Working Capital The Real Estate Podcast

How Brie Schmidt Grew her Real Estate Portfolio by 50 units in 1 year | EP85

Dec 29, 2021

In This Episode

Brie Schmidt acquired her First Investment Property in 2011 and left the Corporate World in 2014 when she became a Full Time Real Estate Investor. Brie is the Managing Broker of Second City Real Estate, a Full Service Brokerage Working with new Investors and Seasoned Investors Looking to Expand their Knowledge of the Industry and their Portfolio.

In this episode we talked about:

  • Brie’s First Steps in Real Estate
  • Switching to Real Estate on a full-time basis
  • 2021 Portfolio Review
  • Capital Deployment
  • The Difference Between Chicago and Milwaukee Property
  • The Active Investment Strategy 
  • Property Management
  • 1031 Exchanges
  • Regulatory Environment from the Landlord-Tenant Prospective
  • Mentorship, Resources and Lessons Learned

Useful links:

http://www.secondcity-re.com/agent/brie/

Transcriptions:

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time. Hey, my name is Jesper galley and you’re listening to working capital the real estate podcast. We have a special guest today that is Brie Schmidt. Brie acquired her first investment property in 2011 and left the corporate world in 2014.

 

When she became a full-time real estate investor is the managing broker of second city real estate, a full service brokerage working with new investors and seasoned investors, looking to expand their knowledge of the industry and their portfolio. I had the special pleasure of being on a panel with Bree in new Orleans at the bigger pockets conference. Bree, how are you doing I’m

 

Brie (54s): Dan. Great. Thanks. How are you?

 

Jesse (56s): I’m doing fantastic. Well, I appreciate you coming on the show. I thought just, you know, we were talking before the show. I think it would be really interesting to have you on because we talked a lot, but you know, across that panel and I think it would be a treat for listeners to talk not just about multiple larger units when it comes to multi residential, but to talk about the mid and lower size units or smaller size units and kind of approach it from the perspective of the kind of unique markets that you’re in. So maybe to kick us off, why don’t you give us a little bit of a, of a background for yourself, for listeners, how you got into real estate?

 

Brie (1m 35s): So I always say I used to be a normal person. I used to have like a normal job and normal, you know, grind go to the grind kind of goals in life. So I used to work in advertising sales. I used to work in business development and advertising sales never really saw myself doing anything different. You know, it was really had aspirations of being a female CEO one day. So I live in the Chicago market, which we were talking about before show is a somewhat unique market, as far as housing stock.

 

There’s very few cities in this country that have a large portion of two to four unit multi-units. So depending on the neighborhood in Chicago, it can be between 50 and 70% of our housing stock is two to four unit properties. And they’re generally about a hundred thousand dollars, less than a single family home. So at the time I was think I was just getting engaged and my fiance and I were talking about, and you’re like, what are our life plans? They’re like, well, we want to, we want to buy a single family house, but like, we don’t need, we don’t need that sort of space right now.

 

So that was our plan was we bought a three unit property. We did a quote-unquote house hack, you know, standard FHA loan. And our plan was, you know, at some point we would need more space. We could, you know, take out a wall, move a staircase. Now we took up two of the three floors. And then at some other point we’ll need the other space. We’ll just, you know, get and take out a wall and move a staircase. And we’ll eventually just take this house and convert it to a single family home. So that was our hundred, like end all be all goal with real estate investing. About three months after we bought the property, my father was diagnosed with a very aggressive form of cancer and he passed away a few months later.

 

And the thing is the day before he was supposed to retire is when he passed away and we already planned his retirement party and it now became his wake. And it really resonated with me as, because I would just think back of all the things my dad would say, like, when I retire, I’m going to go do this. When I retire, we’re going to go to Thailand. You know, I’ll retire after you get married or I’ll retire when your brother had finished his PhD. And like, he always had all these dreams and goals that he never got to see because he never took action on it.

 

So here I am, 28 years old, you know, working 60 hours a week, traveling all over the country for somewhere else. And I’m like, this sucks. You know, like this is a terrible life. I’ve got, you know, 30 plus years till retirement. And I’m going to be in the same position as my dad. You know, I’ve always wanted to go to Italy. I’ve always wanted to go do these things and I’ve done nothing with them because I was too focused on work. So it really changed my perspective on life and decided to reorientate things.

 

And that’s how I got into real estate investing. So you’ll, you’ll figure out, you know, I just go, I’m a bull in a China shop kind of person. So within the, we bought our first property in 2011, we bought another property in 2012. We did it again in 2013, that 2013 property was a renovation property. We bought like a 1960s house and completely renovated it, you know, pulled cash out. And that is when I found a website called BiggerPockets, which I’m sure you know about.

 

And it completely changed everything that I was doing. I had never talked with another investor. I had never read a book about investing. I was just kinda, you know, winging it. And it opened up this whole new world of possibilities. So we were sitting on a decent chunk of cash and now I had all these possibilities in front of me and opportunities to learn. So we went full forward ahead. So we looked at other markets to invest in while I love, love, love Chicago.

 

It’s not really a cashflow based market. It’s more of a balanced, you know, similar, not as expensive as California, but you know, similar sort of market, New York as well. You’re just not going to be retiring off cashflow here. So I, I took some time. I looked at Milwaukee, Kansas city, Indianapolis spent some time in those markets, learning those markets and we decided to invest in Milwaukee. So for you guys that don’t know it’s about an hour and a half drive, so it’s a, you know, easily commutable distance.

 

So in, let’s see, 2015, we bought 10 properties and then 2016, I bought another eight. And then I had partners. I worked with that. I bought another 10 in 2016. So we went quite all in and fast growth trajectory on our acquisitions in those markets. So that’s kind of my, and then I started a brokerage firm here in Chicago that was started in 2014. We are the largest boutique brokerage firm working with investors in the Chicago and market. And then I also do the Midwest real estate networking conference where the largest conference in the Midwest for real estate investors.

 

So everything, when I say I used to be a normal person with normal hobbies, that’s what I mean. Like I used to be able to small talk and chit chat about sports or shopping. And now my whole life has become real estate, which is fantastic, but it’s all I want to talk about. Cause it’s all that meal. It’s fun for me. So it was taken over my life in a very, very good way.

 

Jesse (6m 56s): Yeah. Well the, the energy didn’t go out and I noticed when we were, we were at the conference and it’s, that’s great to hear it. When, when you made that transition, I’m always curious because it’s not a dissimilar story where we have guests on that had a quote unquote, normal life or normal job, normal, whatever. And then they move into real estate investing. What, at what point in that kind of, you know, 20 11, 20 12 was the point where you said, okay, let’s go in full time and, you know, get, you know, not, not continue to pursue the, the day job.

 

Brie (7m 26s): So it wasn’t like a, it wasn’t a pre-planned conscious decision. To be honest, the plan always was I was making great, you know, I had a great salary. I actually loved what I did. I had spent nine years building up my career. I did, it was not something that I wanted to walk away from. So the plan was never for me to leave my job and do real estate full time. Real estate was always going to be a hobby on the side. So it was when we were looking at doing our first set of properties in Milwaukee, that I started to realize like one day it was like, well, I always wanted to make sure that my real estate investing never got in the way of my day job.

 

And then one day woke up and realized that my day job was getting in the way of my real estate investing show. But I’ll tell you this story. I used to travel a lot for work. And we were at the airport, it was a 6:00 AM flight to Atlanta. So it was like five 15 in the morning. I’m staying at the airport with my boss who just had a baby. She was like, I don’t know, baby was like four months old. So we were flying down to Atlanta and then we had to get a car and rent a car to go to Columbus, Georgia, which was like a two hour drive for a two hour meeting.

 

And then drive back to Atlanta to take an airport plane ride home because she had to get home. She had a newborn and I remember sitting in the airport with her at like five 15 in the morning. It’s like the butt crack of Dawn. And I get a travel alert on my phone. Like, so when it comes to travel, like Istanbul has been like my number one bucket list place. And there was a flight alert. It was like 400 bucks to go to Istanbul and I’m staring at us and I’m like, oh my God, I’m going to go to Istanbul. And she’s like, what one? I’m like, I don’t know, there’s 400 bucks. Like I’m going to go whatever. And she started going through, like, this was April.

 

She starts going through my calendar while you can’t go this month. Cause you’ve got this and then you’ve got this. And then like at the end, she’s like by October, like, yeah, you can take a long weekend. And I was like, screw this. Like, this is not the life that I want. Like if I want to go to Istanbul, I want to go to Istanbul. So between it was around the same time that we were mid acquisition with our properties. Like I said, we were buying five properties. I remember calling my commercial lender and being like, Hey, if I quit my job, is that going to affect my ability to acquire more properties?

 

And as soon as you said, no, I was like, great. I’m giving my notice. And that was it. So it was like a two week, like, Hey, is this gonna, are we going to completely blow ourselves up by doing this? Or no? And the answer was no. So we just did it. I just did it.

