BiggerPockets Podcast 078 with Brie Schmidt Transcript

Link to show: BP Podcast 078: Quitting Your Job, Buy & Hold Investing, and Succeeding With High-End Rentals with Brie Schmidt

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Josh: What’s going on, everybody? This is Josh Dorkin, host to the BiggerPockets podcast, here with Brandon Turner. What up, Brandon?

Brandon: What up, Josh? Was that your like Grandpa voice?

Josh: Yes, that’s my rural Washington voice.

Brandon: There you go. Rural Washington. Good job.

Josh: Yup, yup.

Brandon: What’s new?

Josh: Man, just coming off a nice July 4th weekend. Excited about the recent launch of the BiggerPockets redesign and finally de-stressing a little bit now that that’s done. And otherwise just living life, man. Enjoying my family, enjoying the summer and doing things. Having fun.

Brandon: Nice. Hey, on the day that this comes out, which comes out on July 10th. It would have been my birthday yesterday, but we’re recording this before my birthday but you know—

Josh: So should I be wishing you a Happy Belated Birthday even though I already got you a gift or was responsible for it?

Brandon: You already got me a gift?

Josh: Don’t you love it?

Brandon: I love it. This is great.

Josh: Happy soon-to-be birthday or happy belated.

Brandon: Happy soon-to-be belated birthday. There you go.

Josh: There you go. By the way, in case anybody didn’t notice, Brandon was mentioning his birthday because he wants you all to flood his e-mail with happy birthday messages, so please feel free to blow up his e-mail with e-mails.

Brandon: Thank you.

Josh: Yeah, listen—we’ve got a big show. We’ve got a great show today so let’s get this thing going. Today’s Quick Tip is—we are about to launch webinars on BiggerPockets. I know we’ve got this free podcast that rocks. We’ve got all sorts of other things going on like a blog that is amazing and the greatest forums online and all sorts of other cool stuff. Yeah, we’re going to add webinars to it, too. Just for fun. Why not, right? So check out these webinars. We’ll be promoting them on Facebook on our site and e-mail so on and so forth. If you are interested, we urge you to come on and do some learning with us on the BiggerPockets webinars to be launched soon or to have already been launched.

Brandon: Also, I will put a link in the show notes to the webinar page that way in the future, people who listen to this can click on and go to the show notes page, BiggerPockets.com/Show78 and they can see where the newest webinar is going to be, so check that out.

Josh: Awesome. Awesome, awesome. Which brings us to today’s show and today’s guest. Today’s guest is Brie Schmidt. Brie is an active, active member of the BiggerPockets community. She is amazing. She’s always out there giving advice, being helpful to folks and we wanted to have her on the show so here she is. Brie is officially, as of two days ago now, a full-time buy-and-hold investor who loves travelling and living the high life and being supported from her buy-and-hold investments and of course, working with her partner in crime, her spouse. She and her husband own property throughout Chicago and Milwaukee areas and they are passionate about what a good buy-and-hold strategy can produce and they’ve built up a pretty substantial buy-and-hold portfolio in the past three years that they’ve been at this. So definitely somebody to watch and learn from. With that, since we’re talking about buy-and-hold, Brandon, we’ve got our latest sponsor for the podcast. And I thought we’d mention them really quickly here.

Brandon: Well, I will take this one because this is something that I’m actually really passionate about. Our sponsor today is actually more than a sponsor. It’s a company that I know and I love and that is PayNearMe. This is a service that I use every month to collect rent and I really highly recommend it. In the past, all my tenants used to mail rent or drop it in the dropbox and it was a major hassle every month. Lost rent, etc. but now I use PayNearMe every month, which allows my tenants to pay their rent in cash at any 7-Eleven or Family Dollar and I get notified immediately that they did pay and then the rent gets direct deposited in my account. You can learn more or sign up at PayNearMe.com/BiggerPockets and our little pro-benefit of the week is actually related to that. If you are a BiggerPockets Pro member, make sure you go to BiggerPockets.com/perks and sign up through that link and you get a $30 Amazon gift card when your tenant makes their first rent payment. So definitely check them out. PayNearMe.com/BiggerPockets or at the BiggerPockets Perks page.

But that is way too much chitchat. Let us get to the interview. Josh, you want to welcome her in?

Josh: All right, Miss Brie. And I can call you that because we’re friends.

Brie: Yes. We’re friends.

Josh: Welcome. Welcome to the show. It’s good to have you.

Brie: Yeah, thank you for having me, Josh and Brandon.

Josh: You can call him that because we’re friends as well.

Brandon: We are friends as well. Yes, we are friends. Brie has been pretty active on the forums for a while now and we’ve been trying to get on the show for a while now, like three or four months. We finally got you.

Brie: Yes, sorry. I’ve been travelling a lot.

Josh: That’s okay. Brushing your teeth and that kind of thing.

Brandon: Cool. We want to hear about that and I actually want to ask you about your travelling but we’ll do that later. Why don’t we start from the very beginning? How did you get involved or interested in real estate investing?

Brie: The real estate investment came 10 to 12 years after I got started in real estate. Long story short, I was a licensed assistant at 17 and got my broker’s license at 21 and absolutely hated it, dealing with residential buyers. It was just not my thing.

Brandon: Josh, you did that, too, right?

Josh: We have the same story.

Brie: Yeah. So I went into corporate sales for about a decade and did that for the last ten years but I got started with real estate investing a couple of years ago and my husband and I were getting married and we were looking to start a family and plan out our whole life and stuff, but if you look at like Chicago housing stock, like two to four unit properties are actually more prevalent than single-family homes or condos in this market and it’s actually about $100,000 cheaper to buy a 3,000 square foot multi-unit than it is to buy 2,000 square foot single-family. And so we bought the three-unit. Yeah, it is interesting. We bought the three-unit thinking we would eventually convert it to a single-family at some point of our lives, really with no intentions of being real estate investors. We never looked at being landlords, never researched any of that and just kind of winged it the first couple of months and realized that it was a passion of ours and we’ve kind of gone up from there.

Brandon: That’s cool. So you bought a triplex to live in, correct? You actually lived in one of the units.

Brie: Correct. We lived in one of the units and we rented out two of the units.

Brandon: Okay, and when you first bought it, you talked about you wanted to maybe turn it eventually into something else. Did you rent it out immediately or did you rent it when you bought it or did you just stick with one—just you in there?

Brie: We rented it out immediately. So we took about seven months to find our property. It was a very long, tedious process, but we bought a rehab so it was fully condo quality, brand new hardwood, stainless granite and all that. We bought it and we had it leased up within 48 hours and we had tenants moved in within two weeks.

Josh: Wow. And this is in downtown Chicago or where is this at?

Brie: The north side of Chicago.

Josh: Northside, nice.

Brandon: I don’t know Chicago well.

Josh: It’s a city that’s outside of the forest.

Brie: Yeah, but we didn’t know anything about you know, like, three times income. We didn’t know any of that kind of stuff. We just found tenants. They seemed nice. They made some money in our opinion and we rented them. They have been the best tenants ever.

Brandon: And the numbers were good?

Brie: Yeah. The numbers were good. So now that I know about the 2% Rule and the 50% Rule, we’re at about the 2.5% Rule with this property and then our rental income covered our PITI but not expenses with us living there.

Brandon: So for those people who don’t know, let me just explain what those things are real quick, Brie, if you don’t mind. I’m jumping in here and do my teacher thing. First of all, you said the 50% Rule. For those people who don’t know that, the 50% Rule is a rule of thumb that a lot of investors around BiggerPockets use that basically says around half of all your income is going to go out in expenses, not including the mortgage. So if you rent a property for about $1,000 a month, you can probably assume $500 is going to go out in expenses and then you’re going to pay the mortgage with the remaining $500 and whatever is left is what you get to keep. So that’s kind of a rule of thumb. It’s not—don’t buy a property entirely based on that but it’s a rule of thumb.

Josh: Let me clarify. You said you’re going to pay the remaining in what’s left of $500. You actually may be paying the remaining and what goes above that $500.

