All Forum Posts by: Tyson Scheutze

@Michael Smythe We used to try to always use Lowes builder grade Sahara Beige tiles and we would also try to always leave extra. Agree there are definitely better and more durable products out there these days like LVP. 

Most successful investors I know all share the same quality of persistence. Good Luck and stay the course @Chris Momongan!

Improving Augusta one home at a time…

In the fall of 2009, Auben Realty was officially in business. A handful of homes I owned (which I couldn’t sell) and some early-mover, non-local investor-acquired homes rounded out our inventory. We were decidedly in the affordable price range with our rental property offerings in Augusta.

And we would learn and experience hard lessons about property management in affordable income homes. On a home on Lofwood Lane in south Augusta, I never stopped to question why the prospective renter showed up to view the rental in a U-Haul with her family in tow. Six months of non-payment later, I realized she was just seeking a sucker landlord with a slack application process. In those days, I was an easy mark.

After getting burned a couple times by professional, experienced renters who quickly recognized our management inexperience, we began to pivot to increasing our knowledge of subsidy programs, mainly Section 8, which had inherent resident accountability measures modeled into their programs. At the time in Richmond County, Georgia, there seemingly were way more homes and properties than vouchers. So we knew early on that ours had to be the best to stand out from the rest.

Most landlords who invested in affordable and lower income rentals had the mentality that the tenant “was going to trash the property, so why would I invest beyond the bare minimum?” We disagreed. Even with limited capital at our disposal, we adopted the mentality that Section 8 resident pools were like any other applicant pools: There would be excellent renters and renters who would be problematic. Having the best properties would increase our probability of success by letting us pick the best applicants and not having to simply accept the only residents to apply.

In our quest to be appealing, we tried to find aesthetic improvements which would also provide better long-term durability. Beneath decades of bad flooring choices: if there was hardwood; we refinished it. Or, if the condition was good, we buffed and coated the hardwood. Instead of sheet vinyl, we installed ceramic tile–later laying the tile in a brick or diagonal pattern for improved aesthetics. We darkened the grout lines in the tile and sealed them because we found they collected less dirt and grime and showed better after we “turned” the property in preparation for the next tenant.

Most of our good decisions were born out of bad ones. Brand new carpet looked like a Jackson Pollock canvas after six months of residency by an evicted tenant. Sheet vinyl was no match for washer/dryer delivery day and the ensuing gashes. Flat paint didn’t hold up to children aspiring to be Basquiat as well as paint with a sheen.

We learned what we shouldn’t do by looking at what we had to do again when our residents vacated. We had limited resources in those days, and, for every good decision in terms of longevity, there were horrible decisions made in an attempt at frugality. Used appliances tracked down all over the city died within months of installation with no recourse.

One of the things we began to realize was the incredible variability of product and process with scatter site single family rentals. I wanted to create order and something that could be replicated but was realizing the lack of uniformity was incredible. Neighboring houses on the same street had completely different layouts, different mechanical systems, and differing degrees of functional obsolescence.

Through all of our improvements, we began to collect, accumulate, and articulate what would become our Auben standard and what would become our mantra of Improving Augusta One Home at a Time. As committed as I was to the vision, there were many days and nights where it felt like a vision of one, but I would have many people who would come along for the ride.

The first portfolio of homes…

As I discussed in my previous post, I don’t remember seeing a singular market cycle shift event/turning point in Augusta in 2008/2009. It’s easier to remember the change in terms of news headlines: Big Investment Banks Failing, Real Estate Values in FL and AZ Cut-in-Half Overnight!

Maybe it was my naïveté or contrarian nature but I don’t ever remember feeling like there ever was not opportunity in Augusta. People still needed a place to live and those places were suddenly a lot more affordable.

My first big break would come in the form of a package of homes that a local bank had taken back through foreclosure. I was fortunate enough to meet a banker named Jane who believed in me from the beginning. Given my norm was disinterested bankers–feet on desk, clipping their fingernails into a trashcan–I didn’t take Jane’s trust lightly and spent a lot of time and energy cultivating and maintaining it.

The bank had a small problem, and I was ready to jump in the water to help. The homes were in the areas I wanted to be in Richmond County more specifically: Olde Towne and Harrisburg. But they all needed a boatload of work. One house had a tree “resting” on it–-which we had to remove with a crane.

I did precisely what every entrepreneur should not do and hired friends (and family) and significant others of the friends and family. We were like Motown with the interconnectedness and our ambition but a mile short on our organization and consistency.

