The Real Estate Entrepreneur Journey From Employed to Self-Employed with Drew Breneman | S3SP20
In the ever-changing landscape of commercial real estate, Drew Breneman‘s path from being employed to becoming self-employed serves as an inspiring example for any professional aspiring to follow the real estate entrepreneur journey. In this episode of the A.CRE Audio Series, Drew shares his remarkable story with listeners, shedding light on the challenges and triumphs he encountered along the way. Through relentless determination and strategic decision-making, Drew has now built an impressive portfolio of properties, amassing over $200 million in value.
Watch, listen, or read this episode below to hear about Drew’s journey and how he went from being employed to self-employed through commercial real estate.
The Real Estate Entrepreneurial Journey From Employed to Self-Employed
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Resources from this Episode
- A.CRE Real Estate Financial Modeling Career Accelerator
- Education in Real Estate
- A.CRE Career Articles
Episode Transcript
Announcer (00:01):
Welcome to the Adventures in CRE audio series. Join Michael Belasco and Spencer Burton as they pull back the curtain on everything commercial real estate and introduce you to some of the top minds in the industry. If you want to take your skills to the next level and be part of a growing community of CRE professionals across the world, this is for you.
Sam Carlson (00:26):
Hello and welcome back to the Adventures in CRE Podcast. We’ve got a special guest, Drew Breneman, CEO of Breneman Capital. We’re excited to have you. And it’s interesting, a lot of times when we do these podcasts, we have people in and things are happening in the market that might influence the direction we head with the conversation. But there’s one thing that I don’t think really relies on a market. And that is the path that you want to take in your career. Do you want to work for an institution? Do you want to go the corporate route? Do you want to start there? Do you want to start your own thing eventually? These are all questions that as we develop our career, we got to figure out for ourselves.
(01:05):
And I think a lot of us, myself specifically, want to go the real estate entrepreneur route. We want to work for ourselves, we want to explore that. And so I think today we’re going to have a really cool conversation about how Drew’s been able to do that. And anyway, I’m excited to have this conversation. Spencer, I’ll turn it over to you like normal to get us started.
Spencer Burton (01:24):
Yeah, sure. Drew, first off, thanks for joining us. So Drew’s background is very interesting. I regularly get this question. Which is, “I’m a senior in college, I’m going to go get my first job. What I really want to do though is eventually go out on my own. I want to start my own thing.” And the question is, “How do you get there?” Drew is an example of someone who started the W2 route, the employee route, and transitioned into own his own firm now. Founder and CEO of Breneman Capital. I know also you’re a founder or shareholder in other firms. Maybe Drew, why don’t you start by giving the audience a bit of background about yourself and then we’ll dig into what it takes to make that transition from a W2 into a real estate entrepreneur.
Drew Breneman (02:08):
Sounds great, thanks. Yeah, thanks for having me too. Yeah, really, I sort of always was wired like this, I’ll say, in terms of wanting to be an entrepreneur. I had all sorts of different little business things I did as a kid. And then the first one that really worked out to make any real money was I started reselling items in video games back in like 2002. So this is Diablo II and EverQuest some of these old games now. But I saw my friends playing, they sold their stuff on eBay for real money. I saw sometimes stuff going for five dollars, the same item, sometimes for 20, the same thing. So I just started flipping those and over a period of four years I made between 80 and $100,000. And I saved all the money.
Sam Carlson (02:48):
That is so cool. I love that story. We’re starting off on a really good foot, by the way. I love this.
Drew Breneman (02:53):
Yeah, I started investing in what they always say to do, stock market, mutual funds. Same thing that my parents did. They were both teachers. But I read a book on investing in real estate. It’s called Investing in Real Estate by Gary Eldred. It’s a basic book if people listening are already in real estate, they’re already way ahead of where that book was at, but I’m reading this as a high schooler. And I really liked just all the aspects of real estate, how he was talking about it. You got cashflow, you’re paying your loan down, you have appreciation, tax breaks. So I figured, all right, when I go to college, I’m going to take this money, I’m going to buy my first rental property. And I did. So my freshman year I bought duplex for 220,000 in Madison, Wisconsin, where I went to college at UW Madison and put 35,000 down on it and my real estate career was started.
