BiggerPockets Podcast 132 with Brie Schmidt Transcript

Link to show: BP Podcast 132: How Brie Schmidt Grew Her Real Estate Portfolio by 50 Units in 1 Year

Josh: This is the BiggerPockets Podcast Show 132.

Brie: People ask me all the time, how did you grow so fast? I’m like well we actually went really slow.

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Josh: What’s going on everybody? This is Josh Dorkin host of the BiggerPockets podcast here with my cohost Mr. Brandon Turner. What’s up Brandon?

Brandon: What’s up Josh? How are you doing? How’s your July?

Josh: July is off to an unbelievable start, unbelievable start. We just had an excellent July 4th, actually this weekend was kind of tough. We were at a wake, we had some family in town that was as sick as a dog. I really didn’t do anything over the holiday weekend. How about yourself?

Brandon: I worked on a rental house and that was fun, I haven’t done that in a long, long time. But I did tile work at a rental house because my contractor pulled out at the last second. And it’s getting rented this Thursday so I went over and did some work. Good exercise that’s how I look at it.

Josh: That’s awesome man, that’s awesome.

Brandon: It’s funny that most people that listen to this show it’s going to be like end of July or even August but whatever. We’re recording this right after the 4th of July. And we do what we want because this is our show. That was me getting angry, did you like that?

Josh: Yes, that was great. Can we move on here?

Brandon: Let’s go to our Quick Tip.

Josh: Today’s quick tip. We recently talked about subscribing to forums, we’ve talked about this a number of times but I really do think it’s one of the most important tools on BiggerPockets and that is our keyword alerts. If you’re not using our keyword alerts you are drastically missing out on opportunity. So keyword alerts really quick. Somebody posted about something in a forum that you’re interested in hearing about you will hear about it. You can set emails or if you’re a Pro you can actually get text alerts.

Say you’re a company that works on turnkey companies, you can set up keyword alerts when somebody says, hey I got a question about turnkey. And you can jump in, be the expert, get the text alert, respond quickly and be the first person to answer. And then other people are going to see you and they’re going to be like, wow this guy knows what he’s talking about. And look, he’s got a really cool signature that’s got his logo and maybe I’ll explore that logo and look into his company a little bit. Keyword alerts are great for that, they’re great for like if you’re looking for meetups in your area or events or just general networking.

Hey I’m in Washington or Seattle so I’m going to set up a keyword alert for Seattle. So anytime people talk about it you can network and meet them. They’re really, really powerful. I definitely encourage you if you have not already set one up. BiggerPockets.com/alerts, BiggerPockets.com/alerts. Please if you have not yet set up a keyword alert you’re seriously missing out and should set them up today. So that is today’s not so quick, quick tip.

Brandon: I think a wolf just walked by my window.

Josh: That might have, God I was going to go somewhere and that would have bad.

Brandon: I looked out my window and this gigantic-like looking wolf dog. Well I’m assuming it’s somebody’s dog but I’ve never seen it before and it looked just like a wolf and it just walked right by my window.

Josh: Outstanding that’s what happens…

Brandon: There may have been a wolf…

Josh: In Podunk.

Brandon: That’s what happens when you live in Podunk.

Josh: Charlie? Charlie! Get inside! Charlie!

Brandon: Charlie’s on the floor sleeping.

Josh: Charlie is like a little girly-looking rabbit dog.

Brandon: He is a beautiful looking Yorkshire terrier, handsome devil.

Josh: Yorkshire.

Brandon: Yorkshire terrier…

Josh: He’s so fancy.

Brandon: He’s a fancy dog and he’s my fancy dog. He had a rough weekend with the fireworks. That’s like the worst holiday for dogs.

Josh: Absolute panic attack.

Brandon: He was shaking, he slept under the covers in my arms all night like shaking, it was shaking.

Josh: Ours stands in my face and does things in bed that I am not happy about.

Brandon: You wake up a different guy. Cool, moving on.

Josh: Let’s get to this thing, today’s guest is Brie Schmidt and Brie was our guest in a previous podcast when the show…

Brandon: 78.

Josh: Show 78, so Brie was a guest in show 78 and she has come a long way since then. In fact back when we spoke to her we were very excited about how she had just quit her job. But since then things have really, really stepped up and she has acquired dozens and dozens and dozens of units in the past year. It’s phenomenal, it’s something to really learn from so we were excited to bring her back. And with that why don’t we bring her on? Brie look at that, it’s great to have you back.

Brie: Yes, thank you for having me back.

Brandon: Cool, cool.

Josh: Excited.

Brandon: What have you been up to? Let’s go back, people don’t know who you are maybe because your last show had 66,000 listeners.

Josh: For the show number was that Brandon by the way?

Brandon: #78, BiggerPockets.com/show78 if you go on and watch or listen to that hey can go there. Why don’t we talk about a little bit about who you are before where you didn’t do what you’ve been doing the last year? Because the last show was definitely one of more popular ones and people really seem to like that. So give us a quick summary about who you are, where you come from, what you do and we’ll go on from there.

Brie: Of course. When we recorded the podcast last year I had literally 3 days, I had just quit my job to do real estate full-time. So when the podcast aired, aired the day after we closed on our first set of properties in Milwaukee. And so before the podcast was set up I had owned three buildings in Chicago and then we ventured out and we expanded our business into the Milwaukee market. So when we recorded the podcast we were just kind of feeling out what was going on there. And then we’ve grown that portfolio pretty nicely this year.

