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Building Wealth One House at a Time with John Schaub



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In this episode, Gary Pinkerton interviews the author of Building Wealth One House at a Time, John Schaub. John shares how he started in the real estate world and his thoughts on bank loans. They also talk about the difference between a boom and a bubble. He ends with how to make real estate work well even without owning a lot of properties.

Announcer 0:04
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.

Gary Pinkerton 0:39
Hello, and welcome to Episode 94 of the heroic investing show, where we focus on those challenges unique to members of the armed sources, servicemembers, 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 w two job to get some time back with our families, and with those things that inspire us, those things that we’re uniquely gifted that 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 prose, 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 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 1000s 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 talked 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, you know, and that helping him out in his early years. So you know, to each their own, I feel you can safely use that 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’s still cash flows. But I think you’re gonna 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, you know, we get into, you know, his really his lessons. So 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, john shaab.com. He also works for 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 will also enjoy the one that follows his in a couple of weeks here, so please, tighten the seatbelt and enjoy this discussion here with john Shaab.

Gary Pinkerton 4:55
Everyone, please help me in joining john Shaab to the heroic and 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 A Bridge 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.

John Schaub 5:44
It’s my pleasure. Thank you, Gary, is served.

Gary Pinkerton 5:46
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,

John Schaub 6:04
I didn’t start a 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 in 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 that have a lot of time to manage. And then 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, the whole different kinds, a lot of different types of houses a lot of different price ranges of houses, like I finally found a sweet spot 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’s very little inventory. Actually, my partner, I have 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 raised a lot of money, because his average down payment was four or $5 million dollars. So it was a whole different game. And today, we stay in touch. And you know, we both been successful, but I wouldn’t trade with him. I like what I have, you know, I have my houses, they’ll have most of the ones I bought and most overpaid 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 don’t make 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 is that accurate? That’s true. I own property in 10. States, Gary, when I first got started, I thought it’d 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, notes 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 on to those houses worked out. But of course management is more of a challenge when you’re a long way away. But you know, military connections a good one, because, you know, if you’re reading somebody else in the military, you know, you know how the system works? And they do too. And you have a little bit better information. And then you went on some folks?

Gary Pinkerton 8:27
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, or more into carrying more leverage so that they can have more properties. And I kind of I’ll be the first to admit that I talked 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?

John Schaub 9:12
Sure. Well, you know, when I started, like you, you know, I had, I had no money down as I could, and then taking subject to and then finding an investor money and doing all the things I could do to the buy into properties, you know, and I did that with all kinds of properties. So you know, when you start leverage as 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, started with sort of like playing poker once you start winning. Do you want to pull some money off the table? Real Estate is the way you do that, as you look for safer that 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 have a lot of bank loans and the banks wouldn’t negotiate with them so they took property away from them. I’ve always advise people to stay away from banks when they borrow money just because it does Much more dangerous. I have some bank loans, but I don’t have many. The ones I have are loans that I’ve refinanced, you know, 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 with financing for me. So when we have bad recessions, I’ve been through five really serious recessions, you know, 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 gets poor during a recession, you know, there’s some people, the rich people still have money. And of course, that’s one of the best buys show up. So if you have access to some money during the recession, and who knows won’t have an excellent, but you can count on the fact that we will have another one, 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 the even one house paid for or one out paid way down, where your payments are very low. And then you’d be a stronger position, and you’d have some cash flow, and you’ll be able to make some really good buys during the next one.

Gary Pinkerton 11:02
And I think that’s great advice. That’s awesome advice. I have a couple other, you know, related questions. How can you know 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?