(03:43):
Ended up buying four properties while I was in school with taking the money that I had made, and also selling one deal to buy the next or doing the cash out refi. So I got four deals, but I graduated in 2007, so that’s where the W2 came in, because I’m looking at the market in 2007 going, this is not going to look so good. Thankfully, I invested in student rentals, so my values dropped a lot, but my rents did not drop at all, they kept going up. And so I took a job at a multifamily developer in Minneapolis, and while I was there, one of the interns, he saw all the activity I was already doing just on my own on the side. And was like, “We should go meet with my dad and maybe he’d want to invest or we could partner up.”
(04:30):
I don’t like to waste time. So I was like, “Let’s go meet tomorrow.” And I printed out a bunch of deals, pitched them on kind of different profiles. I had no idea how much they would invest either, because again, having parents as teachers, I’m thinking this could be a duplex or this could be a five million dollar deal, I have no idea. So I brought all those sort of deals to them and they really liked the three million dollar two tenant shopping center. So we ended up actually, not in that meeting buying it or anything, but we looked at the deal. We ended up buying that shopping center that they liked in that initial meeting. So that was our first deal together. And then the terms of the transition from W2 to full-time back into real estate, for the next three years, I kept working my W2 and continued to run the deals I owned in Madison, Wisconsin.
(05:17):
And at this point I had relocated to Illinois for a different job, but I essentially was working three jobs. So I had a W2 in Illinois. I had my own properties that I was self-managing, which was really difficult. I remember we were doing an eviction on one deal and I literally went to court on my lunch break. So this is a lot of hustling. And then for the deals we were buying with the family that was in with the investor, yeah, I’m calling brokers on my lunch break. I’m reading the leases at night on the weekends, but I kept all three and I think that’s kind of an important thing until from 2008 to 2011, then I finally quit. But we had already had bought five deals with a sixth on the way. So the three of us had bought $26 million of property. And then also I had those two of the Madison deals still on my own. And you guys will have to just interrupt me. I’m just going to just keep going.
Spencer Burton (06:11):
You keep going, Drew. This is great. I think this will get to a point that I have questions that are building, but keep going.
Drew Breneman (06:17):
No, it sounds great. Yeah, no, I just want to throw that out there because I just can kind of keep going. But yeah, and that was really kind of the start of Breneman Capital, all of that where sort of my side of the equation and those partnerships would kind of branded that as Breneman Capital, but we ended up buying $100 million of property together, the three of us, just not where the dad had thrown in, whatever you would’ve needed 30, 40 million down to buy that, I think he had invested less than 10 million. But it was just, you buy a deal, you raise the rents, you improve the value, you do a cash out refi, you buy another or you sell it and do a 1031 into a bigger deal. So I built that portfolio up over a period of 10 or so years and by 2019 it was $100 million.
(07:03):
And then same thing, met another family, kind of a similar scenario, this time a father in-law and a son-in-law saw what I was doing and we have bought about 100 million as well together. And then around that same time I started syndicating deals just to high net worth individuals. And now we focus, I kind of glossed over what we were buying, but it was all, for the most part, multifamily in Chicago from 2013 to 2021. And we did really well on those deals. Our average IRR on the ones we sold was a 25% IRR on a five-year hold. We did 13 in a row full cashout refinances. That’s part of the recent IRRs were high because we were pulling out all of our money within a year usually. We were buying these core plus deals that were newer, nicer ones, but they weren’t being run well.
(07:54):
The rents were below market. I mean, it sounds easy, this kind of profile deal. But basically I spent all year looking at deals to buy one to three deals a year. Then we did buy some deals where they were 100 year old buildings already renovated within the last 20 years, but then we could just take them up another level redoing kitchens, baths, swapping out appliances. And now today I moved to Austin, Texas and we focus really more on the Sunbelt now in Phoenix, Dallas, and Austin multifamily. So that’s been kind of the whole run so far. I was surprised, I bought two million in property when I was a college student and it’s kind of nuts how it’s gone so far.
