How to Scale to Multifamily in 3 Simple Steps (& Why You Shouldn’t Be Scared!)
The time has come, and you are finally ready. You have spent so much time accumulating houses, but you still do not feel any further ahead than anyone else.
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It has been a rollercoaster ride, good luck and bad luck going hand in hand. The cash flow on a couple of your properties has been great, but you keep getting hit with house payments, taxes, and repairs. A brief stint in jail did not help either, and even being chairman of the board has been costly. But it is all about to pay off!
The Scottie dog just rolled a six, and he owes you big time. You now have enough cash to put that red hotel in the perfect location. The game is not over, but you can feel it.
You have just won!
As a kid, my favorite game was Monopoly. That is probably where my fascination with scaling began. When I first started out in real estate, I assumed that apartment complexes were all owned by big companies based out of L.A. or New York. Once I learned that anyone can own a large multifamily property, I knew that was where I wanted to be. After all, while you can still win the game with a bunch of small houses, it happens a lot quicker with those big red hotels.
Multifamily investing, and even more so large multifamily, is not typically an investment people start out with. Most start by flipping houses, buying single family rentals, wholesaling, or some other niche in real estate. This may be due to the lack of understanding of how multifamily works or simply the complexity of this large of an investment.
Like most people, I experienced a bunch of different aspects of real estate before making the jump. Looking back, I wish I had done so much sooner—especially since my plunge into multifamily boils down to just three simple steps.
3 Steps to Getting Started in Multifamily Investing
1. Educate yourself.
I have to admit that, in the beginning, I was intimidated by large multifamily properties. Million-dollar checks, hundreds of tenants, the whole thing can be overwhelming. What got me past that mental roadblock was the amount of time I put into educating myself.
I listened to numerous podcasts, starting with those more generalized (like the BiggerPockets Podcast) and continuing all the way to uber-specialized ones (like the Old Capital Podcast). I set up Google alerts and read every article I could find. Then, I ordered every book that the article recommended.
I attended meetups, and I asked as many questions as I could. I wanted to be absolutely sure that this path was the right one for me. And in doing so, I was able to draw a better roadmap as to where I can fit in.
While in many cases jumping in the deep end and taking action is the best way to learn something, I knew I would be putting investor’s money on the line. I wanted to learn everything I could in the classroom before I took it out to the streets.
2. Leverage experience.
Over the last year alone, I have amassed a level of knowledge that is unrivaled compared to any other year of my life. What I also learned is that you do not need to be an expert on everything.
When you buy a single family rental, you might end up funding the down payment, finding the perfect loan, managing the renovation, managing the tenants, and doing the repairs all by yourself. However, when the deal gets large enough, there is enough of the pie to go around that you can afford a whole team of people.
Don’t like raising money and managing investor communications? Find a partner who does. Only like finding deals? Partner with someone who will manage the asset.
In my experience, it is better to be really great at what you do than to try to be a jack of all trades and master of none. Personally, I have extensive knowledge and experience with project management and construction; thus, I look to partner with others who have complementary skills.
Having 30 percent of a great deal will always be better than 100 percent of a flop. Leverage your experience, and do not try to be something you are not.
Finally, in my opinion, the most crucial part of being successful in the multifamily space is networking. As mentioned previously, multifamily investing is a team sport, and networking allows you to build your team or be “drafted” to another team.
Another benefit to networking is evident in deal sourcing. Unlike single-family, there is no single listing source, like the MLS, for available multifamily properties. The majority of transactions occur “off market.” These transactions are a direct result of the relationships that you have cultivated over months and even years.
As the saying goes, “Your network is your net worth.”
The Bottom Line
Like most new ventures, investing in multifamily in its totality can seem daunting. While I may not have realized it at the time, systematically breaking down my entry into this new career path helped me get to where I am today.
And although I may not own Boardwalk or Park Place (yet), I am slowly acquiring the right properties, with the right partners, to trade in our green houses for red hotels.
Do you have any questions for me about making the jump to multifamily? Or do you need advice that I haven’t provided here?
Let’s talk in the comment section below.