

Bruce Norris  Yeah. I’m excited. You know, it’s an interesting story, Mike Cantu told me a story one time and I could relate to it. I had to deal I wanted to put together and, and Jack Miller, I’d never heard that name before. He was teaching a class on options. And so I took the class, and we started the class, I’m ready to you know, follow along in the book is the first seminar that I ever took. Well, he didn’t follow the book.

John Schaub  He never followed the book.

Bruce Norris  And so later, and I’m thinking, well, this is not good. And then so I talked to Mike Cantu two years later, and he said, I love taking Jack Mill’s classes because there’s always two seminars. One, the one, one that’s in the book and the one that he gives, and I laughed, I said, Oh, I didn’t know that.

John Schaub  Well, Jack and I talked together for seven year who probably taught 50 or 60 classes over a seven year period of time. And we had a really good manual, but he would never use it. So, he would talk for about an hour and then I get up and I cover what was in the book.

Bruce Norris  Oh my gosh.

John Schaub  We’re like Pete. But you know, Jack and I are totally different do we have a lot of fun together. He was he had a great sense of humor. And, you know, he was just a lot of fun to teach with.

Bruce Norris  Yeah, well, that’s, you know, Mike Cantu and I, we kind of grew up into investing in California. To more I’m a little older, but we started kind of at the same time. And you know, we’ve had plenty of lunches and stuff. And Jack Miller is his favorite trainer. That’s a pretty high compliment

John Schaub  Yeah, you know, Miller was one of the guys I mean, there’s, there’s no they’ll never be another Jack Miller. He was just, he was fast. He was like taking a sip out of a fire hydrant because he could just go for hours with new ideas, you know, you no way you could write this stuff down. Jack and I taught a class up in Salt Lake City back in the 70s. And I felt Bob Allen took the class. And Bob was taking copious notes in the bag. And he took the class again, he took it back to America with laser neuro. And I wrote a book called nothing down, which is a great book. But he was trying to write down stuff Jack said, which is impossible to do. If you had a transcript, it wouldn’t make any sense.

Bruce Norris  No wonder I felt lost that day.

John Schaub  Yeah, no, it’s really hard to follow. And I used to kid Jack, I said, you know, you get exactly the same people room over and over again, because they’re still trying to figure out what you’re talking about. And I say that was me too, as well. I talked with him for years of trying to figure out what he was talking about. But he was a very interesting guy. Very interesting.

Bruce Norris  When, when I took that class, I really had a specific transaction in mind. And because I didn’t really leave knowing how to do an auction. I asked the guy to carry, carry the note when he did.

John Schaub  Yeah, close.

Bruce Norris  It’s close. Yeah, that’s, that’s a funny outcome. Well, you’ve got, you’ve got an event that’s you’re going to be teaching in Vegas, and you’re going to tweet with peach. Teach with Pete again, spring of next year. What, what impact do you see interest rates having on on prices? I guess, first of all?

John Schaub  yeah, well, I think people will get used to them after a while. I’ve always argued that the availability of credit is more important than the pricing of credit. If people can get a loan, they’re not as excited about what the interest rates are is whether or not they get the house, you know. So, you show somebody a new car, they really rarely ask what the interest rate is, they want that new car, and they don’t want that new red Corvette or whatever it is, and they’ll sign anything to get it at the house business is a little bit like that, you know, when when the houses were selling back in, I bought a lot of houses in the late 70s and early 80s. And I bought 16, in one year in 81. And I and every one of those houses had a 14% loan on and they were new houses. They’re all brand new, they’re builder owned, and I’m hoping that we get that kind of opportunity. The challenge is now is that the builders, especially around here are building more expensive houses. Very, very few of them are building like a 13 or 14 or 1500 square foot house that they could build for a couple $100,000 or building houses a lot bigger than that. What are you building down town? What, are you building a fairly basic house? Are they are they are they designed to, to sell right away?

Bruce Norris  Well, there’s two thoughts on that. So in Rotonda, we’re doing flipping.