John Schaub 11:18
Well, it’s it’s pretty simple, actually about to man over the houses, and you had your cell phone and video or half off to get the $2 million of the houses? Well, you mind one of the time, you know, my book talks about buying houses one at a time. And that sounds oversimplified, but it’s absolutely the best way to do it. Because you’ll learn every time you buy one. Yeah, you’re rarely going to get up hit a homerun. And hopefully it only hit a homerun your first time back, you know, because then you 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 of deals, and you’re trying to make your next deal a little bit better, you know, 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, you know, after you’ve bought a half a dozen or a dozen houses, you’ll 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 for the houses and a million dollars for the dead, you know, you want them all with nothing down. 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 that was some free and clear. Time goes by pretty fast in this business. I’ve been doing it for over 40 years, I’ve owned houses, we’re now 40, I’ve got one house, I’ve owned 45 years. And I foresee that a 20 year loan on it. So that paid off 25 years ago. So for 25 years, that house has been given 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 to the producers 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 Long’s The nice thing about inflation. And it looks like we’re gonna have some more here in the next 10 years. Is that a match the debt easier to pay off? Because your rents will go up? But your loan payments stay the same? Right? Well, you know, if you have one payment a day of 1200 bucks a month and the rents are 1500 bucks a month, you may come back in 10 years, and your rents may be 2500 a month. And you know, if you use that excess cash flow to pay off your debt, you’ll pay it off faster.

Gary Pinkerton 13:31
Okay. Makes sense. One of the things that I hear you I read that you talked about a little bit is the difference between a boom and a bubble. What kind of a distinction Are you making there?

John Schaub 13:42
Well, boom is what we’re in right now. I think where the economy’s strong, where employment is unemployment is low. And a lot of people have jobs, that people who have jobs are starting to make more money. They’re working overtime, and people are bidding more to get people to come in to work for them. So everybody’s just making more money now than they were four or five or six years ago. And then there’s a boom of bubbles when people are mined because the credit is artificially loose. You know, and that’s what happened is that at the end of that last boom, is that, you know, people might had tenants who didn’t have good credit and had no downpayment, move out of my houses and buy other houses that look just like the ones they lived in. And they lost almost everyone on Lawson because they were paying $300,000 for a house it 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 are artificially low. So you get these credit booms or new bubbles, credit bubbles. And the other thing that can cause a bubble is oversupply you know if we have right now, a lot of people are building apartment buildings, you know, they may may over build them and they overbilled them, there’ll be too many apartments too many condos and prices will come down just because of oversupply.

Gary Pinkerton 14:55
Yeah, I just said you teach a seminar once a year now. You’re down there in your hometown. I think in Florida, January timeframe, I think you entice us to come down to the beautiful Florida in January.

John Schaub 15:08
of our beautiful Sarasota in January. Yeah. Yeah.

Gary Pinkerton 15:14
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,

John Schaub 15:22
we limited to 65 people

Gary Pinkerton 15:24
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’s some where do you go out to your own properties? Or what do you do their

John Schaub 15:36
own properties, and eight neighborhoods that are really like here in Sarasota, nursing. 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 were 60,000 z limits, and a couple 100,000 and the integrator 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 them identify opportunities in those areas, I have them go go walking up and down streets, and I tell them what to look for. And they find these things, they come back to class. And they see that even in a hot, we just did this, you know, 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 define which neighborhoods are the best to buy in, and that’s the rent in. And then the second thing is, once you identify those neighborhoods, there is always an opportunity to those neighborhoods, if you’re worried enough to divide, it takes some work, sometimes you just can’t sit at home and hope somebody’s gonna call you you’ve got to go out and beat the bushes and talk realtors and talk to lenders and you know, talk to develop leads. But if you’ll do that there’s always an opportunity in those neighborhoods. So that is 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.

Gary Pinkerton 16:51
Okay, so let’s talk a bit about you have a few books, your 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 and you wrote that one now, you know, 15 years ago or so,

John Schaub 17:10
I bought 1006. I rewrote it in 2016. So there’s a new edition out the second edition was out last year published by McGraw Hill. And so make sure if you buy it on Amazon, you get the new one.

Gary Pinkerton 17:21
Got it? Okay, who is this book, right? For the new investor, the person who’s trying to get to a higher level, more more properties, maybe a little about that.

John Schaub 17:30
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 and you know, a few 100 pages that I’d suggested for anybody who’s investing in, especially in single family properties. But I’ve had a lot of people who buy apartments, and then other things by the book and find that my management ideas and financing ideas work in 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 knew one day courses and record them on specific topics. And you can see all that on a website. I will talk about it but you know the website, john shop COMM And you’ll see articles and newsletters, other things on that that I write. So I continue to write I continue to teach 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 similar time.