Brandon: Yeah, you could probably estimate $100 negative money, yes. So, it’s a real quick way—and again, don’t buy a property based solely on that. It’s just a rule of thumb but it helps to quickly do it. Then you mentioned the 2% Rule or some people say the 1% Rule, which basically says it’s a ratio of the monthly rent compared to how much the purchase price is. So if a rent’s for $1000 a month and it costs $100,000 to buy, that is 1%. It meets the 1% Rule. If a rent’s for $2000 a month and you can buy it for $100,000 that’s 2%. So it’s just another quick way to kind of guess. Personally, I never buy anything under—never under 1%. I have one property that’s at the 1% Rule and I lose money on it every month. It’s my only property that I always lose money on and I hate that property. But I didn’t know what I was doing. It was the second property I ever bought and I just thought, it’s a good deal, I’ll buy it. Anyway, and then finally, you mentioned PITI, which is Principal Interest Taxes and Insurance—back to Brie. A lot of people are listening to this show so I wanted to make sure we’re on the same page.

Josh: I’m glad you did that.

Brandon: Thank you. Back to Brie. So you bought the triplex. Now, in Chicago—correct me if I’m wrong. Whenever I talk to people from Chicago, they always say a three-flat instead of triplex—why is that?

Brie: I don’t know. We call them two-flats, three-flats, four-flats.

Brandon: All of Europe does that and then Chicago does that. I never got that but whatever. Weird.

Brie: I have to constantly go back to my forum post and edit it so that everyone else can understand what I’m talking about. Because I’ll write three-flat.

Josh: But those Chicago people, they talk funny anyways so it’s all good.

Brandon: Cool, cool. All right. So you mentioned I guess, that you bought the triplex. What else do you do? Maybe just take us back. What kind of an investor are you? Are you doing more buy-and-holds since then or what’s happened in the time since you bought that?

Brie: All buy-and-holds. Essentially, we bought them buy-and-holds. We have one rehab-and-hold or fix-and-hold, which is our primary residence but that’s been our main trajectory, I guess you can call it. So at this point, actually, as of next week, we’ll be closing out 27 units total, Chicago and Milwaukee. So we’ve been working up there for the past few months as well and our property here, we did a rehab—a pretty expensive rehab. We have a $75,000 rehab on this property. And then refinance out, cash out on the equity because that’s one thing we do have in Chicago, is we do have equity and appreciation gains pretty quickly with some minor repairs.

Brandon: Maybe you can explain that a little bit to people also if they don’t know. What’s the difference—what are you talking about when you say appreciation and you have cash flow? What are you talking about there?

Brie: The way I see it, there’s three types of investing. There’s CD neighborhoods which are very high cash flow markets, at which point if you sell them in 10 years on them for what you paid for them. Then there’s the kind of middle of the road decent cash flow. You’re just breaking even every month but then in 10 years you can expect to sell it at least 3-4% in annual returns, interest, appreciation in the property. And then you’ve got other properties that are almost all appreciation-based. That would be negative cash flow every month but you’re really banking on in 10 years, you could double the cost of your investment.

Brandon: And what do you focus on out of those three?

Brie: We’re kind of middle of the road. So mainly in the middle with the appreciation and the moderate cash flow.

Brandon: Okay, yeah. And if people talk or hear me talking a lot on the podcast about some of my rental properties produce really good cash flow—I like to brag about how awesome that is but in reality, I’m at the other end of that spectrum. I mean, I don’t expect my things to appreciate that much at all. If I pay $100,000 for it, if I can’t force the appreciation up by buying something crappy, then I am going to assume it is going to sell for $100,000 ten years from now. And that’s just a tradeoff in my area.

Josh: I think that’s a safe way, especially for newer investors to go, right? I mean, you can’t really predict appreciation so if you’re going to buy a rental—and I’m not saying you’re not or anyone else isn’t—I’m saying, in general, if you only assume zero appreciation and buy these buy-and-hold properties for cash flow only, and they do cash flow and you’re good to go, then you’re probably fairly good to go for the long run.

Brie: Oh, yeah. Of course. We didn’t even know about other cash flow markets. We always just thought what we bought was the greatest thing in the entire world. Let’s try to buy more that are just like it, you know?

Brandon: Yeah.

Josh: So how did you get interested—I find it interesting you invested in Milwaukee—we’ve had a couple of guests on the show, Mae Ron and Don, both invest in Milwaukee and Jay Scott has invested in Milwaukee. Why Milwaukee for you? How far away from that is Chicago?

Brie: It’s about an hour and a half drive.

Brandon: Okay. So why did you choose that area?

Brie: Mainly because it was an hour and a half drive. It was a market that I could get better cash flow for every $100,000 I spend, I expect to get $2,000 in rent every month. So it’s more the 2% Rule up there than it is here. And we do have those markets in Chicago, especially in the South side. But my issue is that in Milwaukee they’ve got a much more friendly landlord side of the landlord-tenant ordinance up there where it’s more easy to evict someone if there are problems and I could still be close enough where I could still be there if there’s a problem or control a situation. That’s really why.

Josh: And Illinois is a fairly landlord-unfriendly state, correct?

Brie: Chicago, specifically is probably one of the most unfriendly to landlords.

Josh: What does that mean? What makes it unfriendly?

Brie: We have a very strict 142-page Chicago landlord-tenant ordinance, which specifies every single thing that could possibly happen between a landlord and a tenant. And basically, out of that whole situation, there’s one thing that favors landlords and that’s a tenant moving out mid-lease. Everything else is to the tenant.

Josh: So whether it’s like an eviction or a security deposit, whatever it is, the laws are going to favor tenants is essentially what it is. Yeah.

Brie: Correct. Like if I don’t give a security deposit to someone within a specific amount of time, if I don’t include the bank name and I don’t include the bank address, I’m liable for 3 times the security deposit.

Brandon: Ouch. So it makes you have to really, really dot your I’s and cross your T’s or cross your I’s and dot your T’s.

Josh: Which isn’t terrible. I think ultimately landlords don’t complain about the dotting I’s and T-crossing. I think they complain about laws favoring tenants in situations like somebody doesn’t pay the rent and you have to wait six months before you could evict them and you’re sucking up that whole time. That kind of stuff.

Brandon: How long does a typical eviction take you in Chicago? Is it really bad?

Brie: I’ve never had an eviction. I’ve never had a tenant pay late yet.

Brandon: Wow. There you go.

Brie: From here though, it could take up to six months.

Josh: Imagine that. Imagine sucking up six months’ worth of rent. Which is really crazy. It really is that the folks writing these laws—you ought to force anybody writing these laws to own property in the place where they own property and deal with the laws that they write because that’s insane. It will bankrupt a lot of people.

Brie: Well, you’re going to love this one—now in Chicago, Section 8 is a protected class. So we cannot refuse Section 8 tenants in Chicago.

Josh: Really?

Brandon: I know Seattle’s like that, too, now. Not all of Washington but Chicago is.

Josh: So explain that. If you have a property that is not—does it have to be a Section 8 type property?

Brie: Nope.

Josh: So if I own a rental, just some regular rental, and a Section 8 renter comes in and says you know what—I want to rent this property. And they’re absolutely Section 8, then they could come in, apply, you can’t deny them because they’re Section 8. Now, do you have to convert the property to a Section 8 property and then abide by all the rules and everything at that point?

Brie: Correct. It also goes through a Section 8 inspection and you can’t deny them based on Section 8. You can still deny them based on income.

Brandon: [inaudible][17:49] on the fingers, you know. A big tear drop next to the eyes. The normal legal ways to pass on a tenant would be the same. As long as that’s your policy across the board so as long as all my properties have this same policy of income requirements and credit requirements than it’s not considered discrimination.

Brandon: So do you manage your own properties, then? Or are you hopping? All of them.

Brie: All of them here in Chicago.

Brandon: But you have a property manager for Milwaukee?

Brie: Correct. We will.

Brandon: That’s cool. You said you had 27, right?

