Buying
Building Multiple Businesses That Feed Each Other with Eric Scheele
By Peterson Acquisitions ·
Eric Scheele is a Kansas City serial entrepreneur who founded and runs KC Property Guys, which he describes as Kansas City's highest rated home buying company, and KC Pier, which he describes as the city's highest rated foundation repair company. On this episode of the Business Brokers Podcast, Chad Peterson talks with Eric about both businesses, how the first made way for the second, and how the two feed each other's growth.
What You'll Hear
- KC Property Guys rehabs 45 to 55 single-family homes a year with four full-time crews, and Eric calls acquisition the key to that volume.
- One flip can take five or six months from purchase to funded close, so one or two houses a year is not a living.
- The company runs on private money. Around 30 to 35% of homes use private investors Eric has worked with for years, and the rest are acquired in-house.
- How to vet a rehabber before lending to one: look them up on Google and the BBB, read the reviews, and confirm an EIN and a website. You want your money back in three or four months so you can turn it two or three times a year.
- Why KC Pier was born out of KC Property Guys: clay soil wreaks havoc on foundations in Kansas and Missouri, so Eric brought foundation repair in house for time, cost, and warranty control, and opened it to the public in 2016.
- Chad's take on foundation repair margins and why doing the work in house adds to the bottom line on a flip.
- How Eric reads the market: staying cautious on flips, revisiting exposure before every acquisition, and pushing the KC Pier brand so it is top of mind when homeowners are ready to spend.
Learn More About Eric Scheele
Transcript
Chad Peterson:
Hello, and welcome to another episode of The Business Brokers Podcast. I am with Eric Scheele, the Founder and President of KC Property Guys and KC Pier Foundation Experts. Welcome to the podcast, Eric.
Eric Scheele:
Appreciate it, Chad.
Chad Peterson:
Before we got on the show, we were talking about our personal lives and business, and it seems that both run together. If you're disciplined, you can have both. You can have a wonderful marriage and family at home, and you can have a wonderful business or businesses. In your case, you have two businesses that are serving you well. The point of having you on the podcast is to share with my audience what you've learned about life and business, and to tell us about the businesses you own and how you got there.
Eric Scheele:
Right on. Do you want to start with KC Property Guys?
Chad Peterson:
Yes, KC Property Guys. Tell me about that.
Eric Scheele:
KC Property Guys was founded in 2015. We rehab single-family investment homes. We hold a few when the cost perspective is right, though we don't intend to hold as many as we do. Rehabbing is the main business. We buy and invest in single-family residential homes, rehab them back up to our standards, and hand them off to our realty group, Team KCPG, for sale to an end user or retail customer.
Chad Peterson:
Wonderful. Tell me some of the challenges you face in that real estate business.
Eric Scheele:
There are economies of scale, and getting to the point where you have ease of business and efficiencies in place can pay off in the end. But the biggest key for most investors is acquisition: finding those houses and making sure you have the opportunity to do the next house. We're right around 45 to 55 houses a year. We run four full-time crews, so acquisition has to be key. Knowing where to find those houses, how to come about those opportunities, and how to take advantage of them when you're given them is the key to our game if we're going to do those volumes.
Chad Peterson:
One of the things you hear out there is that everybody believes they can do what you do.
Eric Scheele:
Right.
Chad Peterson:
They start off saying, "I'd like to buy homes and flip them. I'd like to fix them up and sell them for a profit." That statement has been thrown around a million times, but those who do it are separated from the ones who talk about it. That's who you are. A lot of people think you can go do one or two or three homes and make a living out of it. The fact is, with the numbers you're talking about, doing 40, 50, 60 of these a year depending on your volume and how good your acquisition is, you've got to stay on top of it. You've got to do volume to make money at this. There are so many people out there who want to buy homes, flip them, and become millionaires, and they don't do the math.
Eric Scheele:
Right. There's a timing piece to it. You watch it on HGTV, and it all happens in an hour. It doesn't happen that way in the real world. By the time you acquire a house, work on it for six weeks, prep it for market, go to market, and go through a funded close, which could be 45 to 60 days, you're talking five or six months on one project. If you do two of them and expect to make a living, it's not going to happen. You have to get organized and efficient in a hurry if you're going to do it full time.
Chad Peterson:
Right, because you're waiting six months to get paid, you don't have enough money to move forward and buy more properties. You can't get the machine going. So there are two problems in your business the way I see it: getting the machine going and keeping the machine fed.
Eric Scheele:
Yes. You can get cash rich and house poor, or house rich and cash poor. It's hard to find that balance. Doing that without being over leveraged is the key to longevity. We're fortunate that we don't have to be leveraged at all. We're funded with private money, and it tends to work in our favor. We have the momentum going. It's a matter of counting on the market so we can continue to play our game and play it well, or being sensitive to market indicators so we know when to pull back and focus more on holds versus flips, and vice versa.
