Landlording & Rental Properties

Grant Cardone Is Both Very Right and Very Wrong: Let’s Pick Apart His Advice

Expertise: Mortgages & Creative Financing, Personal Development, Landlording & Rental Properties, Personal Finance, Real Estate News & Commentary, Real Estate Deal Analysis & Advice, Real Estate Investing Basics, Business Management, Commercial Real Estate
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When you get to be pretty smart and rather accomplished, you find yourself in somewhat of a danger zone. The danger is represented by the fact that your prior successes tend to back you into a tunnel-vision perspective on life and business. Because you know what has worked for you in the past, you can fall into believing that the same will work in the future, that your way is the only way, etc.

Well, it doesn’t take a genius to note that everything in life changes over time, that life and everything in it is cyclical. And if so, your perspective and frame of mind necessarily and proactively must evolve.

One way to help facilitate this is by surrounding yourself with smart people of differing perspectives, and one vehicle to accomplish this can be a mastermind group. I am fortunate to have many, many smart people on speed dial, and a couple years ago, I had the pleasure of spending time with two of the smartest guys I know.

The setting was Hawaii, Honolua Bay on the island of Kawaii. Do you recognize these two gentlemen?

In case there is any confusion, the one with the out of control beard is Brandon Turner, and the other is our good friend Darren Sager.

What Did We Discuss?

We talked about lots of things. It was a very productive getaway, indeed. One topic, in particular, comes to mind, and it is this: Grant Cardone loves to offer advice that folks shouldn't mess with houses and small multifamily and should go to the big stuff right away.

Brandon, Darren, and I talked about this in detail, and in my opinion, we have to accept that Grant’s advice is both very wrong and very right at once. In this article, we will explore both sides of the argument.

Why I Think I Can Help You

Brandon, Darren, and I talked a lot on the subject, but of the three of us I may be most equipped to speak to this. I started with single-family residences (SFR), and it only took four of them for me to figure out that structurally SFR as an asset class is a fool’s game. The numbers are not there, and the management infrastructure is a nightmare.

I switched over to small multifamily in 2006 and stayed there for about eight years, working with everything from a duplex to 10 units. I remember looking at some 24-40 units, but never pulled the trigger on those; something didn’t feel right. I wasn’t sure what felt wrong about these at the time. I know now.

And nowadays I syndicate apartment communities.

So, this conversation is right up my alley because I’ve stood on every step of this ladder and have internalized the benefits and drawbacks of each. I am hoping you find value in this.

Related: Why You May Have Grant Cardone’s Concept of “Massive Action” Dangerously Wrong

Grant Cardone Is Right

Let me start out by saying that structurally, Grant is right—going bigger is simply a better idea by any investment return, OpEx, and CapEx line item.

Investment Returns

This is a long—in fact, very long—conversation. But the term I want to coin today is #exponentiality. In simple terms, a 1% return on a basis of $100,000 is $1,000. But, the same 1% return on a basis of $10M is $100,000. Now, I’m not sure about you, but I’d rather get paid $100,000 than $1,000.

Thus, in terms of the amount of money being made, this is not a contest—go big or go home. Cardone is right here.

Management

I’ve written about this on the BiggerPockets blog as well as mine, but as it relates to management the truth goes like this.

A professional property management operation is one that has a construction arm, legal department, and an accounting/reporting department. This is an operation with well-tested systems, which come from years in the business and thousands of units under management. This is an operation with deep commercial contracting relationships, in-depth knowledge of and relationships with the representatives of the municipalities they operate in, etc.

In addition to the above, a professional management infrastructure for apartments involves payroll for on-site employees and a regional manager overseeing them.

Now, the thing to understand is that all of the above costs money, and in order to underwrite this cost, the project needs to be of a particular size. Let's just call it "large." Such a property manager as described above knows that you can't afford them on a 40-unit, and they can't afford to service you properly on a 40-unit. So, they are not interested.

I will address in a bit why this is such a problem. For now, let’s just say that there are only two options available to you from here: You are forced to either do the property management yourself or hire the gal or dude at a local real estate brokerage office who handles 100 units for small-timers. Neither of the above is a particularly enviable circumstance. In fact, I did it for a decade—and, well, no freaking more!