My good friend from college, Caleb, who was an investor in California, was one of the first to see the opportunity in Augusta. A fellow to-his-core contrarian, Caleb was sold on an opportunity he wanted to see, and he was soon in-market to look at the dozen or so properties we bought for under $150k.

In retrospect, the sales price doesn’t seem real. A couple of years later, when it was seemingly much worse, we bought a package of 50 homes pre-foreclosure for a couple of hundred thousand dollars and immediately sold the package to my first large investor.

But, in 2009, we were going to begin to make the mistakes which would lead to the creation of Auben Realty. Caleb bought in and work began. Everything was off from day one, but our biggest miss was underestimating the renovation work that needed to be done: $10k became $20k. If we said $20k, it was $40k, and the bigger the budget the larger the variables affecting that budget. I quickly learned that I really wasn’t qualified to estimate the level of repairs we encountered, and my team also wasn’t able to execute on my representations.

We began work on homes on Second Street, Clark, Battle Row and many streets I would learn really, really well riding around monitoring “progress.” The energy and activity was intoxicating, particularly against the backdrop of doom and gloom in real estate at the time. It felt like we were discovering something no one else saw. Learning on the fly, I could barely keep up, but the frenetic pace and seeing daily transformation were early indicators I had chosen a career I would love.

The plan was initially to sell some of the homes to pay for others Caleb would keep, but our execution would alter that. We missed nearly every renovation budget, but thankfully we bought the homes so cheap that we were ok-ish.

As we began to sell some of the homes off in 2009 and 2010, we realized we needed to become more official and try to establish a way for us to keep some of the commission dollars in-house. Natalie got our license, we found a broker for hire, and Auben Realty was born in September of 2009.

We moved office locations from a single-family house in the suburbs of Martinez, GA to an iconic building on 1918 Central Avenue, a former Pure Oil gas station designed to look like an English Tudor cottage. We were official.

A change was coming…

In mid-2008, the market cycle mirage was still in full effect. To say the lending standards were loose would be a dramatic understatement. NINJA loans were more than prevalent. They were normal and underwriting occurred in a matter of days, if not hours or minutes. NINJA, which was short for no income, job, or asset verification, ensured that everyone was able to get high with increased supply continuously coming on the market.

We barely noticed any change in the weather. Macro trends weren’t relevant. We were just trying to figure out how to flip homes and keep the train rolling. I’ve tried to think back to those days in search of any defining moment of a market cycle shift. But news and market trends took a while to reach Augusta.

In Augusta, the market cycle change was more of an ease than a shift. I think a lot about the line from Ernest Hemingway’s novel, The Sun Also Rises, where the character Mike describes bankruptcy as gradual and then sudden. The market was always going in one direction: up. Until, suddenly, it wasn’t.

Augusta never had a dramatic run-up in price appreciation, so we didn’t have a precipitous fall. Suddenly, everything just seemed a lot harder. I remember it materializing first in our owner-occupant buyers. Underwriting, which was previously instantaneous, began to take longer. In 2009, 2010, and 2011, trying to close a loan for an entry-level buyer reached points of absurdity. If you were using a big bank, you could expect it would take 60-120 days to close, in what previously took 30 days. Your only hope was using local banks who didn’t need 9 people to “touch” the file to reduce the likelihood of default.

Between the fall of 2008 and 2009, I began to understand we had to shift course. Homes weren’t only taking longer to sell, they simply weren’t selling. It became clear that I would have to prioritize the rental portion of our business. I didn’t know anything about being a landlord other than I didn’t want to do it and didn’t think my career was in a position to not have large infusions of cash from home sales.

A change was coming and luckily we were somewhat aware. I initially tried to use some local property managers but got very frustrated with the results. Homes weren't renting, signs weren't put in the yards, and calls didn't get returned. The SFR property management realm at that time was a haven for agents who struggled to sell and a means to an end for brokerages to get more sales listings.

I thought there had to be a better way, and—even clueless—I could do better just by calling people back. I knew enough to know I needed help. I was awful at admin activities which did not present challenges and the ability to be creative.

So, I posted an ad on Craigslist.

I don’t remember all of the activity, but I interviewed several candidates at my makeshift office which was a single family home in Martinez, GA. The final two applicants were a guy who I enjoyed discussing music with and a much more qualified woman named Natalie who had recently relocated to Augusta.

Natalie, new to town and job searches, had notified her fiancé at the time of the precise coordinates of her interview with me, in case I turned out to be “some sketchy Craigslist guy.” I was pretending to be a lot of things in those days, but I was not a sketchy Craigslist guy. I was a real estate investor in need of help.