Chad Peterson:
Are you selling any contracts, or are you working on things from start to finish?
Eric Scheele:
We don't do any contracting. I'm not high on contracting, wholesaling, those types of things. Everything we buy is with full intention to do a full rehab and hand it over to the realtors to sell.
Chad Peterson:
Are you purchasing any houses from wholesalers?
Eric Scheele:
No. I don't feed that channel. I'm not the biggest fan of it, so I tend to stay away from it. I acquire our houses through multiple other channels.
Chad Peterson:
You're taking out the middleman, because somebody who's a contract guy is a middleman. He's a broker.
Eric Scheele:
He is. He bumps up prices, tries to dump it, and doesn't have good insight. If those are the HGTV guys buying houses with "other people's money," I can't speak for everybody, but there are many out there who are not the most reliable.
Chad Peterson:
Unscrupulous.
Eric Scheele:
It can be. So I tend to stay away.
Chad Peterson:
Are you borrowing money from investors to purchase these homes? Is that how you're doing it?
Eric Scheele:
Most of it is my own private money. But around 30 to 35% of the homes we do come from private investment, people I can count on and have worked with for years. The majority, now that we're going on our sixth year, we're able to acquire in-house.
Chad Peterson:
I deal with a lot of money people. I sell businesses, so I'm swimming in the money game. I have a lot of people come to me and say, "How can I use my money to make money while it's sitting there?" I tell them, "Go to somebody who rehabs homes. Lend them money, and you'll get a steady return on your investment. Get with a good operation, such as KC Property Guys, and you can get a good rate of return. You're not going to get rich, but if you have money sitting in an account, you want to lend it out." Would you recommend somebody go to a company like yours to invest money and get a certain percentage of return? And if so, what would that return be?
Eric Scheele:
You bet. I'd encourage it. But I'd encourage you to do the same thing I encourage our sellers to do, which is let Google do your talking. Look people up. Let the BBB do the work for you. Make sure they're reputable, because, as you said at the beginning, the guys doing one, two, four, five homes a year don't tend to last. If they don't last, that's your money as an investor hanging out there. You've got to make sure you're working with a reputable rehabber who you know is going to turn that property, because you want your money back regardless of how fast it comes. You want it back so you can do it again. That's the real key. You don't want it out there for seven or eight months while this guy lingers and tries to figure out the game. You want it out there three or four months at a time so you can turn that money two or three times a year. Doing that research up front is critical for an investor, as it is for a seller. Go look at the reviews. Look them up. Make sure they have an EIN and a website. Do the basic research so you know who you're handing that house off to, someone reputable and working for it.
Chad Peterson:
So if somebody is listening and they want to get into buying homes, fixing them, and selling them, this is not an easy operation. What Eric has accomplished at KC Property Guys is phenomenal. It takes a lot of connections. It takes a lot of knowledge. You have to have a good plug-in on real estate. You have to understand real estate. You have to understand the market. You have to understand money. You have to understand investment. You have to understand time and what that money is going to cost you over a period of time. You have to understand contracting. You have to understand how to pay people and how to prevent loss. You have to know your books. You have to know what your contract is going to cost. You have to know materials. You have to know so much to accomplish this. And you have to understand how inefficient it can be to rehab a home. If you do one thing before the other, you can cost yourself money. If you don't have people on time, it can cost you money. If your plumber doesn't show up on Tuesday and you've got cabinets coming in on Wednesday, you've got a problem.
For anybody listening who might want to start a house rehabbing business, it's not easy. Eric makes it look easy, but that's because he has dedicated his life to this business. So, Eric, we commend you on that. If you could, tell us about KC Pier, the foundation experts.
Eric Scheele:
I'm smiling the whole time, because it's not only Peterson Acquisitions, it's investment consulting 101. You nailed it in about a minute and a half. So don't contact me. Go ahead.
Chad Peterson:
Right.
Eric Scheele:
KC Pier was born out of KC Property Guys. It started in 2016. It didn't take me long to understand that relying on a foundation guy, and making sure the work was accurate, on time, and cost-effective, was important, because 30% of the houses we do need it. We're in Kansas and Missouri, clay is part of our soils, and it wreaks havoc on foundations. So I saw that coming and knew I needed to bring that solution in house. We started a crew about mid 2015 and worked on a series of houses we acquired that year. In the middle of 2016, we said, "If we're going to do it for ourselves, we might as well do it for the public." So we opened KC Pier Foundation Experts in about June of 2016, and it has gone well from there. We dedicated one of our crews to work on foundations as those houses arrive at KC Property Guys. We offer two other crews to the public with KC Pier.
