Subscribe via:
Show Summary
In this conversation, Brie Schmidt shares her journey from a corporate career to becoming a successful real estate investor and managing broker in Chicago. She discusses the challenges and opportunities in the competitive Chicago real estate market, particularly focusing on small multifamily properties. Brie highlights the impact of local regulations on short-term rentals and the trend of deconverting multifamily units into single-family homes. She also delves into the complexities of the housing market, including rising rents and the legislative landscape surrounding housing solutions.
Resources and Links from this show:
-
Listen to the Audio Version of this Episode
Investor Fuel Show Transcript:
Brie Schmidt (00:00)
I’ve been a landlord here in fifth for 15 years.I’ve never seen so many rent increases and competitive runs as I have in the last three years. I you put apartment on the market. I’ve put some of my apartments in the market for like $400 more than I was previously getting and got eight applications the first day. It’s so competitive because there’s no housing anymore.
Dylan Silver (01:54)
Hey folks, welcome back to the show. Today’s guest, Brie Schmidt, has been an investor for 15 years. She focuses on small multifamily units in the Chicago and Milwaukee markets and today has nearly 100 units. She’s also the managing broker of Second City Real Estate, a boutique firm for investors by investors. Second City has closed 193 million in investment properties since 2020.Brie also coaches agents on how to work with investors and is the co-founder of the Midwest Real Estate Networking Summit. You can find her online at secondcity-re.com or on LinkedIn or YouTube @ChicagoBrie. Brie, thanks for taking the time today.
Brie Schmidt (02:38)
Yeah, thank you for having me.Dylan Silver (02:40)
It’s great to have you on here. And when we talk Chicago real estate, right, this is really one of the more challenging markets, one of the more competitive markets to be an investor in. So I always like to start off at the top and ask guests how they got started as an investor.Brie Schmidt (02:58)
Well, my story would probably take up the entire 15 minute show. So I’ll just start real. I’ll try to sum it down. I used to be a normal person who had normal conversations with people about, you know, what was in the bachelor last night or the sports game. And then I got fit by the real estate bug. ⁓ And it was always going to be a side hobby for me. I was working in corporate. I was traveling over the country and like real estate was going to be, you know, a side project. So let me retire a little bit early.⁓ what happened was about a year after I bought my first property and my father passed away and he had gotten a very aggressive form of cancer. It was a very quick thing and he died like literally the day before he was set to retire. And it like really messed with me internally because I just kept hearing his voice talk about, know, I’m going to retire after you get married. I’m going to retire after your brother finishes his PhD. And then when I retire, like here’s all the things I’m going to go do with my life. it bit him in the butt, right? He didn’t get to do any of that stuff.
So there I was in my late twenties, working 60 hours a week, traveling all over the country for work, being like crap. Like I get my stupid two week vacation to do nothing with. And I’m going end up like him, like never able to do what I wanted to do with my life. So that’s kind of what fueled my path into real estate even more. ⁓ So we bought another property and then six months later bought another property. And then I ended up quitting my job.
Dylan Silver (04:10)
Yeah.Brie Schmidt (04:26)
I bought 18 properties in nine months, took on some partners, bought another 10 properties in the next nine months, and just kept growing the portfolio from there. And it’s been, you know, over a decade since I did that. And now I couldn’t imagine my life any different.Dylan Silver (04:40)
When we talk about getting into the space, right? I mean, that first year, 18 months, even two years can feel like just, you know, crash course in real estate. Did you have any, when you think about when you were going from corporate to real estate, did you have, you know, someone that was a mentor? Did you have people in your life? Did family, friends that were involved in the space? Or was this a leap of faith of you saying, I think there’s something here for me.Brie Schmidt (04:52)
Okay.so I had never even like read a real estate book until I bought my third property. Um, and then at the same time I found my family, which was bigger pockets.com. Um, and it was just, I geeked out over it. It was a whole world of people that wanted to talk about what I wanted to talk about all the time. Um, so I’ve been pretty involved with that community for about, I don’t know, 12 years. Um,
And that is really what fueled it because now all my friends are real estate investors. I travel, I do conferences, I’ve done a bunch of podcasts. And like it has become my world through them and like finding my people.