Josh: Can you quickly in two minutes or less tell us prior so that’s how did you quit your job, how did you get your portfolio started. Give us 2 minutes of how did you get to that point.

Brie: The first phase of our growth is completely different than our second phase because we went pretty slow. We bought a property, FHA financing, the house had a triplex. A year and a half later bought another triplex then we bought our house which was a single-family. We rehabbed it and then cast out the equity from that to grow the portfolio. So we only bought three properties in three years. Then we bought 18 properties in the past year. So it’s a very drastic difference. People asked me a lot of the time how did you grow so fast?

We actually went really slow and built a foundation, learned how to landlord how we want a business run. And then it’s wasn’t until we were comfortable with our abilities that we actually moved forward very quickly.

Brandon: I want to talk about that for a minute. The idea of you started out, you got a couple properties. A lot of our listeners are in those shoes, just looking on a list today, I ask a survey question when I do the webinar midweek and I ask people how many rental properties do you currently have. And I looked at that list today and a ton, there was like 7000 responses on this total this now. A ton of them, I would say the majority of them have 2 or 1 or 2 rental properties already besides their own household.

There are a lot of people that are in your shoes that you were in a year ago where they are just getting, they’ve got a little traction on what they are struggling with that next step. The quitting the job, the going full-time, the retire-, how do you scale? How did that happen? Anything you could shed on that.

Brie: It kind of happened organically. There was a couple of different things that went into it. When we were looking to originally do Milwaukee that was, we started going out there I think January 2014 we didn’t close until July. And so we were up there every other weekend, working full-time jobs and it got to the point where I was missing out on the use because I was working and I couldn’t get up there often enough to buy them.

So that was the catalyst for me leaving was now real estate my job was getting in the way of my real estate that’s what it came down to. Secondly we found an in-house property manager that was looking to go with us. So that has been a huge part of doing what we did. And the third part was we went into commercial financing and we had a great relationship with the bank we still have a great relationship with the bank.

They pretty much told me with your financials as long as you have a down payment we can do up to $1 million of paper for you. And so we were like, we’ll take it.

Brandon: Total or per property?

Brie: Total.

Brandon: Okay.

Brie: Without really much questions asked.

Josh: We just talked about that on our last podcast too.

Brandon: With Onika.

Josh: Onika was talking about how the commercial lending space has really become pretty loose these days.

Brie: Our bank, they’re very black and white about a lot of things but outside besides the DSCR, what the cap rate is and then how you fund it as far as down payment. As long as those 3 things are in check they’re pretty much good with what we do. They’re really confident in us, they love my property manager, when we go for closing they tell us all the time that he’s one of the best property managers. And so they believe in us scaling this business and just our last closing they told us that we can over 1 million but I pretty much went like this, I closed my ears because we can’t, we go to take a break for a little bit.

Josh: You just shared a bunch of stuff and I wrote down 10 questions based on what you just said so I am going to start spitting them out.

Brie: Yes.

Josh: You talked about an in-house property manager you’ve got 18 properties to date plus the triplex, the other triplex and that single-family if I’m doing my math right, so 21 properties. At what point can you afford to bring in an in-house property manager? When was it okay to do that? What are they getting? Because typically an outsourced property manager’s 8 to 12%. What do you pay if you are willing to share an in-house person?

Brie: We did things a little differently and it actually came from part of it was luck and I lot of it actually was because of the podcast. When you listen to the podcast the number one complaint is property management and it could make or break your business. It could turn a 10 cap into a 15 cap or a 10 cap into a 5 cap. So the interesting story is the first triplex we went to go buy in Milwaukee the owner showed us the property, his name is Carlos.

And he had a great rapport with his tenants, we loved the property, we wanted to offer on it. We asked him if he had more because he ran a very good business. So we started talking, turns out his mother-in-law had a bunch of properties, the first set of properties we both were theirs. But he wanted to get into real estate full-time he is at bilingual Special Ed teacher but has a passion for real estate but couldn’t afford to leave his job and pay for his income full-time.

So we kind of worked out a plan where just left his job last month to work for us full-time. So the past year he has been teaching and then doing us nights and weekends until we could build the portfolio quickly enough so that he, we could afford his full-time salary. So we pay him 9% gross per month and then we did something also a little bit differently. We don’t do lease ups, we do incentives to keep tenants in the units.

So we took what we would probably spend on the lease ups and divided it out by how many units we have. Because he runs, we’ve got 51 units out there, 48 are in service so he runs those 48 units. So he’s bonused quarterly if a tenant doesn’t leave. He is also bonused like if a tenant moved out on the 30th a new tenant’s moving in on the 1st and we don’t lose vacancy he is bonused for that too.

Brandon: That’s smart.

Josh: That’s smart.

Brandon: It’s always been like that weird thing with property managers is that they are incentivized to make you less money. It’s the weirdest relationship in the world. The more turnover you have and the more it appears you have the more everything you have the more problems the more money they make and it’s always been weird. So I think that’s kind of cool to set up your own in-house property management incentivizing them to stay.

Brie: We got really, really lucky where his wife owns property, his brother in law owns property, their mother owns property, their bus friend owns 80 units in the area and we all pretty much invest in one zip code. So the family’s been investing for 50 years all of their workers work for us too. So we are also between, the 4 investors are able to afford a full-time staff so that makes it a lot easier too.

Josh: That’s great.