Brie: Correct, there will be 8 units in Chicago and 19 in Milwaukee.

Brandon: I don’t know if we asked you this earlier but how long did it take to build this up? How long did it take you during this whole process?

Brie: August will be three years.

Brandon: That’s pretty awesome, three years.

Josh: That’s pretty impressive in three years, wow.

Brandon: That’s great. That’s great. So you mentioned that you never had an eviction. You never had a late payment. I want to know how is that even possible? I get late payments every—at least once a month from somebody. I have a few more than 27 but still. How does that work for you?

Brie: Mainly, it comes down to obviously tenant screening and then stream money processes and making it easier for us to do.

Brandon: What kind of stuff do you do for that?

Brie: A couple of things. We do automated rent payments, having it direct deposited to our bank account every month. You know, we have a form that the tenants fill out for maintenance requests. It’s automated between me and my husband. We’ve got a team in place that handles all of that stuff if we’re ever out of town.

Brandon: Cool.

Josh: Anything that will improve the process is obvious that you’re going to be great. You mentioned, Brie, that you have maintenance forms and maintenance requests and stuff that you guys handle. Is that through a service or did you guys just build your own form on your site or how did you guys do that?

Brie: We just built it all on your own because my husband and I up until a few days ago, we both worked full-time and we both travelled for work. So it was also very important if something happens to use or something went wrong, we are both available to take care of it. So we have two request forms that come through our e-mail that comes through to use. It comes to both of us. And then we also have a 24-hour handyman service that we keep on retainer so even if we travel out of the country, we authorized them to do any sort of service. They guaranteed their work. We’ve had a great relationship with them and they do anything that we can’t handle ourselves.

Brandon: Is that up to a certain amount or is that just unlimited.

Brie: Yeah, I think we authorize up to $1000 per unit and then there’s certain things like they can’t come in, obvious and paints the house. It has to be like repairs type work. We’ve never had to use them when we were on vacation but it’s great to have that backup.

Brandon: Do you use that when you’re not on vacation as well. How do manage your maintenance stuff?

Brie: It’s anything that we can do—which were, I call us the YouTube landlords. We YouTube it and if we can figure it out, we can figure it out. Yeah, because we bought our properties here though, the ones that we managed. We’re all bought from rehabbers so they’re condo quality so they all have new A/C, new appliances, new flooring, so we don’t get very many repair requests. When we do though, we go out and see if we can figure it out—if we can fix it, usually it’s something small. If not, we call them. Anything electrical or plumbing, they do. Because that’s just way beyond our capabilities.

Brandon: That’s actually like a company. That’s what they do. That’s their business model?

Brie: No, no. no business model.

Brandon: Because that is a cool business model. I wish there was more companies like that.

Brie: We’ve been using them like this business model for a few years now. They’re actually all over the country, their franchise business. But we like that they have a licensed plumber. They have a licensed electrician. They have a licensed general contractor. So if I have a plumbing issue, I call and they give me the plumbing guy. If I have an electrical issue, I call and they give me the electrical guy. So they have a whole team in place that’s licensed, bonded, and insured. And then different guys come out for different projects depending on their expertise.

Josh: What’s the name of the company?

Brie: Handyman Matters.

Josh: Handyman Matters. Cool.

Brie: I think they’re all over the country but they’re phenomenal. We’ve had amazing stuff with them.

Brandon: That’s really cool. That is my biggest struggle in all of landlording is dealing with maintenance stuff. It’s getting better now. We’ve had some guys but we cycle through so many maintenance people. And again, Josh will make fun of me. It’s because I’m in a rural area but I don’t—

Josh: I don’t think you’re alone, man.

Brandon: I think even people in big areas struggle with that.

Josh: Listen, I’ve been through a few in the past year and a half. Two of the ones I was working with, they’re fantastic. Really, really great. But I think fundamentally, people who end up being handymen tend to end up being flaky. I don’t know why but there’s always some kind of flakiness that comes in. They’re great for six months and then they’re gone. Disappeared, something happened and that’s the end of it. I guess that’s one of the costs of doing business and the investing game, isn’t it?

Brie: Yeah.

Brandon: So you’ve been doing buy-and-hold. You’ve got the local and then you’ve got the properties at a distance. An hour and a half isn’t terrible. Do you see any downside to that hour and a half distance or is that pretty decent for you?

Brie: Well, considering I have not driven a car in about seven years because I live in the city of Chicago and I take public transportation everywhere, so it’s been an adjustment. I don’t like car rides for more than like 10 minutes. We’ve been up there every weekend since February. And I’ll be up there more often. But the distance isn’t really an issue. It’s more an issue of—I know Jay Scott talked about this, too—finding reliable people up there. It’s been really, really hard having to communicate long distance, establishing a whole new network up there. I needed bankers, insurance guys, agents, inspectors, and trying to establish that in a new market from a distance has been what’s hard.

Josh: Gotcha.

Brandon: That’s hard doing it when I’m local.

Josh: Yeah locally, it’s hard.

Brandon: Trying to do it in a new market, especially when you don’t live real close is tough. You mentioned that up until last week, you and your husband both worked. Does that mean you quit your job or did he quit his job?

Brie: I quit my job two days ago.

Brandon: Nice.

Josh: Congratulations.

Brie: Thank you.

Brandon: So you’re full-time now, a real estate investor.

Brie: Yeah.

Josh: So did you quit your job because of real estate?

Brie: Yeah. So that’s what’s been funny about this whole situation. Three years ago, we didn’t even consider ourselves real estate investors. It was a hobby was what we kind of thought of it as, a side business that we did. And I always try to make sure that my real estate business, my tenants, never interfered with my day job. And then ever since really, I found BiggerPockets, it really exploited my passion in real estate investing and really accelerated a lot of things where now, especially this Milwaukee deal, I found that my day job was getting in the way of my real estate investing and it got to the point where something had to give. And I thought that my passion was more better put to use in real estate investing.

Josh: That’s awesome. I have a new tagline for BiggerPockets. It’s going to be BiggerPockets: Pissing off Employers since 2004.

Brandon: Tweet that.

Josh: There you go.

Brandon: No, we’ve had I don’t know—a dozen podcast guests who have either just quit their job recently or after the podcast, quit their job. I know a few of them—I know one person even got fired after being on the podcast.

Josh: I don’t know about that one.

Brandon: It pushed them to go full-time. I am not going to say who it is because I don’t know if they’ll want me to. But yeah, their employer heard them on the podcast and they fired him and then that pushed him to go full-time and they’re now full-time. Anyway, oops. Let’s talk about that for a little bit, maybe.

Josh: I think you just scared off half of our guests.

Brandon: Some employers just have a problem with that whole idea. But anyway, so quitting your job. What can you tell people? When should a person quit their job, do you think? What’s the right?

Brie: For us, it was the right time where our cash flow properties covered my income and then some. So it put us in a place financially where we weren’t going to be struggling to make our mortgage payment every month because I wasn’t working. That was really the point for us. So it took us three years. It’s not like it happened overnight but that was really it for us.

Josh: Gotcha. That’s cool. So let’s talk about what you guys are doing. So you invest with your husband. How are you guys divvying up the roles? What does he do? What do you do? Do you guys have specific roles or is it just, kind of a jumbled mess and whoever does it, does it?

Brie: We definitely have specific roles. So when it comes to the front end of the process, the buying, the acquiring, all that. That’s definitely my role. He gets involved. He comes with me to showings. He also comes with me to inspections and he also comes with me to closings. But finding the property, finding the deal, dealing with the banks, the insurance, all that is kind of me. I will say, though, he’s never had any sort of experience in real estate but we saw so many properties when we first started looking that he now has a really good eye for it. So what’s been great about it is whenever we’ve gone into a property, we’ll walk out within five minutes and the both of us will either say yes or no. so we’ve never had a disagreement about which property to buy or which direction to go. We’re usually on the same page with that. When it comes to the day-to-day stuff, I handle all the ton of communication, I lease all of our units, I handle all the rent payments, all that stuff. He does mainly the manual labor, like I can’t—

Josh: It’s so sexist the way you guys have it set up.