Dylan Silver (06:26)
Yeah.When we talk about that network, people often underestimate how pivotal this can be. I can’t tell you how many guests have come on here and accredited bigger pockets to really helping facilitate a lot of their deals or their career in the real estate space. Did you know when you were leaving corporate that you were gonna be an investor, agent, broker, right? Or was there one segment of this space that you were hyper-focused on at that
Brie Schmidt (06:43)
Go to the house.I was only focused on buying for myself. So I’d already been a licensed agent for even 10 years before I bought my first property. I tried it out when I was 21. I hated it. Right. It was very difficult. I think I did it for like six months and I was like, nope, not for me. ⁓ Then I got it over a decade later, got into the investment side, which is a completely different part of the business on the retail side. I call them the champagne and heels agents. Like I’m not a champagne and heels agent. I don’t want to talk about pink colors and how things make you feel.
Dylan Silver (07:31)
Yeah.Brie Schmidt (07:34)
⁓ so I was, I was at a networking event. ⁓ I had just done a podcast with bigger pockets about my growth trajectory and what I had done. And someone came up to me and said, Hey, you know, I saw your podcast and I want to do exactly what you did. Can you teach me? I was like, well, I am legally licensed. I could, I don’t have a car. live in Chicago. ⁓ you have to pick me up and drive me to showings. And that’sthat’s how the agent side of things happen is like people just kept coming up to me at events and asking like, hey, I heard you helped so-and-so with their property. Can you help me too? So for the first, I don’t know, two, three years as I was building up my portfolio, I was in Milwaukee, which was about, you know, an hour and a half drive each way. I was up in Milwaukee pretty much every week. I would like spend the night up there usually twice a month and like run through the properties and the portfolio and all that stuff. And then was driving back to Chicago. So I had a really limited,
bandwidth take on clients as an agent. So I limited it. But I remember one day I get a call from an agent like, listen, like offers are doing an hour. You know, like you got to tell your client my clients like, dude, we need to do this right now. So I’m on the side of the highway with like a docu sign trying to get out my Wi Fi hotspot to work. Because you know, the offers like, what am going to do? And that’s really when I was like, you know what, like, I can outsource management. I have to let some control go in Milwaukee.
Dylan Silver (08:50)
Yeah, yeah.Brie Schmidt (08:59)
You know, I can’t be coming up here every week to like self manage with the property manager. Like, so I had, cause I had an in-house team at that point. ⁓ I decided to fire my in-house team and hire out a professional outsource management company. and that really gave me back like 90 % of my work was now handled by them. and then I would just meet them once a month.Dylan Silver (09:02)
Right.Hmm.
That was as a transactional real estate broker, right?
Brie Schmidt (09:28)
Well, yes. So I had, I said I was pretty much self-managing. had an in-house team in Milwaukee. So that’s why I was up there so much was I had to go up there and get like receipts, like help out with management stuff. But it was taking away from the brokerage side of stuff. And I can’t get into places at once and decided that like the agent side of things I love, you know, I realized in my 15 years as a real estate investor, I don’t actually like owning the properties.Dylan Silver (09:45)
Yeah. Now.Brie Schmidt (10:33)
So I like finding the properties. I like the underwriting, the analyzing, right? The strategy, like, hey, if we could, you know, update this, we can increase rents by that. Like that part is what excites me. Once I actually own the property, it’s not very fun for me. ⁓ I mean, I’ve had crazy stories, but so this then allows me to do what I enjoy doing every day, which is the strategy, the analysis, the upfront stuff.Dylan Silver (10:48)
Yeah. Tenants and thrillers, right?Brie Schmidt (11:01)
And then I actually get paid to do it. ⁓Dylan Silver (11:04)
Yeah, yeah.When when we talk specifically about the small multifamily space, two to four units, right? I know you’re active in that space. There’s also I’ve seen a lot of interest from other segments of real estate fix and flip, you know, folks who may traditionally be doing, let’s say, short term rentals into looking at some larger deals, whether that’s two to four units or five to 10 units. And I’ve especially been seeing this when I’m licensed in Texas, because of how
cost effective new homes are. If you’re strictly looking at the out the door number on a HUD and DR Horton and Lennar are making homes for $240,000, it’s tough to be a flipper. So I’ve seen folks look at some of these other segments. How did you niche down into that small multifamily segment?