I made one of the best professional decisions of my life, offering Natalie the position. She agreed, and her first day was figuring out what we could work on together. Always looking at the big picture, Natalie and I made a filing system for the 3 or 4 properties we managed. I ran out of items for Natalie to do around 2 o’clock and asked her to go get the drycleaning for the nice shirts I had to wear to bank meetings to beg for money.

Even with our auspicious start, Natalie turned out to be a truly significant link in the creation of Auben. She was the yin to my yang. Everything I loved to do, she hated. Everything I hated doing, she loved. Where I was a head-in-the-clouds dreamer, Natalie was a practical penny-pincher. It was the first time I ever experienced this complementary dichotomy in a partnership, and it was liberating. We didn’t always see the world in the same way but we got sh#! done and began to create the building blocks of an investor-focused brokerage who acted in the best interest of our investors all the time.

The early days of Auben homes…

After we sold the Willowood home, I set out to find other homes to flip. Once you start the flipping machine, there’s a pressure to feed the machine a pipeline of properties. And I had hardworking people committed to my fledgling real estate vision and wanted to keep the train rolling.

High off a profit of 20k-ish, I hit the streets to find more homes to flip. I limited my search to the greater CSRA (Central Savannah River Area) but there really was very little I would not look at within an hour drive of Augusta. While it continued to be difficult to come face to face with distress, I enjoyed the challenge of coming up with a solution for the home-sellers I met. If that solution was not me, no problem. There were thousands of houses to buy and sell. And I began to understand the many variables of conditional and situational distress, always creating market opportunities—if you are always looking.

Looking for leads anywhere, one of my early mentors, Bernard, told me to go through my phone starting with letter A, and call every contact to tell them I was looking for a home. He used this method of contact cold-calling with frequent success. His approach was definitely aided by Bernard being extremely gregarious and friendly.

We also spread “We buy Houses Cash” bandit signs around town on Friday afternoons, hoping we could get through the weekend without municipalities asking us to take them down. We had “We Buy Houses Cash” magnets made and gave them to our contractors with the proposition of $500 if they got a lead on a home we purchased and closed.

I needed a name for my business and knew Schuetze Homes was not an option. Around this time, many companies like Zillow and Google were making up/modifying words for their brand. I wanted to be trendy but I still wanted to be at the front of the phone book. We named the company Auben Homes, not realizing people would always refer to it as “Auburn” or assume I went to Auburn University. It would not be the last time I realized that Georgia south was different from Kentucky south.

My brother’s college friends created a logo and we ordered free business cards from VistaPrint. Different versions of the logo were blue and black and brown and beige. Auben was born.

I went on the road to real estate seminars to gain more education. This was a practice I did consistently to try and make up for the sharp learning curve I was experiencing daily. The seminars were good for inspiration, even when I took the inspiration too far.

A year after starting Auben Homes, I announced my goals to my team, including the creation of an international office. My partner, Natalie, pointed out that we could barely make payroll. I was not deterred with details. I had more debt than when I began and a ballooning team of people who hoped I could provide a clear path to a job and a career.

Even though there were many daily struggles and small failures, I relished the challenge. I credit my parents and their experience as small business owners for instilling in me a strong sense of independence balanced with a desire to create and provide opportunities for myself and others. I wasn’t going to always get it right but I was going to get up again.

Daily, I made up the habit of calling my friend, Andy, early in the morning to remind him: “It’s a great day to be in real estate!” I told him this was motivation for him but I think it was really affirmation for me to keep going. We found a beautiful bones home on a street off Highway 1 outside northern Augusta, South Carolina. The home was a 1940s built Cape Cod- style cottage on a street called Bleachery in an area locals called “The Valley.” We also purchased a 3 bedroom/2.5 bathroom brick ranch home on Indian Trail in an established neighborhood called Montclair. Looking at names drawn in the cement sidewalks, we later confirmed this to be the childhood home of a good friend’s wife.

Bleachery and Indian Trail began with the same intensity as Willowood, but our small operation struggled to keep up with 2 flips. My mentor, Justin, came with tools to help bail me out of a floor joist issue on Indian Trail. Daily, I looked for instructions everywhere, taking mental notes of everything and everyone. I was learning the basics of investing, unaware that 6 years later I would oversee a team completing 125 renovations a month from Jackson, MS to Kansas City, MO.

