Nancy (00:02):
Well, hello everybody. Welcome to the artful investor. I am absolutely thrilled to have my good friend, Adam Schneider here on the program with us today, Adam and I go back about wow, seven years flipping houseswith the same organization. I 'm going to let Adam tell you a little bit about his real estate investing history and how he got started. So welcome Adam, and take it away.
Adam (00:37):
Thanks, Nancy. I appreciate it. Really appreciate the invite to talk about real estate investing. It's my favorite topic. So my background is that I was in the corporate world for a couple of decades, and then when 2012 came, I left that and I wanted to get into real estate investing, but I didn't have any background in it. I didn't have family that was doing it or anybody I knew. And so I joined a franchise system because I wanted to get educated as quickly as I could. And I went with the discount home buying route at first, and I was pretty bad at it. I ou know, part of it is you have to understand what the repairs are gonna cost. And I always overestimated everything and my offers were never good enough for the buyer. And I got rejected and it was a bad circle there until somebody finally put their arm around me and gave me some more direct input.
Adam (01:30):
And then all of a sudden it started working. So that was 2012. When I started, I got a real estate license. I used that for strategic purposes, and then I kept on moving along and I figured things out. And then in around 2015 or so, I also started a hard money lending business with a local friend. And now I spend about half my time buying houses and about half my time with the lending business and of the houses that I buy, I keep some, so I have a modest rental portfolio and I flipped some and I just moved some others to other investors.
Nancy (02:10):
You know, it's always nice to get out of the corporate world, isn't it?
Adam (02:14):
Oh, it's so interesting because some of the things are so refreshing. And on the other hand, you have to do everything by yourself. So you have to be at the mindset to understand that you're wearing all those hats, but at the same time, you don't have to have a meeting about the meeting about the meeting. Do you?
Nancy (02:32):
That is a good thing. So tell us more about your flipping business. I run into people all the time that are saying, Oh, I always wanted to flip houses or I'm thinking about flipping houses. So give them a little insight on what it's like to flip houses.
Adam (02:53):
Well, all they have to do Nancy is watch HDTV and they'll know that it only takes 22 minutes to go from start to finish. So it's really that easy until you do it. So the first key is you have to buy the property at the appropriate discounted price, so you have some equity and room and then you need to understand what your repairs are gonna cost. And it's not the same for every house. So you'll need to know your market and you may live in a mansion, but the house that you're buying isn't going to be a mansion. And you need to think of these as widgets. And you want to, as you get more and more experience, you want to use the same things over and over. And it's more of a process then and you'll want to understand all your costs and I never get my repair number, right?
Adam (03:38):
So I always budget for an extra 20% or so you're in California, I'm in North Carolina. And so people have to recognize what the entry-level cost is. It's like, if you go to Vegas, you're either going to be at the a hundred dollars blackjack table or the $10 blackjack table. So you just want to make sure you bring enough money. So you have the right number of chips, so you can play more than one hand. So when I'm talking with new people, I recommend that they don't look for their first house to be something where they're going to get totally rich off of that. But they also have risk. I recommend that they have a lower risk, lower reward model, and they just get used to the cycle of service at the entire transaction. So sometimes that may be that they go out a little bit further from where they live, but just recognize that if you can just get through the first transaction, your second one will be so much more efficient.
Nancy (04:29):
Now, are you actually swinging the hammer or do you hire a contractor?
Adam (04:34):
Nancy. If I were to swing the hammer, someone would have to come in behind me and patch it up and do it again, or paint behind me. I'm so bad at that. I just stayed as far away as I can. There are people who tend to think that they want to be in the business because they love it as a hobby to your point. And they get so involved in it. And what happens is they spend all their energy on the one house and when they're done with it, they haven't cultivated a pipeline for future deals. And so they had this huge vacancy and so a critical piece, if you're going to make it a business and not a hobby is you do need to work on the business and be careful about working inside of that business. Do you agree with that?
Nancy (05:16):
I totally agree with that. Yes. And there are people that are swinging the hammers, they're buying the house and they're doing all the rehab themselves. And the nice thing is they cut out, you know, the profit margin of a contractor that you might hire, but at the same time, unless they're doing this full time, they're swinging that hammer in the evenings and weekends when they get done with their day job and it takes them a lot longer and it's a lot more difficult,
Adam (05:49):
Right? I think where most people make their money is finding the rundown house. And that's, that's the big bread-winning activity for the people. And also among the contractors, there's sort of three buckets of contractors is a really basic level of contractor for the lower level jobs. And that person will be involved with it. You have a super high level contractor who would be the most sophisticated, but you may not see him on the site. He'll be the most expensive, but he'll have a lot of teams and then you'll have that mid-level one. So you want to match the right contractor to the right project so that you've got the right efficiencies at the appropriate price point.