Cardone is right here as well: Go big or go home, as it relates to property management.

Construction Efficiencies

We only buy value-add deals. Why? It’s a separate conversation as to why, and if you want to have that conversation, we can, in another article. For now, let us agree—we only buy value-add deals.

That said, there is a lot of construction happening in these deals. And with construction, we have issues of material cost and sourcing, labor cost and sourcing, and project management.

Relative to project management, we are right back to talking about management, and the same realities exist—either you are pulling your hair out to keep subs on task, or someone else does it for you. On a small project, it has to be you because you can’t afford for it not to be you. On a large project, there is enough income to pay people so you can have a life.

So, here again, going bigger makes sense.

Then there is the issue of sourcing materials. Do you think you can get better pricing on kitchen cabinets and granite if you do 4 units or 100? How about flooring and paint? How about fixtures? And how about labor?

Awhile ago, we closed on a 98-unit. It was at that time called Silver Tree. Now it’s Canyon 35. You can read about it here.

I can tell you that we can do a 1×1 apartment at a cost of about $7,350 if the bathtub does not need to be resurfaced—and $7,550 if it does. Add to this about $100 for 2×1 and about $300 for 2×2. This includes new cabinets in the kitchen and bath, granite for kitchen and baths, underhung sinks throughout, appliances, lighting and plumbing fixtures, hardware, paint, and all of the labor.

There is absolutely zero chance I could touch this pricing remodeling a small multifamily. And in SFR, if you are good at what you do, you’ll spend $8,000 on the kitchen alone, more if you go with granite. That’s if you are good!

So, once again, Grant is right—going bigger affords efficiencies.

Financing

Dude, I’ll tell you what. The most difficult financing to obtain is residential mortgages for your four units and less. The qualifying process is akin to a colonoscopy. They look at everything and they look everywhere.

Not much better is commercial portfolio lending. It’s definitely better but still requires personal recourse, and while more emphasis is placed on the asset, the bank still looks at you quite personally.

Related: BiggerPockets Podcast 108: Building a $350 Million Real Estate Empire Using the 10X Rule with Grant Cardone

On the other hand, with the big stuff, the options for financing are endless, and the qualifying process is easier. Why? Because they look at you, but not really. They know you can’t and won’t repay the debt if things go badly, so they focus on the asset and who will be managing said asset.

The thing is, lenders won’t even think about loaning to you if you think you can manage the asset yourself—it’s a professional job that a professional should do. They know that a professional third-party property manager will be managing the project. As such, the lender is underwriting the property manager more than they underwrite you, which takes me back to the earlier discussion: If what you’ve bought is too small to afford/attract professional management, this is a problem in a lot of ways, including the debt.

By default, this pushes you into larger assets since this type of a professional property manager will not manage small stuff.

Grant is right again—go big or go home.

But… Grant Cardone Is Wrong!

Here's the thing. Any suggestion that a newbie who can't tell a rafter from a footer, who's never signed a lease, who's never qualified for a loan, who's never experienced the joys of eviction, and who's never written a business plan much less executed it should stick his/her nose into the big stuff is insane at best, criminally misleading at worst, and big-time guru on balance.

It’s not like you know anything about construction. It’s not like you can raise $5M from partners. And, most importantly, it’s not like you know what a good deal looks like.

And something else you don’t know is how much mistakes in real estate hurt!

So, What Should You Do?

I have no idea. I don’t write articles to give you answers. I write to make you think. And all I can tell you is what I did and what my friends did. You figure it out from there.

I can tell you that I learned from making mistakes. I could not conceptualize large apartments any other way than growing into them. But I eventually arrived at a point in my intellectual worth that now enables me to play in the big leagues. I still have a portfolio of small multis, but likely not for too much longer.

My partner Sam Grooms is a CPA with a Deloitte pedigree, who can see stories in numbers that 99 percent of people just aren’t able to see. Aside from syndicating with me, he seems to always have two flips going on. And now, he is starting to teach as well since we are doing a live event in Phoenix in January.

