JF2075: Part-Time Real Estate Investor Benefits With Erik Schaumann

May 08, 2020 | Joe Fairless | 00:23:33

JF2075: Part-Time Real Estate Investor Benefits With Erik Schaumann

Erik is a part-time real estate investor who began in single-family rentals in 2012, and since then he has bought 12 homes and is involved in multiple limited partnership deals and has a portfolio of $1.7M.  Erik has been able to leave his W-2 by being a part-time investor and has continued to be a part-time investor because he has recently traveled the world with his family. He shares with you what you should be asking yourself when it comes to leaving your W-2. 

 

Erik Schaumann Real Estate Background:

  • Part-time real estate investor
  • Began investing in single-family home rentals in 2012 while he was living overseas in Brunei, working for Shell Oil Company
  • Over his investing career, he has bought 12 homes and sold 3
  • Is currently invested in multiple LP syndication deals with over $1.7 million in AUM
  • Because of his REI passive cash flow, he was able to retire from his oil company job after 20 years and travel the world with his wife and 6 children
  • Based in Orem, Utah
  • Say hi at etsenterprisesllcATyahoo.com and www.8suitcases
  • Best Ever Book: 5am Revolution  

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Best Ever Tweet:

“Be realistic in what you are going to need, what’s that final number? Be realistic, don’t overshoot it because if you leave your job there are always ways to make money” – Erik Schaumann


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Erik Schaumann. How are you doing, Erik?

Erik Schaumann: I am great, thanks.

Joe Fairless: Well, I’m glad to hear that. A little bit about Erik – he’s a part-time real estate investor. He began investing in single-family home rentals in 2012, when he was living overseas, working for Shell. Since then he’s bought 12 homes, sold three, also has multiple limited-partner ownerships in deals, and in total owns 1.7 million in his real estate portfolio, which is a combination of his limited partnership stakes, as well as the single-family homes that he owns.

Based in Orem, Utah. With that being said, Erik, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Erik Schaumann: Yeah, thanks. It’s great to be on your show, Joe, and I appreciate being able to talk to your Best Ever listeners. As you mentioned, I started investing in 2012. I was living overseas… And living overseas, I was working for Shell, so we had some income available to invest; we started investing in single-family homes through a turnkey provider. We invested in one, and then another, and then another, and it just snowballed until we got to 5-6. Then we sold two, and we bought four… So we had some nice equity gains. Those original houses were in Phoenix, and Phoenix in 2012 was the low point, and as it came back up… So we were able to sell two and buy four.

I’ve listened to your podcast for a long time, and you have so many professional investors that started companies… I’m kind of the small fish in the big pond, I’m just  a part-time investor. But those investments, the home investments gave us a passive income such that the company I worked for – I left Shell at the end of 2017, and we were able to travel. So we traveled full-time as a family, we literally went around the world.

Then when we were done traveling, after 18 months, I came back, and now I’m just working in a  small business, helping my mom literally with her business… And I haven’t needed to go back to work for an oil company, because we’re essentially living off of the passive income that our real estate investments provide.

So we’ve been successful in that regard, to give us the income we need to leave the rat race and leave the 9-to-5 and come back and do something that’s helping other people in a way that I wasn’t able to do before.

Joe Fairless: One tricky part with human nature is that when we achieve a goal, then we want to have another goal that we achieve, therefore we’re constantly reaching for something bigger… And the downside to that is when someone has a W-2 job and they’re looking to exit out, and they have a number in mind, and then they hit that number, they might think “Oh, well I don’t know if that’s actually do what I want it to do for my life, so I’m gonna wait, still have this job and make that number larger.” How did you think about that process prior to leaving your W-2 job to be like “Okay, you know what – I’m good, our family’s good. We’re gonna just do this thing.”

Erik Schaumann: It’s a great question, because we really did go through that type of thought process. I was working for Shell, I was overseas, I was making great money, and it was pretty easy money honestly, because it was 9-to-5, and it’s a big company… I did what I did, and I did it well, but they paid me really well to do it. And we got to the point where I literally said to myself “When is enough enough? When is my 401K large enough, is my real estate portfolio large enough? I can always build more, but when is enough enough?” For us, it was a timing issue, because we were at a point where we loved to travel, and my son had graduated from high school and he had taken a gap year, so he was still at home with us…

And my daughter was in college, but she was in a position where she could take a gap semester, and we kind of hit it right at the point where we could all travel as a family together again… And we took the leap. We did some financial planning, we said “This is what our cashflow will be over time”, and we decided that we’re doing it. And I left Shell. I was lucky to leave at the right time.