Brandon: I love that.

Josh: What incentives are you guys offering to a tenant you talked about. Is it offering incentives to keep tenants around? What do those include?

Brie: We offer incentives to the property manager to keep tenants happy.

Josh: How do they do that? What would a property manager do above and beyond to make a tenant happy?

Brie: An example would be we just had tenants that we just raised the rent on for a building that we bought in December. And they are below market rents. And the tenant says fine I will pay more rent but we want this and this and this fixed. Half of it was reasonable, half of it would have been above and beyond but we still went and did it. We you want to keep that tenant happy, we both had the same philosophy of it might cost us a little bit more to do the repair or to put in new flooring even though the carpets probably fine.

Or to bring in new counter tops the counter tops are probably okay. If the tenant’s paying and the tenant’s willing to stay longer we’re willing to take on that expense to make them happy.

Josh: Makes sense. So 51 total units is what it sounds like you’re at, 21 properties.

Brie: 59 total, 51 in Milwaukee.

Josh: 59 total.

Brie: But we only have 48 in service.

Josh: Got it.

Brandon: The last time we talked to you a year ago do you remember how many units you had then total?

Brie: When we recorded the podcast we had 8.

Brandon: That’s crazy that 50 units in one year. There is a title for this show, how did it go 50 units in one year, how do you do that? First of all how are you still sane that drives most people crazy that’s a lot of work to acquire that much in one year?

Brie: It’s a ton of work and it has been really stressful thanks to my property manager’s teacher. So he is busy Mondays to Fridays still about 4 o’clock in the afternoon and does this after work. And often those 51 units 40 of them we’ve acquired in the past six months. So it’s been, actually 40 of them we’ve acquired in about a four month time period. Our bank account is insane, there is just money flying in and out. So we try to keep tenants and we send them all is a letter that we are going not going to raise rent we’re not going to change their lease.

We want to keep them. But every time we buy at least one tenant moves out in the middle of the night and then you’ve got turnover for the first couple months. And lots of the units if they are not up to our standards then we go and then rehab it. Even though we might not get a huge increase in rent it’s more that we look to attract a specific type of tenant. And we don’t want to rent out slummy units and get tenants that would like slummy units.

So it’s been a lot. I’ve been up to Milwaukee, depends on the month I’m usually up there probably one day a week. I probably spend 2 nights a month up there and trying to help out as much as I can and get things done. So we tag team property management I do all the accounting, I do all the advertising for the units, I do anything that involves sitting down in front of a desk. Because to me his job is more important renting out the units, taking care of the repairs, being in the field. So we kind of tag-team things for now until so he just went full-time in three weeks ago for us.

Josh: What kind of tenants are you looking for?

Brie: We want tenants that are going to take care of the units. So if you rent out the units with holes in the carpeting or dirt two floors are messed up countertops then you are only going to attract a kind of tenant who is willing to live in those conditions. So if we fix up the units then we can charge even and it’s a bit more rent it’s not even about the money. If they live in a nice place that they want to usually keep it nice.

Brandon: I’ve shared this story I think here on the podcast before but I will rehash it here. One of the biggest mistakes I’ve made in the last couple years is I’ve bought this property back a year and a half ago two years ago now and it was this gigantic huge, purple, Albany house it was just nasty looking. And it’s the one that Ben Labovitch wrote in a book about Waldo because it stands out weird.

It was this gigantic house but it was beautiful inside but the outside was just horrific. Another friend of mine calls it the monster house just because it looks like an old scary. We look at that we bought it I think it was December like a year and a half ago in December and in Washington State where I live you can speak the house in the winter where it reads every single solitary the. So we said well that’s just get it rented out now as it is and we’ll deal with the painting in the summer.

I had two evictions out of the three units in that triplex two of them ended up with evictions costing me I probably spent 10 grand eviction costs and damages and everything else. Because like the tenants that was attracted to a gigantic nasty looking purple building is the same kind of tenants that, I was giving them a good deed and everything like you said it’s not about the money it is about the kind of tenants you attract. I would have been better off having that unit sit vacant or carping the entire house and painting it. Spending extra five grand on plastic and carpet and painted it but mistake, you bring up the level of your property to attract the kind of level tenants you want. And if you don’t do that you are going to end up with evictions like that.

Brie: We actually just had our first eviction.

Brandon: How did that go?

Brie: It went okay she didn’t pay rent and it was pretty cut and dry. It just took us a while that was the other, since we’ve bought so many properties so quickly and were stressed out to the max. We definitely dropped a lot of balls along the way versus if we would have done things more at a steady pace. So it took us a lot longer to get her out because we took too long to file and we weren’t really on the ball a lot of things. But yes it was pretty easy. I think we lost 6 weeks of rent so it wasn’t anything super detrimental to us.

Brandon: How was the damage? Was it damaged a lot or was it…?

Brie: Nothing.

Brandon: Okay that’s good. It sounds like you did it yourself you didn’t hire at an attorney to take care of it right?

Brie: We did, we did hire an attorney. They were just really slow.

Brandon: Okay. That’s an important thing, even when you hire an attorney, I always hire an attorney. But I’ve had my attorney get somebody out one time in three weeks or it was like two and a half weeks they were out and another time it was months like the big monster house it was two months long. I think a lot of it has to do with how much, how quick your attorney wants to be.