Darren, aside from being a hugely successful Realtor to the investors, is continuing to stick to his model of buying extremely well-located small multis in Northern Jersey, close to transit and with the eyesight of Manhattan. He is of the mind that fewer doors equal more cash flow. Works for him!

Brandon Turner makes good cash flow on his portfolio, buys mobile home parks, and writes books that generate very good residual income.

Both Darren and Brandon invest with me for diversification and access to other markets—and for the fact that both of them are kind of maxed out with how much they do, and it’s time to diversify into more passive forms of cash flow.

You see, everyone has angles. Everyone is diversified with activities and revenue. Whether it’s classical training or trial and error, all of us study and learn. One thing none of us did was jump into large multifamily right away.

What do you think? Is Grant Cardone’s “go big or go home” principle feasible for newbies?

Weigh in with a comment!

Ben has been investing in multifamily residential real estate for over a decade. An expert in creative financing, he has been a guest on numerous real estate-related podcasts, including the
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    Mike McKinzie Investor from Westminster, CO
    Replied about 2 years ago
    Ben, let’s not forget appreciation! Money is made with cash flow but WEALTH is created through appreciation!
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Let’s not go there, Mike. This is BP – I’ll get eaten alive for that kind of talk 🙂
    Kevin Moules Rental Property Investor from Turlock, CA
    Replied about 2 years ago
    This comment made me LOL! 🙂
    Mike McKinzie Investor from Westminster, CO
    Replied about 2 years ago
    Ben, you mean like the blog where you said that people can’t make money on $30,000 rentals?? I am so sick and tired of that class that I won’t buy anything under $100,000 except for a flip. A new roof, water heater, HVAC system all cost the same, no matter if your get $500 a month in rent or $2,500 a month in rent. I just redid 2 bathrooms in a rental, $25,000 for a complete, down to the subfloor, refurbish. But it added $50,000 to the value and the house will be sold next year for around $650,000.00. (How stupid am I? I own a house worth $650,000 that rents for $1,800 a month. On the other hand, I only paid $90,000 for the thing) That’s called WEALTH!!
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    You don’t say, Mike! Hahah
    Chris LumLee Investor from Honolulu, HI
    Replied about 2 years ago
    I’m making continuous cash flow on a $42,000 home. Not the same as $30,000, but still.
    Katie Rogers from Santa Barbara, California
    Replied about 2 months ago
    IF you sell it for $650,000. But you cannot live off paper wealth unless you sell. You must have owned the place for decades if you paid $90,000 for it. But still, even if you sold for half, you did pretty well in lump-sum terms if not in annualized terms.
    Sam Grooms Investor from Phoenix, Arizona
    Replied about 2 years ago
    Mike, I completely agree with you on appreciation. Which is why we do the value-add and force some appreciation up front. This gives us good cash flow, which is rare in today’s environment. Cash flow is what gives you staying power to realize the wealth creating appreciation you mention. Without it, most people would be forced to sell before they can realize it, as soon as a capital improvement cycle comes up or a market downturn happens. So once we have the cash flow, along with our abnormally large reserves, we’re able to hold on for as long as needed for appreciation.
    NJ Ram Investor from Morrisville, Pennsylvania
    Replied about 2 years ago
    Well said Sam! Let me also point out the appreciation on a MUF complex. When NOI goes up, both wealth and cash flow are great! For example, acquire a 100 unit $8MM complex, spend $1MM on renovations, increase rent by $100 on each unit, and now you have increased cash flow by $120,000, and your rehabbed complex is worth $12MM (a $3MM appreciation)! Now that’s serious wealth creation 🙂
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Let’s not go there, Mike. This is BP – I’ll get eaten alive for that kind of talk 🙂
    Katie Rogers from Santa Barbara, California
    Replied about 2 months ago
    Paper wealth, anyway. A lot of real estate investors discovered in 2008 that their paper wealth was about half what they thought.
    Costin I. Rental Property Investor from Round Rock, TX
    Replied about 2 years ago
    So, if I understand you right, what you are agreeing with G.Cardone is the economy of scale works better the bigger you get, but how to get bigger is a different question without an easy answer.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Hah well, pretty much 🙂
    Kenneth Chen from Jersey City, NJ
    Replied about 2 years ago
    HAPPY 50TH Darren Sager ! ! ! And Mahalo for all you guys do, Enjoy.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Right on. Thanks, Ken!
    Jeffrey Gordon Investor from Spokane, Washington
    Replied about 2 years ago
