Which strategy is better use of my capital for my goals?

11 Replies

I have spent the past 6 months or so educating myself on REI as much as possible primarily here on BP by listening to countless podcasts, posting tons on the forums, analyzing hypothetical deals, networking with other investors, realtors, wholesalers, lenders, contractors, etc. Now I'm ready to take action and start looking for my first deal.

I was fortunate and disciplined enough to build up some decent savings to have as working capital to get started.

My plan is to use the BRRRR strategy to ultimately build a portfolio of SFH's and MFR's. I feel this strategy will work best for me since I can continue to recycle my initial working capital over and over again which will allow me to scale quicker.

The end goal is to have a large cash flowing portfolio which I'm prepared to work full-time at to ensure that I succeed.

I'm not treating REI as a hobby or a side hustle this is now a full-time job moving forwards for me.

If you were just starting like me, keeping my goals in mind, would you take the initial capital and use it as down payments spread out among multiple residential SFH's and/or 2-4 unit MFR's or would you use it all as a down payment on one larger commercial multi-family property?

On one hand it's enticing to spread the capital among multiple properties to diversify and kick start my portfolio but on the other hand I know eventually I'm going to want to scale into larger properties for maximum cash flow.

What would you do if you were in my shoes?

Personally I started on SFR and worked my way up to MF so I am definitely more comfortable with that route.

SF is easier to understand as a newbie.   Because the prices are smaller, you can make more mistakes without burying yourself.   

MF is a different animal.  It runs differently, and, if you are taking other people's money, you had better know exactly what you are doing.

I'd recommend stepping up to some formal education.  The free stuff can get you the basics, but you often get what you pay for.  I recommend checking out Lifestyles Unlimited.   The basic membership is cheap and worth every penny.   I've been a member for 6 years and regularly fly to Texas for events.  Now they have operations here in Detroit.   I believe they started offering classes in FL too.

Originally posted by @Greg Scott :

Personally I started on SFR and worked my way up to MF so I am definitely more comfortable with that route.

SF is easier to understand as a newbie.   Because the prices are smaller, you can make more mistakes without burying yourself.   

MF is a different animal.  It runs differently, and, if you are taking other people's money, you had better know exactly what you are doing.

I'd recommend stepping up to some formal education.  The free stuff can get you the basics, but you often get what you pay for.  I recommend checking out Lifestyles Unlimited.   The basic membership is cheap and worth every penny.   I've been a member for 6 years and regularly fly to Texas for events.  Now they have operations here in Detroit.   I believe they started offering classes in FL too.

 Thanks for the feedback. My formal training will be the hands on experience with my first deal.

Anybody else have any advice or insight?  

I got started with multi-family as owner occupied. First was a duplex living in one unit, renting out the other. Then a triplex doing the same thing. You could do as low as a 3.5% downpayment if you’re owner occupied going that route.

Originally posted by @Bethany Sloan :

I got started with multi-family as owner occupied. First was a duplex living in one unit, renting out the other. Then a triplex doing the same thing. You could do as low as a 3.5% downpayment if you’re owner occupied going that route.

House hacking isn't for me. I personally wouldn't want to live with my tenants although I do agree with you that it is a great and rather common way to get started in REI especially if you have little money for down payments.

I would buy one SFR first. Make a few improvements and iron out your process for listing and renting the property. You'll quickly make a ton of mistakes that can only be learned by experience. If you start small $ the mistakes won't matter too much. If you spend all your money upfront the lessons learned won't matter.

I would recommend what I did, buy a small MF that is value add. I did a complete renovation and learned a ton. I’m glad I started with a MF. I now have a track record of MF and that gives me cred with commercial lenders. I’m glad I didn’t do any SFH. There is a case to be made for a lot of different avenues, and in the end it might not really matter if your first deal is a SFH or a MFH. Some of it may be determined by the market that you’re in and what’s popular with renters or just available as inventory. I like the value add MF because now I’ve got a small portfolio and I just know so much. I’d rather hold the mistakes I made then sell them off in a flip. I get a lot of value out of Michael Blanks podcast. When I was trying to decide I just thought back to what most investors say, which is often: I wish I started earlier and went bigger sooner. Michael blank talks about how he flipped houses so that he could get cred as a MF investor. But really it didn’t help him at all. So if you eventually want to do something jump in. That’s my two cents and I hope you got some value from it!

Originally posted by @John Akolt :

I would buy one SFR first. Make a few improvements and iron out your process for listing and renting the property. You'll quickly make a ton of mistakes that can only be learned by experience. If you start small $ the mistakes won't matter too much. If you spend all your money upfront the lessons learned won't matter.

 Very well said and I agree the only true way to learn is by experience.

Originally posted by @Lee Ripma :

I would recommend what I did, buy a small MF that is value add. I did a complete renovation and learned a ton. I'm glad I started with a MF. I now have a track record of MF and that gives me cred with commercial lenders. I'm glad I didn't do any SFH. There is a case to be made for a lot of different avenues, and in the end it might not really matter if your first deal is a SFH or a MFH. Some of it may be determined by the market that you're in and what's popular with renters or just available as inventory. I like the value add MF because now I've got a small portfolio and I just know so much. I'd rather hold the mistakes I made then sell them off in a flip. I get a lot of value out of Michael Blanks podcast. When I was trying to decide I just thought back to what most investors say, which is often: I wish I started earlier and went bigger sooner. Michael blank talks about how he flipped houses so that he could get cred as a MF investor. But really it didn't help him at all. So if you eventually want to do something jump in. That's my two cents and I hope you got some value from it!

 Great insight Lee thank you.  I agree with a lot of what you said and yes I only want value add properties.

@Brian Garrett - I would start with under 4 units.  It will help get your feet wet and learn the business.  Plus going 5+ requires a commercial loan, which requires a track record, and it will be hard for someone with zero experience to do it

Originally posted by @Brie Schmidt :

@Brian Garrett - I would start with under 4 units.  It will help get your feet wet and learn the business.  Plus going 5+ requires a commercial loan, which requires a track record, and it will be hard for someone with zero experience to do it

Thank you for the advice Brie. That's exactly what my original plan was but then I kept hearing podcast guests who shared my same goals of scaling and building a large portfolio say that they regret starting too small and wish they had gone bigger earlier on so that's why I started to think about a larger multi-family. I think you're right though I should get my feet wet first and learn through real world experience at least on my first deal and then I can re-evaluate my next move once I've got that real life education especially if I'm doing the deal on my own without a partner.

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