Spencer Burton (08:36):
Yeah, so let’s come back. I think an important piece that was missing in the story is at what point did you go as a real estate entrepreneur? You give up the safety blanket of the W2. What was that moment and describe what was the catalyst? What allowed you to do that?
Drew Breneman (08:53):
Well, really it was putting in the work ahead of quitting. So for call it a three… I bought my first deal in 2005 and then got my first job in at the start of 2008, and then I quit in 2011, my W2. So it was really working at one, two, or three sort of different jobs if you want to call them that or things on the side for quite a while. And that’s been a common theme where people that I know that have quit their jobs as well. On my podcast, I had a couple of my Chicago, we’ll call them buddies, that had launched their own firms as well and it was the same story. One of them said he built this whole business while all his friends were watching college football. Another guy he did the same thing I did except he kept working all of it until he was in his forties and now he has a billion dollar multifamily portfolio, but he had a huge portfolio just on the side as being a debt broker.
(09:56):
So yeah, I think that’s kind of an important part I thought was sort of doing all of it at the same time to get it built up because I think it’s really difficult to, if let’s say I would’ve not started anything so far in 2011 and then it’s decided I’m going to quit and go out on my own. But I have no deals, I have no track record, I have no partners yet. It would all just have been conversations. So that I think’s a hard… Because yeah, what you asked, it’s a common question I get asked too where it’s, how do I go out on my own? And really to me the answer is you need to start doing it now. So the reason that family in Minnesota invested with me, it wasn’t because I just had the best pitch ever or something. I had already bought four deals and it was just, you can get on board with what I’m already doing. So it was already, they saw the activity and a lot of proof of concept, I guess at that point where it wasn’t just a theory.
Spencer Burton (10:52):
So was there a metric that you were looking for that you said, when I hit this number, maybe it’s distributions back to you, maybe it’s a certain size of a portfolio, but when I hit this number, I’m going to quit. Did you have that number in mind?
Drew Breneman (11:09):
Really the way I was thinking about it was maybe once you thought your job was costing you money, was the time to go. Where at that point what I was making on each deal, I needed a couple of those deals to replace my wages. So I was already had exceeded that by the fifth deal and I still was working. Also, I did see value in what I was learning at the job too, so I wasn’t just in a rush to get out of there because I had worked at a multifamily developer for just a year, but they did tax credit development. So I learned a lot in that year and then I worked at a retail developer, and so I learned everything. I didn’t know really anything about commercial property when I started, and I learned a lot there. So I wasn’t in a rush to get out, but really more my metric was, I feel like this job is costing me money now. Meaning, whatever I’m getting paid, I think I could make more than that, just reallocating that time to the next deal. And that’s-
Sam Carlson (12:17):
Can I jump in real quick?
Spencer Burton (12:17):
Please.
Sam Carlson (12:17):
I want to go back because you said something that we kind of glossed over, but I think it is so important, especially right now. I mean, in 2023 when we’re going into some economic fun times, I think that there’s one thing that you kind of glossed over that people really need to hone in on. And that was the fact that your first investment vehicle, the vehicle that you chose happened to be student housing, right?
Drew Breneman (12:46):
Yeah.
Sam Carlson (12:48):
And a lot of times, so back in 2007, running up to 2007, if you were a mortgage broker, I happened to be in the mortgage business, owned a mortgage company. And if you could fog a mirror, you could make money in mortgages or real estate. And a lot of that was happening in real estate in the last two years. If you were a real estate agent, if you can fog a mirror, you can make money doing this business. But who is it? Warren Buffet that says when the tide goes out, you see who’s wearing shorts.
Drew Breneman (13:18):
Yeah, or who’s naked.
Sam Carlson (13:19):
That’s right. Yeah, you see who’s naked. That’s right. And so I like the narrowing down on the concept of product market fit. And so when you were looking at student housing, did you think, oh, I want to buy student housing because there’s some security in that type of cashflow vehicle? Was there some thought into, this is the product that I need to do while I’m in school? Any insight into the product market fit that you chose?