    We are planning our movement from 2-4 unit portfolio into larger MF with onsite management. Trying to do some research on how folks see minimum unit size and/or value/revenue classes when looking at say 12-100 unit range propertys. We are looking for “light” value add/Re-Positioning opportunities in about 10 US markets maximum with a likely focus in 1-2 to for first investments. I would appreciate direction to any content on this issue of what unit count parameters we might research.
    Sam Grooms Investor from Phoenix, Arizona
    Replied about 2 years ago
    Jeff, it’s all about what the top-line can support. Most markets require 100 units for a full time property manager and full time maintenance personnel. However, if your rents are higher, it takes less units to be able to afford your personnel. With 12 units, its highly unlikely you’ll have onsite personnel, no matter the market. At 50 units you could hire a part time manager and part time maintenance. However, the problem with part time labor is that they are almost always looking for full time work. You’ll have high employee turnover.
    Chris Nelson Rental Property Investor from Saint George, UT
    Replied about 2 years ago
    Ben, thanks for this article. I think most people who read this were probably looking forward to the end of the article, to see what was sure to be your declaration of the bullet-proof approach, the one-size-fits-all, the step-by-step action to take, etc., etc. So I appreciated the part where you asked the question, “So, What Should You Do?”, and then stated that you have no idea, and that you write articles, not to give answers, but rather, to make people think. Which is perfect! In real estate, there is so much to think about, and consider, and analyze, etc., and its in all of our best interest to listen to other’s experiences, of what they did, and how they did it, and then determine our own best next steps, given our own personal situations, talents and abilities.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Chris, thank you 🙂 You’d be surprised how many people would rather a one size fits all solution. And they can find plenty of that on BP, just not in my articles… Glad you enjoyed this!
    Jerry W. Investor from Thermopolis, Wyoming
    Replied about 2 years ago
    Ben, Good to not only see you back in the saddle, but poking the bear again. We all need that thing in life that makes us look forward to tomorrow. Now since you are smoking this thing I was meaning to ask you about your advice about not buying a house to live in and for sure not buying a really nice house hehe. Intelligence is not the same thing as wisdom eh? Hope all is well for you and your family.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    And I am the one poking?!?! Jerry, you have me on a pretty short leash 🙂
    Sri Ram Rental Property Investor from West Palm Beach, FL
    Replied about 2 years ago
    Ben, As usual nice article. I listen to Cardone once in while and as you pointed it out everyone does not have that kind of cash flow or cash sitting around. He is a good salesmen for his products and he has plenty of cash flow too so he has to park it somewhere. I am in the same boat, as you have done already trying to put money into a larger deal. Keep it going and have a happy thanks giving to you and family….
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Agreed. Thanks for reading and commenting, Sri.
    Dante Pirouz Rental Property Investor from Fort Gratiot, MI
    Replied about 2 years ago
    Ben, I used to think you were just a “crank” trying to rain on all the newbies and their parade with your posts full of very blunt and direct talk, but that was when I myself was a newbie and didn’t know how right your opinions are! Now that we own 15 units, I am preparing to purchase my next property and what you bring up in your post is spot on in my experience so far. The issues you discuss here of whether it is better to purchase a bunch of cheap fixer SFRs or go for a larger multi (which even with 15 units still seems intimidating to me) is right in line with my thinking (we own a few SFRs but have moved up to small multis).. I am currently negotiating financing with a local portfolio lender and they are just as nervous and nosy as my regular residential lender. I thought a portfolio lender would be the answer to everything but recourse lending is obviously too much of a pain to allow you to grow your business as quickly as you’d like (and I actually love filling out endless forms and have a strong W2 paycheck). So my question is what advice would you give an investor who is at the 10-20 unit level who wants to grow their portfolio to allow for pro management and economies of scale? Is there a minimum unit # that we should be looking for, do we have to do the next deal as a syndication (I prefer to keep the control of the deal in house), should we put our capital in someone else’s syndication deal…would love to hear your opinion on how you jumped to the next level in your business development!
    Frank Greco Rental Property Investor from Atlantic Highlands, NJ
    Replied about 2 years ago