Brandon: Yeah, it’s messed up.

Brie: I just tried to fix a faucet the other day and I was so excited. But like, he’s much better at that kind of stuff than I am. And so usually, he has to be there to do it.

Brandon: That’s all we’re good for. We can throw rocks around and stuff.

Josh: Now, how does one—first of all, and maybe I missed it—is he still working? He’s got a full-time job.

Brie: He has a full-time job so until we can cover both of our incomes, we might be doing some flip projects which is what we’re investigating right now and that is definitely more of his area of expertise and if so, then he might be the one that leaves, too, and starts managing those.

Brandon: That’s because he throws rocks around. Yeah.

Brie: He’s actually a geologist. So he does throw rocks around.

Josh: Really? That’s funny. That’s hysterical. So how does one balance the relationship—the personal relationship with the work relationship? Clearly, we’ve got a lot of folks listening. Couples, men, women, whatever it is, and I think it’s a situation where it can be hard sometimes when you’re trying to get through and run this budding investing business. So how do you guys get through it and does it ever cause strife and if so, do you have any tips about how people can potentially avoid those situations?

Brie: Yeah, I mean there’s always going to be issues, especially I remember our first property, we self-managed when we lived there and we’d also shovel the snow. There is nothing like getting into a disagreement at 6 o’clock in the morning in your front lawn when you’re shoveling the snow.

Brandon: Were you both shoveling it?

Brie: Yeah, we were both shoveling.

Brandon: Good, because my wife, she won’t even touch a shovel.

Brie: Yeah, typically—whatever. We have to get up early and do it. We’ve got rules in Chicago about that, too.

Brandon: That’s right.

Brie: So we balance a lot of it—luckily, we are able to communicate very well and we’ve got a lot of the same ideals. So we tend to err on the side of give our tenants what they want and make them happy. So when it comes to financial decisions, we had a tenant that—she had a manual defrost in her freezer and we had to go over there and scrape the defroster. And we both walked out and we were like, we need to buy her a new refrigerator. And most people would think that’s insane but she needs to be happy. She’s one of our best tenants. So a lot of those things, we both agree on and it makes it a lot easier. There’s obviously times where it’s not so hunky-dory and really, we have to just step away. Sometimes, we’ll just say let’s talk about it tomorrow. We need to get back to our relationship and leave the business, which can be fine for a couple of hours, and then we’ll just discuss it again in the morning.

Josh: I think that’s a good policy.

Brandon: I know my wife and I have a really hard time with that, is separating the business from our personal life. We go out to dinner and that’s all we talk about, is real estate. We have to tell ourselves—we’re not going to talk about real estate for the next two hours. Period. And then we sit there in silence. Then we’re like, what did you do today? So it’s a battle. I love working with my wife. I think we complement each other really well. It’s not always easy but it can be done. People ask me that question a lot, actually, how my wife and I work together and one of these days, I’ll write a blog post on it or something but I don’t know.

Brie: I think at least for us, the main thing to me is that even before we started all this, we sat down and were like, what are our goals in life? Like what are the two to three things that are most important to us for our life? And we came down to them and a lot of them have been able to be at least halfway achieved with real estate investing. So whenever things get murky or whatever, words are said. We always think back to, why are we doing this? Why are we both working and then having a side job? Why are we exhausting ourselves driving to Milwaukee every weekend? It’s because we want these things in our life and that’s our goal and our goal has not changed and we need to both work towards that goal.

Josh: I think that’s great and I think that’s key. For any kind of partnership, not just if it’s your spouse. I think if you’re going to be working with somebody in the business, you have to have similar ideals. You guys have to up-front be on the same page and on point and if you’re not, then maybe you guys shouldn’t be doing it because that’s going to lead to problems in the 59% divorce thing that happens. Whatever it is.

Brandon: I hear that from time to time. People will say that—my spouse does not want to invest in real estate but I want to. How do I do it without them wanting to? And I’m like—you don’t. It sucks and you might not get the cool benefits you get out of investing in real estate but—

Josh: What’s more important, your wife—

Brandon: You’d rather stay married.

Brie: But I mean, my husband has no passion for real estate. It’s not his thing. He likes to go look at the properties and be involved with them but really, I’m the one who got him excited with it by watching TV shows about real estate.

Brandon: That’s how we got on it too.

Brie: Like Income Property was one of his favorite shows and that’s really what got him involved into it and he was like, okay, let’s do this.

Josh: You know what you can do, you can actually, if you cut a deal with him and let him dig big holes around all the houses so he can look at the rocks, maybe he’ll get more excited.

Brie: He’s great when we go on vacation and we see volcanoes, though. He knows more than the guides. It’s hilarious.

Brandon: That’s awesome.

Josh: That’s cool. Well, really quick, guys—this is show 78 of the BiggerPockets podcast and you can check out show notes of the BiggerPockets.com/Show78 and of course, if you have questions for Brie, feel free to ask on the show notes. There you go. Let’s dig a little deeper into how you guys are doing what you’re doing. How are you guys funding your deals?

Brie: It all kind of snowballed again, from three years ago. We had really sat down and saved. So we paid off all our debt and we got enough money for an FHA down payment so our properties in Chicago are in the $300,000-$400,000 range so at that point, that’s all we could ever afford. From there, we covered our mortgage—a rental income covered our mortgage and we were able to essentially live for free and we just kept sticking to our budget. And our budget, at that point, was about half of our income. So we were banking a few thousand dollars every month, plus what we were saving in rent money at that point and really, it just came from there.

Brandon: I call that house-hacking. I wrote a post a while ago and it was called how to hack your housing. It’s that whole concept of how to find a small multi-family, rent out all the units but the one you live in and live for free so you can save your money and invest in real estate with the money you save. So you perfectly did that. That was great.

Brie: And we’ve been in the same budget for about four years now.

Brandon: Nice. So even now as your income grows and more cash flow comes in, you still stay on the same budget and it enables you to save even more. Kind of like a snowball effect but you get to go bigger and bigger.

Brie: Yeah. It took us about a year and a half to buy our second—we then had that cash flow plus what we were saving and then it just kind of snowballed from there.

Josh: Nice. And I think that’s where the average guy versus say, the average investor probably differ. The average investor thinks with that mindset. Hey, how do I snowball and build more property, which builds more passive wealth and more passive—it’s active. That’s a whole other debate. But let’s take that money and put it into more property versus somebody who says, oh, I’m making more money. Let me now buy a better car or whatever it is. And so I think that’s smart and I think if more people understood how to do that and had the restraint to do that, we’d have less people in financial problems here in this country.

Brie: To me, that all goes back to the goals. Our goals have always been we wanted to retire by 40. That is our end all, be all goal. So when it comes down to, I can go buy a $500 pair of shoes—I always ask myself, is it worth not retiring at 40? And the answer is usually “no”. And that really helps us keep on that budget month to month.

Josh: That’s awesome. Do you have any more tips for people on budgeting and saving and all that if you saved a lot of money?

Brie: I am a budget-crazy person. I’ve got Excels like—oh, my god. You can e-mail me and I can send you my Excels. I’m totally serious. It’s obsessive-compulsive.

Brandon: Are you one of those people who go to the grocery store and does that coupon hacking stuff where you’re like fighting people—

Brie: Working like 60 hour weeks and doing real estate, grocery shopping has never been like a luxury of mine. Usually, it’s just running in. But I might now that I have time on my hands. But we started with a website called Mint.com . I don’t know if you’ve ever used it before. We went on Mint.com. We had separate accounts at that point—and we loaded up our past three months’ finances. Credit cards, bank statements, everything like that. And it showed us where we were spending. And I think at the time, it was showing that we were spending $800 a month eating out. So that was a big life hack, bank account hack, whatever you want to call it. We need to start cutting that down. Let’s see if we can do it to $200 a month. Then let’s see if we can do it to $100 a month. And so it was really gradual for a few months, looking at things, looking at our cable and internet and how we spend our money and seeing where we can cut and where we want to keep our money.

