This week Bruce Norris is joined again by author, investor, and landlord John Schaub. John has prospered during three recessions, four tax law changes, and interest rates ranging from 6 to 16% in his 35 years as a real estate investor. His 2005 best-selling book Building Wealth One House At A Time assisted more than 100,000 real estate enthusiasts on their way to a successful investing. He recommends buying better, well-located houses rather than cheap houses and other management-intensive properties. John buys and manages his own properties and teaches building wealth one house at a time seminars each year. Here, students learn how to identify the best investment properties in their town. He also invests his time in those who cannot afford to buy their own home. He works with Habitat for Humanity and Fuller Center for Housing. Last year, he was honored for his reputation in the industry by being rewarded the Rhony Award. For more information on him, you can check out www.johnschaub.com.
Episode Highlights
- When did he first speak in front of an audience to share what he knew?
- When did he first start teaching with Peter Fortunato?
- Who is his audience typically made up of at his seminars?
- What are the three main categories John usually covers in his seminars?
- What is it that delights Bruce and John the most when teaching others the business?
- When did he first start working with Habitat for Humanity?
- Could we continue to see houses being done with 3D printing
Episode Notes
Bruce asked John when he first got up in front of an audience to share what he knew. John said originally, he never saw himself as a public speaker. He took one speech class in high school and was not a star. The first class he ever taught was a real estate law class that the local real estate agents had to take to get their real estate license. It had a very structured syllabus, so there was a workbook you followed. He was a broker at the point, back in 1972, so he had had taken 4 or 5 courses on real estate in college. He loved them and thought he knew quite a bit; he even thought he was one of the smartest people in the world back then since the first recession had not come along yet.
There were 50 or 60 people in the room. The first time he taught it he thought he did a good job. The second time he was good, and the third time he had people laughing. He was real confident about his material. After this, his friend Warren Harding, who taught a class on exchanging, encouraged him to give a talk. He brought him up to Detroit, and he gave a three hour talk to a group he called the SEC (Society of Exchange Counselors). They thought he was pretty good, then his friend Jack Miller began teaching a class with him in 1975 on investing. There was a progression here, but he started teaching once or twice a year this year.
Bruce asked when he first met Peter Fortunato and begin teaching with him. John said Peter sponsored a class that he and Jack taught up in Massachusetts in the mid-70s, around 1976 or 1977. He had known him before that because he was a member of the Florida Real Estate Exchangers, of which he was president and exchanger of the year. This is how they really got to know each other and why Pete sponsored their class. John then sponsored the first class he ever taught, and he was president of the Exchange Group at the time. This was around 1978, and they have been good friends ever since. Pete’s kids are about the same age as John’s kids, and they all know each other’s kids. It has been a fun friendship.
John said Pete is a lot smarter than he is, and he tells everyone how creative he is. John is more of a turtle, while Pete is more of a rabbit. He is out doing all kinds of wild things, while John is just plodding along. They both love to teach and have both had a lot of fun doing it. They make a good teaching team because they look at things from different directions many times. One of the things that interested Bruce was actually their different approaches. Pete is known for being creative. The only class he was ever in with either of them was when he co-taught in California with John and once with Pete last year in Florida. He got to listen to both of their approaches, and they make a great team. They ended up at the same place with a whole lot of real estate paid for, but how they get there is different. Everybody takes different approaches in this business, so it is good to hear more than one teacher.
Bruce remembered listening to Zig Ziglar speak, and he was interested in speaking. When he heard him speak, he thought there was no way he would be able to do it since he was plugged into 220 volt. He then heard Jim Rohn speak and thought he was more sedate. What happens is people get trainers who they can relate to personally and say they can replicate that person. They had a Millionaire Maker seminar one time that Jack Fullerton was a part of, and probably four other people who were very successful had very different personalities and approaches. Bruce put them all together because he thought somewhere you could relate to a buying type or replicate what that guy did.
John will be holding a seminar May 5 and 6. Bruce asked what the typical makeup of his audience is. He wondered if it is new people or old people who need a refresh. John said it is a mix and a lot of people bring their kids and grandkids down in some cases. They have seen a lot of the folks who they have known for 30-40 years. He has had people come back to his classes who took them back in the 70s and are still at it. He talked to one gentleman who had taken his classes a dozen times and 94 years old now. He has 12 kids, and all of them are in the business one way or another or have written a book on real estate. He called John to tell him his kids were putting pressure on him to think about selling some of his property. He started his position in the mid-80s and really likes doing things. He is just one of the people he has gotten who have some really interesting stories.