Brie Schmidt (11:53)
So it has a lot to do with our housing stock. So our markets are very, very different. In the Chicago market in the actual city, depending on the neighborhood, between 50 and 70 % of all housing types are two to four unit properties. So we don’t do single family rentals here. A single family house here cost upwards of $800,000 usually, and would rent for $4,000 a month. Like, why would you do that?when you can buy a three unit for $800,000 a month and then each unit rents for $2,000. So it has a lot to do with our housing stock more than anything else, because finding two to four unit properties here is like shooting fish in a barrel. We don’t also, we don’t have new construction homes here. The closest new construction development that I know of is like an hour and a half away from us, because we don’t have lands to build. So it’s a very different market dynamic versus your market. Typically when you’re dealing with two to four units, you’re dealing with C-class assets.
Dylan Silver (12:36)
Yep.Brie Schmidt (12:51)
Right? We don’t, and you don’t have a large supply of them versus our market. So that’s more than anything. Like why I got into it was because that’s what 90 % of investors buy here. It’s two to four unit market, two to four unit properties.Dylan Silver (12:51)
Yeah.Now, are folks predominantly putting these on year to year leases? Are people doing midterm rentals? Is there an STR element of it when you’re looking at two to four units?
Brie Schmidt (13:19)
So as you mentioned in the very beginning, Chicago can be a difficult market. And that is one of the things are we had an Airbnb ordinance implemented, I think in 2016, but they weren’t actually enforcing the ordinance to the letter of the ordinance. So you were allowed to have one Airbnb per address, essentially, if you had a small five unit or five building and under ⁓ that is not how the ordinance was written. So then a couple of years ago, they just decided without telling anyone.to start implementing and enforcing the ordinance to the T and started deactivating listings, taking down people’s profiles because it didn’t comply with the ordinance. And it was really chaotic for about nine months. We had to go through, like we had to hire lawyers, had clients who tried to get different adjustments from the city and they just decide, nope, this is what the ordinance says, even though it’s been in place for like eight years at this point and we never actually enforced it. So short-term rentals in Chicago is
pretty much out now. It used to be a pretty big business, but now it’s extremely difficult to do. ⁓ We do some midterms, but we don’t have a big nursing market here. So, it’s not like we have travel nurses. ⁓ We don’t really have, so I’ve got a couple of clients that do it, but I could say I probably had 30 clients doing some sort of short-term rental five years ago, and now I’d have two.
Dylan Silver (14:29)
Yeah.So everything is for the most part, for the most part, it’s on a year to year lease.
Brie Schmidt (14:51)
correct. But we also haveone of the things that’s interesting about Chicago, I mentioned that between 50 and 70 % of neighborhoods are two to four unit properties, we have nowhere to build new houses, right? Every like, literally every piece of land is taken up. So what’s happened in the last 15 years ish, is someone figured out that you can buy two to four unit properties for cheaper than you can buy single family houses, right?
They’re already zoned, what we call like our residential RS3. So you don’t need to go through any sort of zoning approval to deconvert them to a single family house. So in the nicer neighborhoods, you could buy a 4,000 square foot small apartment building and deconvert it. can buy it, that’s about 10 years ago. You could buy it for let’s say 600, put $500,000 into it, gutting it and sell it for over $2 million. So that’s what’s been happening in our market over the last 15 years.
is we are deconverting all these small apartment buildings and turning them into mega single family houses that are millions of dollars. That creating a huge supply or huge issue with inventory on our housing supply. People can’t afford to stay in these neighborhoods are getting pushed out. So as this is progressing, like we’re just now seeing local laws coming into effect to try to stop this because we are losing our housing at a crazy rate.