    Great question Dante! I’m in the 10-20 range as well.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Brandon and Josh did interviews for the release of their latest book. The same question came up. You know when you’re ready when you know that you’re ready. Kind of simple like that. I don’t have any more specific advice, unfortunately, Dante 🙁
    Michael Kistner Rental Property Investor from Lodi, CA
    Replied about 2 years ago
    Great article Ben! I’ve always felt the same way. I understand Cardones point but that’s because I’ve experienced the headaches and frustrations with SFR. But at the same time it really is a great way for newbies to start. House hack, learn some creative financing strategies, and then look to scale up.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Agreed, Michael.
    Randy Smith Rental Property Investor from Peoria, AZ
    Replied about 2 years ago
    Great article Ben! I am very new to investing and I just read Grant Cardone’s book/sales tool that suggests only buying large multi family units. I was about to send in my $10,000 before my wife reminded me that we’ve agreed on starting with single family residences. I’m planning on stubbing my toes a bit on the small stuff while I build some “real estate investing experience capital.” I suspect it is better for a new investor to lose on some small investments before going all in. Best, Randy
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Thanks, Randy ! Just take Grant with a grain of salt. Always know that there is an ulterior motive. His purpose is valid, but it’s not to educate you 🙂
    Brian Burke Investor from Santa Rosa, CA
    Replied about 2 years ago
    Cardone is right. Its way better to be doing large deals. But it’s also better being an adult where you get to do all kinds of great things as opposed to being an infant that can’t even feed yourself without adult assistance. But we are not born as adults. We are all born as infants and we must learn to crawl, then walk, then run, then ride a bike, then drive a car. So this is just a right of passage issue. If you can survive SFR you are probably ready for small multi. If you survive small multi you are ready for mid-size multi. If you survive that, you are ready for large multi. You might think it’s great to go straight from no deals to large deals. But you’d be scared to death if infants were racing up and down the roads in their Teslas.
    Louis Sulek from Trenton Ontario Canada
    Replied about 2 years ago
    Uncle G throws around 32 units as some kind of magic number. Ben suggests 100 is the magic number as this is when pro on site property management is apparently sensible. I would like to think that between 5 and 100 units there are perfectly good ways to secure permanent on-site management, even if not as straightforward as hiring highly reputable big management companies. Maybe it’s my newbie optimism talking here but to me it just comes back to finding deals no??
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Well, this is nothing to argue about. It’s a numbers question. In order to support a certain OpEx load, the PM being part of that load, a specific minimum gross is needed. I am sure that with $3,000 rents you could support professional management on 40 units. The thing is – you are not buying $3,000. Cardone recommends the following, and I happen to think this is very valid – go where there are no cranes in the air and re-positioned rents are $800 – $1,200. It’s where people can afford to live and where you will not be compressed by Class A new construction. Well, at that rate you need 100 units. Nothing much really to discuss there. It’s just math 🙂
    Kevin Moules Rental Property Investor from Turlock, CA
    Replied about 2 years ago
    Brian thanks for your additional insight. I read stories here on BP of folks jumping right in large multis and I guess if I were young and single i would have more guts to do that. However, having wife and kids and just starting out is not the right time to go big or go home as they say. Hard enough for my wife joining the journey with me on going after small multis would not want to bust my toe on a large multi property. Those could end the game before even starting. Also, I see what you did there with the Tesla 🙂 Hopefully Ben caught that.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Hah Agreed on the intellectual worth piece. Also, sounds like you’re suggesting that Sam Grooms is an infant in a Tesla. I’ll pass along the message 🙂 I am looking forward to making the introduction.
    Kevin Moules Rental Property Investor from Turlock, CA
    Replied about 2 years ago
    Ben, why are you always on point?! You know why I like your articles, because you don’t say your way is the only way or the others guys way is the only way. No, you write your articles in ways to be thought provoking and allow us youngsters to expand our mind a little as we try to learn this business. There is no one way to skin the cat as they say. I think jumping into it Grant Cardone style is a little bit of putting the cart in front of the horse. I say start with small multis and go form there. Thanks!