Brandon: That’s cool. That’s great. I think that kind of the beginning of budgeting is just understanding where you are and that where Mint is so helpful. I mentioned this on an earlier show but my wife and I, four or five years ago, we sat down and we actually did that same thing. I don’t think we used Mint. I don’t think they were around back then but we sat around and I mapped out on our Excel document, everything we were spending, every category and what we were doing and I found out we were spending $1000/month more than we made. And I was wondering why we were struggling so bad back then. And that’s why. We were spending money on stuff we would have never thought of so as soon as we knew that, we instantly cut that $1000 out. And all of a sudden, we were fine. And we were at that point paycheck to paycheck at least, which is better than going in the hole every month. So budgeting just starts with understanding what you’re spending.

Josh: And if only you could cut out that Starbucks, Brandon, you’d be hella rich.

Brandon: We budget $200 a month. That’s my one vice in this world. I don’t smoke. I don’t drink. I drink a Starbucks drink—well, I used to drink one every day. Now, I’m like once a week. But we budget in our Excel that says Starbucks - $200. People think I’m crazy for that but nothing makes me happier on earth. I don’t play video games. Nothing makes me happier than a 175 degree peppermint hot chocolate with a vanilla mocha drizzle. It is perfection. I love that drink.

Josh: And by the way, if anyone ever goes to Starbucks with Brandon and the mocha peppermint is not 179 degrees, he gets angry and he gets pissy at the people behind the counter. It’s really funny to watch.

Brandon: I do not. No, but here, let me tell you why I do hot. I used to say extra hot but peppermint hot chocolate is made for kids, right? So I’m a big 28-year-old kid but they make it 140 degrees or something so I told them extra hot, and they make it like 141 and I’m like, no, I need it hot. Because otherwise I’ll drink the whole thing in 20 seconds and I’m sad. So I just kept going higher and higher until 175 is the point that doesn’t burn the inside of my mouth but I still have to take five minutes to drink the drink.

Brie: Do you actually tell them to make it to 175 degrees?

Brandon: I say the words 175 every time and I don’t say it anymore because they know my drink. I just walk in and they give it to me. But I would tell them 175—they don’t actually put a temperature gauge but at least it gives them an idea, though. Anyway, yeah, people think I’m a major snob but whatever.

Brie: I wonder why they would think that.

Brandon: I love my 175 degree peppermint hot chocolate. Moving on, back to Brie.

Brie: So budgeting, yeah.

Brandon: Budgeting. Let’s talk a little more about that. So any other tips for us?

Brie: You’ve got to stick to it. Like you said, awareness is one of the first things. Being aware of where your money is going, where you can cut is one thing, but you’ve got to stick to it. So every month, I do a check on Mint. It’s great for that, too. You set a budget on Mint and it tells you if you’re over or under so you’re able to make adjustments if you are skewing one way or the other. So really just sticking to it. It’s been four years. We’ve stuck to this budget and it’s been able to save us enough money where we can grow.

Brandon: That’s great. So let’s get back to your experiences. Looking back, three years, you’ve acquired a lot of units. You guys are rocking it. You quit your job, told your boss to shove it. What would you do differently, if anything?

Brie: What would I do differently? I would have found BiggerPockets sooner.

Brandon: That’s what I’m talking about.

Brie: I would have. BiggerPockets—I’m really active on the forums. Obsessed, you might want to call it. I’m on there every single day reading stuff and I’ve learned more on the forums than any book I’ve ever read and it’s also really, really opened my eyes to other markets and other ways of investing. Because up until I found BiggerPockets, the only thing I knew was Chicago, two to three unit properties, conventional financing. And then you just buy and hold. I had no idea about all these different creative stuff, wholesaling, I didn’t know about. Different markets that had better cash flow. It’s really just opened my eyes and my investing—what’s the word—plan, I guess you could say?

Brandon: That’s awesome. If I could just encourage other people—again, we try not to plug ourselves too much but honestly, if you’re listening to this and you’re not active on the forums, we’re not asking you to sign up for a Pro membership—I mean, that’s great, but just jump in. It’s a free account. Get active. Ask questions. Answer them. Just learn. I’m the same way as you, Brie, I learned so much stuff once I started getting active on the forums, more than any book.

Brie: And even if you don’t have questions, read. I probably spend my first hour of every now reading the forums, seeing what’s going on. There’s a lot of things that I don’t know that it’s now been teaching me about just by reading.

Josh: That’s great. Cool. Well, how are you finding your deals? Are you guys doing MLS properties? Are you doing any direct mail? What are you doing?

Brie: Generally, MLS. So almost everything we found has been MLS just because we both worked, we didn’t want to deal with rehab properties. We didn’t have the time or the bandwidth to handle that kind of stuff. We wanted rent-ready, preferably completely rented out, so everything we found has been on the MLS except for Milwaukee. Milwaukee—one deal was on the MLS—it was great, a duplex front coach house back, great condition, great rental numbers, totally loved it. We were walking out and we asked the agent who was also the property manager who we then found out was also the owner, do you have any more? And he was like, my in-laws have about 80 properties in the area. Would they be willing to sell any? He was like, I don’t know, I’ll ask them. So that is what came of that as they found more properties off-market and then we got them.

Brandon: That, by the way, is a fantastic tip. What are we, on 78 shows so far, I don’t think we’ve heard anyone else say that. And so, I would press upon folks to do exactly what you did, which is when you buy property from somebody, it’s a simple question. Do you have any other property that you might be interested in selling or do you have any friends who have any properties that they might be interested in selling? It’s literally a breath and suddenly you’ve got more deals in the flow, right?

Brie: And it has completely snowballed. He actually wants to partner with us on doing some flips. The family has invited us to vacation with them for Christmas. Like, it’s become this really big thing now. I see it being a very long-term partnership with them in Milwaukee on some things that we are going to be doing up there.

Josh: So you’ve got best buddies from asking a simple question.

Brie: Yeah.

Brandon: That’s awesome. That’s cool. So for folks who are—you’ve been doing the buy-and-hold and you’re thinking about transitioning to flipping, right? I’m going to come back to landlording stuff in a minute but I’m just curious. You’re in the middle of this stuff right now. What types of things are you thinking about and worrying about and concerned about as a experienced landlord but newbie flipper?

Brie: Oh, my Gosh. It’s a whole new ball game. We’ve never really—we’ve done a rehab of our own personal residence but we’ve never done a flipped project and really, what’s been—I’ve been reading on the forums. I’ve got Jay Scott’s book about estimating rehab costs which is going to be a huge help for me moving forward but really, what’s helped me not be so insane about it is the partnerships I potentially have. So we’ve got some Milwaukee and we’re looking at doing some in Western Deanna and Southside Chicago. And it’s really through partners that I met, mainly through networking off of BP.

Brandon: Gotcha. Very cool. Let’s kind of go back under the landlording topic a little bit. Brie, you said you’ve never even had a late payment. I think obviously you must be a good landlord or extremely lucky. But either way, let’s talk about some of the specifics about how you are a landlord. You talked about a little bit already, but what about tenant screening? You mentioned that a lot of it comes down to tenant screening and finding the right one. So what does your tenant screening process look like?

Brie: The requirements that we have—three times income, which we do have now—and credit score. And one of the things that we make a little different is we allow pets. We actually encourage pets in our building. Because we have pets. So when we first rented out our building, we have two medium and large-sized dogs and we didn’t want people to be scared of dogs. So both of our tenants had dogs. And then all our tenants now have dogs. We even have a 120-pound Mastiff in our building. But that also creates a niche market where not everybody allows pets because it’s very easy for us to rent out to people because everybody who has a dog wants one of our places.

Josh: That makes sense. As a dog owner, I get it. As a landlord, I get not wanting to rent to folks with dogs. So what are your policies? When I was renting to folks with dogs, we had size restrictions and things and we had to prescreen the dogs and that kind of stuff. Do you have any kind of covenant restrictions or anything like that—deposits that you require?