Dylan Silver (16:35)
Wow.Brie Schmidt (16:54)
said, I’ve been a landlord here in fifth for 15 years.I’ve never seen so many rent increases and competitive runs as I have in the last three years. I you put apartment on the market. I’ve put some of my apartments in the market for like $400 more than I was previously getting and got eight applications the first day. It’s so competitive because there’s no housing anymore.
Dylan Silver (17:16)
I mean, when I when I listen to this, am empathetic, especially growing up in I grew up in northern New Jersey, about 30 miles outside of New York City. And so when I contrast that market to where I lived in in San Antonio, where I lived in the DFW Metro in Texas, it’s like night and day, right. And, you know, when you’re looking at a very middle class home in the town that I grew up in, that can be, you know, eight, $900,000, right?that pretty much prices out most people. And so what do you do, right? So as an investor, I’m hearing rents going up in Chicago and I’m thinking, hey, that’s a good thing for investors, but then for renters and for the people that are in the city, it becomes very challenging. Are you aware of any movements that are happening in the city of Chicago to counter that? Are people looking at ADUs? I know Los Angeles, they’re putting up ADUs everywhere.
Or is this going to be the new trend that things are going to be converted into single family and there’s going to be less housing?
Brie Schmidt (18:19)
That’s an extremely complex answer. Because I’m quite involved with advocacy within the city. ⁓ They just launched a right of first refusal ordinance in Chicago, in parts of Chicago. ⁓ We do have a state rent control ban, which they try to overturn three or four times a year ⁓ because of what’s happening in Chicago.But it’s really desegregated. So what’s interesting about Chicago is we have 77 different neighborhoods, right? Each neighborhood gets an alderman, right? And the alderman is like your little mini mayor of your little pocket, okay? And so one of the things that’s unique about Chicago is those aldermen have 100 % decision-making ability when it comes to building and zoning in their wards. They can control whatever they, they can do whatever they want in their wards. So we do have an ADU.
Dylan Silver (18:52)
Yeah.Brie Schmidt (19:14)
program, it’s a pilot program. It was actually looking to be expanded. I was down at City Hall for that meeting and watched them fight, literally fight and swear at each other for like two hours over expanding this ordinance. And it was really interesting. I should have brought like a bottle of wine and some popcorn ⁓ because there’s different needs of different areas, right? We have what we call the bungalow belt. There’s a part of the city where it’s all single family bungalows. They don’t want to increase density. They don’t need to increase density.But then you’ve got the areas that are closer to the train lines, which are 70 to 80 % renters. They absolutely need to increase density. And then you’ve got areas of the South Side that have, a third of the block is vacant lots. There’s tons of room to develop properties, but it’s not a very desirable area to live. So you’ve got very different dynamics all within one big city, and there’s no right answer that solves everyone’s problem. So the legislation did not go as they hoped it would go.
because of that. So it’s now we are expanding the ADU program, but it’s an opt in essentially. So all of them in that want it, have expanded it and increased the options with it in their wards, but it’s not available citywide.
Dylan Silver (20:31)
So each Alderman, am I pronouncing that right? Alderman. Each Alderman has the option to opt into ADU. So you’re gonna have potentially like a different version of the city in every section, in every one of those 77 areas.Brie Schmidt (20:33)
Alderman. Yeah, alderman. Or alderwoman.Yep. So like what side of the street you buy on could dictate your ability to develop the property.
