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WS235: Rehabbing Properties The Right Way with Jeff Schechter

RES 235 | Rehabbing Properties

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Decisions always evolve as time, technology, and people evolve with it, especially in the world of real estate. Jeff Schechter, the CEO and co-founder of High Return Real Estate, talks about how his curiosity for internet marketing and real estate led him to his current business which is rehabbing properties. In addition to investing, Jeff operates a private consulting practice. He thrives on helping people realize their full potential, not just in business and investing, but in all aspects of life. As he shares how the financial mistakes he made along the way and fixing them has been the key to his success, he gives advice to anyone who is doing online real estate marketing to just be real and make it all about the customer.

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Rehabbing Properties The Right Way with Jeff Schechter

Our guest is Jeff Schechter. Thanks for being on the show, Jeff.

Thank you for having me, Whitney. I’m happy to be here.

Jeff started his first business right out of college and over the years, he’s been involved in numerous business ventures. His love for real estate investing began in the 1980s when he rehabbed five of his own residences before the term house hacking even existed. Since those early days, they’ve torn up kitchens and bathrooms. He’s bought so many properties and as an active investor to this day. In addition to investing, he operates a private consulting practice. He thrives on helping people realize their full potential, not just in business and investing, but in all aspects of life. Jeff, give the audience a little more about what you’re doing, your background may be in real estate and your focus right now. I loved what you mentioned about improper systems will keep things broken or from happening. I’d love to dig into that a little bit, but go ahead and tell the audience a little more about who you are.

We talked a little bit about house hacking, I’ve been a pretty scrappy guy and entrepreneur my whole life. In between 2002 to 2008 period, I also had a flipping business. Among other things, I eventually graduated from house hacking into actual flipping. We all know what happened in ‘08. I had my butt handed to me on a silver platter and so I started over. At that time, I was very curious about internet marketing and moved to Austin, Texas. I was living in San Antonio and there’s a great digital marketing community there. I got very involved in all that stuff and that’s through some consulting how I met my current partner. He was buying some properties in Indianapolis and getting some good returns. We started learning about this concept called turnkey. Even though I was involved in real estate, I’ve never heard about it before.

I gave him some marketing advice that he liked and invited me to become his business partner. I now live in Indianapolis, Indiana and we operate a very successful turnkey company. For those of you who don’t know what that is, we just provide an end to end system for investors. We acquire the property and we rehab to certain standards. We have our own property management team, we place the tenant, we get it for not performing, cashflowing, and then and only then do we sell it off to investors as a performing asset. That’s what I’m up to. It’s been a challenging start, but we’re very excited about where we are because we’ve finally got a decent and successful company.

[bctt tweet=”It is not ideal to enter into a relationship where there is zero trust.” username=””]

You mentioned that the key to your success has been in systems. I’d love for us to get into that and elaborate on these systems that have helped you to be successful. Whether it’s syndication or whatever type of real estate or any business, you’ve got to have some systems in place if you plan to grow. Let’s dig into that and please elaborate.

There are about 10,000 examples that I can give you, but I can tell you where it starts is from making some stupid mistakes. Some of them were big, devastatingly financial mistakes. It started with the question, how can we keep this? How can we prevent this from happening again? Otherwise, we’re not going to have a business. There were big, stupid mistakes. When we first started our company, we would just go out and find a property and we would rehab it while it was owned by the investor. Our logic was like, “If we sell to the investor shortly after we purchased, we eliminate our hold times in our hold costs.” What happens is we run into mistakes, we run into surprises on rehabs and things like that. We’re already in bed with the investor and there’s ourselves here in Indianapolis and the investor maybe somewhere in California helping to make the decisions. It’s a classic case of too many cooks spoil the pot. From there, we get the thing finished and sometimes it would be a few days, sometimes it would be a few weeks, and sometimes it would be a few months until that property got leased out.

The entire time, of course, the investor was freaking out going, “Where’s my cashflow?” We finally started recognizing like, “The money that we’re saving on hold costs by selling it early is not worth it.” We made a decision to say, “We are only going to sell properties after they’re done being rehabbed. Once we know exactly what our costs were and all that stuff, we can make a fair profit. We can get to some fair numbers for the investor. It puts us on the hook to make sure that the end price is something that’s attractive to the end investor from an ROI standpoint. It puts the responsibility on us. We then were still selling properties that weren’t quite tenanted and ran into that whole issue with investors waiting for stuff to be cashflowing. Ultimately, even though it increased our hold times, we went to a situation where the only properties that we would sell where after they were performing, stabilized and things like that.