The other thing that plays into this situation for me was I left Shell at a time when I was offered a nice severance package… So it would have been financially better to stay  with Shell and keep working, of course, but at the time I was able to leave, I was able to leave with a nice severance package. So there was a severance to walk away, our investments had come to the point where we were comfortable, we have six kids, and timing-wise we were able to all continue traveling as a family, with my daughter back with us… And it was the last time that would be able to happen. So a number of things came together to make it such that we were comfortable taking the leap.

Joe Fairless: You have a portfolio of homes, and you also invest in apartment syndications… Why not focus on one, versus the other?

Erik Schaumann: All of my homes have been with investment money that was not retirement dollars… And when I left Shell, I took not just the severance, which was after-tax money, but there was some retirement money I had as well… So I decided to take that retirement money and I realized I could have put it into some homes, but I decided to just kind of take another route and diversify a little bit… So that’s when I found these limited partner/syndication deals. It’s with Ashcroft, actually.

Joe Fairless: I know Ashcroft.

Erik Schaumann: Oh yeah, you’re familiar.

Joe Fairless: [laughs]

Erik Schaumann: So it was just that chunk of retirement money that I decided to put into these other syndications.

Joe Fairless: But the Phoenix home(s) you sold – they did well; they got a chunk of cash, and you were familiar with homes, and you had the teams (I imagine) already in place. So why not just continue to do that?

Erik Schaumann: A couple of reasons… Number one, the houses did do really well, but from a cashflow perspective they haven’t panned out quite as well as I hoped. And I guess when I say that – they haven’t done as well as the paper said they were gonna do. You get the proforma from the turnkey, and they give you a number, and they say “Yeah, cash-on-cash you’re gonna probably do 7%-8%”, and I just never found that to be true. So I was looking for something different. That’s not to say I won’t buy more single-family homes, because I probably will, but I just wanted to try something different.

Joe Fairless: Any deals you lost money on?

Erik Schaumann: I haven’t actually lost money, but the worst deal I did was when I decided “You know what, these turnkey guys – they’re great, but I think I can do a little better.” So I went to Indianapolis and I answered an ad… I don’t know if you’re familiar with the Indianapolis market…

Joe Fairless: Not very.

Erik Schaumann: Okay. There was a guy [unintelligible [00:10:18].22] in Ocean Point, which was a bit of a fiasco. And I turned out much better than many investors. I got some class C properties from him, and I was used to dealing with class A and class B with the turnkey, but the numbers on the class C looked much better. You’re buying for 40k and you’re renting for $650-$700/month. I got the properties, but after a while — it’s kind of when Ocean Point went South, and they stopped communicating, and I just got nothing, so I had to change property managers… And that was major headache. When I finally got the new property manager on, I come to find out the renter that’s in my property is a criminal… He was wearing an ankle bracelet when they rented to him. We finally got him evicted, but he had done $17,000 in damage to the house. He had run it as a drug house, so I had to do all these renovations… And the changes and the rehab that had been communicated to me just wasn’t quite accurate, so I had to spend additional money to rehab it, to put it into a place of actually being able to be rented.

So that took some time to make that back. Those properties are now rented, and they’re cash-flowing pretty well now, but all that costs that I had to put into it and the major headache was not a fun thing

Joe Fairless: How has your thought process evolved when looking at new opportunities from when you first started investing?

Erik Schaumann: Definitely you need to look at other people who are investing with the person you’re thinking of going with. So I did do some due diligence — I didn’t go to Indianapolis, but I sent my mom, actually; I sent her to Indianapolis to meet these guys when I bought the homes… And they put on a pretty good show, but I never really talked to anyone else who was their customer; I didn’t ask for any references, I didn’t do that back-side due diligence, and that’s something I would definitely do again… And I have done in other deals as I’ve tried to do, is get some customers who are already working with them and find out what their opinion is.

And then also, I don’t think I’ll go into the class C market again. The numbers do look really nice, but you are dealing with renters that are in a much different situation, and it can be difficult.