Brie: Exactly and that was our first time and we are not required to do an attorney. You can go file it yourself but again I live 2 hours away, my property manager works each time till 3:30 in the afternoon. So he has to rush over to court and then take a day off of school to be there. Or I would need to drive four hours round-trip to be there. So it’s easier just to hire and attorney so I just use Google and looked up one real quick. We could have done things a lot easier if we had known or asked for referrals because they were just slow.

Brandon: There’s a new website that just came out online it’s called BiggerPockets.com. You actually needs people in the market and ask them who their attorney is.

Josh: I wish I’d learned about that site.

Brandon: I asked Dawn but I had already hired him by the time I asked Dawn.

Brandon: Okay I can’t give you too hard of a time. I think there is, that is one of the tremendous values of using BP in that I get a lot of value and a lot of people do is have these connections with people. You build relationships with people in your market. Like you have…

Brie: Really?

Brandon: Yes, it’s amazing right?

Brie: Absolutely.

Brandon: I know you want this stuff.

Brie: You’re preaching to the choir on this one.

Brandon: I totally know, it’s valuable stuff just to reach out and build relationships like I know you have.

Brie: Yes, it’s crazy the amount of helpfulness and people that are on BP. We just changed over all of our insurance to our referral from BP. We don’t need a lot up there because we have a lot in-house. But here in Chicago I help run one of the meetups. We just get together and the amount of connections that people make there it’s amazing.

Brandon: I give you a hard time because I do the same thing because I’m on BP like 18 hours every day. And feel like the other day pass it in the forum. So I could use that so I yell at myself as well. I spent weeks trying to find a foundation to contractor and I was like, stupid, go post it in the forum, use that I yell at myself as well.

Josh: Are you having a hard time talking there Brandon.

Brandon: I sometimes struggle with this.

Josh: Those of you who can’t see he smacked himself across the face.

Brandon: I do that sometimes. I want to go back to the idea of adding those 50 units in a year. Are those single-family houses, multifamily, what is the makes of that?

Brie: Majority, they’re all 2 to 6 units.

Brandon: Okay.

Brie: So we’ve got a 6 unit, a 5 unit a couple of 4s and then everything on 2 but we have never done a single-family.

Brandon: Okay.

Brie: It has a lot to with the housing stock, we invest both in Chicago and Milwaukee are very dense urban environments. So it’s house, house, house, house, it’s just a very and the way the area is built up. Over 16% of the housing is duplexes or above. So it is so prevalent in that area it just makes sense to do it.

Josh: And what’s your average cost per door?

Brie: That’s a good question.

Josh: Hold on, just going to pull out a calculator. Give or take, we’re not talking…

Brie: Drop that number.

Josh: A $100,000 a door.

Brie: About $27,000 a door.

Josh: Okay so definitely a lower priced market.

Brie: And you’re looking at, in terms of tenant classes like C, D, A, B?

Brie: I would say it’s B, B minus. The area is very, there’s not a lot of crime but it’s definitely working-class but it is not violent. I don’t feel unsafe walking around at night. That’s one of actually our rules until I got to learn the market myself I relied a ton on my property manager to help me out. And his wife does HPAC stuff. So she will do service calls on our unit sometimes and she is like this tiny little 5 foot nothing, 80 pound Barbie.

And if he won’t let go there by herself at night then we won’t buy there. So that’s always kind of been our…

Brandon: Criteria.

Brie: Yes.

Josh: How are you finding your properties? Are these MLS? Are these direct mail? What are you doing?

Brie: A couple of different ways, the first property we bought was MLS. The other 4 were off market it came through the seller. The next set that we bought were, we’ve only had four closings so we tend to buy in five-house chunks. The second set was pretty much all MLS, the third set then we bought one property from a seller in December then a month there talking to other agents, I talk to them all about what I do. So a lot of what we’ve bought in the last 6 months has come from other sellers we’ve bought from off market stuff.

We actually did a direct mail campaign in April, Jerry Puckett did it for us and it was overwhelming the response that we got from the campaign, I didn’t even get to call back half the people.

Josh: Wow.

Brandon: Wow. I’ve never done that directs meals thing yet and we talked a lot about it but I haven’t actually done it. What are you going to continue that strategy? How far do you want to take the direct mail stuff?

Brie: Actually I did my own direct mail campaign last October and I think I sent out maybe like 500 postcards and I got 3 phone calls. I had Jerry do 1,000 letters for me and I think I got 120 phone calls. It was a pretty drastic difference and at the time we were looking to getting stuff on a contract before we were going on vacation.

So I ended up not buying anything from it but I am going out next week to look at 16 units from one seller. I’ve got a couple of portfolio deals in the works through that direct mail campaign put on a few months ago.

Brandon: Very cool.

Brie: I was very impressed.

Brandon: Yes I love it. I love it that you are not just relying on one method you are not just saying there’s nothing on the MLS cannot buy anything I’m going to watch some friends. You actually working.

Brie: It’s crazy, I just had a guy email me the other day. I bought three properties from him over the past months and he’s got eight more he wants me to come look at. So that happens a lot or I’ll be at restaurants and I heard someone talking about selling their duplex so I just went over and interrupted their conversation. Told them what I do and so they got a few that I may be looking at too when I go back up there.

Josh: You had said you’re finding MLS, off market and sometimes they just come from the seller. So when you say they just come from the seller that’s what it is, it’s literally just talking to people who have properties. Who you say, I’m an investor and always looking for new properties and it just kind of comes.