You never know who will come to your seminars. Bruce said it is fun to have done something for a long time where your reputation is good if you have treated people right. The audience is probably your best sales tool, especially with word-of-mouth. John has certainly earned the right both in California Florida. John said he does not really do any media advertising, it’s just word of mouth. However, what he does is write a newsletter that he has written since the 70s and goes out to a good number of folks. John tells them about the seminar, but this is about the extent of their promotion.
In his seminars, John has three different categories: starters, estate builder, and spender. Bruce asked John to explain these categories and who fits into them. John said a starter explains itself. There are people in the room who are just starting; and you are considered just starting until you know what you are doing, even if you have gotten your first $1 million. These are the people who are in acquisition mode, using high leverage who probably don’t have a lot of cash to work with, and are learning how to manage and doing things John did. This included buying things they did not like and selling them back. Hopefully they are buying in order to start building in the state.
They estate builders, or people in the middle, have a plan. They are good at buying now and managing, so they are trying to acquire enough properties to meet their financial goals. The spenders are also known as the enders. At some point, you want to start spending since you cannot take it with you. John has always thought it all the way through. He had a partner in the industry named Jack Miller, and he was quite the character. He and Jack were polar opposites when it came to spending money. Jack wouldn’t even buy lunch; he would have a cup of water and a cracker. One night in Vegas, they went out after a class with his wife, Jack was having crackers and water while John ordered a $300 bottle of wine.
Life is not just about hoarding money. It’s about using it to have a great time and do fun things with your family and friends and give some money away. John has always had this attitude toward life. The first time Bruce met Jack Fullerton was at a meeting of his. He had never attended a real estate meeting before, and he opened the meeting by saying that anybody who said they can buy a property cheap enough in California and immediately resell it and make a living is lying. When Bruce heard this, he thought this was exactly what he does. He decided to help Jack out by staying until the end. The last person is always the most dangerous when you are speaking. This is the person who wants to adopt you.
As they were leaving, Bruce talked to him and told him how he does exactly what he says and how he realized it cannot be done. He had adopted the Don’t Spend policy. There were two cars in the parking lot, one a 1986 420 SEL Mercedes and the other a Ford Pinto. He had the Ford Pinto and lots more money than Bruce, and he jokingly wrote Bruce off as a jerk since he was spending all his dough. He initially thought this was a bad start. He took a picture of 100 flips he had done and documented them so Jack could call Bruce back to tell him he could speak at his club. Initially Bruce didn’t want to speak at his club, and the rest was history.
John said it’s funny how the richest people he knows look like they don’t have any money. He has a good friend who is a billionaire who shows up with cutoff jeans and a t-shirt. He is not trying to attract attention from anybody since he does not want to loan anyone money. John lives in a nice house and drives a nice car, and you can do both. If you think about it and get good at what you do, you have the resources both to invest and enjoy life while you are going around. You certainly end up with more in the end than you did in the beginning, but you will still have a good time. John bought his first airplane in 1973, three years into the business his first sailboat, and went skiing for the first time this year. He has always embraced the concept that you can have both a good life today and invest.
When it comes to the idea of retirement, Bruce and John are both in that age category. Yet, John feels pretty exhilarated when he teaches in front of an audience. Bruce hired Jim Rohn to speak to his group. When he was about 72 or 73 and was still speaking, someone sitting next to Bruce wondered why he was still doing this. In the hour, Jim had three standing ovations. During the third one, he leaned over and told the person this was why he still does it. How do you replace this? He has given back so much. John said the same thing that he will keep teaching as long as people keep coming. This is what he has told people for years because he loves it. He likes to watch people light up when they embrace a new concept or see a new idea they know they can use in their business.
In the class he teaches in January every year, Building Wealth One House At A Time, the most recent one had a lot of kids starting out, almost 1/3. These are the fun people to teach, and Bruce said the business definitely changed his life. This is what makes you happy when you see the light go on or have a history of working with people who have turned into multi-millionaires after you have lent them lots of money and they now have no need for it. It is fun to watch this path knowing they played a small part in it.
Warren Buffett had a whole different model. He has controlled all the money, never pays a dividend, and still has all the money he has raised and made. The only way you can get your money back is if you sell your stock. John has done just the inverse of this and taught people how to make their own money. They can make their own decisions about whether to spend it or keep it. If you teach thousands of people to do that, you create a lot of wealth.
One of John’s subjects deals with how to take your income. This is in regards to notes and other methods, and this interests Bruce. Since he pays a lot of taxes every year, he is interested in figuring out a better way to do this. John said to avoid paying taxes, you have to plan ahead. You cannot do it retrospectively. You cannot look back and see what you can redo. It is a matter of how you want to earn your income. You start thinking as you add more and more income how once you have enough to eat off of and pay the rent, anything else you earn that is taxed at a high rate is just benefitting the government as much as it does you. You start thinking about how you will defer some of this income or have it in an entity where you don’t have to pay taxes or pay less in taxes overall.