Joe Fairless: For a high-income earner having a W-2 job, who wants to put together a plan to exit out, travel with his/her family, just like you, your wife and your kiddos did together, what are some suggestions you would have to him/her as they’re putting together their plan?

Erik Schaumann: A suggestion would be time travels a lot quicker than you might think. So when you’re starting out, it’s easy to think that you wanna get to the place faster than it really takes, but actually once you finally get to that place, you look back and you think “Oh wow, that seemed faster than it was.”

When we started investing in 2012, we knew it wasn’t gonna be immediate that we’d have a portfolio of nine homes. But little by little, you buy one house, and then you buy another, and then you buy two homes a year, and then you buy three homes a year, and if you have a five-year plan or if you have a ten-year plan, and ten years just feels like it’s gonna take forever to get there, when you start out it does feel like forever… But by the time you actually reach it, you just turn around and say “I can’t believe how fast that passed.”

So be realistic about how long it’s gonna take you, but don’t get discouraged if it seems a little longer than you want in that moment, because it’s always gonna be a little bit farther away than you think when you’re starting… But also recognize “Guess what – time flies, and it’s eventually gonna come.” So don’t get discouraged.

And the other thing is, like we said, be realistic in what you are going to need. What’s that final number and what’s that final amount of cashflow that you think you’re gonna need? Be realistic, don’t overshoot it, because guess what – if you leave your job, there’s always ways to make money. You may not make as much as you were going to, but you don’t necessarily have to be 100%  passive cashflow, able to do everything you wanna do when you leave… Because there’s gonna be opportunities along the way to make some more money and to supplement what you’re doing.

Joe Fairless: That’s a great point. I certainly was guilty of that whenever I had my W-2 job, and I was wanting to transition out. I was making 150k base salary at the time, and I was like “I’m just not going from 150k to zero, and then zero in perpetuity until I create a business.” I didn’t think at the time I could make money doing certain things that related to what my W-2 job was, it just wouldn’t be as much. So you don’t have to go from 100% to 0%; you can go from 100% to 25%, and then go from there.

Erik Schaumann: When we were looking at “When is enough enough?”, when I was working for Shell, we were saving towards our kids’ college, we were saving towards our own retirement… We were trying to be really frugal in what we did, and we were saving  a whole lot of money… And when you leave, you stop saving all that money, but that means you don’t have to earn that money to save it, either.

Joe Fairless: Yeah… [laughs]

Erik Schaumann: So let’s say you’re saving 20%-30% of your salary… When you stop saving 30% of your salary, that income is not necessary anymore.

Joe Fairless: Yup.

Erik Schaumann: So it sure would be nice to keep putting money in our 401K, but that’s the reason we left, is that I wouldn’t have to work to earn that money to put in the 401K. I’m letting the 401K work by itself, and we’re living with less, but our time is what I have instead of money.

I talk [unintelligible [00:16:04].24] all the time, and when we talk about traveling now, we think about  “Well, what do we have more of – time or money?” When you have more money than time, you buy the expensive, direct flight. But when you have more time than money, you can buy a cheaper flight, that takes longer to get there.

Joe Fairless: Any other suggestions for people who are looking to do something similar, or observations about your experience that would be helpful to share?

Erik Schaumann: Yeah, when we started full-time traveling as a family — there’s so many people who are doing it, and there are so many blogs out there that can give you advice and can give you some inspiration. It’s really nice to meet other people who are doing the same thing as you. And it seems like a very exotic thing to do – and I don’t deny that it is – but there’s just a community of people who are there to give you support and to help you out. So while we were traveling, some of our best experiences were just the people we met down in Guatemala, and down in Santiago, Chile, and when we were out in Bali, and Spain… All these people that we get to keep in contact with. There’s just some real joy that comes from that. So that’s one thing to think about.

And then another thing to think about is if you choose to leave your W-2 9-to-5, you just have a lot of time. There’s a lot of time to do other things. You may think like “I just wanna sit on the beach, with a drink in my hand, and the waves at my feet”, and that’s fantastic.