Those were some key decisions in our evolution. The other one that was the biggest one, this doesn’t matter whether you’re in syndication buying one property or 500 or the tallest skyscraper in the world. Unless you have a property, there are only two things that equate to success in a real estate investment. One is you’ve got to have a property that’s in good condition. Secondly, you have to have a happy tenant because if either one of those is out of whack, you are going to have problems. You’re going to have expenses that are beyond what you had anticipated so you have to start from there in any project. I see a lot of even syndication of products that don’t start that way and it’s unfortunate. The building that they’re getting into is not rehabbed and they don’t have the right marketing for the right tenant and it’s not maybe the right use of that building. There are lots of different ways that can go awry. Those two things you have to start. We offer a warranty on our property. It’s all the major systems like the roof, HVAC, foundation, electrical, plumbing.

As soon as tenants start getting into properties, whether they’re commercial tenants or residential tenants, they’re going to put that property to the stress test. They’re going to test the plumbing. They’re going to test the electric. If the roof has got a leak, it’s probably not going to leak the day before they move in. It’s going to start leaking the day right after they move in. We were on the hook for all these warranty issues. In addition to doing this rehab, now we’re having to come back and start fixing properties that we thought we already fixed them. The biggest system that we ever put in place was we got our rehabs dialed in. We have some pretty good teams, we use some internal teams and some external teams for the contracting. What can we do in terms of a third party out there that might be able to tell us the condition of the property? We thought, “Why don’t we do an inspection up front? Let’s just pay some impartial third party company. What’s going to cost us $300 to $400 to go and find out exactly what’s wrong with the structure?” We go and we send our teams and we’ve developed a 41-point checklist. We check everything and subflooring. Are the toilets on straight, stress test to the plumbing? Obviously, we turn all the utilities on first.

RES 235 | Rehabbing Properties
Rehabbing Properties: Two things that equate to success in real estate investment is a property in good condition and a happy tenant.

As a problem will come up, it was like, “How do we fix this?” It allowed you to create better systems so now you’re functioning at a higher level because you’ve created systems to alleviate those problems initially. How has that helped you to face bigger problems possibly? Problems change. You’ll learn more about the industry and you’ll learn more about the business. The tougher problems you have five years in are a little different sometimes than the ones you have when you’re first getting started. They’re not the same problems. How has that helped you all to face those issues now to create systems at a higher level?

It’s just attitude. When you’re first starting a business, getting it off the ground is the hardest part. Everything seems so overwhelming because you don’t have a lot of revenue at the beginning to help fight off some of these problems. You’re hungry for every sale and you’re doing things that are not necessarily very systemized. We look at it as that systems will set you free. Anytime we start seeing any kind of trend, it’s like, “This guy said something. This investor said something particular about this property. He was looking for a little bit more transparency. How do I know the condition of the property? How do I know you did your rehab?” We started hearing that. We started going, “These investors are looking to do an inspection after we’re done before the purchase, but that’s gumming up our sales process. What if we ordered another inspection?” We would have a full report. We would have two reports. We would have the beginning and the end, and we would be able to provide our scope of repairs and the second inspection as well to the investor.

That made all the difference in the world. It just completely made that problem go away. We smoothed out our closing process. We rarely have an investor going, “You’re showing me two inspections, but I still don’t trust you enough. I’m going to order a third.” For a guy like that, it’s not somebody we want to do business because we don’t want to enter into a relationship where there are zero trusts. Looking at that stuff in terms of we can make our company better and more streamlined by doing this, it’s going to be painful a little bit to put the process in, but once it’s in, it’s going to be smooth sailing. That’s served us well. We’ve got the revenues, the teams and the brain power with our teams to go like, “What’s the best way for us to fix this?” We meet all the time to talk about this stuff, pretty much every week and we see how things are going.