Brie: We do require an additional deposit but we do a full month’s security deposit. So also understand that our units are generally top of the market or at least in the higher end of the market, so we’re talking $1300 or $1400 a month for a two-bedroom. So with one month’s security deposit and the pet fee, we’re talking $3000 just to even secure the apartment. So usually, we’re pretty comfortable if they can throw down $3000 to get the apartment, that they are going to take care of the apartment.

Brandon: I gotcha. So there’s no size restrictions, obviously—you have Mastiffs in there. Go ahead.

Brie: That Mastiff one, though—it was a funny story. They came down to meet us to even see the apartment, they brought the dog. It’s a two-hour drive, for us to meet the dog. And we actually rented to them because they had a dog. That was a factor for us because our thought process was, they seem nice, they’ve got a good job, good credit, and no one in their right mind is going to give someone an apartment with a 120-pound Mastiff. They’ll stay as long as—

Josh: That’s a really good point.

Brie: So we chose them over a non-dog owner because of the dog.

Josh: Interesting. I never really thought about it from that perspective.

Brandon: We don’t allow dogs in our apartment complex or even small multi-families but in the individual houses, we usually are a little bit more lenient and we’ll charge them usually a $300 or $400 pet fee. And we’ve never actually had a problem with a dog, per se. We’ve had more problems with cats because cats spray. So that’s been more of an issue. But the only problem we’ve had with dogs is hair. On all the baseboards and stuff like that when they move out. Do you do anything with that? Have you had tenants move out with dogs? Do they leave a mess? I don’t know.

Brie: This kind of goes back to what you do and don’t do as landlords as far as your time, and that was one of my first lessons, I learned, is that it is worth so much more of my time to hire someone to come clean our units than it is for me to even attempt to do them. That’s one thing I hire out hands down. So it depends on the tenant. We had a tenant move out this year. They were moving out of state and she knew that she didn’t have time to clean. She had a newborn baby and just said, pay for the cleaners, take it out of the deposit. Schedule it and just handle it for me. But generally, we just have them clean it themselves or we take it out of their security deposit.

Josh: And are you a catist? Because Brandon’s dogist and you’re—

Brie: I’m a dog person.

Brandon: I like dogs and cats.

Josh: Whatever.

Brie: I don’t like cats.

Josh: I don’t either. So do you allow cats in your buildings or no?

Brie: We do. I think we’ve only got one cat though. We’ve got seven dogs and one cat.

Brandon: What I’ve always found with pets is that clean people have clean pets. Dirty people have dirty pets.

Josh: That is true.

Brandon: It doesn’t really matter what. I tend to think, if I am comfortable enough with a person to rent to them as a person, then I’m going to be comfortable enough with their pet, unless—the only reason I said I don’t do multi-families is because if I let John in 804B get a dog, then Sally in 804C is going to get one as well and I don’t know that one. And I don’t know. Then it’s going to become a problem.

Josh: How do you know that somebody is a clean person? Is there a way that you as a landlord, for those people listening who don’t have experience, can screen out somebody who’s kind of a hot mess?

Brandon: I’ll let you take that one.

Josh: The answer for me is partially in the car. You can look in the car and see if the car is disgusting. But anything above and beyond that?

Brie: My best friends who are very clean, financially responsible people have the dirtiest car when it comes to McDonald’s wrappers. It’s insane. But no. mainly, I look at overall, the financials. And then how they present themselves. To me, somebody who is financially responsible, we specifically look at the past three years of their credit report, line item by line item. And if they’re paying their bills and they’re financially responsible, then I feel that they’ll be responsible tenants and responsible people.

Josh: Gotcha.

Brandon: I think it does come down to how they present themselves a lot of times, too. You can just tell. Maybe it comes with time but I can just tell when I see somebody, whether they’re going to be generally a clean person. There’s obviously reasons that I could be wrong but usually I know if their shirt has mustard stains all over it and it’s one size too small. You just kind of get those hints.

Josh: Interesting.

Brie: Pets are expensive. They’re not cheap, to take a dog to the vet and make sure it’s fed. Therefore, I think if you didn’t want to be a financially responsible person, you wouldn’t have a pet.

Josh: That’s not true.

Brie: That’s not not true.

Josh: That’s not true at all. What are you talking about? There are plenty of financially—I know, listen. It costs a fortune but there’s plenty of people who are financially responsible, buying pets, treating them like crap, not feeding them. So I’m not going to argue with you but I’m going to argue with you here.

Brandon: We have a lot of, in our town, low-income people who have dogs and they chain them up outside a lot of times or they let them run around the house and they cause a lot of problems. But again, you can usually spot those people.

Josh: How do you spot them?

Brandon: Through screening. If a person has a good credit report, it’s all a big picture, right? If they have a good credit report and they have a good job, they probably have a clean house. Probably. If they have a clean house and they have a clean credit report, they probably have a good job. It all kind of goes together in a way.

Josh: But it’s an art, not a science, right?

Brandon: It’s very much so.

Josh: I think screening tenants is probably, outside of purchasing the property, this is for buy-and-hold at a good price, it’s probably the single most important thing you could possibly do with your property, right? Is get the right folks. What’s unfortunate is there’s no A, B, and C of how—there’s no way to get it perfect. Even if you know everything, you’re still going to find ways to mess up. Brandon wrote a guide—it’s The Ultimate Guide to Screening Tenants. It’s really, really good. It doesn’t cover every single thing because there’s no way we could possibly cover every single thing but we’ll link to it in the show notes at BiggerPockets.com/Show78 and that’s The Ultimate Guide to Screening Tenants. I recommend it.

Brandon: We do have a short link to that. It’s BiggerPockets.com/TenantScreening.

Josh: There you go.

Brandon: Yeah, check it out. Cool. What about advertising for tenants? Let’s go back from screening. How do you even find them in the first place? What are you doing?

Brie: We use this site called Postlets. So it indicates Trulia, Zillow, all that. Actually, I just got yelled at today by my managing broker—I have a license here in Illinois. I’m in the process of getting it in Wisconsin and Indiana. But I had lunch with my broker today and I was talking to him about how we just rented out one of our units and we advertised on Sunday, we showed it on Monday, we do open house showings. And he was like, it’s too low. You’re renting it for too low. Which might be an indicator that we are renting it for too low if I can rent it out in 24 hours.

Josh: That’s not a bad point. So are you going to experiment? Are you guys going to try raising the rent in the next one?

Brie: Well, we’re stuck for a year.

Josh: I mean, the next unit. Is this in a multi or a single?

Brie: Multi, but we have all of our units up June 1st. which was somewhat of a mistake. We just went through three sets of new tenants, all moved in June 1st in two different buildings, so we had showing out the same time, screenings all at the same time, moving—that whole mess.

Brandon: That’s an interesting strategy, though. I’ve never heard anybody say that but if you schedule all of your tenants to have the same date, then you only really have one crazy month every year instead of—I’ve never heard anybody do that.

Josh: But that’s a crazy month, though.

Brandon: That is a crazy month.

Brie: Especially because we were both still working and we were both still travelling a lot that month, too. So there was definitely a point where I was like, this is the stupidest thing we’ve ever done. It definitely crossed our minds multiple times during the month. But the reality is, we’re done. We don’t have to think about any new tenants coming in until next May.

Josh: Or until you acquire more properties, of course.

Brie: Yeah, but those will be managed in Milwaukee. We have a private property manager up there.

Josh: Why don’t you have one locally?

Brie: Our properties are within ten minutes of us. Again, we bought them rehabbed so I think last year, out of one property, we got maybe one repair call the entire year out of all three units and the other property, we got maybe two or three repair calls from all three units. So it’s not enough where we have to have someone manage them and it’s a lot easier for us to collect rent. We’ve been doing it online or PayNearMe. It’s easier to have those sort of automation systems in place.

Brandon: Do you mind me asking what your typical cash flow per unit would be on some of these ones in Chicago? Just because you bought nicer properties and you usually see those ones have lower cash flow. What kinds of things are you looking at?