Brie: I’m pretty annoying about it like and make it a point, when we do closings we usually have five different sellers. And make sure all of them know I’m always looking to buy, I make sure all of their title agents know, and make sure all of their agents now. And I give them a card every single time.

Josh: You just talked about having multiple people at the closing and you earlier were talking about various sets, I’ve never heard of somebody doing this so I want to begin. Are you saying you hypothetically find three or four deals and you arrange to close all three or four at the same time, same close? Now you’re not sitting in the same room with all these people you’re going room to room to room right?

Brie: It’s mainly because of our loans so with commercial, $27,000 a door is a very low price points for a commercial. So what we’ve kind of worked out with them is we will buy multiple properties at once so that you guys as a whole is enough for them to be interested in talking with us. From there that’s why we coordinate it the way that we do it’s definitely challenging. I usually wait till I find one or two anchor properties, set the contract to close six weeks out and that gives me about three weeks to find any filler houses that come out in the meantime and then yes we coordinate one closing.

Josh: That’s fascinating.

Brandon: Yes it is.

Josh: I’ve never heard that.

Brandon: What are you doing? Are you doing a half hour, hour increments, two hour increments? Schedule one at 1:00, one at 3:00, one at 5:00?

Brie: No we usually do like every half hour.

Josh: No kidding.

Brie: Usually if the sellers pre-sign will just move those ones because that happens a lot too. So I may be there for an hour, an hour and a half tops.

Josh: Presumably you are reading the contracts before you…

Brie: Of course yes. I read the contracts I’m a broker. I have my own brokerage company in both States so I represents myself and write my own contracts.

Josh: Got it.

Brie: I’m also very involved with, I review title, anything an agent would do for you I do for myself already. There is really not much surprises.

Josh: Got it, cool. And what about the conditions? Are these properties needing repair when you buy them? It sounds like that’s the case am I missing out?

Brie: It depends, we try to buy as rehab as possible. But that’s not always available to us. Especially when we are buying five houses at once where usually picking up these 10 to 15 units at that time and that’s a huge undertaking to take over. So I usually try to do at least three buildings rent-ready, easy performance. I will take on one or two building that needs some work or I will do for really good buildings and one building that is going to need a lot of work. That way our stress levels on our to-do-list doesn’t get out of control.

But it just depends we do, the thing with Milwaukee which is an amazing that’s sarcasm is that the city comes out when you transferred title. They city comes out and does act quote inspection. The buyer is responsible for fixing everything on the quote inspection. So sometimes quote to paint a porch, do a screen, we’ve had to reroof houses, we’ve had to regrade entire properties. So that has, and a lot of times it depends on who your inspector is.

So there is a sheet of code violations but depending on how strict your inspector is, depends on which once you get hit with.

Josh: A bad inspector could screw you because I’ve dealt with some guys that just had it out. And once that happens it can be a real nightmare it can be.

Brie: It can, I tried to be as sweet and nice as possible when I am talking to the inspectors. I’m just a blonde girl doing this on my own, I tried to play that angle. I’ll give you an example, we bought this house in December it’s an interesting property it’s three single-family houses on one lots and then two of them have basement units. So if a five unit property. We bought it for $55,000.

Josh: You bought five units for $55,000.

Brie: Yes. At the time it was renting for…

Josh: This is Milwaukee right not Detroit?

Brie: Yes. This is our worst property that we bought for sure it’s our worst property that we’ve bought. And it was renting for $1,600 a month. Both the basement units were not in conditions that we were comfortable renting out with so we actually vacated those units. Those are two units that are not in service currently. At some point when we’ve got more time we probably go and then fix them up. But there was five bedroom front house that was a total disaster.

We had to get rid of the tenants, we had to repeat all ceilings with you all new windows new flooring throughout, it had like five different kinds of flooring. The bathroom was just disgusting, we had to do new kitchen. So we put in, that’s the house that’s the house that also had 63 code violations I think. But like each window, if it needs new screen that’s a validation for each window. So we’ve got three houses so that house in particular we’ve already put in about $30,000 on and we got another probably $15,000 to go to get it up and then it will rent for $2,100 a month.

Josh: It sounds like you’ve got about 10 units out of services that right?

Brie: Three.

Josh: Three total?

Brie: Yes.

Josh: I feel like I thought I heard you said 10 across the portfolio.

Brie: We’ve got 59 units total, 8 in Chicago because ours is a 2 unit, our single-family house is a 2 unit. And then we’ve got 48 in service in Milwaukee. So those two basements units we’ve also bought a four unit property that had one of the units, sort of the studs. So we have to run plumbing, electrical and do that unit. Where just probably going to wait until next year and get everything they realized before we kind of mess with that.

Josh: When you buy and assuming you’re doing the math on these properties.

Brie: Yes.

Josh: So what are you accounting for generally then? Out of service means vacant obviously, out of service means not rented, it means no income coming in. How do you account for that when you are doing your math upfront?

Brie: Those 3 units in particular knew that we weren’t going to use in service so I did the numbers without including that rent.

Josh: Okay.

Brie: I just pretend like they weren’t even units that were rented out at the time.

Josh: And everything, if you are making money above and beyond that you can add that, it’s just bonus.

Brie: Exactly. That’s why the four unit we bought the numbers on it when I ran my calculation work on it being at three units. That’s way it takes us 10 years to make that the unit then we weren’t losing money it was still a good buy.