John Schaub  Okay, so you’re not…

Bruce Norris  ..that means… No, no. So we studied. This is a builder that came out from California that I’ve done business with for years. And the wife of the builder is a real estate agent. I said, let’s, let’s spend some months and analyze what pays the most in amenity. And let’s build that. And so we landed on, okay, if you’re going to have a higher priced home, it’s got to have a pool, got to have a great enclosed pool area, atrium, you know, high ceilings, there’s just a few things that we did through third car garage. So, that’s what we build for spec.

John Schaub  Okay.

Bruce Norris  Then there’s another group. Now the whole other group of homes is under construction, for California investors to have his rentals. So, they’re getting out of some of their stuff in California, because that’s how that came about. Just getting a call somebody saying can, can you meet with me look at my portfolio, and I’m looking at the portfolio and 70, 80% of what they had as rentals would be the exact house you would not own because of area, condition, you know, and all that stuff. And so that’s what led me to believe. And by the way, that’s how I ended up with Florida was the ability to sell the junk that I had in the lousy locations to get new houses. So, that was what was attractive to me. And then I found out, okay, there’s, there’s a demand for that. So, all of those homes were theirs, it varies, you could have a 1400 square foot home to about a 2000 square foot home. And the ratio of rent, probably getting a five or six cap rate on a brand new house, but they’re bringing something that’s, you know, way gone up in value, and that’s 70 years old. And California says why ‘Oh, that makes sense’.

John Schaub  Sure, sure.  Right.

Bruce Norris  The two models, those are all pre sold in, in Cape Coral, where the other ones that are spec. And you know what’s interesting, and this is it’s, it’s so frustrating when you hear the news. So I don’t know if you had much for sale in 2022. But prices changed so radically because there was no inventory. And one of the last houses that we had for sale. When we started construction, we thought it was a five and a quarter house. When we put it up for sale, wrong house, four and a quarter, when we put it up for sale, we put it up for five and a quarter we thought okay, that’s the new number. Well, the a bidding war ensued, and inside of four hours, there were 11 cash offers and one VA offer, the VA offer kept on raising his price to 577. So, he was the winning bidder, but three other buyers, what 577 paid 577 for houses that were also under construction, nearing completion. So, that, yeah, but what I’m saying is that’s what happened. So, the the real number was never 577 I’m not sure it was five and a quarter. So, so now when you hear the news, ‘oh price are down by 10%’. That should have never occurred that 10%.

John Schaub  Right.

Bruce Norris  So, really, are we is anybody that’s in the building business suffering? There’s no way. There’s just no way the margins from where, if they’re coming down, they’re coming down from a number that was never imagined when they started construction. So, that’s what’s interesting to me. And you know, and another thing about the damage that’s possible. 80% of mortgages in place are 4% or less. What would induce those people to sign up for a 7% mortgage?

John Schaub  Not, only a better house.

Bruce Norris  But you know, and maybe well and see Florida is in a, in an interesting position because is it possible to have a mortgage in New York and sell it and come here and not have a mortgage? The answer is yeah.

John Schaub  Sure.

Bruce Norris  So, your Florida is in that unique price range where it can get a recipient from other states, and they can improve their position by not having a loan. See California can’t do that.

John Schaub  Yep.

Bruce Norris  There’s no way so I think I think it’s really possible we’re going to have sales, maybe go down by almost half. I think cash buyers will represent 50% of the market. And that’s why I don’t know how much price damage we’re going to have because I think so much inventory will not show up. That demand…

John Schaub  Sales are down 50% you’re seeing a number of houses sold will, will drop? Not prices?

Bruce Norris  Oh, no, not prices. Because I think I, I think there’s, do you think there’s going to be a glut of foreclosures this time?

John Schaub  Not as many, not as many because we don’t have all the right now anyway, we don’t have all the second mortgages, we don’t have all the speculation going on that may come, you know, people may, may refinance their houses. But I, as you point out, you’ve got all this large percentage with low interest rate loans. And there’s another big chunk that was all cash, you know, probably almost half of our sales were all cash for a long time. So, free and clear houses and low interest rates that, that’s going to stabilize the market.

Bruce Norris  Yeah, well, even if you lose your job, okay, let’s say you live in Florida, you lose your job, and I got it. Okay, I gotta go to Michigan. And let’s say you’re in a negative equity position, it would rent for a cash flow. If you had a 4% mortgage, or…

John Schaub  It would. Yeah.