Drew Breneman (13:55):
Well, the honest answer would be no. I think that because again, I was 19, so a lot of the stuff, folks listening that are working in commercial real estate that you guys know and work with, you guys, they know way more than I did at that point. And that sounds like a great strategy at the time and for right now where if the market’s choppy and student rentals are going to hold up, which that’s been proven as being a good product sector for when it’s recessionary. But there really wasn’t… My strategy was actually even more simple than that. It was I wanted to buy something that was cashflow positive at a fair price, which sounds so simple, but that’s also what allowed me to do the deals where if I would’ve thought, I’m going to be a developer, I’m going to get a deal built, I’m going to do this and this, or I’m going to focus on value add rehabs, there’s so many moving pieces, who knows if I would’ve ever gotten started.
(14:51):
But instead I found a deal, I figured out how people were valuing these with the gross rent multiplier. I saw one that looked on the low end in terms of GRM, and then I really spent a lot of time making sure I understood what the rent should be and the expenses. Because again, I’m brand new. I have no real estate experience. And so I spent a lot of time focusing on the cashflow, because I thought my worst case scenario is, again, it’s my own money. So I’m not thinking what’s my IRR or what are my returns? I didn’t even know what an IRR was at that point. I just figured if it’s cashflow positive, my worst case scenario is, I just hold it. I’m cashflow positive and then I overpaid so I need to just hold it. I can’t sell it and make money, but I’m going to just own this thing for 10, 20 years and I’ll make money on the other side and learn a lot.
(15:38):
So I mean, honestly, that’ll be my advice today where you could do owner occupy one to four unit and get one of those FHA loans for three and a half percent down. My parents, they didn’t lend me any money, but if you have family that can lend you money, it’s fine. You can even get your down payment lent to you in that program. I had the down payment from the internet business, but I don’t even know if you need that now, if you could get a loan or partner up with a family member. Someone I know did a deal where she and her, I think sister-in-law just went 50/50 on a deal with that same loan program, and her sister-in-law was the one who qualified for loan and she put the money in. So I guess too, being creative early on, you don’t have a lot of resources, so you got to be creative and resourceful.
Spencer Burton (16:27):
There’s a few components here, Sam, that to me, Drew as a 19 year old made total sense. The first is it’s what he knew. He just rented a place at college. He knew that people pay to have a roof over their head, and if the amount of cashflow that he as a 19 year old exceeded the outflow that he had in terms of operating expense and mortgage payments, it was a good investment. And then he described some of the downside going, okay, yeah, I can hold this long term or whatever else, but at the end of the day, it was something he knew. Even as a 19 year old kid, he understood. The other piece is it was in front of him. He’s at… I’m talking as if you’re not here, Drew.
Drew Breneman (17:14):
Yeah, UW Madison.
Spencer Burton (17:15):
But you’re at UW Madison, you weren’t going to buy a shopping mall in LA, you’re at UW Madison. You understand student housing is right in front of you. And so there’s too many people that when I talk to and say, “I want to become a real estate entrepreneur, but I don’t know what property type to do or I don’t have enough money.” It’s like, there are opportunities right in front of you. Yeah, it may not be the perfect time or the perfect property type, but sometimes it’s better just to do, get started, to take the little bit of risk. And that’s what Drew as a 19 year old did. And then one became two and two became four. And what he’s doing now is much larger scale. But he didn’t say as a 19 year old, “Well, I can’t buy a 300 unit apartment complex, or I can’t buy a newly built Amazon leased industrial building, so I’m not going to do it.”
Drew Breneman (18:09):
Yeah, I had no idea how those worked. I think you’re right and I think even people who maybe they would think they live in a bad market, and so let’s just beat up on Chicago because I invested there a long time, but you’re in Chicago, you think it’s a tough market or something, but you live there, you know it, you can run it better. You understand the rents. So this is the same thing in Madison. I bought it, I knew that I could get more for the rents than the current owner was getting. I had, to your point, a huge group of friends I could poll, what are you guys all paying and do my market study or whatever you want to call it, just in the dorm room. So you’re right, I think that too. And then owner occupying it allowed me to put less down and get a lower rate. So that was also helpful too to the numbers obviously.