Brandon: Yes. I love that. I want to shift gears and it’s a bit and talk and it’s a bit more again on the kind of thing on this episode which is you buying 50 units in a year. To me would appear that you were vert driven towards that. That’s not willy nilly buying, oh I think I will pick up a rental property. That is very like, did you have…?

Brie: Very aggressive.

Brandon: Very aggressive good word. Did you have that goal, here’s what I’m going to do this year I’m going to dominate this. How did you get into that zone off just go, go, go, go, go, buy, buy, buy?

Brie: So we closed on the first set in July and then really like test some things out with our property manager. We wanted to make sure that he was capable of scaling with us and that the processes that we put in place were going to be scalable. So we worked from July until about November on systems, processes, getting things ready to go and then once we were confident that he could handle a large-scale operation that’s when we kind of went into buy mode.

So the mindset of it really was, there was a couple of reasons like I said. He was going to quit his job for us so we had until summer to get to a point where we could pay him a full-time salary. My husband wanted to join me in the business so we were working on getting him into this as well. So the faster that we grew, the faster we had money coming in, the faster he could retire as well.

Josh: You talk about systems and properties what does that mean? I don’t know what that means I’ve got two properties I’ve never done this before, I’ve done very little and you’re telling me that I developed these systems. That sounds like some fancy corporate speak. Could you break that down for like an average guy who doesn’t fully understand? Because you do need that in order to scale you can’t just haphazardly run your business if you are going to scale. So what does that look like?

Brie: There was a couple of issues that we identified pretty early on which that a lot of the tenants paid cash. And when we had a couple of units my landlord driving or my property manager driving around picking up cash every month is what it is but once you get about 48 units that a full-time job will be picking up grants. So one of the things that we did was we implemented a couple of different payment options. One of them was actually Payoneer.me which was the sponsor of my first podcast and I love them. It’s been a huge help to our business.

I remember emailing Brandon like six months ago and asking him about it because I know that you use it too. So that’s taken off a lot of the responsibility. We also set up a PO Box tenants can send rent checks instead of picking up cash or they can deposit it into our account. So we have taken off a lot of the responsibility. Because before it was my property manager’s responsibility to coordinate a time to pick up cash.

And now we’ve put the responsibility on the tenant. So now that we know like on the fifth of the month I always look at our bank account and our Payoneer.me account and I add up who has stayed on the sixth in the morning he goes to the PO Box see who has sent in rent checks and then whoever hasn’t sent in anything yet gets a five day. Then we also know that on the 10th we always check again and whoever doesn’t pay still gets the eviction notice. So we’ve embedded those processes.

The part two is that with 48 units we’re all is going to have vacancy every month, we are always going to have turnover happening. So we, in Milwaukee you can get into a unit within 12 hours’ notice. So we a. try to rent out the units while they are still occupied. So we do show units while they are occupied. And my property manager always get a chuck list of what needs to be done.

So if we need to put in, rip out the carpet, put in new flooring and paint the kitchen as soon as that tenant’s out we have the supplies already there. We got the staff already books to do it so that they can work overnight to get it done so that the next day we’ve got new tenant moving into a newer unit.

Josh: Wow, that’s pretty impressive. It sounds like, are you typically having your units for renting before the tenant is gone?

Brie: Yes and that’s how, we changed that so that’s what we weren’t doing that as aggressively as before. So we just implemented this new incentive program for my property manager and settle the lease up. So he’s incentivized to lease it up back to back. And we did that, we started about four months ago and our vacancies already down 4%.

Josh: Can you explain how you are doing that? Because I’m sure other people listening will be interested to hear what the incentives you’re offering.

Brie: As far as?

Josh: To your property manager, I’m assuming you are giving him a piece of something. What are you giving him?

Brie: I figured that typical turnover is two years so I took 48 units times the cost of one month vacancy, one month of lease up over those two year period. Divided it out by month and then I pay him quarterly based on that. So it is essentially what he would get hypothetically if every tenant left after 2 years and I paid him a lease up fee. But this way he gets it quarterly and it promotes a different object.

Josh: Smart, got it, make sense, right on.

Brandon: Cool. Why don’t we slowly start to get out of here and shift gears over to the Fire Round?

It’s time for the Fire Round.

Brandon: These questions all were pulled straight from the BiggerPockets forums which of course our listeners can go and hang out on at BiggerPockets.com/forums. So #1, how long do you think somebody should stay with a broker before deciding to switch if things aren’t going right?

Brie: That’s a really good question because and a broker, I do take on clients and I refuse to make clients signed an agreement with me. Because I think that if you’re a broker after maybe the first time you go out with them isn’t getting what you’re objectives are or if they’re pushing you into something that you clearly see it is not what you want then I would leave them immediately. It’s very hard to find you have to be really, really in tuned with your agent and make sure that they get you.

Brandon: Fully agree.

Josh: Agree. The challenge is that a lot of agents will say well I won’t work with you unless you sign six months with me or nine months. Let’s say you’ve got to decide at that point what are you going to do?

Brie: I do take on clients at so very part-time for me definitely not even a focus of my business. And I just feel that if I’m not providing you with the service that you need to get whatever you need done in your objectives then you shouldn’t work with me.

Josh: How would you encourage investors to broach that to a real estate agent or broker? Because I can see lots and lots of brokers saying I’m not going to work with you, you are just going to use me and then go sign a deal through somebody else. Because I was an agent and I know agents are worried about that stuff.

