Scaling From Single Family to Commercial Real Estate

by | BiggerPockets.com

Let’s talk about scaling in real estate, whether that means moving from no properties to single family or single family to commercial. In general, we’re just going to talk about taking your business to the next level.

To explain how scaling is possible and how to have the courage to take the plunge, I’m going to talk a little about how I did it personally.

Starting Out in Single Family Real Estate

It all started for me in student rentals. When I was 19 and in college, I started getting the itch to invest in real estate. I saw people around me investing in university towns. Where I was living, a roommate’s dad owned the place.

I thought it would make sense to just have people pay you. You own it, and you collect the check. It sounded so simple at the time.

My parents didn’t necessarily want me to do this. They wanted me to focus on school. But I was fortunate enough to have other people around me who owned real estate and invested in real estate. It just showed that it was possible.

I know not everyone has people like that in their lives. So it may take them longer to realize it’s possible.

Long story short, I got into it with a $245,000 property that was 19 or 20 years old. There were five girls living there, close to the college and attending that college.

The going rate per person for rent at the time was $500. So five girls at $500 a piece for 12 months, that’s $30,000 a year!

The reason I remember this is because I found out they weren’t paying market rents. I thought there was a value-add component to that, even though I didn’t know that’s what you call it.

So I got this property, and unbeknownst to me, I was already doing some of the things real estate investors should be doing. Take the 50 percent rule, for instance. I was looking at $30,000 and figured around $18K of net operating income, so what kind of yield does that get me?

Related: 3 Rules of Thumb to Size Up Deals Quickly (& Land Properties Before Anyone Else!)

college woman sitting outside using laptop with university out of focus in background

It’s pretty good, at least in my market. I know some investors in other areas wouldn’t be impressed with that return. But my market is similar to New York or L.A. Yields even back then were pretty low.

That property was on a street called Williams Street. A year and a half later, I refinanced it, and that’s what got me into the next one.

The next property was on a street called Marshall Street. That one had six male student athletes living together. Needless to say, I learned a lot.

Anyway, I kept this pattern going. I eventually got up to four properties in the college area.

Part of my goal at the time was getting to a million dollars in valuation. I thought that would be cool.

And that’s one of the benefits of real estate in general—how scalable it is. You should have these short-term and long-term goals.

Another one of my goals? To be featured in a Canadian real estate magazine that I always read. It was part of my education to get into real estate.

I did it, and it actually helped! It gave me a little bit of credibility with some of the banks I was working with.

I held those four properties for years. I only sold them about three years ago.

Related: The Ultimate Beginner’s Guide to Real Estate Investing

Scaling to Multifamily/Commercial Real Estate

What happened is I began working downtown after college. That’s when I started getting into condos.

I was thinking that if I bought cash-flowing condos, if there was appreciation and I could capitalize on it, I’d have the option to sell those and parlay that money into something bigger. But those four initial properties that I bought allowed me to break into commercial.

How and why?

  1. When I sold them, they all had appreciated quite a bit.
  2. The amortization (pay down of the loan) was decent—a good chunk of change.
  3. I started partnering with someone who works on the multifamily side of real estate.

how-to-value-multifamily-property

As an agent, my partner Jonathan buys $10, $20, $50 million apartment buildings for clients. This is stuff that hopefully we’ll be able to afford sometime but can’t right now.

I saw he was in that market, and it was somewhere I wanted to get. He had a great balance sheet but never bought a rental property. I had a lot of debt, but I had a little bit more know-how when it came to actually being a real estate entrepreneur.

So we teamed up and bought an apartment building. It’s 11 units. We still own this today. The rest is history!

Our goals now, as we move the goal post further and further, is get to 100 units. Like I said, this is the beauty of real estate. It’s so scalable.

Once you get one single family, all of a sudden you’ve socialized yourself with getting two. Then you get five. Then you meet someone who is doing retail plazas or commercial or industrial. And you think, well if they can do that, why can’t I?

You really can build something. I wanted to share this to help some people out there who are trying to get into their first property. Then maybe once you get into the first one, you can move onto multiple or even the commercial side.

I think commercial is one of the most lucrative places to be in real estate. It’s not for everybody. But especially on the apartment side, you can really scale under one roof.

Do you have any questions? Do you like my mustache? How many Luigis out of 10 does it get?

Let me know in the comment section below!

 

About Author

Jesse Fragale

Jesse is an commercial real estate broker specializing in tenant representation in the Downtown and Midtown Toronto markets in office leasing and investment sales. Jesse represents clients in various sectors, including tech, start-up, and not-for-profit. As a leasing advisor, Jesse’s goal is to help his clients find flexible real estate solutions for both their short and long-term needs. His training in negotiation at Harvard Business School ensures his clients interests are protected and that optimal deal terms are achieved. Jesse began his career in real estate as an investor in student housing and now focuses on multifamily apartment buildings. Check out more of Jesse's content on the BiggerPockets YouTube channel.

11 Comments

  1. Zoe Robinson

    Every time I mention getting into real estate I’m steered towards commercial. Seems like it would be advantageous to start in single family or small multifamily than trying to jump in commercial if you’re a newbie?

  2. Stephen NA

    Hey Jesse, mentors are a huge factor in becoming successful. Having them around at an early age like you did is what skyrockets people to the next level. I was as fortunate to have mentors like yours but I did have well intentioned people around to keep me straight. Owning a lot of real estate has been a goal of mine for many years. However, I still don’t know many successful people in that space. Which is not excuse..I can get myself around. My ultimate dream is to buy $10, $20, $50 million apartment buildings! I’m jealous I’m not there yet..but really happy for your success. Keep it up brother!

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