Joe Fairless: For half  a day… [laughs]

Erik Schaumann: For as long as you’re at the beach. But then you come home, [unintelligible [00:17:30].17] home temporarily in Orem, but then we’ve put our kids back in school, so I just have time again to think. You continually need to reinvent yourself. I’ve kind of spent a year doing something, and now I’m gonna need to reinvent myself to do something else… Which is an exciting challenge, but it’s also something that you need to think about. It’s not just once you leave work, and travel and  passive income – that’s not gonna be the rest of your life. There’s other things that you’re gonna need to think about.

Joe Fairless: How do you make sure that you remain sharp from a personal development standpoint?

Erik Schaumann: Well, I listen to a lot of podcasts, I try to educate myself that way. I have taken on something — when I came back and started to work at my mom’s company, that kept me sharp in terms of learning new things. I’d never worked for  a small business, so I had to learn all of these tricks and tips about working in a  small business, and advertising, and all the things that we do for sales.

So I think it’s just making sure that I’m doing things that keep me learning and keep me educating myself, so I’m always doing something new.

Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Erik Schaumann: My best real estate investing advice ever would be if you want to invest in SFRs through a turnkey provider, just find one that you trust. Find one that is gonna do what they say they’re gonna do. Actually, I’m working with Done For You Real Estate in Utah – they over-communicated, they showed me all the books, they showed me exactly what they were making… And it was just something that you could latch onto and say “Okay, these guys are gonna do right by me”, which is not what I got from the bad deals I did. So I didn’t learn at the time, but I have learned since – find someone that you really feel like you can trust.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Erik Schaumann: Yeah, let’s go.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:19:25].03] to [00:20:10].21]

Joe Fairless: Alright, best ever book you’ve recently read?

Erik Schaumann: The book that has changed my behavior the most was the 5 AM revolution by Dan Luca. I really enjoyed what he had to say, and I started waking up at 5 AM.

Joe Fairless: Okay. That’d be a  huge game-changer. How long ago did you read it?

Erik Schaumann: I’ve read it about  a year and a half ago, maybe  a little more; maybe two years ago. There’s just a lot to get done in the morning, and I’ve really enjoyed the time in the morning.

Joe Fairless: On average, how many days a week do you wake up by 5 AM? And I know your wife is sitting in on this interview, so she can fact-check it.

Erik Schaumann: Definitely Monday through Friday I wake up at 5 AM every morning, and then Saturdays and Sundays I give myself to sleep-in.

Joe Fairless: And what’s sleeping in?

Erik Schaumann: [7:30] or 8.

Joe Fairless: What time do you go to bed during the week?

Erik Schaumann: I try to get to bed by 10, but [10:30] stretches it.

Joe Fairless: What deal have you made the most amount of money on? Probably the Phoenix deals, right?

Erik Schaumann: Yeah. The first home I bought in Phoenix in 2012. I paid 95k for it in 2012. I’m putting it on the market next month for 240k. So that’s been a fantastic house.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about already?

Erik Schaumann: A mistake on a transaction has been not following up well enough with the property manager to just really understand what’s being done. Often they have a clause in there that says if it’s more than $500, we’re just gonna do it right away. And sometimes you can have a hand in that and say “Wait a minute…” So just kind of letting them too much without checking has been a problem.

Joe Fairless: Best ever way you like to give back to the community?

Erik Schaumann: I love being near my alma mater, BYU. I like to go back and do presentations for the students, telling them about  my career… I work with a church youth group here, so I love to work with the young men… And then while we were traveling, especially in Guatemala, we did some work with some non-profits and built some houses, and did some gardening projects… I really liked working with the locals down in Guatemala.

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?

Erik Schaumann: The best way is to email me. I’m at ETSEnterprisesLLC [at] yahoo.com. And if anyone’s interested our travel blog was 8suitcases.com.

Joe Fairless: 8suitcases.com. Erik, thank you so much for being on the show, talking about your and your family’s journey, how you all have got to this point, some investments that did not go well, what you learned, some investments that have gone well, what you’ve learned, and the variables that were in place in order to stop having that W-2 job, and moving forward into travel and spending time with your family, how you wanna spend it, and having more of that… Because it’s pretty much the main question that most people have, is “How can I spend the time how I want to spend it?” That’s ultimately what we wanna do, whether we verbalize that or not; that’s basically what it boils down to.

I’m really glad we had this conversation. I hope you have a best ever day, and we’ll talk to you again soon.

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