Table of Contents - Flips, Flops and COVID with Jon Schoeller
Dave Debeau [00:00:09] Hey there, everyone, is Dave Debeau with another episode of the Property Profits Real Estate podcast coming to you, covid free across the fingers, knock on wood. Our special guest today is John Schoeller. John is a very, very successful flipper based out of Charleston, West Virginia. He and his partners have done over one hundred flips in the last three years. So they're definitely rocking, rolling with this. John, welcome to the show. Thanks for having me on, Dave. All right, John, let's just jump right into it. Why do you think flipping is such a good strategy? Why are you and your partners like flipping so much?
John Schoeller [00:00:47] Well, as you know, in real estate, it's just one of many strategies. And I think it's kind of you kind of just end up in one of the strategies, right? Maybe you head for one and you end up in another one. But my partner is about three years ago before I was actively doing real estate and they just happened to be flipping. So that's where we went. Now we do have other companies where we have rentals and rent to own and some holding. But our main company, our bread and butter and what people know us for is our footprint.
Dave Debeau [00:01:15] All right. Fantastic. So how did you you met these partners? They were already doing flipping. Just out of curiosity, how does that arrangement work? How many of you are there? And what's the division of responsibilities in your company when it comes to flipping?
John Schoeller [00:01:30] So I have two partners, Steve and Andrew, and they were already flipping houses for about a year, maybe year and a half before I joined up with them. I had moved to the area, my wife, and got accepted into nursing school here in the area. Before that, we would travel nursing all over the US and then we landed here. Before we got here, I knew I wanted to start getting into real estate. I had several businesses before I sold them, had some money saved up. I knew that I wanted to go in the direction of the estate, so I contacted them before I ever got here and I met up with one of them. And it's the craziest story ever. It's a long story. I won't get into the whole thing, but I asked if I could shadow them one day. Fast forward three years later. We're now partners together and I'm CEO of the company.
Dave Debeau [00:02:11] That is awesome, I love that story, but let me just point out something that pops out to me, John. So smart, smart, smart. So first of all, you knew you wanted to get into real estate. In my opinion, there's a couple of different ways you can do what a lot of people do, which is jump in and just flounder around and screw things up and try to figure it out on their own. You can go out and take a whole bunch of courses and training and and get mentoring and learn from people that are paid to learn from people that are actually doing it. Or maybe you did that as well. And or you can jump right in, find somebody who's actively doing what you want to do and say, hey, how can I help you? How can I bring value? What can I do to make your life easier so I can learn what you're doing and become successful like you? Is that kind of what I'm hearing that you did as the last one there?
John Schoeller [00:03:04] Absolutely. I just saw that as a it's a shortcut in a way. I mean, you can learn it all on your own, and that's fine. Many people do. You can pay the mentors and all that stuff. And that, again, will teach their own. But I know how I learned. I learned a hands on and I need someone to show me how to do it. I can't be I can't read it in a book. I do my fair share of reading, but I learn best if somebody shows me how to do it. What's that saying? Like I can read how to build a chair or you can show me how to build a chair. If you show me, I will check and repeat that stuff over and over again. And so I just knew these guys were already doing it, didn't know much else about them, didn't even know their last names. Just so I just wanted to meet with them and see what they were getting into. We just clicked and it really worked out because of the different things we each brought to the table.
Dave Debeau [00:03:47] So at the beginning, three years ago, John, what was it that you brought to the table that these guys saw as being valuable because they didn't know you from Adam? So what did you what did you say to them or what did you bring to the table that they said, yeah, come on board, we'll show you the ropes.