 

Jesse (9m 51s): Yeah. I feel like the, there is this point where people, especially like yourself that have a job that has a good income. There’s a beginning stage when you’re investing where it is an asset. Obviously the W2 income, T4 in Canada, where, you know, lenders are looking at that. But you do get to a certain point where the assets are become more important than you as the individual. Did you experience?

 

Brie (10m 14s): Yeah, exactly. But if it wasn’t, we were already past the point of doing residential loans. We were already well into like the commercial loan process and that was pretty much what we would be doing moving forward. So as if you don’t know, as a us and Canada might be different, you know, those are two very different processes. So it was important for me to know that the commercial under that we were working with, I said, I’ve done, you know, 23 loans with him. You know, they, they were very strong as far as like backing me personally and financially, as long as he was okay with it, I was ready to go.

 

So I said like, this was probably mid April. I left my job at, and by the end of June, I was, I quit and done diminish doing real estate full-time ever since.

 

Jesse (10m 60s): Right on. So what take us up to 2021? What, what does the portfolio look like?

 

Brie (11m 5s): It’s less so, yeah, I’ve actually sold, I didn’t sell anything in 2020, but 20 18, 20 19. I sold some properties about half of my portfolio. So this is also a very interesting story. I was at a conference, very similar, like the bigger pockets conference we were at new Orleans. And I remember the first session, the first morning was an economist. I was actually in Philly with Dave Vanhorn’s conference. So this economist is on stage. And he’s saying a lot of big words. I don’t know, you know, yield curves.

 

And I don’t know, I’m writing things down. Like I should Google that later. So at the end of the conference, the, there was a charity event and the economist had had was the auction off three hours of his time. As for this charity fundraiser. I’m like, this is a perfect opportunity for me to learn, right. What he’s talking about. Because while I understand like real estate economics, and while I understand the market economics that I’m in personally, I don’t understand on a national or global level, right? How all these other things that are going on are going to affect my market.

 

That’s why I wanted to learn. So I bought his time as part of the auction. And one of the things he did was he wanted to go through my entire portfolio with me five years back, right. Looking at my cashflow, my projections, something that I hadn’t done. Like every year I would view my portfolio, right? Like we all do, but I never really like went back and looked at it from a high-level five-year perspective. And he put on all these different calculations and I don’t even, I still don’t even understand half of them that he did for me. But one of the things that we looked at is what was my three-year average cashflow and my five-year average cashflow, what would I get if I sold the property less than the fees and how does that, that profit relate to annual cashflow?

 

And I realized quite quickly there was some properties that like, there was just always something, right. There was always something going on with these properties. At the end of the day, if I sold the property, I will be getting like 15 years cashflow up front. I’m like, well, that makes stupid for me to keep these properties. So that has become for the last three years when I’m part of my process is every year I not only review my pre like in my, or what we did and what our numbers were this year.

 

I also look at my three-year, my five-year. And then since acquisition numbers and reevaluate my portfolio every year, I hire a local realtor in Milwaukee, even though I’m licensed there, I don’t, I’m not super active there to do a CMA on my properties. And I rebalance things and I re reallocate things and see, Hey, is this the right? Is it keeping this property, the right thing to do? Or at what point does it make sense for me to sell? So that’s, that was a learning experience I took from a med economist. Yeah.

 

Jesse (13m 54s): Yeah. And it’s sometimes it’s like, you get that second opinion or you just to get something that, not that you weren’t accountable, but kind of high level taking a look at your portfolio. I found a very similar thing happened with me earlier in my career, where there was very similar to you just cap X that would happen. So, so technically your P and L looks good. It looks okay. But really at the end of the day, your cashflow statement is getting hit with these large expenses. And, you know, 1960 would have been a newer pro property. Like one of the first properties we bought was in the early 19 hundreds.

 

So, you know, stone foundation, knob and tube. And what I was finding was that there were particular properties that were just these cash, like just pits, because you’d just be dumping in. And, you know, even if you average out capital expenditures, if you pick properties that have, you know, a lot of maintenance, you really gotta be careful about how you’re smoothing that out over the, the time that you hold. And, you know, sometimes there’s an inflection point, whether that’s five years in seven years in it’s, like you said, it just makes so much more sense to sell it and redeploy somewhere else.

 

Brie (14m 56s): Absolutely. Yeah. It was a very interesting exercise for me because I always just looked at things. I said, like, I looked at things on an annual basis. I never went back and looked at things from the beginning or the last couple of years and was like, wow, you know, this property is not produce thing. Right. And since I bought it, the values have gone up, like I would make, I had one property. I was going to make like 33 years cashflow I’m like done sell it now. So it’s become an interesting exercise.

 

Jesse (15m 27s): So I want to ask the, the question that so many investors are asking today is w we see it from sellers, but just in general, that number one, you know, where do you, if you do sell a property, where do you even deploy capital? Because the market is so competitive right now, I’m curious, was Chicago, Milwaukee, was this something where you did sell properties in Chicago and then Milwaukee kind of looked like a, a place where you deployed or were you guys doing it at the same time? How did that, how did those two locations come about?

 

Brie (15m 57s): Yeah. So everything in Chicago, we acquired from 2011 to 2013, and we have not sold any of those properties. Everything in Milwaukee was pretty much 2014 to 2016, and we’ve sold about half of those properties. And so like, our portfolio was about 31 properties before we started selling anything off. And our newest property was built in 1910. So when you talk about old, like that’s just the market, you know, like these, these were older 1890s, 19 hundreds, 19 times are when the properties were generally built.

 

Jesse (16m 34s): So sorry, the, the property, like the, the move to actually continue investing. When you deploy that capital, wha what are their active investments that you wanted to put them in? Was it, was it the strategy to put it into the properties that you currently have? How did you deal with that once you had that windfall?

 

Brie (16m 51s): I’ll let you know when I figure that out, it’s been terrible.

 

Jesse (16m 56s): Well, we were just talking about this before the show. They’re just talking about the inventory issue in all of north America.

 

Brie (17m 3s): Yeah. I think I’m like, I, this, you know, this may or may not be the right decision, but I really I’ve gotten this far in my investing career by trusting my gut and nothing. Nothing has been interesting to me since, you know, I’ve, I’ve looked at some like multi-family investments, but very few actually piqued my interest, mobile home as well. It’s like, I’m dabbling into that stuff, but nothing that’s been like, Hey, this, like the doors have opened, I see the light.

 

This is the path forward. So really put, put the cash in the market and let it sit until I decide what to do with it.

 

Jesse (17m 43s): Yeah. Fair enough. So, can we talk a little bit, like I said, at the outset, I think investors would get a lot from this, you know, two to five unit world that you live in, especially in these areas. Can you talk a little bit about why an investor would go into say a three, a triplex or a five unit as opposed to 25 30, even if they have the capital to do both

 

Brie (18m 4s): Same things like for us? Like, so when we, when we went into the Milwaukee market, we bought 18 properties in nine months, 67 units. It was, so we obviously had the capital to buy one big building if we wanted, but chose to do smaller buildings and said for a lot of different reasons, a, like we just talked about, you know, if some of the properties are underperforming, I could sell the ones that are underperforming and keep the ones that are performing without having to sell the entire property as a whole.

 

So that was part of the reason. And like I said, all of our properties are within like about a mile and a half radius. So it’s not completely spread out. Like everything is within less than a 10 minute drive from each other. But one of the main reasons was the properties are like, obviously residential properties are valued differently right. Than commercial. So when I was looking at the, the cap rates and the returns that I could get, they were much higher on two to four unit properties. And they were on these multis. So again, the markets, Chicago and Milwaukee, you know, got the neighborhoods can be between 50 and 70% housing stock, at least two to four unit properties.

 

They’re everywhere you drive down the street. Right? And like half the block is a small apartment buildings. So there’s a lot of different options of different inventory. But the thing was when it comes to the small Maltese, at least in my markets, they learned pay is water. Everything else is separate to the tenants, right? So there’s no common meters for anything. When you look at insurance, right? I’m getting homeowners insurance that, or my business, you’re getting commercial policies. Your insurance rates are much higher than mine.

 

You generally pay corporate water. I pay residential water. You know, there’s, there’s like my taxes right. Are different than your taxes. So when I was looking at, you know, up to about, I would say about 20 units that evens out, because when you think about it, if you’ve got a 15 unit right next to my three unit, and at the same size, same condition, you know, two bedroom apartment, we’re getting the same rent, right? Your 15 unit does not offer the amenities like the pool, the, you know, the doorman to increase runs, right? So we’re getting the same sort of rent, but your expense ratios are much higher than mine.

 

So it came out, like I said, once you got to about 20 units, then your expenses ended up being closer to what my expenses were. And then the cap rates even doubt, but like anything on you, it’s like Tanya properties. And we see this all the time in Chicago. Cause we get a lot of investors that come to us and say, Hey, you know, we want to get into like these, you know, small midsize. Multi-families like, great, I’ll start running some numbers for you, but taking a consideration. I want to show you something else. And I’ll show them side by side. Like here’s, you know, here’s 10 properties that, that are like between 10 and 30 units.