Josh: That’s nosy, man.

Brandon: I know.

Brie: So, the average cash flow, if I divide it by three, I think we’re looking at about $400-500 a month per unit.

Josh: Is that including CAPEX and pretty much everything?

Brie: That was our cash flow per unit last year after everything we spent, expenses, utilities, mortgage payments, all that.

Josh: That’s pretty good.

Brie: We’re talking $300,000 houses, so it’s $100,000 a unit, so we don’t have that many of the expensive units here.

Brandon: That’s cool.

Josh: That’s not bad, though.

Brandon: No, that’s awesome.

Brie: Which is why Milwaukee was an interesting area for us to look into because they do have a lot higher cash flow per what you spend up there. The price points are $65,000 for a duplex. So it’ll be interesting. We’ve seen the actuals on the numbers up there. We should be cash flowing pretty good but it’ll be interesting to see what the actual numbers come out to in the next couple of months.

Brandon: Those cheaper properties tend to have the older houses. They have a lot more maintenance. They have a lot more CAPEX. They have lower quality tenants who wreck things. It’s a tradeoff. It’s a definite tradeoff.

Brie: I think our newest building we ever bought was built in 1911.

Josh: Wow. No kidding. Well, I think the Milwaukee Chamber of Commerce is going to give me an award at some point because of all the landlords we’re sending to help renovate that city from the show.

Brie: It’s a weird market, though. There’s not many people who deal with investors up there. I literally have eight agents that work for me up there and it’s been even a struggle to get one deal done with eight agents.

Josh: I think we heard the same thing with Jay Scott. The infrastructure for investors is somewhat challenging, is my understanding. Well, listen. It’s fascinating—what’s the end game? You guys want to retire by 40. What does that look like? You guys are what, 28 units, wherever you are? Do you have a specific pace that you’re aiming for or a total number of units you want? What’s the goal there?

Brie: We’d like to be at $25,000 a monthly rental income. That’s kind of our goal where we could take the foot off the gas a little bit more but now that I’ll be investing a little full-time, like I said, I’m getting licensed in three different states, I’ll be brokering my own deals as well as potentially working with other investors. We’re kind of looking at flips right now, too, but all of it will really come back to any income that we make from either brokering deals or doing flips, will go back into a buy-and-hold for my husband and I. I’m not comfortable partnering a joint venture in buy-and-holds. Like you said, it has to be with the right partner with the right mentality and we just don’t see it yet.

Brandon: Gotcha. Really quick, you mentioned the agency side of things. I’m curious before we move onto the next section here—do you think that it is in the interest of real estate investors to get their real estate license?

Brie: Yeah, I think it is.

Brandon: Why?

Brie: I think it teaches you a lot about just the market in general. If I had never been an agent ten years ago, I probably would have never even considered real estate investing and all that came from, I loved looking at the numbers and I loved staring at different appreciations and different markets and what the rentals were. I would just sit there for hours by myself and just play with the numbers and that really helped me get a better understanding of my market as well as develop intuition about my market, which I think is the #1 thing somebody can do in real estate. Don’t listen to others. Listen to what you think your gut tells you.

Josh: That’s a great point and you only really get that from feet on the ground and I think you can get it as an investor by literally knowing every house in your farmer and as an agent, the same thing, going to every open house and seeing what’s available, what’s for sale, so you can start learning it.

Brie: Exactly.

Josh: That’s great.

Brandon: Cool. Well, hey. Why don’t we move on? All right, these questions come straight out of the BiggerPockets Forum, so, #1—what would you suggest for a newbie to do about calming their nerves when putting in their first property under contract?

Josh: Xanax.

Brie: You’ve just got to be confident in yourself. You really do. And that comes from learning your market. You really have to just trust your gut instinct and know that whatever you do, it will work out, and if it doesn’t work out, have an exit strategy. Have a plan in place.

Josh: Gotcha. Would you do a two-year lease with a tenant, and if so, do you think that it would be worth some kind of dollar-reduction in monthly rent? Say, the actual question that was asked was a $200 deduction in monthly rent if somebody were to sign a two-year lease and lock in?

Brie: I would do a two-year lease. I wouldn’t—depends on the rent. If it’s a $600 unit and you’re asking for $200 off, you’re insane. If it’s like a $3000 unit and you want $200 off, if it’s a good tenant, maybe. It just really depends on the ratio. If it’s $200 off a $600 unit, then there’s no way. If it’s $200 off a $3000 unit, then yeah, if it’s a good tenant. Then that might be a good case. The issue then is you have to be really, really strong about your tenant screening and be really, really sure that you want that person in there for two years if you’re going to make that sort of commitment.

Josh: Gotcha.

Brandon: Cool. Here’s a question that I’m actually really interested to hear what you say, because this is something we’re changing in our business. Do you have a no smoking policy in your rentals?

Brie: Yes, I do. I have a no-smoking policy in my rentals. If I smell smoke in the units, it’s $1000 fine. And then we only allow outdoor smoking, so we’ll allow it on the exterior of the property and for every butt I find that I have to pick up, it’s a $50 charge. It’s pretty intense. We only have one smoker in the entire of all our tenants and so it’s never really been an issue. Once, I did find some butts and I told her about it and I said, I’ll let you slide this time but ever since I haven’t had any problems.

Brandon: I like that idea. I’ve never heard of anybody ever doing the ‘charge per butt’ having to pick up. We have some tenants that smoke out their window. They sit in their window and smoke all day and then they litter the ground with cigarette butts and they maybe go pick them up once in a while but it’s really bad. One thing my wife and I are going to do now, we’re just going to test it out and see how it works is we’re going to make a no-smoking policy, period, like we don’t rent to smokers in general. And I’m going to get myself into huge trouble by saying this by smokers who listen to the show but generally speaking, my theory is this—in my area, those who smoke will be lower quality tenants than those who do not. I’m not saying that all people who smoke are bad, but in general, speaking, I’m going to try that out and I think I’ll get better—because every tenant that I’ve ever evicted—it’s only been two—they’ve smoked heavily. Every tenant that I’ve ever had a problem with has smoked. Again, it’s not 100% correlation but I think there is something there and so a couple of property managers I know told me that that’s what they do now. Flat out, they do not rent to smokers and I might test it out just to see.

Josh: I think it’s a good policy. The smokers already hate me. I’m staunchly anti-smoking and I had a—you can’t even smoke on the property. If you’re on the lawn, you’re not smoking. I think it’s disrespectful to people who don’t want to breathe it in. You go to the mall and you walk outside the door, they’re smoking ten feet away from the entrance to the mall. My kids have to walk through cigarette smoke. What is that? I think that’s awful. I think if you’re going to smoke, go smoke in the woods or something.

Brandon: I think the other side of it, too, is that tenants—at least the ones that I know—when we say you can’t smoke inside, that’s always been a policy of ours. You can’t smoke inside. Yet still when they vacate, their house always wreak of smoke because they’re either smoking inside or it’s on their clothes. Either way, we’ve had that quite a bit.

Josh: Well, clean-up is expensive. You’ve got to repaint. You’ve got to do all sorts of odor-killing stuff to get that stench out and it’s not easy. Well, it’s easy but it’s not cheap to do.

Brandon: So anyways, that’s a test we’re going to run so we’ll see.

Brie: I’m anxious to hear about it.

Josh: Maybe I’ll write a post about it. Thousands of hate mail from smokers.

Brandon: My fear is going to be, actually, and that is I’m not going to get any tenants. I have low-income tenants—I think over half of our county smokes. I read that one time. Am I just going to shoot myself in the foot, maybe? We’ll see.

Josh: Or you might be the bastion of glory for the non-smokers, having all the non-smokers saying wow, the Turners have the best stench-free units in the county.

Brandon: If I write that in the ad in the newspaper of Craigslist, no smokers allowed or something like that, that might actually be a benefit to people and they be like, oh, good. So who knows?

Josh: Split test it, Brandon.