Spencer Burton (18:57):
And when Drew talks about owner occupy, what he’s saying is you can buy a duplex, live in one side and rent out the other side. And in a perfect world, the rent from the other side pays for your rent and nothing else. You save on rent, you go to a fourplex and you can go up to four units and still get conventional financing, which is what he’s referring to, kind of an FHA government loan where you have to pay a minimal amount down, because your owner-occupied. Anyway, the point is, and this isn’t an exercise in what’s the right investment. There are investments staring everyone in their face and instead of going, oh, one day when… Or, if only I would do it, why not now? So I think that’s a great point.
(19:42):
Let’s talk about education if we could in the last five or 10 minutes, I hear a lot of young entrepreneurs who say, I’m wasting my time at college, or I loved how you described the value of your W2. The value of the companies you’re working at was you were getting great education. Or put another way, which might be a little rough, is you were learning on someone else’s dime.
Drew Breneman (20:05):
I think that’s right.
Spencer Burton (20:07):
How do you view, or what do you say to people who say how college is a waste of money, working for someone’s a waste of money, just get right into it. What do you say to someone who has that view?
Drew Breneman (20:23):
I kind of thought the same thing when I was in school, when I was in college, so I totally get what you’re asking. Because it’s easy if you’re 19 where you go, well I got to spend four years and I got to go to school, this is going to take forever, which is funny now to think about, I’m almost 40. Yeah, you went to college and you got out when you were 22 or whatever. It wasn’t that long when you look back and same thing working at these places, it wasn’t like I was falling behind or anything, which I think is the feeling people get. But yeah, I think college is important just in terms of for obviously the education you get, but also just, I mean, how people perceive you. Most people would be expecting that you’d have a college degree at any of these sort of white collar jobs.
(21:12):
So I think it’s needed. And then I know you want to maybe go out and be a real estate entrepreneur right away, but then the typical, what are you going to fall back on? I think that’s legit, but also in the grand scheme of things, it’s not that much time how much you’re spending on it. And so I mean, still see a lot of value in it. I think one thing, and I don’t want to derail the whole conversation, I do think some of these private schools that are so expensive and aren’t the top tier ones, I think that’s sort of almost like an education bubble of sorts. So I don’t see the value in that. If you’re going to the whatever, 11th best private school in Wisconsin or something, I didn’t think that was a good use of money, but I’m going to the best public school paying in-state tuition. That made a lot of sense for me.
(21:59):
So that would be my thought on school. And then, yeah, for the job, one thing I would really recommend to people that are starting out in their career, I know it’s easy to say now where I’m older and have made money investing, so it’s easy to give out this advice, but you should really think about what you’re going to learn at the job more than what you’re going to get paid. Which, because what you don’t realize, let’s say if you’re starting out and you’re comparing a $65,000 year job with a $75,000 a year job. Well, when you’re 40, the 10 grand you made after taxes when you were 23, that money has disappeared. Who knows where it went? It probably went to a vacation or just being wasted on the weekends anyways.
(22:45):
So I think you should focus on what you’re learning because imagine if in one place you’re not getting to the right spot. That’s another thing I try to talk about is you want to think about where do you want to get to and then just get to that spot. And don’t worry about the company so much or the pay, just, am I getting the right experience to do what I want to do? So if you want to go out on your own and invest in real estate, don’t take a job at some sort of rating agency being like an analyst. Try to get on the deal side, even if it feels like a lower job where you get paid less or be a broker, try to be in the mix on deals if you want to be out on your own someday, even if the pays way worse or the title’s lower.
Spencer Burton (23:33):
As you talk, it reminds me of the classic Navy SEAL phrase, slow is smooth, smooth is fast. And when you’re 19, you don’t understand the concept because to your point, four years is an eternity to a 19 year old, and no offense to our young listeners at all, but one of the best pieces of advice I got is from my grandfather. And I was thinking about, do I go back to business school? And at this point in time, I think I was 29, which is old, by the way, for a perspective business school student. And he and I were talking, and he finished his law degree when he was 35. He served in World War II, he had a family and a variety of things. And he said, “Spencer, that extra year or two is not going to make any difference in terms of the acceleration of your career, but what you’re going to learn, the people you’re going to meet is going to be far more valuable.”