 

And here’s, you know, 10 properties that are two to four unit properties. The cap rate is always higher. So the risk though, is that if the market, the real estate market changes, right, you’re subject to comps, not at a Y in the residential world, but financing is also easier as well. We don’t have, you know, you can get 30 year fixed on a two to four unit property. You’re not getting a five or seven year arm.

 

Jesse (21m 14s): And in terms of the investors that you typically work with, or even yourself is for the most part, the strategy buy and hold with, with the size

 

Brie (21m 22s): Of units.

 

Jesse (21m 25s): And one of the things, you know, you’ll hear people say, even at the 20 unit size, in terms of property management, you know, whether, you know, there, you have the economies of scale, how do you handle that?

 

Brie (21m 36s): It’s a great question. So I think it depends on your market, right, Chicago, where at least where I work is more of an AB type market. So even, you know, even clients that I’ve had that live out of state, a lot of them can self-manage or we have a company here locally. I think they’ve expanded to, if you go to the markets now called nest egg. So it’s not that I got rent, they do all the cart, property management. So like I’ve been using them since my maintenance, since I was pregnant with my first kid. But like, I don’t use them for, I do my own run collection.

 

I do my own lease ups, but I have that option if I want to, but there’s no monthly fee. So, you know, I just had an issue this morning, a tenant reported an issue, you know, it goes through their system, they diagnose it, they take pictures, whatever it is. And then they send me emails saying like, Hey, we think this is going to cost this amount of dollars and this many hours, who do you want to schedule the repair, the tenant, you know, then they call my tenant and they work it out. It’s like, I have not been in my properties for repairs and years. And if no one makes a repair requests, I don’t get charged anything.

 

There’s no monthly fees. So that sort of product works really well in the Chicago market where, you know, it’s not, it’s not very high touch, right. Milwaukee on the other hand is more of a C class market is absolutely high-touch. You definitely need full-time property management services, but that’s what it was. We grew so quickly said when we came to our, so by the, as after two years, we were at just under a hundred units, that’s enough to be important to a property manager.

 

And in the beginning I had my own in-house team. I tried doing it myself. And it was terrible because you can’t have one person. Right. It’s what I learned. One of the learning lessons I had, you know, while the, the property manager that I chose was fantastic with my tenants. Right. He lived in the community, he actually owned some of the properties that I bought. My first properties were bought from him, you know, great relationship with the tenants, with service, with service workers, repairs, right. All that was handled, knew nothing about accounting, you know?

 

And like he would go to him and he’d go deposit like 10 grand in my bank account. And I’d be like, what’s the spore? He’s like, oh, you know, I’ve got the receipts in my pocket. I’m like, that’s not. So I, like, I still had to do a large portion of the business. So one of the things, you know, property management is a terrible job. I would being a teacher or a property manager, like the two things I would never want to do in life.

 

But it takes to have a well-rounded property management team requires multiple skills, right. One person can not do it and do it well. So by outsourcing it, you’re getting multiple people’s positions and skillsets. So that was a life lesson that I learned. I thought I was smart by having my own in-house team. I could control things more. It was 20 times the work. It was terrible.

 

Jesse (24m 44s): Yeah. I find with property management, the, the companies that have been successful doing it, they, you really have to look at it as a full time full service business, and you need the personalities for that. And I think it was M zero Brian Berger, J Scott, we had on another bigger pockets contributors that I think w their, their point was 70, 75 unit pluses, where, you know, you can, you can afford to have your own super in the building. So like that, you know, even with the property management company, but also having that super in the building, you know, it is at that point where you can scale and you have a point of contact that’s in addition to your property management company.

 

But I’m always curious, because I think, I think in the two to fives, it really is dependent on the market. Like when I got into real estate, I was in student residents. So a lot of them were like these boarding houses that had five tenants, or, you know, five students or eight students where those markets, yeah. You got some people shake the mouse a little, but you also have, what was nice is you actually have this little cottage industry of property management companies, at least back when I was in school that were local, that would manage, you know, houses.

 

And you had that ability to scale. And like you said, I think you’ve made a good point there, which I think oftentimes gets overlooked. It’s that you’re, you’re still going to a property management company and still say, Hey, this is 80 units, or this is 40 units. It’s just, they’re spread out.

 

Brie (26m 11s): Yeah. It’s one of the things I was at, like one of my biggest pieces of advice, when someone tells me, like, I want to invest in Milwaukee, Oregon, or cashflow market. Right. If your plan is to buy a small multi, and then like every year acquire another couple of units, you’re going to sink, you know, it’s, you’re, you’re not going to go well for you. So when I was buying our properties in Milwaukee, one of the things I did is after we sold the property, after we bought the property, I call the seller and ask them like, Hey, you know, deals done. Like what, any lessons you can teach me or things I can learn.

 

The best majority of them were like out of state investors who that was their problem. They only had one or two properties. I remember this one property we bought, we bought it December 1st. The guy told me, he’s like, you know, the top unit has been vacant for like three months. We’ve dropped rent. Like I just can’t do it anymore. I’m like, really? Because we bought it, we bought it on a Wednesday. And my property manager posted that night. We had like five showings this week on it. We got it rented out. It’s like the property manager can make or break. Absolutely you return. And if you’re only, if you’ve got like three properties or, you know, 10 units with one property manager, you aren’t a priority.

 

The end of the day, I have a hundred units and you have ton. And we both have a vacancy. Gus, who’s the priority. It’s me. You know, and I don’t do it very often, but whenever I have to, if I call my property manager and say, Hey, I need you to stop what you’re doing right now and handle this. You better believe they’re going to do it. Right. So that’s where scale becomes incredibly important.

 

Jesse (27m 42s): Yeah. And it’s nice that there are kind of companies like you mentioned, or even, even locally here where the technology is getting better, where you can actually have, you know, one off properties here and there. I know, not true for Chicago. I know Toronto, we have a huge condo market. Like it basically is our purpose built market. Rental markets are extended, but you know, it’s challenging when you only have a few one-offs. Where are you? What do you, what did you think, would you say is the biggest difference between the Chicago and Milwaukee market

 

Brie (28m 14s): Price point? Number one, you know, Chicago is much more expensive, but again, like each market, whether it be Chicago, Milwaukee, Indianapolis, Kansas city, they all have different, you know, ABC markets. So it just so happens that I got my start in investing in Chicago, which was more of a lead type market. I, my cashflow play is Milwaukee, which is the, I invest in a C class area. You know, I’ve looked at investing in a, Milwaukee’s a B class areas.

 

And they’re very similar returns where I get in Chicago for my air AB class areas here. So it just depends on what your strategy is, you know, at the end of the day. So part of that economist evaluation was also taking into effect or taking into account what my property values were. Right. And what if I were to sell everything, what I would would be at again, like my, my cashflow in Milwaukee per dollar spent is like almost triple what it is in Chicago.

 

So the end of the day, like, I always assumed like my, my money came from Milwaukee, right? Like it pays my bills at the end of the day. It did it. When you, when you throw in the appreciation I got from Chicago, like that’s where I made my money. So I was looking at it again. There’s two different strategies. At least I have two different strategies. Chicago is my wealth building. Right. My, my tenants call me once a year. You know, like they’re generally very easy. They stay for a few years. It’s not a high touch market.

 

You know, my property is just, I sit and maintain. Right. And then I’ll get my money when I sell Milwaukee. On the other hand is the cashflow based market. That’s where I bring in my, my monthly paycheck. We’ll call it, you know, two totally different strategies. I like having the balance personally, but there’s no right or wrong answer. There’s no, you know, this is the best option I like having both.

 

Jesse (30m 12s): Yeah. Yeah. It makes sense. I’m curious. The something that is unavailable to us connects is the 10 31 exchange in the states, the differing of taxes into a likened kind asset for, for any of the listeners that haven’t heard us banter about it before, is it, is it applicable to investment properties that are purely residential? Can you use it for you can use it for both. Okay.

 

Brie (30m 37s): We do again, we do, we do a few times a year, 10 31 exchanges within our brokerage side of the business, but it sucks. I just had one, the, oh, this is terrible situation, terrible. Like, whoa. It was me. The guy sold the million dollar properties, but he was selling, he was selling a property in California, wanted to parlay that funds into Chicago. This was just in like October where our market started to get really slow. Inventory was terrible. He was from the time he was selling, he was then, you know, you’ve got 45 days and two weeks he was leaving for Germany for a month.

 

So he’s like, listen, you know, we gotta find this property in two weeks. And then we’re in Germany. You know, we’ve got things to do. And it just so happened. Like the day after closing, he called me, like, we actually need to leave for Germany tomorrow. So they were in Germany the whole time. And I was trying to find them a property. But like when we were looking, you know, between like one and 1.5 million, which for a two to four unit property is completely adequate budget for Chicago. We couldn’t find anything for him. And he ended up taking the cap, gain tech, but at the end of the day, that’s better than buying a bad investment.