Chad Peterson:
Wonderful. To our audience, foundation repair is one of those things that scares the hell out of homeowners. It didn't scare Eric. He wanted to get in there and do it himself, and there are a lot of reasons he did it, as he explained. But Eric, the plain way to say it is that there is around 60 to 65% margin in foundation repair. So if you're going to get a quote on fixing a foundation, say you've got 15 piers and it ends up being a $19,000 job, you know you can go in there for $5,000 and get it done yourself. Knowing how to do it is not that difficult, because you contact the structural engineers and they tell you what to do. As long as you have the tools and the labor that knows how to do it, instead of giving another company 65 or 70% net margin, you bring it in house. That adds to your bottom line when you flip that property. Is that right?
Eric Scheele:
It can be. Those numbers would be glorious if we got them. Time is money in the foundation business. For aspiring foundation owners, you can lose a lot of money in a hurry.
Chad Peterson:
Sure. But what I'm saying is, on the properties you work on for yourself, you're saving that margin. I'm not saying you're running that margin at your foundation company. I'm talking about when you work on KC Property Guys houses, you've got to be cutting out 60 to 65% of it. Right?
Eric Scheele:
Yes. That was a big impetus for bringing it in-house in the first place. It's time. It's the warranty. Where is that company going to be when the warranty comes into play? Are they going to stand behind it? How long will it take them to get back to that property and service it? We brought all of that in house to eliminate the issues we found to be problematic from the start.
Chad Peterson:
Wonderful. We're in one of the most challenging times we have seen. What do you think the challenge is coming up, with COVID seeming to get worse? What is the most challenging thing ahead for you, at least in your market and your industry? What are you paying attention to, to figure out the temperature of the water out there?
Eric Scheele:
We've been construction essential since March, from the beginning, so we've been active. People are home, so they see when their basement leaks. They see that extra crack, and they have time to pay attention to it. The real estate market has been hot, so people are looking to move, and inventory happens to be low, which creates a need. Both companies have been busy. From the Property Guys perspective, the biggest issue is the moratoriums on mortgages from the banks. The courts are not moving on foreclosures, so there's a big holdback, which is creating a lot of this demand on the buyer side. Inventory is down about 49% from the same time last year in available houses.
A lot of it, not all of it, is due to the banks and the moratoriums holding these houses back from foreclosure. When are those moratoriums going to be released? What is that foreclosure influx going to look like? How is that going to affect the real estate market and the values we see spiking in Kansas City? Those are huge questions. I don't want to get overburdened as an investor with excess inventory out there and see the market semi collapse or some type of bubble. Predicting that timing is a sensitive issue, and it has been a big point in my mind since April. We live with it week to week and revisit it before every acquisition.
From KC Pier's perspective, it has been gangbusters. People are home. They can see those leaks and cracks, and they are paying attention to them. Some may not have the funds to move on it because of the instability, but they're getting the information and holding onto it. So marketing has been a big key for KC Pier: making sure we stay in touch and the brand awareness is there, so when they feel confident enough to spend money on repairs, KC Pier is one of the top one or two on their list. That is our goal. We tend to be sensitive and cautious on the Property Guys side. On the KC Pier side, we're pushing the brand to make sure we stay at the forefront of people's minds.
Chad Peterson:
All right, Eric. I appreciate you being on the show. If you could, tell me how you want to be remembered.
Eric Scheele:
Good question. I'm a guy who says what he does and does what he says. If I tell you I'm going to do something, I want to be the one to do it. I think that's hard to find these days, and I hold that true with all the customers we deal with in our businesses. I'm a family guy. I'm dedicated to the family, and I don't want to push myself forward. I want to go with it, try to do what I think is the right thing, and serve people the right way.
Chad Peterson:
If you had to give a shout-out to somebody out there doing good things, who would it be?
Eric Scheele:
I appreciate you having me on the hottest show, so I'll give a shout-out back to you. And I'd love to have you on our podcast.
Chad Peterson:
If you had to give a shout-out to anybody in Kansas City, who would you give a shout-out to?
Eric Scheele:
I'm going to say hi to Phil Singleton at Kansas City Web Design. He's a good guy and does a lot of the marketing things. We speak with him, and I think we have a commonality there. It's good to say hi to him and see the good things he's doing for small businesses in the Kansas City area. I think that's valuable, and I love speaking with him and seeing the things he does.
Chad Peterson:
There you have it. That's Eric Scheele of KC Property Guys and KC Pier. A dedicated guy, a family man, working hard, staying disciplined, a man of his word. He knows how to buy houses. He knows how to flip them. He knows how to fix foundations. He makes it all work. It's all intertwined, yet separate. We've enjoyed having you on.
Eric Scheele:
I appreciate it, Chad.
Chad Peterson:
Thank you.
Eric Scheele:
You bet. Take care.
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