Brie: I work only with investors, I don’t do retail, I don’t do residential stuff. So I think that’s also a bit different the relationship and the incentives that with investors your typically buying multiple properties over short period of time. Not just selling them their first house and done with it. So if you create that cool relationship with them and they know that there is long-term business in it for them then they should be willing to work above and beyond to help you out.

Josh: True theoretically.

Brie: Theoretically.

Josh: Yes.

Brie: We all know it doesn’t always work for that way.

Josh: No it does not. Next question, what are some key things that you would say is attractive in multifamily over single-family apartments rentals?

Brie: I would say that it probably has to do with the numbers at least in the areas that I invest. The cost of multifamily is generally the same if not a little bit less than a single-family house and you get twice the rent. There is also more expenses though it’s too because you can’t sub meter either the water out you have to take care of usually snow removal and lawn care because you can do that though between the tenants. So just be aware that you run your numbers properly it can be more beneficial. I don’t think it also works in all markets, a lot of all markets, multifamily is not very prevalent in the housing stock. And it makes it harder to buy those.

Josh: Makes sense.

Brandon: Cool. Next question. This one actually is the newest one on the forums right now. I just went to the forum and looked at it from William in plain old Texas. I’m going to read a quick story here’s what it said. “I have a tenant whose rent is due on the first with a great spirit to the third. I contacted him on the teeth and was told that he is in the hospital and he will pay the rent and late fees. I still have not received the rent as of today which we’re recording this on the 6th. It sounds like this may be an excuse.

This is the first time I met this problem I’m not sure how to deal with it. Should I start with three-day. Does it help to be written or is email fine? When should I start the eviction process? I’m in Texas what should I do?”

Brie: I can’t believe that question. Because you should logically, I would give him another week to be honest. But then again I’m sort of a pushover there’s always something. Every month we have something, we’ve got to tenants right now on payment plans. So it’s really goes to the guts off does he have a history of being on time? Is this may be a one-time thing? Then yes I maybe give him another week. But after that then you have to be a little bit more hard-nosed and that’s one of the thing that I am trying to get better at myself.

Brandon: Obviously what I would probably do is, if it were me, I wouldn’t want if somebody was in the hospital I’m going to want to be nice to them. And if they were a long time tenant of mine I’m going to treat them differently than a new one. But I would probably serve the notice at the three-day our five day or whatever is required right away.

Brie: Just to have it.

Brandon: Just to have it because that’s way if I find out later it was a lie or whatever boom I can find eviction right there. I don’t have to wait another three or five days for that to happen. And the three or five days it’s easier served, it’s cheap, simple so.

Josh: Yes.

Brie: Yes.

Josh: Or you can just confirm that they are at the hospital, what hospital are you staying at? I’ll come, send my property manager, send you some flowers. Last question. What information are you looking for on multi-families when you’re buying? You’re looking at rent, what are their key metrics matter for you? What are your buying criteria for multi-family?

Brie: I have solid I built where I just put in the rent, the taxes and how many units and it calculates my numbers for me based on historical is in that market. I know that the water bill is always going to be around X per unit so I build that into my formulas to give me a number that meets my criteria. I actually don’t even look at the pictures, I don’t look at much else I just import it into that data or that Excel or go see it if it makes sense for me.

And then you know my bank requires DSCR to be within a certain range cap rate to be within a certain range so it has to meet that as well. So we do require as schedule E from the sellers or a P&L for the past 12 months that’s signed it they just sign and notarize it. So that we are, have an accurate portrayal of their expenses.

Brandon: You mentioned a second ago DSCR, can you explain what that is?

Brie: Debt-Service Coverage Ratio, so for example if the house rents, if the mortgage is $1,000 they want the [inaudible][44:52] to be 1.2 so $1,200 a month on it, is the minimum DSCR that the bank will take. So you have to make sure that you are using accurate numbers and conservative numbers. We actually run our numbers more conservative than our bank does.

Josh: So this is just for lending criteria.

Brie: Yes just for lending criteria.

Brandon: So a DSCR of zero means there’s zero cash flow. Ideally it is like a measure of cash flow 1.2 means there is 20% more cash flow than breaking even if that makes sense. That’s kind of a weird way of explaining it but yes that’s how I think of it in terms of extra cash flow to pay the, after the mortgage is paid how much is left over? 1.2 is obviously better than 1.1 which is better than 1.

Brie: Exactly.

Josh: Right on.

Brandon: Right on. Let’s move this thing over to the end we will take it to the World Famous…

Famous Four

Brandon: The World Famous, Famous Four. You’ve been asked these questions before but maybe something has changed so let’s ask them again. Number one, what is your favorite real estate book?

Brie: It’s still the same book I said last time which would be The Millionaire Real Estate Investor pretty much since I haven’t read a book in the past year. Which I’m so embarrassed…

Brandon: You’ve been a little bit busy?

Brie: To admit. Yes.

Josh: What have you been doing?

Brie: Running 3 businesses. It’s really embarrassing because I used to read a ton but the good news is I replaced my reading with BiggerPockets podcasts.

Brandon: Nice.

Brie: So my favorite real estate book would be an audio book of the podcasts.

Brandon: Nice.

Josh: Pretty good book.

Brandon: By the way, The Millionaire Real Estate Investor, for those people who are interested, we interviewed the co-author of that Jay Papasan. One of my favorite interviews which was in the hundreds wasn’t it? I can’t remember exactly what show it was.