Nancy (06:24):
Now, do you have one contractor you work with or do you have a bunch of contractors?
Adam (06:29):
So our geography is about an hour radius. And so the people on the Western side, don't like to go to the Eastern side. So I've got primarily two contractors who are the ones I'm most comfortable with. And in the beginning it's like you're dating the person and it's exciting. And then sometimes after a few dates, you realize you're not cut out for each other and it goes away. And the honeymoon phase is over. And other times you decide that you're in a serious relationship with this person. And when you're the serious relationship, there's a trust built and then things become so much more efficient. So you go from having to go on site, visit the property to visual inspections can be done by FaceTime. And there's so much more trust. And it's really nice to have that, that contractor who you have a total trust in,
Nancy (07:14):
And that contractor's watching your back. I mean, a good contractor will tell you how you can save money and how you can do things more efficiently if that's what you're looking for.
Adam (07:24):
Right. And I don't try to cut them down on the phone with how much money they're going to make, because they're going to figure out a way to make it anyway. They'll either add hours, they'll add their upcharge or something cause they need to make their money. I'd rather just make sure that they're making money so that they're comfortable because they'll take care of you on some other item that comes up.
Nancy (07:44):
Exactly. So tell us about whether you use a hard money loans or do you use investors on your flip business?
Adam (07:54):
So what I tell people is if they're going to buy one house and they've got all the cash that they can cover it, they should just, they can use their own cash and save on the debt service. But if people are going to expand their business, at some point, everybody's going to run out of money. So the least expensive money is bank money, but it usually doesn't work in our world because the sellers and the wholesalers and the auctions, they don't, they won't take that loan. They don't take the bank loan from the buyer. So you've got to either find a private lender, who's a friend or family member, or if those aren't there, you can either find a private, a hard money lender, which is what I do or an institutional hard money lender. And you just need to recognize that the rates terms and underwriting is completely different than how you would do it when you buy a house with a bank loan with your residence. So it would be more expensive. It'll be shorter, it'll be quicker, it'll be focused on the asset of the house versus their credit worthiness. And so what I tell people is that they should have a diversity of different sources of different kinds of banks and private lenders, institutional lenders, because the most important thing is they need to buy the house. And so whatever money they need to be able to buy the house, that's the critical component.
Nancy (09:08):
So tell us a little bit about your lending business and how did you start doing that and why, and how does it work?
Adam (09:20):
That's a funny thing. It's one of those things where you just, if you talk to enough people, you stumble into some things. And we were in a new neighborhood. I was playing poker with one of the new neighbors and we were talking and it just came up that he was interested in this as well. And I was in the business and I could do all the underwriting and so on and the networking. So we started lending money out to people. We met at a local REA and we used our own money. And then we ran out of that. We borrowed money from a bank at bank rates. And then we re-lent that out at hard money rates. And then we tapped out of that. We did an SEC 506(c) raise with accredited investors bringing us money. And we lend that back out.
Adam (10:01):
And so we kept growing it in this way. The way it works is I do the underwriting for it and the marketing and my partner does all of the loan servicing. And so, because I was somewhat of a self-taught golfer with this, I knew I needed to get educated and you have to work sorta hard to get educated in this field. So I went to the American association of private lenders conference, got accredited as a private lender there. And then I spent time with some people who are local private lenders. I made sure it was worth their time to do it. So that was the learning curve. But as you do more business, you realize you make mistakes along the way. We'd have to adjust our paperwork, and so on. We go at it with a mindset that we want to be a second set of eyes for people and that we want repeat clients. And so it's a lot of handholding. That's what you'll get with a good private lender versus an institutional lender, which is more of a giant box that goes there. And so we do all kinds of loans. We do same day, double closes, and we do ones for people who are flipping homes. And then we're the bridge loan when people want to buy it and fix it up and then rent it and then refi and kick us out really quickly. So we do all those.
Nancy (11:24):
And are you looking for more investors for that?
Adam (11:28):
Yeah, I thank you for asking. So I know that this podcast is really an educational one. We love accredited investors. And so if people are interested in diversifying their funds and it works for them, we'd love to match up. This has been a really interesting time because with everything that's just happened in the stock market with all the short sells and all that, everybody's trying to figure out where they want their money. And some people have chosen to diversify into real estate. And I know you and I have talked about it before. It's really nice to do investment where you can see the product and understand the service that you're looking at. It's just, you can put your head on the pillow at night and know that you get what's going on there.
Nancy (12:08):
If you have questions, you can actually call the person that is holding your money and ask them questions and get feedback. You can't do that if you're investing in GameStop.
Adam (12:21):
That's exactly right. That's exactly right.