That in itself is a system because you’re discussing those things on a weekly basis with your team to create better systems. You mentioned systems will set you free and I can’t agree more. It’s stressful when you think all of these tasks, all these things that you need to remember or you think you need to remember these things you need to accomplish on a daily basis to keep a large real estate business functioning. When you have systems in place, now you have team members or you have other people that can do some of those things. If you don’t have that system, how do you expect your team member to even know what to get done?

One of our challenges was getting contractors to do things the way you want. That’s like herding cats. We put a tablet-based or phone-based checklist out on the field for them. If they can’t even manage that, then they’re not working for us. It’s just that simple. They go through everything.

[bctt tweet=”The more you look at challenges and unhappy moments, the more you can appreciate even just the little things.” username=””]

You have a consulting practice and you’re helping people realize their full potential. I’d love for you to elaborate on that a little bit as well and helping the audience to realize their full potential maybe not just invest in business, but in investing and all aspects of life. Help us to think through that a little bit and what that looks like.

I was involved in the digital marketing community and it started by helping a lot of business owners with some of their digital marketing. It has since morphed into bleeding over a lot more into personal development. People that are most successful in anything have the highest belief level in themselves and the highest belief level in their potential outcomes. The nature of the human condition is we just don’t give ourselves enough credit for the amazing beings that we all are. A lot of what I do with people is to help them understand that a lot of the roadblocks that they think they are having, whether it’s in their business or in their personal life, are self-imposed. It’s interesting to watch when you can see somebody start to understand that. I had a friend in Austin that has become a big self-development guru. I don’t think this was necessarily his original statement, but it’s, “Pain is inevitable. Suffering is optional.” We’re always going to have a certain amount of pain. I’m probably the most positive guy on the world, but even with that, there’s no way you can look at life and go, “Everything is just puppies and unicorns.” Life doesn’t work that way. Life is a rollercoaster and there are ups and downs.

My favorite word is bittersweet. Life is very bittersweet. The point is it helps to embrace that entire spectrum. If you don’t know what bitter is, how can you appreciate sweet? If everything is this constant state of joy, it’s boring. You don’t have the yin and the yang. You don’t have the opposite perspective to understand the good juicy stuff. I know it sounds almost harsh in a way, but the more you look at the challenges that you have on life and maybe not so happy times, the more that it can allow you to appreciate even the little things. I moved to the Midwest. I hate the winters here. It’s horrific, especially coming from Texas. I drove into the office and it’s finally starting to warm up, everything is green and it’s beautiful. I’m driving and I am thinking to myself, “I am super appreciative.” It’s not a big deal. I’m just driving to work, but I got the sunroof open, I got the stereo, the weather is 70 degrees. It’s perfect. I am super appreciative of that, but I’m partially super appreciative because I know what a crappy winter went through.

It’s a lot of mindsets, isn’t it? Do you have some habits or maybe a morning routine that helps you stay in that mindset?

There are a lot of talks out there about morning routines and admittedly, I suck at that stuff. What I’m telling everybody is you don’t have to have a morning routine to be successful contrary to what the guys that are peddling the morning routine say. That said, I do agree that it is important to get up on the right side of the bed. When I get up in the morning, first of all, I drink a ton of water. I’m drinking a liter of clean water when I wake up because you get very dehydrated when you sleep and that gets everything going. From there, I do a little bit of light stretching. I will sit for maybe three minutes. I wouldn’t call this a meditation. What am I grateful for? How do I want to show up in the world? Let me set the tone for that.

RES 235 | Rehabbing Properties
Rehabbing Properties: In this age of social media, everybody wants to be the expert. Many of the stuff being done are not necessarily to provide value but mostly to show authority. There’s no question that it can work, but the real exchange here is in value.

Sometimes that’s a little bit of jumping jack or whatever to get the blood moving and that’s it. It’s not a workout because I’m rolling fast to get to work. We’re all scrambling in the morning and it’s hard to go, “I’m just going to dedicate this 90 minutes to my morning routine.” It’s nice to be able to do that, but I do that and then I usually do yoga in the evening. That’s also my chance to get away from everything, get into myself and get into my body. I find that it is important whether it’s a morning routine or any other time to at least carve out some time for yourself. It doesn’t matter whether you’re married, kids, twenty-three businesses, you’ve got to carve out a little bit of time every day. It’s a little sanity break.

