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How to Build, Grow & Cross Leverage Multiple Businesses with Eric Scheele

Eric Scheele

Check out the latest episode of the Business Brokers Podcast:

Eric Scheele is an awarding winning serial entrepreneur.

He currently owns and operates KC Property Guys, which is Kansas City’s highest rated home buying company.

Eric also owns KC Pier, which is Kansas City’s highest-rated foundation repair company.

As you can see, Eric is doing many things right, and in this episode, he talks about both businesses, and how one made way for the second one – and how they leverage each other for growth and success.

Learn More About Eric Scheele:

You can watch the interview on YouTube here:

Chad Peterson: Hello, and welcome to another episode of The Business Brokers podcast. Today, I am with Eric Scheele. And he is the Founder and President of KC Property Guys and KC Pier Foundation Experts. Welcome to the podcast, Eric.

Eric Scheele: Yeah, appreciate it, Chad.

Chad Peterson: Well, hey, before we got on the show here, we were just talking about our personal lives and business. And it seems that both of them run together. And if you’re disciplined, you can have both. You can have a wonderful marriage and a family at home, and you can have wonderful businesses or a wonderful business. In your case, you have two businesses that are serving you very well. So really the point is for you to come on the podcast, share with my audience what you’ve learned about life and business and tell us more about the businesses that you own and how you got there.

Eric Scheele: Okay. Yeah. Right on. So you just want to start with KC Property Guys?

Chad Peterson: Yeah, KC Property Guys. Go ahead and tell me about that.

Eric Scheele: Yeah, sure. KC Property Guys was founded in 2015. We rehab basically single-family investment homes. We hold a few when cost perspectives are right. But we don’t necessarily intend to hold as many as we actually do. But mainly we’re rehabbers at the end of the day. So we buy and invest in single-family residential homes. We rehab them back up to our standards and then ultimately hand them off to our realty group, which is Team KCPG for ultimately sale to an end user or retail customer.

Chad Peterson: Okay, wonderful. Tell me some of the challenges regarding that. What are some of the challenges that you face being in that real estate business?

Eric Scheele: Well, there’s economies of scale and getting to that point where you have the ability to make an ease of business. And so you have some efficiencies in place that can really pay off in the end. But the biggest key to most investors is the acquisition, finding those houses and making sure that you have opportunities to do the next house. We’re right around 45 to 55, somewhere in there, houses a year. We run four full-time crews. And so acquisition has to be key. And so knowing where to find those houses and how to come about those opportunities and take advantage of the opportunities when you’re given them is really the key to our game if we’re going to do those types of volumes.

Chad Peterson: Yeah. And one of the things that you hear out there because everybody believes they can do it… Everybody believes they can do what you do.

Eric Scheele: Right.

Chad Peterson: And they usually start off saying, “I’d like to buy homes and flip homes. And I’d like to fix them up and sell them for a profit.” And that statement has been thrown around a million times, but those who actually do it are separated from the ones that just talk about it. And that’s who you are. A lot of people think you can go do this and go do one or two or three homes and make a living out of it. The fact is with the numbers that you’re talking about, doing 40, 50, 60 of these a year depending on what kind of volume and how good the acquisition of the properties are, you’ve got to stay on top of it. You’ve got to be doing volume to make money at this. And there are so many people out there that want to buy homes and flip them and become millionaires. It’s like they don’t do the math properly.

Eric Scheele: Right. There’s a timing piece of it. You watch it on HGTV, and it all happens in an hour. Right?

Chad Peterson: Yeah, yeah.

Eric Scheele: Doesn’t necessarily happen in the real world. By the time you acquire a house, work on a house for six weeks, prep it for market, go to market, go through an actual fully funded close, which could be 45 to 60 days, you can talk five, six months on one particular project. You do two of them and expect to make a living out of it’s not going to happen. So you have to organize and become efficient real quick if you’re going to do it full time.

Chad Peterson: Well, right because you’re waiting to get paid for six months on that, you don’t have enough money to move forward to buy more properties. You can’t get the machine going. So there’s two problems in your business the way I see it, getting the machine going and then keeping the machine fed-

Eric Scheele: Yeah, absolutely.

Chad Peterson: and, yeah, keeping it…

Eric Scheele: … get cash rich or house poor or house rich and cash poor. It’s hard to find that balance. And trying to do that without being over leveraged is really the key to longevity. And we’re fortunate that we don’t have to be leveraged at all. We’re fully privately funded, and it tends to work in our favor. So we have the momentum going. Now it’s just a matter of counting on the market to ensure that we can continue to do our game and play it well, or be real 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 too high on contracting, wholesaling, those types of things. So everything that we buy is with full intention to do a full rehab and ultimately hand it over to the realtors to sell.

Chad Peterson: Okay. Are you purchasing any houses from wholesalers?

Eric Scheele: No.

Chad Peterson: Okay.