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Grant is a motivator. He has to be in order to sell, whatever it is he is selling that day. He has to get you to “condition” so he can sell you. That condition is a state of mind where you believe you are better, smarter, faster, and more capable than you really are. You believe, and then you buy.
    Mark Davidson Investor from NW Florida
    Replied about 2 years ago
    Great article. It mentioned that buying less than four units is horrible to qualify for. One way to beat this is to owner occupy one of the units. Then, the banks will throw money at you. You might even get 100% financing. One major caveat is that all four units have to be under one roof! The issue for me was always that my spouse was unwilling to sacrifice for a short while. “You mean you want to move us to a 900 SF 2/1?”
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    You should read my book on luxury house hacking. It’s on Amazon. I am still living in it and my wife doesn’t want to move – I suggested 🙂
    Thomas Cox from Cookeville, Tennessee
    Replied about 2 years ago
    Great stuff Ben. Grant is Great. Love listening to him. Loved your input. I think his best advice is SAVE SAVE SAVE then invest big. My goal is to purchase a new property every other year. We bought a 10 unit in 2017 and are looking now in 2019, Question i have is do you have any advice on HOW to look for those properties? or Event those 8-15 unit properties? thanks a ton for your work. Carry on my friend .
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Thomas, I’ve never been able to buy anything on-market. My best advice is – CONNECTIONS!
    Nate Santillanes Investor from Windsor, CO
    Replied about 2 years ago
    Ben, great article, thanks for the advice. Question on your rehab budget which is sharp for the level of finishes. I find that flooring represents 50-55% of an overall material budget when I use a mid level LVP throughout an entire unit. What flooring product are you using these days?
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 2 years ago
    Nate, it’s difficult to price these things at a small scale. My flooring is about $1.50 all in. This includes taking up existing flooring, floor prep, new product and labor. This is not pricing I could ever touch even remotely if it weren’t for scale… The same is true for granite, appliances, etc.
    Roy Johnson
    Replied about 2 years ago
    Swing for the fences. Go big or go home. The numbers dont lie. And I agree. A newbie is one thing but a newbie who has done his homework is another. This is not quantum physics.I call it a simple game we all learned asa kid follow the leader. There is plenty of books out there so you can get a step by step blueprint on how they did it. Get 10 different blueprints. All of successful. Each of them has 1 or 2 suttle differances that are helpfull. Take them devise a gameplan based on your opinion of whats right or wrong what will work what wont go for it. Have wide background, contractor, building inspector hifhly certified, interpersonal communication skill. Management and Marketing degrees. Gauranteed within 2-4 weeks crash xcourse Ican learn ins and outs of any business and run it properly and improve on it. Not braggin if you can back your play
    Nicole Heasley Real Estate Consultant from Youngstown, OH
    Replied about 2 years ago
    I believe location matters as well. $100 in cash flow in northeast Ohio will get me much farther than, well, almost any other place in the US. I can get closer to financial freedom through SFHs quicker than someone living in LA can.
    Elliot Young
    Replied about 1 year ago
    Hmm "in order to underwrite this cost, the project needs to be of a particular size" Thats the idea and there are two factors inside that statement. If you buy the right size it should also cash flow so if you buy it right then these won't be issues at all. Force appreciation, organic, and unrecognized make things easy of you know what your criteria is and dont deviate from the discipline. Smart buys dont yield idiot excuses. If you dont know what you are doing dont be an idiot and think you are ready. That begins at NOI and hands on due diligence with a 3-5 initial hold to a long term or 10-20yr buy and hold mindset this isnt checkers. You are correct, a 40 unit wont get the best management company that starts at 100 units but at 40 units there are reputable companies that will do a great job and you can afford it. Real estate over time sets you free nothing is get rich quick. Using technology you could do it yourself as well but ofcourse noone mentions that because a complete thought sometimes escapes disagreement when it doesn't include an informed open and seasoned approach. Even the balls to even ask because we also must remember the more we learn the more we find out we dont know and only knowing is knowing, no getting around that. The first step though is to ask and approaching every property as if you know nothing. Your ONE opinion that a management company isnt a great idea is kind of irresponsible at