 

Right. So, but it was a, it was a very stressful experience because I’d never met him in person. He was never going to be able to fly to Chicago and see the property. And I had 45 days to put something on a contract for him and try to guess what he wanted and what he would like, you know, like, so it was all like videos and it was just, it’s just, it is what it is, but

 

Jesse (32m 10s): You know, it’s our world,

 

Brie (32m 12s): But is her world

 

Jesse (32m 14s): Sabrina. I want to talk, but just one more thing before we get to some of the questions we ask every guest, I am just mindful of the time here. We could probably do a, another 45 minutes on just the second half of this story. But before we get there, I’m curious to know the regulatory environment from the landlord tenant board perspective. I have a, you know, we talked a little bit about this before. I have a suspicion that it’s very similar to our market, very tenant friendly. How does that compare to Milwaukee?

 

You know, what’s your experience been?

 

Brie (32m 48s): You could, I don’t think you can find two different while California. You can’t really find two different markets. And again, they’re only an hour and a half drive from each other. So both offers similar returns. I would say, as far as the investment market, but yeah, Chicago has one of the strictest landlord-tenant ordinances in the country. I still invest here. You know, we’ve got plenty of clients that still invest here. It’s really, to me, the landlord tenant ordinance is not, it’s not super strict, but you have to know the rules, right. And that’s where people get in trouble.

 

If they don’t know the rules, everything is quite reasonable. Right. If you, you know, a general repair, you have 14 days to correct it. That’s not an unreasonable request when it comes to like heat, hot water, electricity, like, you know, those sorts of things, you have 48 hours to correct. You know, got not in a reasonable request. It, but our eviction process is beyond terrible. I just had to summer my first eviction ever in Chicago, where, you know, I gave a ton of in 50 days and always I was not renewing his lease.

 

He started, he understood it. I rented out his unit. Like he let me do showings. And then like the week before it was like, I’ve got nowhere to go. I’m not leaving. Like, well, that’s not really an option. Like I have someone moving in in like five days. So it was what we would consider a hold over tonight, which is still allowed to evict, even though we had the memorandum here, but it took, you know, two months before we even got him served through our court process. Milwaukee on the other hand is very landlord friendly.

 

I can get, let’s see, when I give someone a five day notice the next day I can go and file in court. Typically I get a court date within seven to 10 days. And you go, when you show up to court, they pretty much ask you one question, which is, can you prove the rent you owe to this landlord is not what they say. And they’ll start, you know, well, they were a shit landlord and all that. I don’t care. She says, you owe this, do you have proof otherwise? And they’re like, no, and they’ll start ranting. And they’re like, okay.

 

So what do you want to do? They’ll go to me like that is, that is the only piece of information that they want to know. Right? They don’t, they don’t care about the other things. One of the other great things about Milwaukee’s market as far as evictions is which we use. It’s a tool we use quite often is they have a payment plan process within the court system. So again, a lot of times, you know, they fall behind, right? And they’re, they’re communicating. It’s not like we want to evict them so we can work out a payment plan.

 

It’s a court ordered payment plan. And as soon as they miss one payment, I just go straight to the court, show them document, signed an affidavit, boom. Sheriff comes. So it just there’s no, I don’t have to go back to court and we don’t have to go back to, you know, like starting all of the process over again. It just picks up where we left off. If I were to do a normal eviction. So also a really win-win situation. Right? If they say that they can make these payments and they can get caught up, right. And they do that, then they don’t get evicted. But if they fall behind, we have the option of just picking things up and not starting over again.

 

Milwaukee also has some really great rental assistance programs for tenants that do fall behind as well versus like Chicago. We, you know, we had a ton of apply for rental assistance back in June. I just got it now in December, you know? And luckily if I wasn’t so accommodating, right. You know, it was five months of background. Like that’s a lot of rent to, to go back, but Milwaukee just moves faster and they are a lot more, there’s a lot more options within that market.

 

Port options or rental assistance options.

 

Jesse (36m 36s): Does Chicago have rent control?

 

Brie (36m 38s): No. Okay. Hey.

 

Jesse (36m 41s): Yeah. The gas. Yeah. W I would have been 50 50 on that. I know it’s tenant friendly, but I don’t, I didn’t know if they went that far.

 

Brie (36m 52s): So luckily for us, it is part of our state constitution. And once you get out of the state or city of Chicago, it is a very, very red state. So to, to have rent control in Chicago, you have to have this state constitution amended and there’s way too many conservatives to allow that to happen. So every year it happened, like every year someone brings it up, right. And every year it goes to the process and every year everyone freaks out about it. And every year it gets stopped quite quickly.

 

But if it wasn’t, if it was up to the actual like cities or counties, we would absolutely have rent control here. But luckily it’s on a state level.

 

Jesse (37m 35s): Yeah. I think if I think Jersey, what is a Jersey, California, New York Mahershala, Washington. I think, I think we’re the opposite. If you can find a, like a pretty sure across country, we have some form of rent stabilization. But the big thing for us is that is when we have new tenants, we mark the mark to market the rents. So you kind of reset at market levels, but it’s a bit of a different animal. That’s great. I, I want to talk or let listeners know where they can go and kind of reach out to you. But before we get there, we’ve got four questions.

 

We ask every guest. So if you’re ready, I’ll, I’ll send them over to ya. I agree with something, at least one thing that you know, now in your career, you wish you knew when you first started out,

 

Brie (38m 17s): Oh gosh, just one thing I can do a whole podcast and all the things, You know, again, I, I’m a big believer in trusting your intuition, right. And figuring out what works for you, what works for me doesn’t necessarily work for you. So that takes time. That takes your own learning lessons. But as long as, like you said, I’ve made obvious mistakes. As long as I was confident in my decision, right. I have no one to blame, but myself and that makes me sleep at night, knowing that like, Hey, this is, this is just a bump in the path and it’s going to be a learning lesson down the road.

 

So my advice would be, you know, really focusing on what you’re doing, what your goals are, what your needs are, right. Where, where you can grow personally and then create your own path.

 

Jesse (39m 10s): Gotcha. Okay. In terms of, if one thing or a few things you could say to new investors, people getting into our industry regarding mentorship, what would that be?

 

Brie (39m 24s): I’m not a fan of a mentorship thing. You know, I don’t think it’s a gun. Your mentorship to me is you’re, you’re learning from someone, but you’re trying to replicate what they’re doing. Right. And that’s not always, right. So I’d like, I get all the time, like, Hey, what, what neighborhoods do you buy in? Cause I want to buy there. I’m like, well, I have haven’t I have a Nissan Pathfinder. Do you want to buy my car? Because I have that car. Like, you know, that doesn’t mean like what I have my needs and goals are. So it was back to the first thing of, you know, mentorship, you know, isn’t, shouldn’t be a immediate goal for someone, I think, you know, utilizing sites like bigger pockets, bigger pockets, right?

 

Learning about your market, listening to podcasts, right? Take a little bit of information from everything that you’re hearing and learning and figuring out what works best for you. That’s what you need. And then once you’re ready, right. Finding a good team, a good agent, right. A good brokerage, good, you know, lenders, lawyers, whatever that will help support you and what your goals are. But you should be the one dictating what your path is. Not someone else telling you what to do.

 

Jesse (40m 32s): Fair enough. What’s a resource or book that you find yourself constantly recommending.

 

Brie (40m 37s): Oh, getting things done. I love that book. It has completely changed. Like you guys, like not only do I not want a landlord, but I own a brokerage firm. I also plan an event for real estate investors. I’m nine months pregnant and I’ve got a two year old right there. You know, there’s, there’s a lot of different things that come at me at different times through the day with so many different moving parts. Right. So having like an organizational prioritizing to do list right.

 

To, to be effective has really important. So I read the book, maybe I was actually too busy to read the book. So I bought the cliff notes to be perfectly honest, about five years ago. And I went from working, you know, 60 hours a week in my business to probably working 30. I, you know, cut out all the nonsense and really transformed my work-life balance because of that book. Yeah.

 

Jesse (41m 36s): And I think they’ve updated. We’ve had a guest before recommend this and I think they’ve updated some of the, the concepts. Cause I, I it’s, it’s like the book for, for like task management and organization. So I think it w I can’t remember what the release date, but a lot has changed technologically, but I still love the, how they systematize everything in that book.

 

Brie (41m 57s): I am so full though. I have to write everything down. Like

 

Jesse (42m 1s): I remember like the bin you’d have to move things from the bin. Yeah.

 

Brie (42m 5s): I have to like physically write things down and like physically cross things off of my paper. I can’t do like a word, you know, or technology just doesn’t work for me. I’m too old.

 

Jesse (42m 14s): So speaking of Pathfinders, our last question, first car making.

 

Brie (42m 19s): Oh, Ford Thunderbird. Terrible bomb. Yeah. I was at, it was my dad’s car that I bought off him. Right. I’m a terrible driver. Do you understand this? No, I think it was a V6 or a V8, whatever. I crashed it so many times. I’m just a terrible driver. I still am a terrible driver. My husband drives pretty much. He will not, my husband will not let me drive a car if he’s in it.