Gary Pinkerton 18:31
Sounds wonderful. So for the listeners, it’s john chab schaub.com and nice website with lots of information and like he 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 is 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 to see the grandkids what else has building wealth meant for you and your wife

John Schaub 19:00
has given us the ability to be involved in community activities and give back be better citizens because of that. But it really does give you a lot of freedom you know to do other things, attended all my kids plays all like all our ball games, all that stuff I coached I wrapped I did all that stuff and it gives for 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 go places, I would just ask them last week scheme and you know, we we do a lot of fun stuff that well don’t you do that?

Gary Pinkerton 19:31
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, the military that are gone for months at a time the members the firefighters, police officers and EMTs that are working, you know, 24 hours on or a couple 24 shifts, you know, they have the flexibility but they also are busy and and I think they have this a lot of them have this misconception or this feeling that it just not achievable with their pace of life. And I am trying to get across the message that I 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

John Schaub 20:23
I got involved with Habitat for Humanity back in 1986. At that point, I’d reached all my financial goals, 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 serve on that board for a number of years. And I’m involved with my local boards and our board. And what we do locally here is we help people stay in their houses, both the elderly and the infirmed. And voted have can’t maintain our houses. So we will do our best to help folks by doing repair work to houses. And we can do a lot of work to buy a 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 anybody. So the cost of our of us fixing the house up is is pretty low compared to most people. So we target people who 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. Yeah, international basis for center builds houses and 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.

Gary Pinkerton 21:47
And he said, fuller is internationally they’re building houses from ground up like habitat no more more like the habitat mouse model.

John Schaub 21:54
It’s a lot like the original habitat model most most all of us involved in the forests that were originally with Habitat. So we’ve got to go back and recapture that original habitat model. We’re building smaller, simple, basic houses overseas and in in the United States.

Gary Pinkerton 22:09
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 and how 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 911. 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 catastrophic Lee wounded veterans. And if you haven’t heard of that organization is called the tunnel to towers race or the siller. foundation. It’s a 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?

John Schaub 23:09
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 gonna be enough for mom and I live on. So I said, well, let’s buy a couple houses. And we went out and bought three houses for him when he was in his early 60s. And we use the extra rents to pay him down. So by the time he retired at the age of 70, he had free 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 and make a significant difference in your life or somebody else’s life, if you have parents is a grand idea to help them buy some houses just like I did my dad, because when dad died, I inherited the houses, there was no bad news here, you know, I bought the right house, I manage them for him while he was alive. He has some downpayment money, so it made it easier for him to buy. So you can think a little bit about the generation ahead of you, you know 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 want good property with good tenants, they’re good investments for you too. So you don’t have to get make it too big. The other thought I would have for you is that you should be buying in any market. You know, people try to time markets, they try to figure out what’s going to happen tomorrow. And honestly, nobody knows what’s gonna happen tomorrow. I don’t know. If I knew, you know, I’d have a lot more money than I have now. So you know, 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 you know, but what typically happens in a house business is the next Whoa, we’ll be probably about the same as the previous highs. So they keep creeping up in price. And I’ve been doing this long enough to see my rents go from 250 a month to about 1850 a month on the same house. So time is is your friend in the real estate business, you know, 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 up a really inexpensive house. Sometimes people start in the 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 as one reason they’re inexpensive. So find the quote, the highest quality property you can make sense out of when you start, I think is good strategy.

Gary Pinkerton 25:42
That’s awesome advice. And I especially appreciate your comment there about helping our parents purchase properties as a retirement solution, that 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, they’re in Florida. And I appreciate also you bring it back around what we talked about before recording, which was that we’re certainly in alignment on the concept of newer, nicer homes, and that that’s just a much better experience for you those those rehabbed, you know, maybe multifamily older properties sure look good on the performance that 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 all of that and more is available on john shop. That’s john s ch a ub.com. JOHN, thanks again for joining us.

John Schaub 26:44
My pleasure. Thank you for having me.

Announcer 26:49
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