best. As you made it clear "you" failed with working with management companies dont discourage others where you failed. Your experience isnt the planets future, you clearly speak for yourself. A problem is something you couldnt solve immediately but eventually is possible. Its simple try harder next time. "Hire the gal or dude at a local real estate brokerage office" if thats what you did we can see why you failed thats never even a thought. You buy value add deals because its smart and its the way to buy, period. No ancient chinese secret, this dramatic writing should be in a novel or something because the reality is lacking here. Defeating mindsets pull their hair out and plunge toilets, worrying about knocking on doors collecting rent thats Carlton Sheets 1980 not Grant Cardone 2020. Those are called renters and SFR owners not landlords. Thats the reason noone even considers owning, with comments like that just to sell an article on a blog its a hustle. Can you get a better price on bulk? Ofcourse you can and like anything else if someone else can do it so can you. If you would mention the company Direct Buy that would help the small business owner who flips. Real hustlers know how to work with them and get deals on 100+ units above and beyond the memberships. I know who isnt on that list for sure and there are over 5 companies just like them not advertised much. "The bank still looks at you quite personally" ofcourse they do noone lends money to an idiot you how to know the asset and what you are doing. There are many people that have never had a personal loan and are able to conduct business that includes loans in the millions of dollars arena. All it takes is knowing what you are talking about period. You dont need to be evicted or to have loans in your name to know how it all works with the drawbacks. So, What Should You Do? Know everything you need to know I mean who asks a question like that? If you want to be a surgeon or an attorney you take yourself to school. Conquer your learning curve or hire someone to do it for you. If you can do life by proxy that is but dont listen to people who fail listen to people that succeed they have failed and are still positive. If you do you diminish the risk. Risk is only diminished by knowing more, period. Also flips are for flippers and thats not the same as multi unit owners. That should be a step to getting there. Thats the journey if you choose to take it because its not necessary but if thats where you are comfortable got for it. Honestly, thats the hard way to go not your 40 unit example. Also please be clear, successful doesn't mean knowledgeable. I know a few people with real money and are not very knowledgeable. I know someone that has 8 brownstones in Brooklyn worth minimum $23Mil and is bleeding like 10 rabbits at Coyote meeting. Their structures are wrong but they are one of those people that look at you like "How do you know"? and thats why they will continue to bleed. Their crisis is not my emergency I laid it out its just information I dont own it I just follow the yellow brick road until it tells me something I should know. Im built like that, most people are not. Real money is $10M or more in cash or tangible assets anything under that most of us are broke at the rates real estate is soaring globally. You need a "bring home" not "combined gross" income of $200K annually just to live a deserving life with two children. When you think homes and cars are assets because your college professor who isnt a CPA and tell you he has a "Masters in Accounting" like he will so proudly a good life will be an issue for sure. When you have no financial education, real estate understanding, or tax strategy you are broken. Taxes are your highest expense, period. There are three types and the only one tax free is cash flow. Your parents aint going to tell you that because they dont know. Teachers dont know because they are employees but there are books. If you dont read or ask someone that would know shame on you. So dont listen to failures because that doesn't matter there will always be failure. If you know where you can fail avoid it, and keep going. You dont have to fail reach some goals but if you see obstacles as failure then you have to change your attitude thats when school is in session. No just means you didnt present well, or well enough. Newbies are probably better because they are not jaded by stories about 40 units or management not being good enough. Completing the thought if the deal cash flows right, qualified management with a local history is in place, you have the financing or can get it from HML forming a team, and can get the deal then why not? Make some money and pay 10K for Grants home course and get to it. You should have before hand but if the deal works and all the ducks are in a row just because you have bought one before or 1000 doesn't change the deal you are in. You need an income, thats the reason I would buy small at first. To replace my income so you can create a legacy for your family. Poverty is when you can live a full life everyday with your family and thats bringing home $200K after taxes to your