 

Jesse (42m 48s): I will say this though. It is, it was an upgrade back then from the four tourists, which, which I spent my childhood,

 

Brie (42m 55s): It was a beast of a car though. You know, I said, I ran over curbs and ran into walls with that card and like never scrape on me, you know, but yeah. Thank you so much for having me on the show.

 

Jesse (43m 9s): I really appreciate it. If anybody’s, you know, in your local area or would like to just reach out to you where, where would be the best place to, to go

 

Brie (43m 17s): I’m on BiggerPockets almost every single day. Some messaging me on bigger pockets, Brie Schmidt, or you can check out my website. It’s a second city spelled out dash R e.com.

 

Jesse (43m 30s): Okay. We’ll send them there. My guest today has been breached brief. Thank you for being part of working

 

Brie (43m 36s): Capital. Thank you so much.

 

Jesse (43m 45s): Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse, for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

Transcript

ions:

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Hey, my name is Jesper galley and you're listening to working capital the real estate podcast. We have a special guest today that is Brie Schmidt. Brie acquired her first investment property in 2011 and left the corporate world in 2014.

 

When she became a full-time real estate investor is the managing broker of second city real estate, a full service brokerage working with new investors and seasoned investors, looking to expand their knowledge of the industry and their portfolio. I had the special pleasure of being on a panel with Bree in new Orleans at the bigger pockets conference. Bree, how are you doing I'm

 

Brie (54s): Dan. Great. Thanks. How are you?

 

Jesse (56s): I'm doing fantastic. Well, I appreciate you coming on the show. I thought just, you know, we were talking before the show. I think it would be really interesting to have you on because we talked a lot, but you know, across that panel and I think it would be a treat for listeners to talk not just about multiple larger units when it comes to multi residential, but to talk about the mid and lower size units or smaller size units and kind of approach it from the perspective of the kind of unique markets that you're in. So maybe to kick us off, why don't you give us a little bit of a, of a background for yourself, for listeners, how you got into real estate?

 

Brie (1m 35s): So I always say I used to be a normal person. I used to have like a normal job and normal, you know, grind go to the grind kind of goals in life. So I used to work in advertising sales. I used to work in business development and advertising sales never really saw myself doing anything different. You know, it was really had aspirations of being a female CEO one day. So I live in the Chicago market, which we were talking about before show is a somewhat unique market, as far as housing stock.

 

There's very few cities in this country that have a large portion of two to four unit multi-units. So depending on the neighborhood in Chicago, it can be between 50 and 70% of our housing stock is two to four unit properties. And they're generally about a hundred thousand dollars, less than a single family home. So at the time I was think I was just getting engaged and my fiance and I were talking about, and you're like, what are our life plans? They're like, well, we want to, we want to buy a single family house, but like, we don't need, we don't need that sort of space right now.

 

So that was our plan was we bought a three unit property. We did a quote-unquote house hack, you know, standard FHA loan. And our plan was, you know, at some point we would need more space. We could, you know, take out a wall, move a staircase. Now we took up two of the three floors. And then at some other point we'll need the other space. We'll just, you know, get and take out a wall and move a staircase. And we'll eventually just take this house and convert it to a single family home. So that was our hundred, like end all be all goal with real estate investing. About three months after we bought the property, my father was diagnosed with a very aggressive form of cancer and he passed away a few months later.

 

And the thing is the day before he was supposed to retire is when he passed away and we already planned his retirement party and it now became his wake. And it really resonated with me as, because I would just think back of all the things my dad would say, like, when I retire, I'm going to go do this. When I retire, we're going to go to Thailand. You know, I'll retire after you get married or I'll retire when your brother had finished his PhD. And like, he always had all these dreams and goals that he never got to see because he never took action on it.

 

So here I am, 28 years old, you know, working 60 hours a week, traveling all over the country for somewhere else. And I'm like, this sucks. You know, like this is a terrible life. I've got, you know, 30 plus years till retirement. And I'm going to be in the same position as my dad. You know, I've always wanted to go to Italy. I've always wanted to go do these things and I've done nothing with them because I was too focused on work. So it really changed my perspective on life and decided to reorientate things.

 

And that's how I got into real estate investing. So you'll, you'll figure out, you know, I just go, I'm a bull in a China shop kind of person. So within the, we bought our first property in 2011, we bought another property in 2012. We did it again in 2013, that 2013 property was a renovation property. We bought like a 1960s house and completely renovated it, you know, pulled cash out. And that is when I found a website called BiggerPockets, which I'm sure you know about.

 

And it completely changed everything that I was doing. I had never talked with another investor. I had never read a book about investing. I was just kinda, you know, winging it. And it opened up this whole new world of possibilities. So we were sitting on a decent chunk of cash and now I had all these possibilities in front of me and opportunities to learn. So we went full forward ahead. So we looked at other markets to invest in while I love, love, love Chicago.

 

It's not really a cashflow based market. It's more of a balanced, you know, similar, not as expensive as California, but you know, similar sort of market, New York as well. You're just not going to be retiring off cashflow here. So I, I took some time. I looked at Milwaukee, Kansas city, Indianapolis spent some time in those markets, learning those markets and we decided to invest in Milwaukee. So for you guys that don't know it's about an hour and a half drive, so it's a, you know, easily commutable distance.

 

So in, let's see, 2015, we bought 10 properties and then 2016, I bought another eight. And then I had partners. I worked with that. I bought another 10 in 2016. So we went quite all in and fast growth trajectory on our acquisitions in those markets. So that's kind of my, and then I started a brokerage firm here in Chicago that was started in 2014. We are the largest boutique brokerage firm working with investors in the Chicago and market. And then I also do the Midwest real estate networking conference where the largest conference in the Midwest for real estate investors.

 

So everything, when I say I used to be a normal person with normal hobbies, that's what I mean. Like I used to be able to small talk and chit chat about sports or shopping. And now my whole life has become real estate, which is fantastic, but it's all I want to talk about. Cause it's all that meal. It's fun for me. So it was taken over my life in a very, very good way.

 

Jesse (6m 56s): Yeah. Well the, the energy didn't go out and I noticed when we were, we were at the conference and it's, that's great to hear it. When, when you made that transition, I'm always curious because it's not a dissimilar story where we have guests on that had a quote unquote, normal life or normal job, normal, whatever. And then they move into real estate investing. What, at what point in that kind of, you know, 20 11, 20 12 was the point where you said, okay, let's go in full time and, you know, get, you know, not, not continue to pursue the, the day job.

 

Brie (7m 26s): So it wasn't like a, it wasn't a pre-planned conscious decision. To be honest, the plan always was I was making great, you know, I had a great salary. I actually loved what I did. I had spent nine years building up my career. I did, it was not something that I wanted to walk away from. So the plan was never for me to leave my job and do real estate full time. Real estate was always going to be a hobby on the side. So it was when we were looking at doing our first set of properties in Milwaukee, that I started to realize like one day it was like, well, I always wanted to make sure that my real estate investing never got in the way of my day job.

 

And then one day woke up and realized that my day job was getting in the way of my real estate investing show. But I'll tell you this story. I used to travel a lot for work. And we were at the airport, it was a 6:00 AM flight to Atlanta. So it was like five 15 in the morning. I'm staying at the airport with my boss who just had a baby. She was like, I don't know, baby was like four months old. So we were flying down to Atlanta and then we had to get a car and rent a car to go to Columbus, Georgia, which was like a two hour drive for a two hour meeting.

 

And then drive back to Atlanta to take an airport plane ride home because she had to get home. She had a newborn and I remember sitting in the airport with her at like five 15 in the morning. It's like the butt crack of Dawn. And I get a travel alert on my phone. Like, so when it comes to travel, like Istanbul has been like my number one bucket list place. And there was a flight alert. It was like 400 bucks to go to Istanbul and I'm staring at us and I'm like, oh my God, I'm going to go to Istanbul. And she's like, what one? I'm like, I don't know, there's 400 bucks. Like I'm going to go whatever. And she started going through, like, this was April.

 

She starts going through my calendar while you can't go this month. Cause you've got this and then you've got this. And then like at the end, she's like by October, like, yeah, you can take a long weekend. And I was like, screw this. Like, this is not the life that I want. Like if I want to go to Istanbul, I want to go to Istanbul. So between it was around the same time that we were mid acquisition with our properties. Like I said, we were buying five properties. I remember calling my commercial lender and being like, Hey, if I quit my job, is that going to affect my ability to acquire more properties?

 

And as soon as you said, no, I was like, great. I'm giving my notice. And that was it. So it was like a two week, like, Hey, is this gonna, are we going to completely blow ourselves up by doing this? Or no? And the answer was no. So we just did it. I just did it.

 

Jesse (9m 51s): Yeah. I feel like the, there is this point where people, especially like yourself that have a job that has a good income. There's a beginning stage when you're investing where it is an asset. Obviously the W2 income, T4 in Canada, where, you know, lenders are looking at that. But you do get to a certain point where the assets are become more important than you as the individual. Did you experience?