Eric Scheele: I don’t purchase it, don’t really feed that channel. I’m not the biggest fan of the channel, so I tend to stay away from it. I acquire our houses through multiple other channels.

Chad Peterson: Yeah. You’re basically taking out the middleman because somebody who’s a contract guy is just a middle man. He’s a broker, basically.

Eric Scheele: Right.

Chad Peterson: Right. Okay.

Eric Scheele: He really is. And he bumps up prices, tries to dump it bad, doesn’t have really good insight. If those are the HGTV guys that are buying houses with “other people’s money,” they’re not necessarily the most… I can’t speak for everybody, but there are many, many out there that they’re not the most reliable and-

Chad Peterson: Unscrupulous really. Right?

Eric Scheele: It can be. And so I really just tend to stay away.

Chad Peterson: Sure. Now, are you borrowing money from investors to purchase these homes? Is that how you’re doing it? Or are you doing it-

Eric Scheele: Most of it’s private for myself and me and me only. But there’s probably maybe 30, 35% of the homes that we do that will come from private investment only, the people that I can count on that I’ve worked with for years. But majority of it is actually now that we’ve done this for this going on our sixth year, we’re able to acquire most of those in-house.

Chad Peterson: Well, so I deal with a lot of money people. I sell businesses. I’m really a swimming in the money game. And I have a lot of people coming to me and saying, “How can I use my money to make money just while it’s sitting there?” And I tell them, “Go to somebody who rehabs homes. And lend them money, and you’ll get a steady return on your investment. And get with a good operation, such as KC Property Guys. And you can get a good rate of return on your money. You’re not going to get rich, but if you have money sitting in the account and you want to lend your money out there find…” Would you recommend somebody to 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: Yeah, you bet. I’d encourage it. But I’d also encourage you to do the same thing that 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, these onesies and twosies and fours and fives homes a year guys, they don’t tend to last. And if they don’t last, that’s your money as an investor that’s out there that’s hanging. And so you’ve got to make sure that you’re working with a reputable rehabber that you know is going to turn that property because ultimately 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.

Eric Scheele: You don’t want it out there for seven, 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 actually turn that money two or three times a year. So doing that research up front, it’s going to be critical for an investor just as you are as a seller. Do the same thing. Go look at the reviews. Look them up. Make sure they have an EIN, and make sure they have a website. Do the basic research so you know of who ultimately you’re handing that house off to.

Chad Peterson: Sure.

Eric Scheele: Someone that 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 here at KC Property Guys is really phenomenal. It takes a lot of connections. It takes a lot of knowledge. You have to have real estate. You have to have a pretty 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 throughout a period of time. You have to understand contracting. You have to understand how to pay people, 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 in order to accomplish this. And you also 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, well, you’ve got a problem.

Chad Peterson: And so for anybody who’s listening to this who might want to start a house rehabbing business, it’s not easy. Eric probably makes it look easy, but that’s because he’s dedicated his life to this business. So, Eric, we commend you on that. If you could, tell us a little bit about KC Pier, the foundation experts.

Eric Scheele: Yeah. Yeah. Well, I’m smiling the whole time because it’s not only Peterson’s acquisitions, but it’s also investment consulting 101 because you just nailed it in about a minute and a half right there. So don’t contact me. Contact [inaudible 00:10:09] full board. Go ahead.

Chad Peterson: Yeah, right? Yeah.

Eric Scheele: KC Pier was born out of KC Property Guys. So it started in 2016. At least for us, I quickly understood that relying on a foundation guy, making sure that the work was done accurately, making sure it was done timely, making sure it was done cost-effectively was critically important because 30% of the houses that we do, we’re in Kansas and Missouri, clay is a part of our soils, and it wreaks havoc on foundations. So I quickly saw that one coming to pass that I needed to bring that solution in house. And so we started a crew about mid 2015. We worked on a series of our houses that we acquired throughout that year. And then middle of 2016, we just said, “If we’re going to do it for ourselves, we might as well do it for the public.” So we opened up KC Pier Foundation Experts in 2016, about June of 2016. It’s been going well ever since. So we dedicated one of our crews over to work on our foundations as those houses arrive on KC Property Guys. But then we also offer two other crews to the public with KC Pier.

Chad Peterson: Okay. Wonderful. And to our audience, foundation repair is one of those things that just scares the hell out of homeowners. And it obviously didn’t scare Eric. He wanted to get in there and do it himself. And there’s a lot of reasons he did it, like he just explained. But really, Eric, the way to say it right, it really is the fact that there’s probably 60% margin in foundation repair, maybe 65%. So if we’re going to get a quote on fixing a foundation and let’s say you’ve got 15 piers and it ends up being a $19,000 job, you know you can go on there for $5,000 and get it done yourself. And knowing how to do it is not that difficult because you have to contact the structural engineers. They’re going to basically tell you exactly what to do. And as long as you have the tools and the labor that knows how to do it, instead of giving another company’s 65%, 70% net margin on that, you can bring it in house. And that just adds to your bottom line whenever you go to flip that property. Is that right?