family annually to live. Let the goal be 100 units altogether no matter how you split it up. So every three years you can collect the difference in equity from your bank from three years prior and repeat that tax free event forever. Or cross collateralize and buy a second 100 unit with the first one so in the next three years your equity lottery win will be on 200 units. The goal is the same with anything you do in life. Know what you are talking about with confidence. Its the information that will save you because management will assist with the safety net and thats your cash flow. How much you force appreciate and do naturally is predictive not negative. Just keep in mind thats just one part of the equation. Its not how much you make its how much you keep so structure taxes, corporations, wright offs, and trusts wisely and you will be ok. THATS what Grant doesn't talk about but he isnt responsible for you and your family either is he. Thats on you... Robert Kiyosaki does the same thing Grant does just differently. He has alot of homes, like 5000 or more SFR with about . He like the mortgage play because the average home has at least 10-15 years left on the mortgage. For me, thats too many moving parts in too many different locations. Its a logistical nightmare you can avoid when all the units are in one location. At the end to each their own but there is one thing that is common in all industries. The most successful can tell you everything about their product and service. Thats paramount...
    Katie Rogers from Santa Barbara, California
    Replied about 2 months ago
    I really wish BP would fix their paragraphs break problem.
    Mike G. Real Estate Agent from Las Vegas, NV
    Replied about 2 months ago
    Very sound advice and perspective offered by Ben here. Its funny this article was written finally as ive had this discussion with investors time after time about Cardone and the "scaling up versus single family homes" debate more times than I can count. many great points from all aspects of the investment and transaction. Thanks Ben!!
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 month ago
    Welcome :)
    Jerome Kaidor Investor from Hayward, California
    Replied about 2 months ago
    I started out with a fourplex in 1996. A few years later, I refi'd it and bought an 8-unit building. Then in 2003 I took the big plunge and bought a 52-unit complex. I thought I knew something about managing properties.....hooo boy! Lots of adventures over the years. But now - that complex is restored, stable, and paying me a good living every month. I also have a couple of smaller properties, but they're more about appreciation than cash flow. And the appreciation on the big one is no slouch either.
    Alan Mackenthun from Prior Lake, Minnesota
    Replied about 2 months ago
    Great article Ben. Definitely a lot to think about. Nobody has all the answers. Nobody can know everything or do everything. At the same time, a person has to have a solid foundation to run a business. They have to have significant knowledge and experience and then build on it. You have to come up with a strategy for generating wealth and income that builds on your strengths and your weaknesses.
    Paul Merriwether Investor from Oakland, California
    Replied about 2 months ago
    Great article and very timely for me. I was just looking at an auction for a 304 unit building in MS. It sits on 30 acre's 1, 2, 3 & 4 units available. The min bid was ONLY $1.5 mm. I thought to myself why so low. I pull the doc's and realized this complex is in real trouble. It appears the majority of tenants are behind thousands in rents. I'm thinking COVID 19. The auction ended today with an apparent bid of $3mm which did not reach the reserve price. In thinking about this property, this article and all the comments from 2 yr's ago ... and the fact COVID 19 has changed everything. Going BIG ... could mean going out of BIZ FAST!!!! It appears MASSIVE reserves are needed to with-stain all the non-payments associated with gov edicts that have halted evictions. In the property I discussed ... I can't imagine how do you collect on 200 evictions and the massive legal bill & time to make that happen. If I were a renter ... I think I wouldn't pay either. The owners would have to PAY me to leave with no eviction happening. Time will tell.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 month ago
    Well, to be totally fair, this is MS...lol
    Paul Merriwether Investor from Oakland, California
    Replied about 2 months ago
    Oh ... I forgot to mention only 60% occupancy!!!
    Tim Jensen Rental Property Investor from Rockford, IL
    Replied about 1 month ago
    I think one thing missing from this article is, most people are not interested in becoming Uber rich. They want to make a good living, but want to still be able to live their lives. There's an old saying more money more problems.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 month ago
    Yeah, but the other saying (though likely not as old) is - if you're going to have money problems, would you rather it be problems of too little money or too much...lol