There was a study done that Harvard Business Review put out a few years ago. Basically the best way to continue moving forward on something is to facilitate small wins. It’s even better than a big win.
It’s more important for continuing something to take on a lot of small wins. This is how our minds are wired: We want to get a lot of small wins.
The Importance of Small Victories
Small multifamily properties are fairly easy to take down. Like if you’re out hunting, they’re the rabbits that are everywhere. And you can do them. They don’t make a ton of money, you’re not going to get rich off the rabbits or, you know, get fat off the rabbits. But they’re good to get that momentum going.
Same thing when Josh was doing BiggerPockets or when I was doing my first stuff; it’s good to get those little deals. One deal won’t make you rich, but at the same time, it kind of does. In other words, if you wouldn’t have done that first deal, you would’ve never gotten to where you are today.
But you have to start there.
A lot of people get scared about multifamily when they think 500 units, or 100 units, or even 50 units. Especially when I say, “Hey, if you’re making $100 per unit, you’d only need 50 units to make $5,000 a month in profit if you’re making $100 per unit per month after all expenses.”
And people are like, “Well, 50? I can’t even buy one property. That’s so hard. How would I buy 50?” So, I explain this concept called the stack.
What Is the stack?
The stack is like this. Level one, if all you did this year was bought a duplex, nothing else. You got a duplex and then you sat around for a year and just learned how to do it. Now I’m not saying you have to start there.
But here’s the logic.
Next year, a whole year later, you buy a fourplex. You’ve already bought a duplex. You did the hard part. You started the train moving. The momentum is going. Then, you buy the fourplex, you figure out how that works.
And then maybe a whole year later, you buy an eight-unit. Now you’re in the commercial world, right? And you learn how commercial lending works, but it’s still not a big deal. If you handled a fourplex and a duplex, you can handle an eight-unit.
The year after, you do a 16-unit. The year after that you do a 32-unit. And then, a year later, you do a 64-unit.
After five years, you’re at over 100 units now, and you scaled conservatively. You didn’t go crazy—didn’t start like, “I don’t even know what real estate is. Let’s go buy a 200-unit.”
That would be tough for most people. Unless you partner well, that’s really the only way you can jump levels of the stack—by partnering with somebody who’s already gone through the stack.
How to Scale Quickly With Less Risk
Using the stack, you scaled quickly but conservatively. And those two things seem diametrically opposed. But they’re not. You can scale quickly and conservatively because you just do it outside your zone of comfort but within your zone of ability.
Think of two concentric circles. The inside circle is your comfort zone, the outside circle is your ability zone. And then there’s your inability zone. You don’t want invest in your inability zone, because that’s where mistakes happen.
But you also don’t want to live in your comfort zone forever, because that’s where you get stuck doing single-family deals all day long—or all duplexes or triplexes—and you never build up enough passive income to quit your job. So it’s that zone of where you’re outside your comfort zone but within your ability zone.
When I look back on my life, I realize that’s what I did. That’s what the stack was.
What are your small wins?
Let us know in the comments below.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.