 

Brie (10m 14s): Yeah, exactly. But if it wasn't, we were already past the point of doing residential loans. We were already well into like the commercial loan process and that was pretty much what we would be doing moving forward. So as if you don't know, as a us and Canada might be different, you know, those are two very different processes. So it was important for me to know that the commercial under that we were working with, I said, I've done, you know, 23 loans with him. You know, they, they were very strong as far as like backing me personally and financially, as long as he was okay with it, I was ready to go.

 

So I said like, this was probably mid April. I left my job at, and by the end of June, I was, I quit and done diminish doing real estate full-time ever since.

 

Jesse (10m 60s): Right on. So what take us up to 2021? What, what does the portfolio look like?

 

Brie (11m 5s): It's less so, yeah, I've actually sold, I didn't sell anything in 2020, but 20 18, 20 19. I sold some properties about half of my portfolio. So this is also a very interesting story. I was at a conference, very similar, like the bigger pockets conference we were at new Orleans. And I remember the first session, the first morning was an economist. I was actually in Philly with Dave Vanhorn's conference. So this economist is on stage. And he's saying a lot of big words. I don't know, you know, yield curves.

 

And I don't know, I'm writing things down. Like I should Google that later. So at the end of the conference, the, there was a charity event and the economist had had was the auction off three hours of his time. As for this charity fundraiser. I'm like, this is a perfect opportunity for me to learn, right. What he's talking about. Because while I understand like real estate economics, and while I understand the market economics that I'm in personally, I don't understand on a national or global level, right? How all these other things that are going on are going to affect my market.

 

That's why I wanted to learn. So I bought his time as part of the auction. And one of the things he did was he wanted to go through my entire portfolio with me five years back, right. Looking at my cashflow, my projections, something that I hadn't done. Like every year I would view my portfolio, right? Like we all do, but I never really like went back and looked at it from a high-level five-year perspective. And he put on all these different calculations and I don't even, I still don't even understand half of them that he did for me. But one of the things that we looked at is what was my three-year average cashflow and my five-year average cashflow, what would I get if I sold the property less than the fees and how does that, that profit relate to annual cashflow?

 

And I realized quite quickly there was some properties that like, there was just always something, right. There was always something going on with these properties. At the end of the day, if I sold the property, I will be getting like 15 years cashflow up front. I'm like, well, that makes stupid for me to keep these properties. So that has become for the last three years when I'm part of my process is every year I not only review my pre like in my, or what we did and what our numbers were this year.

 

I also look at my three-year, my five-year. And then since acquisition numbers and reevaluate my portfolio every year, I hire a local realtor in Milwaukee, even though I'm licensed there, I don't, I'm not super active there to do a CMA on my properties. And I rebalance things and I re reallocate things and see, Hey, is this the right? Is it keeping this property, the right thing to do? Or at what point does it make sense for me to sell? So that's, that was a learning experience I took from a med economist. Yeah.

 

Jesse (13m 54s): Yeah. And it's sometimes it's like, you get that second opinion or you just to get something that, not that you weren't accountable, but kind of high level taking a look at your portfolio. I found a very similar thing happened with me earlier in my career, where there was very similar to you just cap X that would happen. So, so technically your P and L looks good. It looks okay. But really at the end of the day, your cashflow statement is getting hit with these large expenses. And, you know, 1960 would have been a newer pro property. Like one of the first properties we bought was in the early 19 hundreds.

 

So, you know, stone foundation, knob and tube. And what I was finding was that there were particular properties that were just these cash, like just pits, because you'd just be dumping in. And, you know, even if you average out capital expenditures, if you pick properties that have, you know, a lot of maintenance, you really gotta be careful about how you're smoothing that out over the, the time that you hold. And, you know, sometimes there's an inflection point, whether that's five years in seven years in it's, like you said, it just makes so much more sense to sell it and redeploy somewhere else.

 

Brie (14m 56s): Absolutely. Yeah. It was a very interesting exercise for me because I always just looked at things. I said, like, I looked at things on an annual basis. I never went back and looked at things from the beginning or the last couple of years and was like, wow, you know, this property is not produce thing. Right. And since I bought it, the values have gone up, like I would make, I had one property. I was going to make like 33 years cashflow I'm like done sell it now. So it's become an interesting exercise.

 

Jesse (15m 27s): So I want to ask the, the question that so many investors are asking today is w we see it from sellers, but just in general, that number one, you know, where do you, if you do sell a property, where do you even deploy capital? Because the market is so competitive right now, I'm curious, was Chicago, Milwaukee, was this something where you did sell properties in Chicago and then Milwaukee kind of looked like a, a place where you deployed or were you guys doing it at the same time? How did that, how did those two locations come about?

 

Brie (15m 57s): Yeah. So everything in Chicago, we acquired from 2011 to 2013, and we have not sold any of those properties. Everything in Milwaukee was pretty much 2014 to 2016, and we've sold about half of those properties. And so like, our portfolio was about 31 properties before we started selling anything off. And our newest property was built in 1910. So when you talk about old, like that's just the market, you know, like these, these were older 1890s, 19 hundreds, 19 times are when the properties were generally built.

 

Jesse (16m 34s): So sorry, the, the property, like the, the move to actually continue investing. When you deploy that capital, wha what are their active investments that you wanted to put them in? Was it, was it the strategy to put it into the properties that you currently have? How did you deal with that once you had that windfall?

 

Brie (16m 51s): I'll let you know when I figure that out, it's been terrible.

 

Jesse (16m 56s): Well, we were just talking about this before the show. They're just talking about the inventory issue in all of north America.

 

Brie (17m 3s): Yeah. I think I'm like, I, this, you know, this may or may not be the right decision, but I really I've gotten this far in my investing career by trusting my gut and nothing. Nothing has been interesting to me since, you know, I've, I've looked at some like multi-family investments, but very few actually piqued my interest, mobile home as well. It's like, I'm dabbling into that stuff, but nothing that's been like, Hey, this, like the doors have opened, I see the light.

 

This is the path forward. So really put, put the cash in the market and let it sit until I decide what to do with it.

 

Jesse (17m 43s): Yeah. Fair enough. So, can we talk a little bit, like I said, at the outset, I think investors would get a lot from this, you know, two to five unit world that you live in, especially in these areas. Can you talk a little bit about why an investor would go into say a three, a triplex or a five unit as opposed to 25 30, even if they have the capital to do both

 

Brie (18m 4s): Same things like for us? Like, so when we, when we went into the Milwaukee market, we bought 18 properties in nine months, 67 units. It was, so we obviously had the capital to buy one big building if we wanted, but chose to do smaller buildings and said for a lot of different reasons, a, like we just talked about, you know, if some of the properties are underperforming, I could sell the ones that are underperforming and keep the ones that are performing without having to sell the entire property as a whole.

 

So that was part of the reason. And like I said, all of our properties are within like about a mile and a half radius. So it's not completely spread out. Like everything is within less than a 10 minute drive from each other. But one of the main reasons was the properties are like, obviously residential properties are valued differently right. Than commercial. So when I was looking at the, the cap rates and the returns that I could get, they were much higher on two to four unit properties. And they were on these multis. So again, the markets, Chicago and Milwaukee, you know, got the neighborhoods can be between 50 and 70% housing stock, at least two to four unit properties.

 

They're everywhere you drive down the street. Right? And like half the block is a small apartment buildings. So there's a lot of different options of different inventory. But the thing was when it comes to the small Maltese, at least in my markets, they learned pay is water. Everything else is separate to the tenants, right? So there's no common meters for anything. When you look at insurance, right? I'm getting homeowners insurance that, or my business, you're getting commercial policies. Your insurance rates are much higher than mine.

 

You generally pay corporate water. I pay residential water. You know, there's, there's like my taxes right. Are different than your taxes. So when I was looking at, you know, up to about, I would say about 20 units that evens out, because when you think about it, if you've got a 15 unit right next to my three unit, and at the same size, same condition, you know, two bedroom apartment, we're getting the same rent, right? Your 15 unit does not offer the amenities like the pool, the, you know, the doorman to increase runs, right? So we're getting the same sort of rent, but your expense ratios are much higher than mine.

 

So it came out, like I said, once you got to about 20 units, then your expenses ended up being closer to what my expenses were. And then the cap rates even doubt, but like anything on you, it's like Tanya properties. And we see this all the time in Chicago. Cause we get a lot of investors that come to us and say, Hey, you know, we want to get into like these, you know, small midsize. Multi-families like, great, I'll start running some numbers for you, but taking a consideration. I want to show you something else. And I'll show them side by side. Like here's, you know, here's 10 properties that, that are like between 10 and 30 units.

 

And here's, you know, 10 properties that are two to four unit properties. The cap rate is always higher. So the risk though, is that if the market, the real estate market changes, right, you're subject to comps, not at a Y in the residential world, but financing is also easier as well. We don't have, you know, you can get 30 year fixed on a two to four unit property. You're not getting a five or seven year arm.

 

Jesse (21m 14s): And in terms of the investors that you typically work with, or even yourself is for the most part, the strategy buy and hold with, with the size

 

Brie (21m 22s): Of units.