You need some breathing time outside. In my mind, every minute I’m thinking of what has to be done or how can I improve this. It’s just constant. Even in the mornings when I try to have that time reading, praying or whatever, it’s so hard for me to focus sometimes on something else outside of the business. I have to try to do that. Give us some of your best marketing advice for people in this industry, maybe some tips or you have some things we should think about as far as marketing that you’ve learned and instilled in your business.

The biggest one that most people don’t realize is that we do all of our marketing online. We’re starting to see the evolution of online marketing and it’s very clear that the hype stuff has gotten worn out. We have built a great business by sucking and admitting our mistakes. In other words, we’ve just been transparent. We’re investors and we’re successful most of the time. Sometimes we make mistakes. We always own up to our mistakes and we fixed them, but we continue to improve all the time. That’s all you can do. Here’s what we are, here’s what we do. We’re not trying to be something that we’re not. In the age of social media, everybody wants to be the guru. Everybody wants to be the expert and the authority like, “Go speak on stage. Write twelve books.” There’s nothing wrong with speaking on stage and there’s nothing wrong with writing books assuming you’re providing value, but I see that many of the stuff being done is not necessarily to provide value, but mostly to show authority. There’s no question that it can work, but the real exchange here is in value.

We have to get back to basics. When you can put content and information out there that provides real value to your true audience, you’re going to win and they’re going to come back. There are lots of tricks, there’s retargeting and getting in front of people multiple times with similar messages and things like that. I can tell this is important to me because I worked in the social media business for a while and I saw all the smoke and mirrors. I essentially worked for a guru. It’s not to say that he didn’t provide value, he did, but a lot of it is smoke and mirrors. I want to encourage anybody that’s doing any kind of marketing online at all to just be real. Be who you are. Make it about your customer. Make it about what their benefits are, not how great you are.

At the end of the day, everybody is selfish. They just are. Look at what you said about your mind. What have I got to do? What have I got to take care of? We’re all living with this ego, with this big I that’s part of the human condition, so you have to understand that your customers are too. If you’re putting together big syndication, your customers are those investors. They’re thinking selfishly, so how can you put the information in front of them that’s going to speak to their selfishness, that’s going to scratch their edge?

[bctt tweet=”The bittersweet aspect of life helps embrace the entire spectrum of living it.” username=””]

You built a business by messing up and admitting your mistakes. That transparency goes a long way though. Even if that was years ago, you all showed great transparency, admitted your mistake, came through it and made it right, the people that stuck with you through those times are lifelong investors or lifelong partners now.

We’ve definitely got some loyalty. We made some big screw ups. We came out of pocket to fix them and we made our investors whole. It’s not that we had a legal obligation, but we felt an ethical obligation. In the real estate business, a lot of it is relationships even on big syndication deals. We wanted to have good relationships. We said, “How would we want to be treated?” That’s true. No matter whether it’s a $50,000 deal or a $50 million deal, it’s still going to be based on good key relationships and am I doing business with somebody who I trust?

Jeff, what’s some way that you’ve improved your business that we could all apply to ours?

We covered a lot of systems. The thing that’s helped us the most is the whole transparency, especially of the rehab process. Just by saying, “We had a problem, here’s how we took care of it.” We even go so far after the second inspection. We’ll send one of our team members back to cure any small items and they take pictures of what they did. They have a sign off sheet that they verify and that they took care of these outstanding items on the inspection. When we put in front of an investor, we’re like, “Here’s what the numbers look like. It’s rented. Here’s where it’s performing right now. This is not a projection of fake increased rents or future appreciated value or any of that kind. Here’s how it’s performing right now. Here’s exactly what we did to the property. Here was the first inspection. Here’s the second inspection. Here’s a copy of your warranty. Here’s the before pictures. Here are the after pictures.” It’s going back to being selfish. Most people are lazy. We know that and it’s not a judgment call, it’s an observation. Here’s a way, Mr. investor or Mrs. investor, to do your due diligence in a very easy way.

We recognize that you might look at other things, you might look at school systems, crime maps, whatever, and that’s fine. Those things may be important to you, but we’re just opening up the kimono. This way when somebody says yes, they know what they’re saying yes to. When they say no, we know that they’re saying no for some reason and that’s okay. We’re fine with no. That means that this particular property isn’t a good fit for you. Thankfully, we’re also in a great position that if you don’t buy it, somebody else is going to buy five minutes from now because our deals are amazing and we sell everything we get. We’ve started to develop.