Bruce Norris  So, you don’t lose it. Okay, well keep it.

John Schaub  No, no, the last house, I sold it as a house that we, we loaned a flipper money during the last run up, and he forgot to pay us back. So, we held it for a while, and then we remodeled it and sold it. But the lady bought it and got a three and a half percent loan. And I thought she lived there forever. She lived there for two years and moved out and rent it, it’s you got $1500 a month cash flow. Do your point, those low interest rate loans are gold.

Bruce Norris  Well, I think you know, I think that’ll be the buffer, you know, we were invited to go speak with the CEO of Fannie Mae, one on one on a lunch last year, and a topic came up about, you got to figure a way to let these loans go forward to the another buyer. Because when it happens that interest rates change. If you get if you let three and 4% mortgages stay in place, then you will save the real estate business because right now, you know, what we just said sort of casually is half of the people that are Realtors aren’t going to have a job. If the volume is half, it’s not going to be healthy for lending, or for realtors. So, the existing loan base, if it could move, it would be a really big deal. But sometimes practical things don’t get accomplished very well.

John Schaub  Well, and people make emotional decisions about money all the time, and people will sell and pay off some of those three to 4% loans, which is foolish, but they’ll do that because they want to move to a different town or buy a bigger house or whatever, whatever, you know, life changes.

Bruce Norris  Sure.

John Schaub  So, so you know, some of those people will hold on forever, but, I’ve, actually not many.

Bruce Norris  Well, that’ll be interesting. You know, that’s so that, you know, that’s we just finished doing a report this spring, Uncharted Territory was the name of it. And it really kind of was spur the moment I thought, well, I better. I better write something about this, because what we’ve never had in places this predominant low interest rate loan. And but we also, we also got to a price we shouldn’t have gotten to as well. So, California, the median price almost touched 900 grand.

John Schaub  No.

Bruce Norris  And, okay, is that sustainable at 7%? No. So, that’s the challenge is are we going to, are we gonna have a 40% price hit? And if if we’re not what’s going to prevent it? And so, you know, that’s basically where my brain went is thinking about, Okay, what, what could happen, but the news media is, you know, they’re like foreclosures increasing by 1,000%. Okay, well, what does that mean? They went from three to 30. Yeah, it’s, they’re not a dominant player in the market.

John Schaub  Yeah.

Bruce Norris  But you get these headlines saying stuff like that?

John Schaub  Well, don’t don’t get your information from the newspaper. But think back to the 70s. Now, you were a young boy in the 70s. But I was there and in business full time, we had a lot of loans that had 7% interest rates on them, and they went up 13, 14, 15%. Now, not many people bought up there, but some people did.

Bruce Norris  I did.

John Schaub  But, but it didn’t crash the market. I mean, those 7% loans are all gone now. Every one of them has been paid off. And of course, all the 14% loan has been paid off. But, but you know, there’s, there’s a sort of an orderly transition to this, and people will get used to breaks I really believe that a 7% mortgage is about where it belongs.

Bruce Norris  I agree with you, because the other side of that is somebody that saves money, that wants to get a four or 5% yield on a 10 year T-bill instead of getting a half a percent.

John Schaub  That’s right. That’s right. So, it’s gonna it’s moving money around, you know, it’s it’s rewarding the savers for a while and it’s rewarding the people that don’t think it’s free and clear. And I’m, you know, I try not to get too excited about what might happen because you never know what’s gonna happen. You know, when it when it happens, then I get, then I get interested. And then I come up with a strategy.

Bruce Norris  Well, I’ve been in the business of looking forward and saying, This is what I think is going to happen. And I’ll tell you what, when you put, when you put stuff in writing, you’re stuck with it, man.

John Schaub  Yeah. Defend it now.

Bruce Norris  It’s fun. I like taking that risk.

John Schaub  Yeah.

Bruce Norris  I really do.

John Schaub  Well, and you take risk when you go out and build a bunch of new houses on spec. I mean, that’s, that’s a much bigger risk than writing a report.