Brie: [Inaudible][46:37].

Brandon: Yes it was something like that.

Brie: It was a great podcast.

Brandon: Excellent. So they can check it out at BiggerPockets.com/show113. Next question.

Josh: Awesome. Favorite business book and since you haven’t read a book maybe you will just give us the name of the same one.

Brie: Still The One Thing.

Brandon: I love that book. That is my favorite business book.

Brie: I do have, like everyone else I keep a to-do list and the 10X rules on my to-do list. And there was another one I just wrote down from one of the podcasts last week on that sounded really great. So it’s on my to-do list to buy those books and read them.

Josh: Excellent and how about hobbies outside of work? What are we doing for fun?

Brie: Travel, we’ve been really lucky. We went to Mexico this year, we went to Northern Europe for two weeks. Planning out another Italian this year, maybe Morocco. So that’s been a huge focus of us is being able to travel again.

Josh: Right on.

Brandon: That’s awesome.

Josh: Excellent.

Brandon: Final question. What do you believe sets apart successful real estate investors from those who give up or fail are never get started?

Brie: I think that the number one thing for me to do is to self-sacrifice. I think a lot of the times on the forums we get people like how do I get started with this? It takes a lot of hard work, it takes a lot of sacrifice whether it’s financial sacrifice through savings or sacrifice working nights and weekends to get the job done. I think that is what sets people apart is the ones that are willing to make sacrifices for what they want.

Brandon: I love that.

Josh: Fantastic that’s great. Brie thanks again for coming back and congratulations on the last year. It sounds amazing it sounds like you’ve really been doing great things. So lots of luck on that and lots of luck going forward. Before we let you go where can people find you? Clearly BiggerPockets.

Brie: Obviously BiggerPockets I’m always on BiggerPockets. They can also find me on my website which is turnkey-reviews.com. Or you can email me all my information is on my profile on BiggerPockets.

Josh: Perfect.

Brandon: Bye-bye.

Josh: Alright Brie. Thanks so much.

Brie: Thank you.

Josh: And we’ll let people throw questions up on the show notes if they have anything for you and we’ll see you around thanks so much.

Brie: Thank you.

Brandon: Thanks.

Josh: That was Brie Schmidt big thanks again for coming back to the podcast and of course that’s just phenomenal what she’s doing in the past year. That’s a lot of units.

Brandon: That’s a ton of units, she totally passed me up and she’s making us all look bad.

Josh: Maybe she should be cohost.

Brandon: Maybe Brie should come on here and show me what’s up. I will go lie on the beach or something.

Josh: Sounds good to me.

Brandon: Sounds wonderful.

Josh: Actually I’ll take that one up.

Brandon: Alright. We’ll both go to the beach we’ll just let Brie and Ben…

Josh: Oh God. Alright guys big thanks to Brie for coming on. It was a lot of fun and lots of great stuff. So thanks again otherwise as we always talk about getting involved, jump on this site as you can see Brie has really learned a ton from BiggerPockets.

Engaging, connecting on the site has proven to be quite valuable. And just being a part of the community has been great so we’re very pleased to have had her. Otherwise if you are not following us, engaging us and connecting with us on fun places like Twitter, who isn’t connecting to us on Twitter? Twitter is awesome.

Brandon: Twitter is where it’s at especially if you’re a 13-year-old girl or a 45-year-old man like you.

Josh: I’m sorry did you say something?

Brandon: I don’t know what you’re talking about.

Josh: Twitter is amazing. Get on it and follow BiggerPockets today. Otherwise Facebook, we’re putting out lots of great content. Guys if you’re listening to the show up fully you are a fan of BiggerPockets and BiggerPockets podcast. Please take a couple minutes it really, really helps us. Jump on iTunes and leave us a rating and review. We really, really count on those to help us spread the word about BiggerPockets. If you have not done so and you have consumed at least 10 of our episodes jump in their and pay it back by leaving us a rate and review we would really appreciate it. It means a lot.

Brandon: And Josh will drive to your house and babysit your kids for an entire week. While you go on an all-expenses-paid trip to Bali.

Josh: I’m going to do that for everybody…

Brandon: Every…

Josh: Who leaves us a review.

Brandon: There you go.

Josh: You are out of your mind. That is not going to happen.

Brandon: It could happen.

Josh: You’ll have my eternal gratitude.

Brandon: That’s almost the same thing though.

Josh: It comes close.

Brandon: I was just setting people up for an even better thing your gratitude.

Josh: Well done.

Brandon: Thank you.

Josh: Well done.

Brandon: That’s my monopoly strategy.

Josh: Oh yes is that right?

Brandon: Offer something really, really good and then just back it a little bit and it doesn’t seem as quite as.

Josh: Okay well awesome. Well listen hopefully by the time you listen to this podcast the word is not falling apart. Because as of today this Greece crisis is getting crazy, the word financial system is looking at it to shaky who knows what is going to happen? I don’t know what I am talking about this now but it is interesting to me and so I am going to just keep talking about it.

Brandon: I know nothing of it other than I read an article online that said that my Greek falafels are going to be more expensive. Is that even a thing of falafel, I don’t know.

Josh: A falafel is a thing.

Brandon: Okay good.

Josh: You’ve just proven your ignorance.

Brandon: My Greek falafel is are going to be more expensive now and that takes me off. I like my falafels.

Josh: This is Josh Dorkin signing off.

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