RES 235 | Rehabbing Properties
Rehabbing Properties: Looking for mistakes and continually fixing them contributes to success.

What’s a way that you are able to be that transparent? Is there a system or is there a tool? Is there something that you use for you all to be that transparent? Is it just that people are going to ask anything they want?

One of the things we’ve done is we’ve standardized a packet that goes out to the investors. It’s systems. We have the generic packet, which shows all of our contracts and talks about how we handle the taxes in Indiana and utilities. It’s basic overview information like, “Here’s our property management contractors. Here are our purchase agreements so you know exactly what you’re getting into contractually if you do business with us.” These are all ePackets, by the way. They’re all online, but we use a very sophisticated folder system. It’s called Egnyte. If anybody is curious, it’s like Dropbox on steroids. We build the packet in especially the same exact way every time so if an investor is looking at more than one property, they could go through it in a very nice linear way. They can see all of those parts and pieces and they’re just there. All they’ve got to do is open the folder. They do not even have to ask for it. If they’re asking for information about the property, here are these two huge components. They’re blown away by that, which I love. They do not have to ask. We’ve anticipated it.

What’s the number one thing that’s contributed to your success, Jeff?

We’ve covered it. It’s looking for the mistakes and continually fixing them. We’re going through some stuff on the property management side too where we’re correcting some of our repeat mistakes right now. It never ends. There’s an expression in Japanese called kaizen, which you may or may not have heard of. Kaizen means constant improvement. Any entrepreneur, it does not matter what level you are out of an entrepreneur. You could have a lemonade stand on the corner and be that small of an entrepreneur or be doing $50 million projects. It still always boils down to that. You just have to be always willing to constantly improve. The world is moving very fast and we watch our competitors very closely. Oftentimes, we help each other and that’s great, but if I see somebody doing something that I’m not, I’m going, “What is good about that or bad about that for our organization? Could that benefit our investors? Could that help run a more streamlined operation?” I am always looking. Any entrepreneur needs to never let that guard down.

How do you like to give back?

A lot of my consulting is free so I give back a lot that way. I enjoy helping a lot of other entrepreneurs and help them get started. It’s not necessarily always in the real estate business. We also do some charitable stuff. My business partner who lives about three hours away is very involved in building stuff out in his local community and that’s been really great. As we obviously continue becoming more profitable, we’re eyeing other ways to provide more shelter homes to other people that struggle with that around the world.

I appreciate that. You’ve been a great guest, Jeff. I appreciate your time and just how you’ve elaborated how important systems are and how it’s allowed you all to fix problems. Now you have those things in place and it helps you to grow faster. You mentioned that systems will set you free. I like that. Tell the audience how they can learn more about you and get in touch with you.

Our company is called High Return Real Estate and our website is the same, All of our properties and systems and how we do things are well-documented on that site. We also have a podcast made more for buy and hold investors. For the sake of keeping things consistent, it’s called The High Return Real Estate Show that I do with my amazing business partner, Jack Gibson. We’ve got a YouTube channel, The High Return Real Estate channel. It’s easy to find us. If you’ve got any questions at all, you can certainly reach out. There are all kinds of contact forms on the website.

Jeff, thank you again for your time and being on the show. I hope the audience will reach out to Jeff. Check out his podcast as well. Hope you’ll go to Life Bridge Capital and connect with me. You can go to the Facebook group, The Real Estate Syndication Show so we can all learn from experts like Jeff and grow our businesses together. I hope you’re sharing the show. I would appreciate that, and we will talk to each of you next time.

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About Jeff Schechter

RES 235 | Rehabbing PropertiesJeff Schechter aka “Shecky” has had the entrepreneurial bug his entire life. He started his first business right out of college, and over the years been involved in numerous businesses ventures.

His love for real estate investing began in the 1980s when he rehabbed 5 of his own residences before the term “house-hacking” even existed. Since those early days of torn up kitchens and bathrooms, he’s bought and sold many properties, and is an active investor to this day.

In addition to investing, he operates a private consulting practice. He thrives on helping people realize their full potential…not just in business and investing, but in all aspects of life.

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