1st Investment: Larger Multi vs. Duplex/Tri/Quad...

7 Replies

Hello BiggerPockets community,

As a newbie, I have been playing spectator for a few weeks while soaking in all of the knowledge and experiences shared on the site. I've had three years of experience in Real Estate Sales on both the high end residential and commercial side leading into 2008 when I got married and began working in the beer business.

Anyway, I wanted to ask the experts here what the advantages are of starting my REI career with a smaller multi vs a large multi? Access to funds is not the issue for me as I have substantial equity in my home, built up my 401(k) and have access to private money. Is there really a much bigger demand with a few more units? Are mistakes more costly? Is it a mistake to get my feet wet with a larger property?

I apologize if this topic was already covered in a previous thread, but I would appreciate any feedback from the community. Also, I am sure that I am missing some information that will be necessary for some answers, so please let me know.

Thank you in advance for your feedback!

I think with smaller multi families (2-4 units), you'll get a feel for how everything works on a much smaller scale. You'll know how to screen tenants, manage a property, deal with tenants and maintenance issues, and build a solid network of people that can support you. Starting small would allow you to learn along the way, learn from your mistakes, and become a well rounded investor. Starting large with no knowledge, background, support network, skills, aptitude for understanding tenants, etc...could get you into a place where you're WAY over your head and hemorrhaging money....but what the heck do I know...

Good luck! 

Kyle,

Thanks for taking the time to give me your thoughts. That is basically what my gut told me and makes perfect sense. I have heard some say every now and again that you have the same issues wether it's a small or larger property. Therefore I wasn't sure if it was also beneficial to find a larger deal and try and build in the 10%ish contingency for a management company or get my hands dirty on a smaller property and learn the guts of it.

...and all I know is that hemorrhaging money is certainly not a good thing! HA!

@Andrew Ginsburg  anything larger than four units is commercial. I have to agree with @Kyle Gregg  go for a triplex and see if you enjoy the experience.

On the flip side of @Kyle Gregg  if you have taken the time to get a good support team together and have a good, reputable property manager, they can handle everything about the daily operations of a larger property.  As you start getting more comfortable with the responsibilities of property management, you can start taking over responsibilities, while still having someone there to keep you from crashing if something goes wrong.  If you budget about 10% of gross rent for property management (which you should anyway) you will be able to afford a good management company.  I personally just assume bypassing the small properties if large ones are an option for you.

Hi

@Andrew Ginsburg

Yes, I too would agree with the previous comments on starting with small multi-s. I will give you a better understanding of what to expect, dealing with tenants, and all issues associated with people living next to each other. Once you get your process and systems down, then ramping up to a larger number of units will be smoother as you know what to expect....just mutiply that by 10 or however many units you buy.

I would work with the end in mind....what is your end game? How soon would you think you would want to sell, if ever? would you be able to off load the property quickly if needed? Both smaller multi-s (2-4) and Larger (5+ units) have pros & cons.  Something for you to think about and which will help you shape what type or how large a property you want to invest in.

Good luck to you Andrew!!

Doug

After spending the last 14 years building up to 13 rentals, adding 1 here and there, I would have to go with @Dustin Smith  .  Knowing how hard it was for me to get where I am I would tell almost anyone to go with  a 10 to 20 unit building/complex.  I work a full time job and manage mine just fine.  If you have the funds available, do it.  1 deal, 1 closing, 1 loan, 1 location, 1 etc for 10 units vs 10 deals, 10 closings, 10 loans, 10 locations, 10 etc.  It makes sense.  Just do your homework beforehand.  I would give anything if I had started with a 10-20 unit building.  Just my humble opinion.  Best of Luck, Mike

Thank you all for your insights and valuable opinions. @Jeff G.  I'm assuming that you are alluding to the financing side of the deal when you are talking commercial vs residential. Do  commercial loans tend to be more complicated than residential, especially for a first time investor? I have to assume that lenders will ant to see you partner up with someone who has more experience in the game. I have a couple names of lenders that I am going to call on shortly and begin to pick their brains. BTW its great to hear from a neighbor as I work in Manchester!

@Douglass Belt  you bring up a great point of view and something I really need to do is sit down and solidify in my business plan. I do have an idea of how I want my portfolio to look in the future. Buy & hold for stable cash flow is my goal starting out. Especially investing in my current market where appreciation seems to be nonexistent (maybe @Jeff G. can give some insight on this). But these are great questions I have to look at. 

@Dustin Smith  & @Michael Hicks  - Thank you for giving me your opinions on going the route of a larger property to start. I do want to start my investing career the right/smart way and this is why I was torn. Is efficiency the right way to begin, or start on a smaller scale and work my way up. Of course I am not looking at 100+ unit projects, but 10-20 unit properties seem to allow me a more efficient way of building a larger portfolio. I am in a similar position @Michael Hicks where I will be working a full time job and probably won't have time to self manage multiple properties, but that all has to go back to building a plan as @Douglass Belt suggested.

Again, thank you all for your insights and I will have to continue to analyze the market to find the right deal to begin with.

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