Buffet continues to complain that the secretary pays more taxes than he does. Well, it’s not her fault. He does not pay himself anything, so he does not pay taxes. If you have $1 billion in the bank, you don’t have to pay yourself anything. People will buy you lunch every day.
Bruce asked John about his involvement with Habitat for Humanity and when he first got started with them. John said it was in 1985 when he met Millard Fuller and his wife Linda. They started it back in 1976, and he came through town. John had heard of him before and invited him to speak at his church. He heard him speak, and John really thought he had his act together. He had two visions. One was he wanted to eliminate poverty housing in the world. The other was to make Habitat for Humanity as well known as the Boy Scouts. They were going to get the word out about what they do and get enough people involved where they will have masses of people doing the right thing. This was just what he did, and Habitat is as well-known as the boy Scouts today. This is phenomenal for having taken place in one man’s lifetime.
They started another organization called the Fuller Center for Housing. John was on the Habitat International Board for seven years and the local board for more than twenty years. Organizations change over time, and Millard always wanted a board that had a lot of execs on it. He finally got it and had the head of several big banks and law firms, all New Yorkers. He thought that was the right idea, but it turned out to be the wrong idea. These guys were not interested in managing a movement, they wanted to manage an organization. There is a difference between a movement and an organization.
Habitat was a movement; they were pretty informal and did things most organizations would not do. They could react quickly, and they built houses with donated money and labor. This kept their costs really low. The nature of Habitat has changed over the years because it is now a big organization and run by a board of directors and professional management. John never considered himself as professional management, he was just part of the movement. They started the Fuller Center, which was also a movement. They were not at the big organizational stage, but they were changing thousands of people lives every year. They were doing some things differently from Habitat, but a lot of the concepts were the same.
They are doing mostly renovations, but they are building a lot of houses in El Salvador with a 3D printer. It is $4,000 a house, so they are doing some pretty novel things. They are trying to help people who need help since they are convinced homeownership makes people happy and more stable. It also makes them taxpayers and more productive. Homeownership is still a noble ambition.
Bruce said when he was married at 17, it took him three years of saving $10 in a can to accumulate a first down payment. He and Marsha bought their first house, and he distinctly remembered mowing his own grass for the first time. This was the first time he felt like a man, and it was that impactful to him. He knew he was supposed to own part of the American dream, and that day he did. He felt like an adult. Even though he did not have a dime of equity, he had his name on a deed.
Bruce asked how people qualify for the renovation with the Fuller Center or the new home. John said it is income-based criteria, so they look for people in need with low income. If you can afford to buy a house, they are not just looking to give you a low-cost house. They are looking for people who can never afford to buy a house, and they help them with a zero interest loan. They help them by using volunteer labor to build, and they have renovated nine houses in town for the Fuller Center. Out of the total of nine houses, they have about $25,000 cash in all nine of them. This is because they use all volunteer labor; and if you use this they can also use materials donated to them from other homes that were torn down. They will be given full sets of cabinets and appliances. Since they are a volunteer organization, they do not have any paid staff. Their costs are very low, and they do not even have an office or phone.
Bruce asked about the 3D printed houses and if he has actually seen this happen. John said he has not been on the site, but he has seen pictures. They have one up and standing, and it is amazing how things like this are happening. The world is changing. Aaron and Bruce have gone to a couple seminars for 3D printing and robotics, and Bruce has to go several times to fully grasp what he is seeing. John had just read an article about how things have changed and how many people are worried about computers displacing people, and this was back in the 80s. Instead, they created so many new jobs. There are so many companies that are computer-based, such as Facebook and Amazon. It is amazing how the world has changed in only the last few years, and there will likely be more changed in only the next few years.
One of the most powerful presentations Bruce ever saw was a guy with a street scene from 1989 New York, and it was all horse drawn carriages. He asked if you could find a car in the picture, and there was only one. Ten years later, there was a picture of the same street scene and they asked if you could find a horse-drawn carriage. It was all cars. He was talking about electric cars coming next. It will be a fascinating next ten years.
Bruce asked John if he has any concern over the 3D printed houses and if it can get so efficient and actually good that you could print a home and it would be way cheaper than building. John said you could probably print components of the house. However, you are dealing with a whole different set of laws when you go to El Salvador as compared to Southern California. John suspects they will be able to and do components of the house and assemble them. However, he does not see them building a 6,000 square foot house with a printer, but they could build rooms or cabinets. Who knows what they will do as it progresses?
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