John Schoeller [00:04:05] So that was definitely tricky. I mean, it was weird for probably the first three to six months, especially the way how we just kept kind of like getting closer and closer and my position kept growing without any real like, should we do this or was it just kind of like it was really strange. But what I what I tell people first, what I brought to the table, I didn't mention I had a lot of money at first because people will take advantage of it there. And again, a lot of money is relative, but I had some money saved up, but I didn't mention that because I didn't want anybody to take advantage of me. But also they didn't know me. So when I knew I had to do was show them right. They already had the business in place. They necessarily didn't know what I had. So they weren't asking me. I needed something from them. So I'll just go with the very first couple of days. The first week first meeting, I came in the shadow. They're all talking among each other. I just moved into this office and they were complaining about the bathroom. Right. The bathroom needed clean. It didn't have any toilet paper. It was all out. They didn't have anything to stock it with. I'm listening. All I'm doing is listening. I come in the next morning to Shadow again. I get there thirty minutes before everybody else. And I bought the toilet paper about the toilet papers and I scrub the toilet. I didn't need to do this right. I'm OK. But I wanted to show them what I was doing and in fact I didn't even tell them I did it. But they knew I came in early and did it. Then they need a desk for the office. They're about to spend about five eight thousand dollars getting desk for all the office space. So I said, guys, I had a moving background. I had a moving company for almost ten years. I said, guys, don't worry about it. I'll take care of the desk there. What, like we're not paying me Kumite. I came in a little bit for some Instagram consulting. That's kind of how I edited my way into the shadowy for a trade. So they were like, what's going on here? So sure enough, I knew we're all dressed, go to die. That's goodwill. So I contacted Goodwill and they had just got an ordering last week of all these deaths from an office. So I think for about three hundred and fifty dollars plus one hundred dollars delivery, I sack the entire office with desk. I handled the delivery, setting up everything. The desks were just there. And these are things I continue to do to show value to them because I think a lot of people, when they want mentorship or they want something, they just want something and they just ask you have to give value as well. And I get it. Maybe you don't have money, maybe you don't know anything about real estate, but you have something to give, even if that's just your time. And that's what a lot of people don't have
Dave Debeau [00:06:26] one time that your creativity. Right, being a problem solver because nobody wants to clean the frickin toilet if you're the guy that goes in there and does it. And here's the thing is that I took away, too. You didn't beat your chest and say, hey, guys, I took care of it all. I cleaned the toilets, I bought the toilet paper. Look at me. How great I am that that's just obnoxious. That just has the opposite effect. You came in and you solve problems. Awesome. OK, love it. And I imagine that just kind of morphed into just kind of went from there, you out swinging hammers and doing stuff like that at the beginning to kind of get your feet.
John Schoeller [00:07:05] So the way it looks as Steve is our contractor, he has his license and does all the work out in the field. I have managed a couple of properties just to learn the role, but that's his department. Andrew's our acquisition. He finds all the houses and manages all that. And then I'm fine. And that's where I came in strong. It's where my background is. It's what I have a passion. I'm good with money and strategizing money, that's what they were missing. So it just worked out and they had to trust me, right? I came in there and I was coming in strong. And like within the first three months, I'm talking about adjusting salaries, what they're going to get pay. And they're like, whoa, whoa, whoa. Right. They did for a minute, like there was some head butting at first. Did you got to remember who am I and why should they trust me? And I had to prove myself multiple times and then forecasts and things that came to light that they didn't believe. And that's OK, because they didn't they didn't have any reason to trust me. But once I was right a few times, they started to let up and let me take that role. And eventually that just grew into the CEO and CFO of the company because I'm very organized and do with the money. But I would not want to
Dave Debeau [00:08:05] really they're probably looking at you as a godsend, right. Because typical entrepreneurs were the exact opposite of that or good at the guy, the construction guys, great at going out there and managing the teams, the acquisitions guys, probably great at sales and negotiations, but disorganized as hell. I don't know your partners, but I'm just guessing. Right. And then you get a guy like yourself that knows the numbers and can bring the capital to the table. That's the perfect trifecta. All right. So right now, as we're chatting, we're, I think, 10 business days into the whole covid pandemic craziness, you know, flipping. Some people might say this could be a risky strategy in markets right now when nobody, nobody knows where the heck is going to go. You know, after the smoke clears from this, how many people are going to be out of work, how many self-employed people are going to go belly up and bankrupt, how many people are going to lose their homes? Is it going to turn us into another recession? Nobody knows yet. But if the real estate market takes a diver, people that are in the flipping business, there's a good chance they could be kind of stuck with, you know, stuck with a problematic property. Right. You perhaps you paid too much. You paid a good price for it pre covid, but you have to repair value after covid could be radically different. So what do you guys you must have thought about this. So what what kind of plans do you guys have as flippers for this situation?
John Schoeller [00:09:41] So this is a couple of things. First of all, it's where do you live and where you get your money because some places are going to be hit a lot more places that had huge appreciation over the last several years. If this goes south again, neither one of us are saying one way or another, we're just talking about if if this goes south, they could see an equal depreciation right where I am at in Charleston, West Virginia. It doesn't you see a lot of appreciation. So when the market goes south, we see minimal depreciation. That's pros and cons. We also don't see one hundred thousand dollar profit slips. We see 20, 30, 40 thousand dollar profit slips. So it's got to give and take there. Where are you getting your money? This is big because we are one hundred percent privately financed, so we have a little bit more leniency. We can talk to our big investors. I'm one of our investors. We can give and take there. Right. Like I look, I want to keep flipping after this is over, so we don't want the company to say so. Let's work with the company. Right. If you're an investor, you should think that way. Now, if you're getting all your money from banks and hard money and the government doesn't step in especially hard money, it's going to be tough. And this is why if you didn't already know this, you should learn it. Now, that should scare you into learning that you need to buy. Right. And you need to buy with the plan in mind that if things go south in the beginning, middle and end of this flip, can I rent it and hold it and cover my mortgage or whoever, I owe this money until the market recovers. And the answer to that is no. You are essentially gambling. And look, I know more are very risk averse. Right. And that's again, my partners are not and I am. And that's our give and take. But every time I say, look, the margins need to increase with the amount of risk, and that should always be the case.