Story is still being written @Dan M. Sharing some of the different detours my investment career took to hopefully give beginners confidence and perspective that its a long game and persistence is what often defines those who succeed.  

Before Auben Realty, it was Auben Homes…

January 2008 was not the ideal time to start a real estate flipping business. However, I was eager to pursue my vision of what a real estate company should look like. I found a can’t-miss lead on Willowood Lane in the Clairmont subdivision in Augusta, GA. Clairmont is a neighborhood of 1970’s-built, contemporary homes located off the main commercial artery in Augusta, Bobby Jones Expressway, which connects I-20 to Washington Road. Augustans know Clairmont simply as the neighborhood “behind the Home Depot”

Clairmont and Bobby Jones also serve as the dividing line between the two counties that comprise Augusta: Richmond and Columbia County. And certain streets in Clairmont have houses facing each other in separate counties. It was to be yet another lesson in market nuance when I learned savvy buyers paid a premium (10k-20k) for identical houses on the Columbia County side of the street of Clairmont–because of the more desirable public schools.

Like most decisions I made in my early days, I was on the wrong side of the street. Blissfully unaware of this market premium, I purchased the house on Willowood in January 2008 for $89k. The home on Willowood was a deal I acquired for the seller’s payoff. The home was a 4 bedroom, 3 bath split-level with many of the angles, finishes and details typical of 1970s modern. Like most homes we purchased, it was in need of some (a lot of) love.

The couple still living in the home would have been ideal candidates for a show on hoarders. Worse, they had a kid who had the daily reality of carving a path, wading through trash. The trash in the living room was literally waist high. As if not to be bothered with making the trip to the trash can, the residents of Willowood simply threw their trash over their heads. Pizza boxes, newspapers, clothes and toys were piled up everywhere.

We tackled the trashout with pitchforks and wide-mouth shovels and filled two 30-yard dumpsters without a single piece of construction debris. It was another reminder that real estate investing was fundamentally taking on other people’s problems.

My good friend Andy and I led the project management of the renovation with intense focus and dedication, trying to make up for what we lacked in knowledge and know-how with effort. I don’t remember a lot about this particular renovation, other than the trashout, but it birthed standards we tried to always incorporate into our future flips and rental renovations.

All of our interior paints were a Glidden beige, called Bone White. Our tile was typically a builder-grade beige from Lowes or Home Depot which we would lay in a brick pattern or diagonally to make it more visually appealing. Later we would use the same tile in our rentals (for durability) and add darker grout (beige or brown again 🙂) for less staining from resident wear.

With limited budgets, we were relentless in our search for bargains and closeouts, consistently searching the Tile Center and big box stores for small quantity closeouts. We also tried to keep as much as we could intact in the home, primarily out of necessity of small resale prices limiting our budgets. Operating in these entry-level affordable homes would be my saving grace when the market turned.

From the beginning of Auben Homes, I wanted to scale the business. So we began to think of things we could standardize. For the exterior, it was painting the front doors black or red, the body beige and black or white trim. On the interior, we snatched out shiny brass fixtures and replaced them with the trendy brushed-nickel and oil-rubbed bronze finishes that were required upgrades at the time.

Having something to prove on Willowood, we worked with a vengeance and remarkably completed the renovation on time and on budget-ish. From initial purchase to close of resale was 90 days. It gave me momentum to move forward but also a really difficult time target to replicate.

As I moved on to multiple projects running simultaneously, I would soon feel the stress and strain of a system and team not ready to grow to my ambition. I would learn firsthand that our effort could only get us so far.

The birth of SFR as an asset class after 2008…

In Motown founder Berry Gordy’s autobiography, To Be Loved, Gordy recounts a conversation with his father around the famous quote about a smart man profiting from his own mistakes. Gordy adds his own twist, stating “A wise man also profits from the mistakes of others.”

In my early investment career, there were many people around to teach me and the other rookie investors the ropes. But the no-mistake market was like a siren song luring beginner investors into believing real estate investing really was as simple as, “paint the house; raise the price.”

My partner and I took the market’s offering to the extreme and found ourselves having to “mistake-sale” our way out of some early ill-advised investment purchases.

• - The downtown building without a roof was sold to someone more qualified to renovate
• - Vinyl-siding made the dilapidated duplexes look a million times better and find an out-of-town buyer
• - We rented the Grovetown properties so someone else could develop them later

It’s hard to overstate how fortunate we were in the unraveling of our assets. Even though at the time, I felt anything but lucky. My work weeks were easily 80+ hours and often longer when you factored in the time it took me to figure out investing and project management basic practices. It was also during this time that I learned selling to other investors took a lot more work (and time!) than buying from distressed sellers. Time was still on our side.