Dylan Silver (20:57)
What’s your what’s your take on on ad use in general? I think it’s very interesting. I saw them in Texas where there’s tons of land. So I’m not necessarily certain that it’s it’s most needed in places like Texas, but I still appreciated that the creativity. What’s your take on ad use?Brie Schmidt (21:14)
So there’s two ways to do an ADU here. So we have a lot of what we call like non-conforming basement units. So these are basements that have already typically can be converted into an apartment or are already converted into a legal apartment, right? ⁓ That part of the process, is it that difficult? Because you’re just adding a basement or you’re finishing off the basement unit that’s existing in the building. Adding it as a specific coach house,is extremely expensive. You have to run water. You’ve got to run utilities, right? We don’t have all those services. You it costs about $250,000 to build a 900 square foot apartment as a standalone unit here in Chicago. So, you know, for you’re getting a junior one bedroom at 900 square feet or really, really small two bedroom, how much rent are you going to get from that? And then how are you going to actually recuperate the $250,000 construction costs?
Dylan Silver (22:13)
Yeah, you’re not. Yeah.Brie Schmidt (22:14)
You know, doesn’t make sense. You’re not.So we’re starting to see like everything here is architects plans permits. We’re starting to see some architects come out with like templates, essentially like here’s three designs that we’ve already been approved with the city, depending on your lot size. And we can sell it to you for cheaper instead of doing custom. And then you can just template and use that as your drawings. So we’re starting to see a little bit of that coming through with the city and that would
lower cost potentially.
Dylan Silver (22:46)
Now when someone let’s say they have an ADU on their property in either of those forms right whether it’s ⁓ conjoined or a separate building entirely which would be cost prohibitive but let’s say either one right. Can they sell them individually or would they be selling if they were to sell the property would it all be together.Brie Schmidt (23:04)
It would all be together ⁓ unless you get the lots, like the lot split up, which I’ve only seen one time. And it was actually really challenging. It was a front building that was three units, had a rear building that was two units. And somewhere down the road, they split the lot so that it was separate, like separate surveys and that, but they were selling it as one building and we couldn’t get financing. Cause it was looked at, you know, so now you’re getting into different stuff with financing.Dylan Silver (23:23)
Yeah.That can be tricky.
Brie Schmidt (23:32)
It’s not very typical here. ⁓ You’ll see all of our lots, we are 25 foot wide, 125 deep, is like the standard Chicago lot. So they’re really skinny and long. So there’s room for the second building on the back. And some of them do have them. It’s just not very common, but usually it’s sold as one building, one lot.Dylan Silver (23:53)
For our audience who’s outside of the Chicago market, what will rents range for for an average one bedroom apartment?Brie Schmidt (24:02)
depends on what part of the city you’re in. So Chicago is really large. I think it’s like 300 square miles, just city proper. So it really, can, it could be $700 a month. It could be $5,000 a month. It’s a really, really large range depending on where you are. Typically on the north side of Chicago, which is where I deal with, it’s pretty solid, like B plus, A minus class. A typical building will, let’s say you can buy it for $800,000 if it’s,Dylan Silver (24:06)
Yeah.Okay, so you’ve got a lot of here again.
Brie Schmidt (24:32)
renovated, you know, and you’re looking at about 6,000 ish, 6,500 and rents. So we sit pretty solid at a 6 % cap right here.Dylan Silver (24:42)
Yeah, yeah, you know, it’s interesting because as I’m talking to you and as I’m thinking back to the other conversations that I’ve had with investors in Chicago, Chicago is like a mix of many different ⁓ temperaments and aldermen’s and rules and regulations. And so you can have one version of Chicago that’s a completely different beast than another area of the same city, right? So it’s definitely an interesting market to be active in.Brie Schmidt (24:52)
It is.It is.
Dylan Silver (25:10)
We are coming up on time here though, Brie. ⁓ Any new projects that you’re working on or how can guests reach out to you and your team? How can our audience reach out to you guys?Brie Schmidt (25:21)
Sure. If you’re looking for agent services in Chicago, you can find me at ⁓ secondcity-re.com. I also said I coach agents on how to work with investors. So we go through everything from how investors speak, what they want to learn about, ⁓ how to get repetitive business. And that website is chicagobree.com.Dylan Silver (25:42)
Brie, thank you so much for coming on today. Thanks for your time.Brie Schmidt (25:45)
Thank you for having me.