 

Jesse (21m 25s): And one of the things, you know, you'll hear people say, even at the 20 unit size, in terms of property management, you know, whether, you know, there, you have the economies of scale, how do you handle that?

 

Brie (21m 36s): It's a great question. So I think it depends on your market, right, Chicago, where at least where I work is more of an AB type market. So even, you know, even clients that I've had that live out of state, a lot of them can self-manage or we have a company here locally. I think they've expanded to, if you go to the markets now called nest egg. So it's not that I got rent, they do all the cart, property management. So like I've been using them since my maintenance, since I was pregnant with my first kid. But like, I don't use them for, I do my own run collection.

 

I do my own lease ups, but I have that option if I want to, but there's no monthly fee. So, you know, I just had an issue this morning, a tenant reported an issue, you know, it goes through their system, they diagnose it, they take pictures, whatever it is. And then they send me emails saying like, Hey, we think this is going to cost this amount of dollars and this many hours, who do you want to schedule the repair, the tenant, you know, then they call my tenant and they work it out. It's like, I have not been in my properties for repairs and years. And if no one makes a repair requests, I don't get charged anything.

 

There's no monthly fees. So that sort of product works really well in the Chicago market where, you know, it's not, it's not very high touch, right. Milwaukee on the other hand is more of a C class market is absolutely high-touch. You definitely need full-time property management services, but that's what it was. We grew so quickly said when we came to our, so by the, as after two years, we were at just under a hundred units, that's enough to be important to a property manager.

 

And in the beginning I had my own in-house team. I tried doing it myself. And it was terrible because you can't have one person. Right. It's what I learned. One of the learning lessons I had, you know, while the, the property manager that I chose was fantastic with my tenants. Right. He lived in the community, he actually owned some of the properties that I bought. My first properties were bought from him, you know, great relationship with the tenants, with service, with service workers, repairs, right. All that was handled, knew nothing about accounting, you know?

 

And like he would go to him and he'd go deposit like 10 grand in my bank account. And I'd be like, what's the spore? He's like, oh, you know, I've got the receipts in my pocket. I'm like, that's not. So I, like, I still had to do a large portion of the business. So one of the things, you know, property management is a terrible job. I would being a teacher or a property manager, like the two things I would never want to do in life.

 

But it takes to have a well-rounded property management team requires multiple skills, right. One person can not do it and do it well. So by outsourcing it, you're getting multiple people's positions and skillsets. So that was a life lesson that I learned. I thought I was smart by having my own in-house team. I could control things more. It was 20 times the work. It was terrible.

 

Jesse (24m 44s): Yeah. I find with property management, the, the companies that have been successful doing it, they, you really have to look at it as a full time full service business, and you need the personalities for that. And I think it was M zero Brian Berger, J Scott, we had on another bigger pockets contributors that I think w their, their point was 70, 75 unit pluses, where, you know, you can, you can afford to have your own super in the building. So like that, you know, even with the property management company, but also having that super in the building, you know, it is at that point where you can scale and you have a point of contact that's in addition to your property management company.

 

But I'm always curious, because I think, I think in the two to fives, it really is dependent on the market. Like when I got into real estate, I was in student residents. So a lot of them were like these boarding houses that had five tenants, or, you know, five students or eight students where those markets, yeah. You got some people shake the mouse a little, but you also have, what was nice is you actually have this little cottage industry of property management companies, at least back when I was in school that were local, that would manage, you know, houses.

 

And you had that ability to scale. And like you said, I think you've made a good point there, which I think oftentimes gets overlooked. It's that you're, you're still going to a property management company and still say, Hey, this is 80 units, or this is 40 units. It's just, they're spread out.

 

Brie (26m 11s): Yeah. It's one of the things I was at, like one of my biggest pieces of advice, when someone tells me, like, I want to invest in Milwaukee, Oregon, or cashflow market. Right. If your plan is to buy a small multi, and then like every year acquire another couple of units, you're going to sink, you know, it's, you're, you're not going to go well for you. So when I was buying our properties in Milwaukee, one of the things I did is after we sold the property, after we bought the property, I call the seller and ask them like, Hey, you know, deals done. Like what, any lessons you can teach me or things I can learn.

 

The best majority of them were like out of state investors who that was their problem. They only had one or two properties. I remember this one property we bought, we bought it December 1st. The guy told me, he's like, you know, the top unit has been vacant for like three months. We've dropped rent. Like I just can't do it anymore. I'm like, really? Because we bought it, we bought it on a Wednesday. And my property manager posted that night. We had like five showings this week on it. We got it rented out. It's like the property manager can make or break. Absolutely you return. And if you're only, if you've got like three properties or, you know, 10 units with one property manager, you aren't a priority.

 

The end of the day, I have a hundred units and you have ton. And we both have a vacancy. Gus, who's the priority. It's me. You know, and I don't do it very often, but whenever I have to, if I call my property manager and say, Hey, I need you to stop what you're doing right now and handle this. You better believe they're going to do it. Right. So that's where scale becomes incredibly important.

 

Jesse (27m 42s): Yeah. And it's nice that there are kind of companies like you mentioned, or even, even locally here where the technology is getting better, where you can actually have, you know, one off properties here and there. I know, not true for Chicago. I know Toronto, we have a huge condo market. Like it basically is our purpose built market. Rental markets are extended, but you know, it's challenging when you only have a few one-offs. Where are you? What do you, what did you think, would you say is the biggest difference between the Chicago and Milwaukee market

 

Brie (28m 14s): Price point? Number one, you know, Chicago is much more expensive, but again, like each market, whether it be Chicago, Milwaukee, Indianapolis, Kansas city, they all have different, you know, ABC markets. So it just so happens that I got my start in investing in Chicago, which was more of a lead type market. I, my cashflow play is Milwaukee, which is the, I invest in a C class area. You know, I've looked at investing in a, Milwaukee's a B class areas.

 

And they're very similar returns where I get in Chicago for my air AB class areas here. So it just depends on what your strategy is, you know, at the end of the day. So part of that economist evaluation was also taking into effect or taking into account what my property values were. Right. And what if I were to sell everything, what I would would be at again, like my, my cashflow in Milwaukee per dollar spent is like almost triple what it is in Chicago.

 

So the end of the day, like, I always assumed like my, my money came from Milwaukee, right? Like it pays my bills at the end of the day. It did it. When you, when you throw in the appreciation I got from Chicago, like that's where I made my money. So I was looking at it again. There's two different strategies. At least I have two different strategies. Chicago is my wealth building. Right. My, my tenants call me once a year. You know, like they're generally very easy. They stay for a few years. It's not a high touch market.

 

You know, my property is just, I sit and maintain. Right. And then I'll get my money when I sell Milwaukee. On the other hand is the cashflow based market. That's where I bring in my, my monthly paycheck. We'll call it, you know, two totally different strategies. I like having the balance personally, but there's no right or wrong answer. There's no, you know, this is the best option I like having both.

 

Jesse (30m 12s): Yeah. Yeah. It makes sense. I'm curious. The something that is unavailable to us connects is the 10 31 exchange in the states, the differing of taxes into a likened kind asset for, for any of the listeners that haven't heard us banter about it before, is it, is it applicable to investment properties that are purely residential? Can you use it for you can use it for both. Okay.

 

Brie (30m 37s): We do again, we do, we do a few times a year, 10 31 exchanges within our brokerage side of the business, but it sucks. I just had one, the, oh, this is terrible situation, terrible. Like, whoa. It was me. The guy sold the million dollar properties, but he was selling, he was selling a property in California, wanted to parlay that funds into Chicago. This was just in like October where our market started to get really slow. Inventory was terrible. He was from the time he was selling, he was then, you know, you've got 45 days and two weeks he was leaving for Germany for a month.

 

So he's like, listen, you know, we gotta find this property in two weeks. And then we're in Germany. You know, we've got things to do. And it just so happened. Like the day after closing, he called me, like, we actually need to leave for Germany tomorrow. So they were in Germany the whole time. And I was trying to find them a property. But like when we were looking, you know, between like one and 1.5 million, which for a two to four unit property is completely adequate budget for Chicago. We couldn't find anything for him. And he ended up taking the cap, gain tech, but at the end of the day, that's better than buying a bad investment.

 

Right. So, but it was a, it was a very stressful experience because I'd never met him in person. He was never going to be able to fly to Chicago and see the property. And I had 45 days to put something on a contract for him and try to guess what he wanted and what he would like, you know, like, so it was all like videos and it was just, it's just, it is what it is, but

 

Jesse (32m 10s): You know, it's our world,

 

Brie (32m 12s): But is her world

 

Jesse (32m 14s): Sabrina. I want to talk, but just one more thing before we get to some of the questions we ask every guest, I am just mindful of the time here. We could probably do a, another 45 minutes on just the second half of this story. But before we get there, I'm curious to know the regulatory environment from the landlord tenant board perspective. I have a, you know, we talked a little bit about this before. I have a suspicion that it's very similar to our market, very tenant friendly. How does that compare to Milwaukee?