Eric Scheele: It can be. Those numbers would be glorious if we actually got those. Time is money when it comes to the foundation business. Talking about aspiring foundation owners, you can lose a lot of money real quick by just spending…

Chad Peterson: Well, okay. Well, sure. But I guess what I’m saying is on the properties that you work for yourself, you’re probably 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, you’ve got to be cutting out 60%, 65% of it. Right?

Eric Scheele: Yeah. That was a reason. That was a big impetus of why we brought it in-house in the first place. It’s time. It’s time. It’s the warranty. Where’s that company going to be when the warranty actually takes place? Are they going to stand behind the warranty? How long is it going to take them to get back to that property and service? So we brought all of that in house to eliminate all those issues that we found real early to be problematic.

Chad Peterson: Yeah. Wonderful. We’re the most one we’re in one of those challenging times ever, but what do you think is the challenge is coming up in these times now that Biden has been elected COVID, I don’t know, seems to be getting worse? I know the hospitals are pretty full. That’s what they say anyway. I don’t know who they are, but they say that. So what do you think the most challenging thing ahead is for you all, at least in your market and your industry? What are you trying to pay attention to to figure out what the temperature of the water is out there?

Eric Scheele: Well, we’ve been construction essential since March, from the beginning. And so we’ve been active. People are home, so they see when their basement leaks. They see that extra crack in their basement, and they have time to pay attention to it. And obviously, the real estate market has been extremely hot. So people are definitely looking to move. The inventory happened to be low. And so that creates a need there. And so on both companies, has been extremely busy. From the Property Guys perspective, the biggest issue is there’s moratoriums on these mortgages from these banks. The courts are not moving in terms of foreclosures. And so there’s a big hold back, which is creating a lot of this demand from the buyer’s perspective. The inventory is down about 49%, almost 50%, same time last year in terms of available houses.

Eric Scheele: And a lot of it, not all of it, is due to the banks and the moratoriums that they’re doing and holding these houses back from foreclosure. So when are these moratoriums going to be released? What’s that foreclosure influx going to look like? How’s that going to affect the real estate market and those values that we see spiking here locally in Kansas City? Those are huge questions. And I don’t want to get overburdened from an investor to have too much inventory out there and then all of a sudden see the market semi collapse or some type of bubble. And predicting that timing is a really sensitive issue doing has been a big point in my mind since April. And we just live with it week on week and revisit it before every acquisition.

Eric Scheele: From KC Pier’s perspective, it’s just been gangbusters. It’s been busy. Like I said before, people are home. They can see those leaks. They can see those cracks. They are paying attention to them. Some may not have the funds because of the instability to move, but they’re getting the information now. They’re holding onto it. So from us, marketing has been a big key for KC Pier, making sure that we stay in touch, making sure that the brand awareness is there. So ultimately, when they do get to that point where they feel confident that they want to spend some money in terms of repairs or some of the foundation issues that need to be repaired, ultimately KC Pier might be one of their top one or two on the list. That’s at least our goal that we’re trying to do.

Chad Peterson: Wonderful.

Eric Scheele: So we tend to be a little sensitive and cautious on the Property Guys side. And from KC Pier, we’re just pushing the brand to ensure that we stay in the forefront of people’s minds.

Chad Peterson: Yeah, okay. All right, Eric. Well, I appreciate you being on the show today. If you could, tell me how you want to be remembered.

Eric Scheele: I don’t know. Good question. I’m a guy who says what he does and does what he says. At the end of the day, if I tell you I’m going to do something, I want to be the one to do it. I think that’s something that’s hard to find these days. And so I hold that true to all our customers that we deal with on our businesses. I’m a family guy. I’m dedicated to the family, and I don’t want to push myself too much forward. I just want to just go with it and try to do what I think is the right thing and, and service people in the right way.

Chad Peterson: All right. And if you had to give a shout-out to somebody out there that’s doing good things out there, who would you like to give a shout-out to?

Eric Scheele: Yeah. No. Well, I appreciate you having me on the hottest show, so I’ll give a shout-out back at you. And, of course, love to have you on our podcasts that we do.

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, does a lot of the marketing things that… We speak to him. I think we have a commonality there too as well. It’s always good to say hi to him and see all the good things that he’s doing for small businesses in the Kansas City area. I think that’s valuable. And love speaking with him and seeing the things that he does.

Chad Peterson: Sure. All right. Well there you have it. That’s Eric Scheele of KC Property Guys, KC Pier. Really a dedicated guy, 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 with one another but yet separate. And we’ve enjoyed having you on here.

Eric Scheele: I appreciate it, Chad.

Chad Peterson: Okay. Thank you.

Eric Scheele: You bet. Take care.