(24:27):
And so Drew, when you describe being 40 and looking back and saying, oh yeah, if I start when I’m 21 versus 23, it really makes no difference. The people you meet makes a world of difference. And to me, by the way, and again, not to derail the conversation, the greatest value in college are the people that you meet and the credibility that you gain from having demonstrated that you went through something tough. Totally agree there’s an ROI to every school, and there’s certain schools that are not a high ROI relative to others. We’re almost out of time. This is a pretty important topic. First off, if someone listening wants to reach out to you, what’s the best way to get in touch with you?
Drew Breneman (25:16):
I think if, just in terms of you want to learn more about stuff like this, I have my own podcast, the Breneman Blueprint. It’s a real estate investing podcast where we get into talking about doing your first deal, or I had those guys I mentioned that started their own firms on to hear what they did and did a hour plus with them, kind of hearing their whole story and the moves they made. So that you can see get on YouTube or any podcast platform. And then I’m also on social media at Drew Breneman everywhere. I actually just signed up for TikTok even. So I’m on them all now.
Sam Carlson (25:47):
Love it.
Drew Breneman (25:48):
Yeah, my sister works in social media for a jewelry company, and she’s like, “You got to get on TikTok. Everybody’s there.” But, anyways.
Spencer Burton (25:57):
We’ll be sure to share that in the description of this last question. And unless, Sam, you want a follow up to finish this up, but last question. So let’s imagine you’re 19 year old Drew again, and you’re living in Austin, Texas now, what does 19 year old drew going to UT Austin, let’s imagine instead of UW Madison, what do you invest in?
Drew Breneman (26:29):
I mean, it would’ve been the same thing, except I’d be doing this call from my yacht with how Austin’s gone.
Sam Carlson (26:35):
That’s right.
Drew Breneman (26:39):
But yeah, I mean, would’ve just done the same thing. I’d be like, I’m a student. We got all these properties here. I’d do the same thing. So I don’t think there would’ve been anything different. I didn’t realize how easy it was to get a loan initially, so I know I’m talking, I had a down payment and I owner occupied. I could’ve pushed and probably bought more deals, but I was also a student and figuring it out. So one a year still seemed like a lot. So yeah, would’ve been the same thing, I just would’ve, and that’s part of the reason I moved here and we shifted our strategy to the Sunbelt is I would’ve had a giant tailwind behind me where the Minnesota and Chicago, multifamily markets were mostly where we’re buying. It hasn’t been a big, big help. It’s been pretty flat. We’ve created a lot of value on our own, but I mean, if we would’ve done those deals in Phoenix, then the market would’ve tripled them as well for us. So would’ve been nice.
Spencer Burton (27:39):
Well, Drew, you’re an inspiration and it’s fun to hear your story. I’m sure that quite a few people listening can relate. Either they’re at the 40 year old age of the story or they’re young and they’re thinking about this. And so thank you for coming in and sharing your insights. Sam, I’ll let you give the last word and wrap us up.
Sam Carlson (28:01):
Yeah, this has been a fun podcast. Entrepreneurism is near and dear to my heart. And I think there’s so many lessons that as Drew, you were sharing just the different things you went through and starting the business, growing it, that I just thought, oh man, yeah, just work hard. Always learn. Going to school is important, but once you’re done with school, you can’t ever stop learning, getting experience, that’s important. Sacrificing what you want most for what you want now. Right now, I don’t want to work three jobs. Well, you got to sacrifice, because the thing I want most is out in the future. And so that’s what it takes. That’s what takes to be an entrepreneur. And so this has been a lot of fun for me to just even go down some of my own memory lane and just replay those same experiences myself. So thanks for coming and for the listener, thanks for listening, and we’ll see you on the next episode.
Announcer (29:02):
Thanks for tuning into this episode of The Adventures in CRE audio series. For show notes and additional resources, head over to www.adventuresincre.com/audio series.