Brandon: I will. I’ll split test that thing.

Josh: Awesome. All right, Brie. How do you handle tenants that are medical marijuana patients, then? Do you let them smoke in the unit? Oh no, you live up in Chicago.

Brandon: You guys have marijuana issues?

Josh: No, it’s only in Washington or here, California.

Brie: We don’t have that issue.

Brandon: In a few places.

Brie: If it was allowed here, I think I would actually probably have to, just because we’ve got so many different laws about that kind of stuff, it may be a disability or something like that where there would be a rule in place for landlords, our 147-page landlord guide. I’m sure they would spell it out.

Brandon: That has been a big issue. We’ve had a lot of conversations about that, at landlord meetups in Washington and Colorado. I’m sure it’s there, too. What do you do with it? Is it a disability? If medical marijuana means they have a disability, so by prohibiting medical marijuana, you are prohibiting a disability, which is illegal. So you can’t do that. However, what I’ve heard—I’m not giving legal advice here but what I’ve heard is you can’t make it—you can’t disallow medical marijuana but you can disallow the smoking of it. Because you can’t disallow the consumption of it, but you can disallow—anyway, that’s what I’ve heard.

Josh: But places like Washington and Colorado, it’s so prevalent and most people aren’t even smoking it anyway. Now they’re eating it in brownies and cookies and lollipops and stuff like that. I mean, the problem is extended beyond the landlord, though. As a businessperson, you now have to implement these things into your business policies and it’s something that we struggle with. Hey, it’s legal to smoke pot. It’s like drinking. So okay, if it’s okay to do that, is it okay for my employees to go get stoned the night before work and come into work the day after having gotten high? Our policy is, no you can’t do that.

Brandon: I know you can still test out. Even though it’s legal in Colorado, employers can still test and deny based on smoking marijuana. Because it’s not a protected class. It’s just a freedom. You can do it for alcohol, too. If you drink alcohol, I won’t hire you.

Josh: Well, sure.

Brandon: Interesting—it’ll be interesting to see how the Courts define these rules in the coming years. I expect within ten years, every state will be the same as Washington and Colorado but I don’t know.

Josh: It’s a work in progress, for sure.

Brandon: Well, hey, that’s pretty much all the questions we’ve got for you except for the World Famous—Famous Four. These questions, we ask everyone on every show so let’s see what you have to say about them. #1: What is your favorite real estate book?

Brie: I think it’s The Millionaire Real Estate Investor by Gary Keller. It’s about the mentality of investors, the psychology behind it.

Brandon: Cool. That was a good book.

Josh: How about business books—do you have any favorites in that category?

Brie: One I’m actually reading right now, it’s actually another Gary Keller book called The One Thing, about how you just succeed in business and life using—boiling down to the one thing that’s important. What’s important that day and then do it. What’s important the next month and do it.

Brandon: That’s in my Amazon wish list right now. I’m going to buy that one of these days. I have too many to work through right now but yeah, it’s on my list.

Josh: Me, too. What about hobbies, Brie? What do you and your husband do for fun? Besides real estate.

Brie: Up until two days ago, real estate was my hobby. But besides that, it’s travel. We love international travel. We went to Thailand and Costa Rica, Spain, France, Italy, Croatia. And spending time in those cultures is what really is our hobby.

Josh: Nice. What’s been your favorite place to travel to so far?

Brie: They’re all very different. I think, though, our favorite has been Thailand. So far, we got to spend a lot of time in rural—am I saying that right, Brandon? In rural Thailand away from like the touristy stuff and really spending time with like the people. And even though they didn’t speak English and we didn’t speak Thai, you made it work and it was just a great experience.

Josh: That’s great. I had my honeymoon there in Thailand. I like it there.

Brandon: Are you guys done? Can I ask the last question? Is that all right?

Josh: That’s my line, by the way.

Brandon: What do you believe sets apart successful real estate investors from those who either give up, fail, or maybe never get started?

Brie: Speaking from a buy-and-hold investor, I think the number one thing is just persistence. I talked to a guy the other day who told me he wants to quit his job in three months. I was like, that’s awesome. It took me four years. So you know, you have to be persistent and it takes time and you’re not going to do it overnight and that to me is what being a buy-and-hold investor is. Slow and steady wins the race.

Josh: And we certainly don’t encourage people to quit their jobs in three months. Don’t do it until you’re ready, guys. Seriously. I think it’s so tempting to say, oh, I love real estate. I’m starting to make money with it. I’m going to quit. And you know, I think it’s just better to be somewhat safer.

Brandon: You’re more cautious than me. I’m more like—I’m not giving advice here but I’m more of the “don’t be stupid, but take some risks”. Especially if you’re young or if you don’t have a huge family—

Josh: I’m almost 40, man. Things change.

Brandon: That’s exactly it. Because I don’t have kids. I don’t have a lot so I could risk a little bit more where you’ve got a family and you can’t risk as much. So it all comes down to who you are and where you’re at.

Josh: Absolutely.

Brie: But if you’re in the buy-and-hold arena, having a W-2 income, a stable W-2 income—there is no way we would have been able to grow to where we are right now without us both having a W-2 income. That made the process so much easier for us.

Brandon: That’s my biggest point on it as well. That income helps you with a lot of different things. It helps you to survive. So if you’re hating your job and sucking it up and you’ve been doing it for a while and now you’re into real estate, suck it up a little bit longer. Keep a hold of that W-2 while you can.

Brie: And set goals, too. Set goals and then stick to them.

Brandon: That’s awesome. All right, Brie. Where do people find out more information about you or where do they find you online? How can they get in touch?

Brie: Probably daily on BiggerPockets in the forums.

Brandon: Nice.

Brie: I’m there almost every single day. And e-mail my profile on BiggerPockets.

Josh: Nice.

Brie: Oh, and I just got Twitter.

Brandon: I followed you on Twitter. Do you know what your Twitter handle is?

Josh: Yeah, what is your Twitter handle?

Brie: Just ChicagoBrie. I’m not too sure how to use it yet. I’ve just been like retweeting a lot of stuff and like whatever, but I’m sure in the next few months, I’ll get it down.

Josh: It’s hard. I think a lot of people don’t get it.

Brandon: It’s like a giant room of people talking to each other. You’ve just got to lock up and join their conversations. That’s how Josh explained it to me and it kind of makes sense. But there’s a lot of promotion now. It’s kind of irritating how much—I don’t know, everybody’s automated everything on Twitter including myself. So like, there’s 12 people actually on Twitter and everything else is just if this, then that.

Josh: I just followed you, Brie.

Brandon: Nice, nice.

Brie: Thank you.

Brandon: Yeah, cool.

Josh: Good stuff. Listen, we appreciate having you on the show. Thank you so much for all your activity and you being a big BP fan, user, whatever it is. All right, Brie, thanks so much. We appreciate having you on the show. Take it easy.

Brie: Thank you.

Josh: All right, guys. That was Brie Schmidt on the BiggerPockets podcast, show 78. You can check out the show notes at BiggerPockets.com/Show78. If you’ve got any questions for Brie, definitely, definitely jump on there and jump in. Jump in. Otherwise, a big thanks to our sponsor, PayNearMe, we really do appreciate that helping support the show. If you want to check them out, you can do that at PayNearMe.com. Finally, thanks so much for listening and hopefully, if you’re a listener, you’re also somebody who’s active on BiggerPockets. We certainly encourage you to participate on the forums and to read and engage those people, as you probably can tell by now—we get most of our podcast guests from our active users on BiggerPockets and one of the things that these guys all have in common is they all talk about how important it is to participate on BiggerPockets, how much value they derive from it. So we certainly encourage you to do so. Set up a free account today if you haven’t already at BiggerPockets.com. Otherwise, check us out on Facebook, Twitter, G+, LinkedIn, Pinterest, and all the other major social networks. We’re there. We’re sharing. We’re participating and hopefully, we will see you there. That’s pretty much all I got for you this week. Thanks again. I’m Josh Dorkin, your host, signing off.

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