Nancy (12:25):
So how do they find you if they're interested in investing their funds with you?
Adam (12:31):
Thanks for asking. So we're oakwoodlending.com. They can just go out there and check us out and send us a note. We've got some videos to talk about it, but we really want to personalize what's going on there. We're very sensitive to people's money and we run to your notes as an example. So we tell people, if you might need your money back in a year, we're a horrible choice for you. So everyone just needs to balance out the right risk and reward. What's nice when people lend us the money to lend out is that it's passive on their standpoint and it's a reliable quarterly payment, but these are real estate investments. So everything's got risk. And we have some people who say, well, if the world collapses, what's going to happen to my money. And I said, if the world ever collapses, we're not your main problem. If you think the money you're giving us is the main problem, you don't really have a world collapse going on. We should just be a small piece of the overall portfolio strategy for anybody.
Nancy (13:32):
So if you were to advise somebody just newly getting into real estate investment, what would you advise them?
Adam (13:42):
So I would first do a diagnostic questioning with them because of this. First of all, people use the term investor very loosely. So for some people, an investor is a someone who wants to buy and keep a home as a rental. And then for some people it's for a flip for some, it might be that passive lending we're talking about. So you really need to know what they're talking about. And then when people are going to be, a lot of them want to be carrying a lot of rental properties. And so then what I talk about is why do you want to do that? And so there's really different reasons. So some people are going to do it because they want equity or they want to force the equity, or they want cashflow, or they want appreciation or their kid's going to college and they want to have the place for their kid for a little bit.
Adam (14:25):
And so everyone's going to have a personalized reason. So the first thing I tell everybody is understand why you want to be an investor and what kind of investor you want to be and what are your skill sets and your personalities. And so if you can personality profile yourself and understand it, as you build a team, you'll be better off, better able to build the team that works with you and figure out how you want to grow it. So those are, those are critical things to understand. And we use these really vague terms all the time. So that's how I would start a conversation.
Nancy (14:59):
Yeah. I always feel sorry for people that get excited about doing real estate and without a lot of education or assistance, they go in, they buy a house, they start the rehab, a million things go wrong. They get to the end, they sell it. They hopefully break even, but sometimes they lose money and they say I'm done. Where if they had done the analysis at the beginning as to what type of investor they were and figured out what the process was and how to do it correctly, then that first project can get you incredibly excited and it's profitable. And then you're onto the next one. And before you know it, you're an expert and you're doing a ton of them.
Adam (15:46):
I totally agree that first one is so critical or maybe the first two. And sometimes there's things that you could have controlled. And sometimes you just grabbed onto the back of the train and it was out of your control. So right now, because we've seen this huge jump in pricing around the country, somebody could have bought a property a year ago and misplayed everything they did and still came out smelling like a Rose, just because the market's gone up. Conversely, if they timed it right when the market was crashing, they could have done everything right. And still gotten hit in the stomach. Couldn't they? So you, so you have to look at both the outcome and then you have to sort of debrief what's happened and identify what you did, where the right processes and steps. And so when we do our loans with our borrowers and they they take a little longer than expected.
Adam (16:34):
I always debrief with them and I always ask them. So if you could have spun back the clock what we could have done differently, what would you do differently? Almost always. It has to do with either, if they're doing a refi, they didn't understand how bank refinance process works. And that caused a real problem, or it has to do with the contractor. And they didn't have a backup plan if the contractor or the subcontractor went down. And right now, you know, what happens is the guy is the painter on Tuesday. He stayed home dad on Wednesday, he's got COVID on Thursday and then everything else is right behind it. And you're stuck. And you had this great plan for the house, but because you didn't have a redundancy plan in place, it fell apart. And you were really just that close to having a really successful adventure. So it's important to go back and look at which parts were, what was the benefit or the weakness?
Nancy (17:28):
Well, I think that's fabulous advice and you know, hopefully people will take it to heart. So give us your worst horror story of real estate investing.
Adam (17:42):
Oh gosh. Well, first of all, because of the franchise that I'm in, where we send out our mailers to people who are in ugly situations, we get ugly situations and sometimes it's the people and some people don't manage their lives well, and I've had three sellers, Nancy, who did not know that they were married. So they were married. They did not realize he was still married. So that's the kind, so you have to get used to this randomness that made me laugh. I didn't really understand how that could happen, but it does. But my worst, I think my worst emotional one was, it was the day of closing when we're selling a house that we had renovated that had taken a long time. And we had one last thing to do the morning of the closing to fix one, the light over the air conditioning guy and the air conditioning person calls up and English is not his first language.