Dave Debeau [00:11:29] Yeah, very, very well said. So again, it's all about the market that you're in. You guys sounds like you're in a steady eddy kind of market, you know, not very sexy. Didn't have the spikes that other markets like, let's say, in the state Seattle over the last eight years is at or what San Francisco, whatever. We here in Canada would be Vancouver and Toronto. So, yeah, that's that's a big advantage. And then having that plan B in place. Right. If I can't flip this for the price that I need to get, then what else can I do with the property? Can I just turn it into a regular rental? I mean, you guys sounds like you do rent owns as well. Does is that a possibility for these kind of properties to flipping over to a rent to own in this kind of situation?
John Schoeller [00:12:15] You know, and we've done that before on phone flops, flips that turned into flops and you do over one hundred. You're going to have them if anybody says they don't belong to you. So we've had that happen. Now, one of the scary things for us is that the rental side and the rent own side, because especially rent to own, they're usually lower income and trying to get their credit. Right. That's the whole reason they're in the program. And what happens if 10 percent of them lose their jobs so that we we're not worry free? On the flip side, we're OK because we're with private money. But on the rental side, we have over one hundred and five rent owns as well. So keep in mind, if we have to give, 10 percent of them can't pay and we have to carry 10 percent of those mortgages, that's expensive. So we are right now mailing out letters. We're being proactive, getting in touch with these people again, telling the sellers that they may have to call the bank to get this thing set off some so that we don't have to pay mortgages next month because the bank hasn't done anything yet for us. I don't know about for you guys, but here in the US, the bank hasn't done anything for us as far as forbearance or or delaying payments that are due in three days. Wow.
Dave Debeau [00:13:23] No, Canada, fortunately, it seems like they're on top of that right now. We have a lot fewer banks up here, but a lot of people are still worried about that. Interesting. So this is a little off topic of Flip's. But for your rental business, are you guys focusing on sandwich leases primarily? Is that what I'm understanding? Or you tenant first and then going and buying those house for people or what's your rent own strategy?
John Schoeller [00:13:47] So I'm not familiar with the sandwich thing, but I'll rent it may be that I just haven't heard that before and I might like that it fits us. But yeah. So we find buyers, I mean, sorry, we find sellers that can't sell their houses. We put them in contract for a sales price and then we go find rent to owners to slot in to the place and we basically manage the whole deal.
Dave Debeau [00:14:07] And so yeah. So we said you don't actually buy the property, you get it under contract. You, Lisa, with an option to purchase and a right to sublet, you get a tenant buyer in there who does the agreement with you. You've got CRISI with the seller, they've got price be with you, which there should be some spread in there. And you're agreeing to the seller to make their minimum payments and maintain the property. In the meantime, tenant buyer is in there with the same kind of agreement with you, but you're babysitting them along the way to get them qualified. Do three.
John Schoeller [00:14:41] Correct, correct, yes, we are. I've just never heard the terminology before, I like it.
Dave Debeau [00:14:47] I'm an old guy. That's why
John Schoeller [00:14:49] I like I said, what I learned
Dave Debeau [00:14:51] when I when I was doing this and when I learned that stuff years, 20 years ago, that was what it was called, the sandwich.
John Schoeller [00:14:56] So, yes, we're about eighty five percent sandwich in that company. And then through our flops, we own those outright through our company with an investor attached that we need to get their money back eventually.
Dave Debeau [00:15:08] Awesome. Well, that is fantastic, John. I've really enjoyed our conversation. Thank you for being so open about what you guys his plans are. If things go south, how you kind of manage your business. If people want to find out more about you and perhaps connect
John Schoeller [00:15:22] with you, what should they do? So my most active platforms are Instagram, the frugal investor. I give out weekly tips, videos and quotes and things like that to help people with getting into real estate and just finance in general. I'm a big finance guy. Want everybody to be debt free, bad, debt free. You can learn to leverage good that eventually and be financially free at some point in their life. Like, I don't care if that's now or later. So the frugal investor has all that. And then my name, John Scholer, also do a YouTube channel every week. And that's usually like a blog type video where I show you out in the field what we're getting into in this week. Coming up, I'm going to walk you through a ten million dollar apartment complex that we were looking to possibly work a deal on.
Dave Debeau [00:16:05] Awesome. Love it gone. Thank you so much. Nice to meet you. Virtual virtual high five covid free. OK, everybody, thank you very much for tuning in and tune in for our next episode. Take care and God bless and be well and safe. Well, thanks very much for checking out the property profits podcast and you like what we're doing here. Please head on over to iTunes, subscribe read us and leave us to review it. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom. Take care.