Bruce Norris  Well, I guess that’s true. That’s all, it’s, okay. worst case scenarios, I keep them. That was all thought that way out. Thought that way, too. You know, what is this thing cost me? What does it rent for? Okay. I’m okay.

John Schaub  So, and you’re in the right part of the world, because you’re right on the edge of where things really went bad. And so there’s a lot of people that want to buy houses where you’re building because they’re still there.

Bruce Norris  Well see, that’s the thing I first, my first venture in Florida was in 92. With Hurricane Andrew, that was a complete accident. My bed, when my best friend, Alex Navarro. I taught him the business in in California, and he moved to Miami. And he was running an ad in the newspaper that he bought houses. And then the hurricane hit. About a month later, he calls me up. He said, ‘Can you fly out here because I’m, I’m here, I’m just getting a chance to buy these houses at 20 cents on the dollar, people got their insurance check’. And so I flew out and it was just visually so negative.

John Schaub  Yup

Bruce Norris  That I had to call where the other there was a Hurricane Hugo, that happened a few years before that. So, I talked to the real estate people when I talked to the building department, and found out okay, you’re later everything that’s wonderful. So, what had happened to people, you know, you have all this damage, so many 1000s of homes damaged. So, you have two inefficiencies, you have the building department having very inexperienced people seeing houses that look terrible, that are not structurally damaged, but they read tag them. And then you have the insurance agent react to the red tag by writing a check for the full pet policy amount. But then an investor looks at and go, well, this is nothing this a drywall and blow, you know, blown in insulation and bloated cabinets. And so it really created an amazing opportunity. But it was really good for the owner too because he was an owner after Hurricane, major hurricane going to get a roofer.

John Schaub  Yep, no.

Bruce Norris  They’re not. So, they want to move. They want to move out. So, it created an interesting opportunity. And we bought our share of homes that way. And so, but this is honestly 30 years later, this is the first time an opportunity like that, as presented itself for the hurricane was severe enough that did that. So…

Joey Romero   Bruce, can I, can ask question?

Bruce Norris  Yeah, sure.

Joey Romero  Getting back to the teaching a little bit, John, you sent a great video about Jack Miller and how he closed the, the event with you know, his story about an oyster and eagle. But my question to you is, for anybody who comes to your seminar, what is the one takeaway that you want everybody to leave with?

John Schaub  Well, I like them to leave with the idea that they could buy a house, you know, a lot of people never bought a house for an investment. So, I want them to go out and buy that first house for an investment. And just see how, how good or bad it is, you know, have that experience because it’s one thing to talk about it and certainly another thing to do it. And you know, you can, you can draw a parallel with public speaking, you know, people are scared to death exam pro a crowd talk, well, people are scared to go out and buy a house and negotiate that and rent to a tenant. That’s a very scary thing to most people. So, we’re trying to give them the tools, the so that they can go out and identify and take some of the fear out of this with information about values and teach them how to manage and how to find a tenant that will actually pay the rent, not tear up their house. And, you know, just teach them the skills that they need to have to survive. You know, you don’t have to do anything fancy in this business. But you do need to survive. You can hang in there for 10 or 15 years, you’re gonna make a lot of mistakes, as long as you’re still doing it. And every two years from now, and you’ll learn from your mistakes, you’ll probably make a lot of money in spite of yourself changing. It’ll be fun to teach, because there’s more to talk about now.

Bruce Norris  Yeah, it’ll be definitely a different skill level and also subject to who’s taken over those low interest rate loans. That will definitely be a play.

John Schaub  A lot of opportunity.

Bruce Norris  Yep. All right. Nice talking with you, John.

John Schaub  Okay, take care. All right.

Bruce Norris  Bye.

Narrator  We’d also like to thank our gold sponsors, Chase Leland Photography, Inland Valley Association of Realtors, Keystone CPA, Inc, LA South REIA, Leivas Tax Wealth Management, NorCal REIA, NSDREI, Pasadena FIBI, Tony Alvarez, White House Catering, Wilson Investments, Windermere Tower Realty. See Isurvivedrealestate.com for event details, information on all our generous supporters and to connect with our speakers.For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.

Aaron Norris  The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.

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