Adam (18:35):
And he, he, I think he says that someone's been shot in front of the house, but I can't quite understand what's happened. So I have to drive out there and sure enough, someone was shot right in front of the house that we were selling, trying to sell. And the buyers were coming there. They had the tape, the cops, it was, it was a horrible scenario that the buyers are young. Couple they're crying. The air condition guy, can't get his air conditioning truck out. He's trapped in the tape. It was stress everywhere. Flashlights the news. And all I'm thinking is I just want to sell this house. Why
Nancy (19:12):
Why couldn't they just wait with that? Wait till tomorrow or three hours later,
Adam (19:19):
That's, that's one of my stories. That'll never leave my head, but did you close escrow? We closed escrow. Yeah. It was the other, the agent for the other side was fantastic. She was the glue that kept that whole thing together.
Nancy (19:34):
So the question is if somebody shot and dies on the front lawn, do you have to disclose that since they didn't get shot and died in the house?
Adam (19:43):
Well, we just, we just pushed him off the curb. So it was just public property and it was all fine.
Nancy (19:51):
That's the way to handle that.
Adam (19:52):
Yeah. Yeah. You know, in North Carolina, anything goes, it's really whatever you want to do.
Nancy (19:57):
So what's the best thing that ever happened to you in real estate?
Adam (20:02):
Well, I think from a lifestyle standpoint, it gives you a lot of opportunities to really adjust your lifestyle. And so where I am and where I was when I started and the balance of family and what I wanted to do, that part was fantastic. The second thing I would say about real estate is it gives you an opportunity to build investments that are passive. And so there's not a lot of places where you can do that the same way unless you own a company. And I think that that's the second thing for people to think about. And then I just really liked the people. I think that real estate investors are cool people, real estate investors are entrepreneurial. They're willing to withstand risk. They've got a lot of grit. They're creative people, fun to talk to. I just love the environment of the people who are in this space.
Nancy (20:51):
Well, and the other thing that, that everyone says it's in real estate is that real estate is really not about the property. It's about the people, it's a people business.
Adam (21:00):
It's totally a people business. Yeah.
Nancy (21:03):
And if you're not good with people, it's not a good business to be in.
Adam (21:07):
Right. Or if you're, if you're not just get someone on your team who is, because there's some people who who've got a lot of acumen for it, they just don't want to talk to anybody about it. Right. Right.
Nancy (21:21):
All right. So what's the name of your house flipping?
Adam (21:27):
Yeah, so Schneider property solutions and hat's for house buying, flipping, and then Oakwood lending. So lending part, an interesting topic because when I started off, I made one of them, an S Corp and one an LLC. And had I known better, I probably would've made everything in LLC, but that's just a learning curve on, on what we do. And then I added a couple of companies, cause somebody told me to have one company for each rental property for liability protection and all that. And that was horrible because no bank would lend me any money because each one was a brand new LLC that had no history with it. So I probably spent a bunch of extra wasted money tax forms and all this kind of stuff. I have too many companies. And so now I shrunk it down to the right side.
Nancy (22:16):
You know, it's amazing because when I was practicing law, one of the things that drove me crazy was lawyers that would give you advice and put like all these different companies in place, but it wasn't practical advice. That's right. And you know, then the poor business owner goes out and tries to operate and it's a nightmare. And there has to be that balance as to what is going to give you 100% protection from everything and your ability to operate as a business, because you could have a hundred percent protection, but I don't know what it's protecting you from because you're not going to have any business.
Adam (22:59):
Right. Right. The only way to be risk adverse is to not buy anything. Yeah. There's got to think about balance. I think about that when we get these home inspection reports from home inspectors to, they had 78 pages of all the things that might be going on with the house, they're just scaring everybody. And they're telling you, go get this expert in that. And you just take a step back and you just have to have some common sense with what you're doing. Exactly.
Nancy (23:29):
One final thing. What's your favorite book?
Adam (23:36):
My favorite book is one called Kitsch Anything. It's by a guy named Porin Klaf. I would get it as audio. He's a venture capitalist. And he gave me a fantastic insight into how to do presentations to people for money so that you don't get so bogged down in the details and you'll understand the area of emotion and the psychology of it and how to be in a fit, how to be efficient with it. He's fantastic. And so when he first wrote the book, he had a third party professional reader reading it, but he didn't like that guy because it didn't have the passion and the emotion. So he got rid of that guy. He did it himself. It is so authentic and it was just eyeopening to me that space.
Nancy (24:21):
I am definitely going to have to check that out. Adam, thank you so much for being a guest on my podcast. It was a fantastic information. And as always, it was great talking to you,
Adam (24:33):
Nancy. Great to see your face. I love it. Thank you so much for inviting me. I really appreciate it
Nancy (24:38):
You are more than welcome. We'll have to do this again sometime.
Adam (24:42):
Yes.