And not selling was not an option we considered. We listed on Loopnet, Craigslist and MLS. We incentivized our buyers and agents. A couple of years later, desperately needing to sell a flip so I could meet payroll; I put 10% commission just on the buyer's side commission. Not surprisingly, the property sold fast.

Even though we initially were not planning on holding properties long term, the market softening communicated we had to adapt to renting properties. We tried to be creative in our dispositions, holding open houses and offering rent-to-own lease purchases. We found a book detailing a process to auction any house in 3 days and followed the process uniformly, unsuccessfully.

We had a lot of goals and an in-progress plan but what was really our saving grace was a market with tremendous stability, even in global real estate instability. The real estate bottom in Augusta was not nearly as bad as it was elsewhere. As we worked our way through the dispositions, I really began to question my career as a real estate investor. Several years in, I had worked harder and longer than I ever had in my life. And I only had more debt to show for it.

The fundamental aspects of real estate investing seemed hard to argue with, but I realized most of the people I was learning from were selling information first and tangible real estate second. They were in the information product business with a real estate background. Many of these people–although selling dreams to me and others–were very helpful assisting my real estate career. I stayed committed to the cause physically even if I wasn’t always with it mentally.

On New Year’s Day 2008, having sold nearly everything we owned so as to be able to get back to square one, I sat on the couch aimlessly watching football working through the haziness of a new year with a 2-year rearview of a lot of bumps and bruises.

Truthfully, I was ready to quit my career in real estate. I just needed someone to tell me I should. Talking to my girlfriend (who would become my wife), she pointed out I had never pursued real estate with my vision and my direction. I agreed even though I was unsure how relevant this detail was. The more I thought about it, the more I realized she was right. I needed one more turn of the screw to know if I could or could not make real estate investing work. And so in January 2008 I founded Auben Homes which would eventually become Auben Realty.

It wasn't all sandy beaches and umbrella drinks after that moment. However, Auben's intentional focus on creating an organization for SFR investors built by an investor who had struggled to figure it out, became something the market communicated a strong desire for.

Renovations and dispositions before the financial world fell apart…

As my partner and I both realized we didn’t have a lot of interest in running the operations of our real estate investment company, we began the process of preparing to sell what we acquired. It was not as simple as a stick-a sign-in-the-yard disposition process. Many of the “deals” we acquired required a lot of work to be market ready. I learned firsthand the meaning of sweat equity, even though I would ultimately realize very little equity.

Many years later, I would realize that, even though I made very little profit during this phase of my investment career, I was still extremely fortunate. Fortunate to get a great education. And even more fortunate to learn my lessons in a forgiving market in a forgiving market cycle. Many much admired mentors in multiple markets would not be as lucky.

Our projects circa 2007 required a lot of work before we could sell them. Much of our value came in tackling other people’s problems, specifically large, unwieldy renovations. Our wide-open buy box and fast and loose acquisition model also meant we were not satisfied with buying and flipping standard, traditional properties.

Purchased at a foreclosure auction, the pinnacle of our unbridled acquisition was a double A-frame home sitting cantilevered in a pond with an enormous homemade infinity pool. The home, previously owned by an electrician, was still inexplicably an electrical nightmare. There were hardly any right angles and very little that could exist in the home unexposed. Not a project I would recommend for nascent real estate rehabbers; we approached it with giddy optimism typical of this time in the market cycle.

This project which I affectionately dubbed “The Mistake in the Lake” would consume a solid six to twelve months of my life and end with a 6-car garage, a waterfall-feature flowing under the home into the pond, and a spiral staircase installed by a guy named Gator. Thankfully not all projects were the heavy lift like this one.

One project on the edge of “The Hill” area in Augusta which we did little cosmetic work to, sold quickly and above our expected price. After expressing my shock at the sale, I received some wisdom from our broker who was a second generation real estate guy. Quoting his father, he said simply, “Real estate is crazy.”

My goal, for my process-oriented mind, was to make my real estate less crazy and more predictable. However, we were basically gambling on every transaction at this point in our career. The adrenaline was intoxicating but the bank accounts and accounts payable were very sobering. Fortunately we were pretty decent at selling. Not as good as we were buying, but good enough to execute most of the sales before the world started unraveling.

The best decision we made during our disposition process was seeking out seasoned agents who were specialists in their market niches and letting them work their magic in their market specialties.

Check back soon for more adventures in investing.