 

You know, what's your experience been?

 

Brie (32m 48s): You could, I don't think you can find two different while California. You can't really find two different markets. And again, they're only an hour and a half drive from each other. So both offers similar returns. I would say, as far as the investment market, but yeah, Chicago has one of the strictest landlord-tenant ordinances in the country. I still invest here. You know, we've got plenty of clients that still invest here. It's really, to me, the landlord tenant ordinance is not, it's not super strict, but you have to know the rules, right. And that's where people get in trouble.

 

If they don't know the rules, everything is quite reasonable. Right. If you, you know, a general repair, you have 14 days to correct it. That's not an unreasonable request when it comes to like heat, hot water, electricity, like, you know, those sorts of things, you have 48 hours to correct. You know, got not in a reasonable request. It, but our eviction process is beyond terrible. I just had to summer my first eviction ever in Chicago, where, you know, I gave a ton of in 50 days and always I was not renewing his lease.

 

He started, he understood it. I rented out his unit. Like he let me do showings. And then like the week before it was like, I've got nowhere to go. I'm not leaving. Like, well, that's not really an option. Like I have someone moving in in like five days. So it was what we would consider a hold over tonight, which is still allowed to evict, even though we had the memorandum here, but it took, you know, two months before we even got him served through our court process. Milwaukee on the other hand is very landlord friendly.

 

I can get, let's see, when I give someone a five day notice the next day I can go and file in court. Typically I get a court date within seven to 10 days. And you go, when you show up to court, they pretty much ask you one question, which is, can you prove the rent you owe to this landlord is not what they say. And they'll start, you know, well, they were a shit landlord and all that. I don't care. She says, you owe this, do you have proof otherwise? And they're like, no, and they'll start ranting. And they're like, okay.

 

So what do you want to do? They'll go to me like that is, that is the only piece of information that they want to know. Right? They don't, they don't care about the other things. One of the other great things about Milwaukee's market as far as evictions is which we use. It's a tool we use quite often is they have a payment plan process within the court system. So again, a lot of times, you know, they fall behind, right? And they're, they're communicating. It's not like we want to evict them so we can work out a payment plan.

 

It's a court ordered payment plan. And as soon as they miss one payment, I just go straight to the court, show them document, signed an affidavit, boom. Sheriff comes. So it just there's no, I don't have to go back to court and we don't have to go back to, you know, like starting all of the process over again. It just picks up where we left off. If I were to do a normal eviction. So also a really win-win situation. Right? If they say that they can make these payments and they can get caught up, right. And they do that, then they don't get evicted. But if they fall behind, we have the option of just picking things up and not starting over again.

 

Milwaukee also has some really great rental assistance programs for tenants that do fall behind as well versus like Chicago. We, you know, we had a ton of apply for rental assistance back in June. I just got it now in December, you know? And luckily if I wasn't so accommodating, right. You know, it was five months of background. Like that's a lot of rent to, to go back, but Milwaukee just moves faster and they are a lot more, there's a lot more options within that market.

 

Port options or rental assistance options.

 

Jesse (36m 36s): Does Chicago have rent control?

 

Brie (36m 38s): No. Okay. Hey.

 

Jesse (36m 41s): Yeah. The gas. Yeah. W I would have been 50 50 on that. I know it's tenant friendly, but I don't, I didn't know if they went that far.

 

Brie (36m 52s): So luckily for us, it is part of our state constitution. And once you get out of the state or city of Chicago, it is a very, very red state. So to, to have rent control in Chicago, you have to have this state constitution amended and there's way too many conservatives to allow that to happen. So every year it happened, like every year someone brings it up, right. And every year it goes to the process and every year everyone freaks out about it. And every year it gets stopped quite quickly.

 

But if it wasn't, if it was up to the actual like cities or counties, we would absolutely have rent control here. But luckily it's on a state level.

 

Jesse (37m 35s): Yeah. I think if I think Jersey, what is a Jersey, California, New York Mahershala, Washington. I think, I think we're the opposite. If you can find a, like a pretty sure across country, we have some form of rent stabilization. But the big thing for us is that is when we have new tenants, we mark the mark to market the rents. So you kind of reset at market levels, but it's a bit of a different animal. That's great. I, I want to talk or let listeners know where they can go and kind of reach out to you. But before we get there, we've got four questions.

 

We ask every guest. So if you're ready, I'll, I'll send them over to ya. I agree with something, at least one thing that you know, now in your career, you wish you knew when you first started out,

 

Brie (38m 17s): Oh gosh, just one thing I can do a whole podcast and all the things, You know, again, I, I'm a big believer in trusting your intuition, right. And figuring out what works for you, what works for me doesn't necessarily work for you. So that takes time. That takes your own learning lessons. But as long as, like you said, I've made obvious mistakes. As long as I was confident in my decision, right. I have no one to blame, but myself and that makes me sleep at night, knowing that like, Hey, this is, this is just a bump in the path and it's going to be a learning lesson down the road.

 

So my advice would be, you know, really focusing on what you're doing, what your goals are, what your needs are, right. Where, where you can grow personally and then create your own path.

 

Jesse (39m 10s): Gotcha. Okay. In terms of, if one thing or a few things you could say to new investors, people getting into our industry regarding mentorship, what would that be?

 

Brie (39m 24s): I'm not a fan of a mentorship thing. You know, I don't think it's a gun. Your mentorship to me is you're, you're learning from someone, but you're trying to replicate what they're doing. Right. And that's not always, right. So I'd like, I get all the time, like, Hey, what, what neighborhoods do you buy in? Cause I want to buy there. I'm like, well, I have haven't I have a Nissan Pathfinder. Do you want to buy my car? Because I have that car. Like, you know, that doesn't mean like what I have my needs and goals are. So it was back to the first thing of, you know, mentorship, you know, isn't, shouldn't be a immediate goal for someone, I think, you know, utilizing sites like bigger pockets, bigger pockets, right?

 

Learning about your market, listening to podcasts, right? Take a little bit of information from everything that you're hearing and learning and figuring out what works best for you. That's what you need. And then once you're ready, right. Finding a good team, a good agent, right. A good brokerage, good, you know, lenders, lawyers, whatever that will help support you and what your goals are. But you should be the one dictating what your path is. Not someone else telling you what to do.

 

Jesse (40m 32s): Fair enough. What's a resource or book that you find yourself constantly recommending.

 

Brie (40m 37s): Oh, getting things done. I love that book. It has completely changed. Like you guys, like not only do I not want a landlord, but I own a brokerage firm. I also plan an event for real estate investors. I'm nine months pregnant and I've got a two year old right there. You know, there's, there's a lot of different things that come at me at different times through the day with so many different moving parts. Right. So having like an organizational prioritizing to do list right.

 

To, to be effective has really important. So I read the book, maybe I was actually too busy to read the book. So I bought the cliff notes to be perfectly honest, about five years ago. And I went from working, you know, 60 hours a week in my business to probably working 30. I, you know, cut out all the nonsense and really transformed my work-life balance because of that book. Yeah.

 

Jesse (41m 36s): And I think they've updated. We've had a guest before recommend this and I think they've updated some of the, the concepts. Cause I, I it's, it's like the book for, for like task management and organization. So I think it w I can't remember what the release date, but a lot has changed technologically, but I still love the, how they systematize everything in that book.

 

Brie (41m 57s): I am so full though. I have to write everything down. Like

 

Jesse (42m 1s): I remember like the bin you'd have to move things from the bin. Yeah.

 

Brie (42m 5s): I have to like physically write things down and like physically cross things off of my paper. I can't do like a word, you know, or technology just doesn't work for me. I'm too old.

 

Jesse (42m 14s): So speaking of Pathfinders, our last question, first car making.

 

Brie (42m 19s): Oh, Ford Thunderbird. Terrible bomb. Yeah. I was at, it was my dad's car that I bought off him. Right. I'm a terrible driver. Do you understand this? No, I think it was a V6 or a V8, whatever. I crashed it so many times. I'm just a terrible driver. I still am a terrible driver. My husband drives pretty much. He will not, my husband will not let me drive a car if he's in it.

 

Jesse (42m 48s): I will say this though. It is, it was an upgrade back then from the four tourists, which, which I spent my childhood,

 

Brie (42m 55s): It was a beast of a car though. You know, I said, I ran over curbs and ran into walls with that card and like never scrape on me, you know, but yeah. Thank you so much for having me on the show.

 

Jesse (43m 9s): I really appreciate it. If anybody's, you know, in your local area or would like to just reach out to you where, where would be the best place to, to go

 

Brie (43m 17s): I'm on BiggerPockets almost every single day. Some messaging me on bigger pockets, Brie Schmidt, or you can check out my website. It's a second city spelled out dash R e.com.

 

Jesse (43m 30s): Okay. We'll send them there. My guest today has been breached brief. Thank you for being part of working

 

Brie (43m 36s): Capital. Thank you so much.

 

Jesse (43m 45s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse, for galley. If you liked the episode, head on to iTunes and leave us a five-star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.