1st deal - small multifamily or partnering on a bigger deal?

1st deal - small multifamily or partnering on a bigger deal?

Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes

Hey everyone, I'm looking for some advice here. I have two paths forward to get my first deal done, and I'd love to tap into the collective wisdom of the BP community for feedback.

Option 1: Buy my own small multifamily (2-4 units)

  • However, it's been difficult to find actual "deals" and candidly I haven't put in the effort to go all out, with direct mail, digital ads, out of state owners, etc. mostly just working with brokers and looking at the various online sources. 

Option 2: Partner w/my family business on a larger deal (80+ units)

  • I'm in a lucky spot where REI is my family's business. The company has cash on hand that I could contribute too and begin looking for a larger property. Our criteria is 80+ units unless we can buy up nearby properties or it's near something else we own.
  •  So if I could invest and get 10% ownership of a larger deal, with the efficiency that brings in: solid property management, less volatile vacancy figures, etc. would that be a the better route than trying to do it on my own with a much smaller deal?

I think there's pros and cons to both, but to be clear in other scenario I want to lead or be actively involved in finding and managing the deal so I can begin to build up that muscle. The question is, with the opportunity to partner on a bigger deal with people I trust 100% i.e. my dad and brother, does that accelerate my timeline to really making a successful RE portfolio?

Thanks so much and please feel free to send any deals my way too! I'm actively looking!

Noah

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Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
7y

@Noah Levenson if you dad and brother are already in large multifamily, this is an absolute no brainer. You should probably never even thin about a duplex unless you are house hacking just for fun. I would immediately begin investing with your family, as you have the credibility and net worth elements that stop most newbies taken care off. 

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  • Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Noah Levenson if you dad and brother are already in large multifamily, this is an absolute no brainer. You should probably never even thin about a duplex unless you are house hacking just for fun. I would immediately begin investing with your family, as you have the credibility and net worth elements that stop most newbies taken care off. 

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    @John Warren thanks so much, that's where I've landed at about 90% confidence, the only "issue" really is my impatience, so I need to be more disciplined. Their criteria are rigid and hard to meet in this current climate, so I'm concerned that if I go that route and it takes 1-2 years to get in the game then I'm missing a lot of learning opportunities from just buying my own small deal to learn the ropes. 

    Do you have any thoughts on thinking through the opportunity cost in that regard? Is it silly to buy a small/semi-decent deal just to learn versus focusing 100% on finding large apt buildings that I can go in on which could take much longer?

  • Investor / Syndicator · Austin, TX · Member since 2015 · 367 posts · 220 votes
    7y

    I second the notion of going bigger. You'll get more experience on the larger deal that will qualify you for other larger deals later. The duplex experience doesn't translate into commercial deals much. It's helpful, but going bigger is best if you can do it. My .02.

  • Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    7y
    Noah,
    If you're already know what your "issue" is then start by working on eliminating this "issue" of yours first and learn from the people that are close to you and have been around the REI business for a while! Majority of folks around here would do anything to be in your position. 
    Best!


    Originally posted by @Noah Levenson:

    @John Warren thanks so much, that's where I've landed at about 90% confidence, the only "issue" really is my impatience, so I need to be more disciplined. Their criteria are rigid and hard to meet in this current climate, so I'm concerned that if I go that route and it takes 1-2 years to get in the game then I'm missing a lot of learning opportunities from just buying my own small deal to learn the ropes. 

    Do you have any thoughts on thinking through the opportunity cost in that regard? Is it silly to buy a small/semi-decent deal just to learn versus focusing 100% on finding large apt buildings that I can go in on which could take much longer?

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    Thanks @Mike Krieg and @Alina Trigub appreciate both your thoughts. It's funny, I've grown up in REI all my life, and in a way that lead to me not appreciating the value of it as a business; but after 5 years of startup/corporate life my eyes finally opened to how powerful it is, thanks to my friend, @Ryan Mapes. 

    I just thought it was normal that my father was always around, not going to an office, but on phone calls/email. Now I understand how incredible of a life REI can provide when done diligently. Really appreciate this BP community as well and hope I get the chance to work with some of you folks down the line. : )

  • Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    If you want passive investment and you have another job, pick option #2.

    If you are itching to get involved in a property, be hands on, and take responsibility, take option #1.

    Starting out, you will soon discover than owning 2 to 4 units is just a side gig.  You won't make a full time living at it, nor will it take all of your time (unless you are rehabbing it).  So if you like this type of work, you will have to grow your business to more units in the long run.

    Keep in mind, multi-family buildings are probably at peak pricing these days.  Many think this is not the optimum time to be a buyer.  This topic has been debated on Bigger Pockets.

    You are from San Francisco.  Despite today's pricing, some of the best performing real estate over the last 20 years is in your backyard.  

  • Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Noah Levenson I would not buy a marginal deal "just to learn". The only possible exception to this would be if you are house hacking in an A class neighborhood, and you are using a low down payment loan. That allows you to acquire a great asset for almost nothing, and when we do that we are sort of working the system. For pure investments (20-25% down or more) I would stick to strict criteria. Otherwise, just put money in index funds for those easy 7% returns. Real estate takes a lot more time, even if you have a PM. 

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    @Brian Ploszay

    Thanks for the advice, totally agree that multifamily pricing is crazy. Hence the fact that option 2 will take a lot longer as my family’s business has strict criteria and is fine waiting 1-3 years before purchasing, I on the other hand am eager to get hands on experience quicker.

    That said, I’m not willing to lose my shirt on a bad deal just to learn so I think I need to continue exploring both paths: looking for personal deals and deals I could bring to the business (and which I could invest in).

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    @John Warren thanks a lot for the advice, I hear you. I'm looking into FHA 203k deals that could work in my area but man the Bay Area is expensive, almost 0 chance of cash flow that way but could potentially lower my rent, get some equity through paying down the loan and learn at the same time.

    Actually talking to David Greene about this & trying to find a deal here that could work

  • Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    7y

    @Noah Levenson you have a great opportunity here to learn from your father and brother. The only reason to go with #1 is if your pride will not allow you to suck it up and take a back seat to your family. Working with family is incredibly hard, been there done that and I have the T-shirt. If you can get really humble, step up and do all of the grunt work for your father and brother, you will accelerate your learning rate tremendously.  You have to remember you will not be a peer, even if you put money into the deal. Especially when working with family, you have to prove yourself before you get respect.  If you go into it thinking you want to show them what you know, you will butt heads and create a tremendous drag on yourself emotionally and intellectually. 

    Suck it up, put your head down and be humble. You will have many chances to pull down deals on your own, but this might be your only chance to learn from your father who sounds like a very successful investor.

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    Hey @Arlen Chou that's really, really solid advice. Thanks for taking the time to give your 2 cents, I agree 100%. When I was younger we definitely clashed on various things, it's like that "Mark Twain" quote: 

    "When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much he had learned in seven years.

    Whereabouts do you invest, and what sort of properties? Thanks again Arlen!

  • Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    7y

    @Noah Levenson  Cool quote!

    I lived the learning transition with my father, not in real estate, but the emotional and intellectual exercise was still the same. I have a couple of 4 plex units in Mountain View, a few condo's and a commercial residential in Oakland and I have an industrial building in Milpitas. I only invest in the Bay Area and I don't do out of state.

  • Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Noah Levenson I know it is tough to find anything in your area, but you can always consider house hacking as more of a live in flip. If you can find a mildly distressed property (maybe a short sale or an estate sale) then you could at least force appreciation. I have personally built a lot of my capital up through fixing up old houses that I live in. The house hacking thing hasn't worked for me due to family/kids. 

  • Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y

    @Noah Levenson my opinion is bigger. Believe it or not it has much less risk to it due to the scale your buying in. To answer your other question, yes, going bigger will accelerate your growth as an investor. Let's connect to dive deeper on opportunities. 

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    Wow @Arlen Chou, just the Bay Area? What sort of criteria and deals do you look for? The only time my father bought any investments here was during down-cycles (i.e. 2008-2010) which appreciated tremendously but in general new deals here fit his criteria (value-add opportunity, priced appropriately, no appreciate betting). Super curious to here how you found your deals here, and the criteria / rationale behind purchasing.

    @John Warren great advice, I'm actually set to go to an auction next month, and am looking for some distressed stuff / house hacks. I probably need to do more than just chat to brokers, MLS and auctions to really find a good deal.

    @Scott Morongell thanks for your feedback, totally agree that scale can mitigate risk. (I manage an ~8 figure budget in my day job and 100% agree -  through scale a lot of bumps can be smoothed over). I'd be interested in syndication too with my personal cash but only if I get a real hands on learning experience, which is an equal goal of mine along with financial performance for this first deal. That's been tough to find with syndication.

  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    7y

    @Noah Levenson hey bud, long time, no see...funny to see you here on BP, small world!

    I think there’s no wrong answer here.  You have to do whatever feels right to you. If that means house hacking a duplex to start, there’s nothing wrong with that. My first real estate purchase was a mobile home to rent out, and I’ve bought $400 million in real estate since. The only wrong start is no start at all.

    If you feel more comfortable teaming up with the crew, that’s fine too.  Or you can do both.  Start on your own with some deals that work for you and then team up with the family and bring what you learned to the team to add even more value. 

    No matter which path you take you have the advantage that you have the ear of people close to you that can share their perspectives.  A lot of people on BP can’t talk about real estate with their family and friends without getting a blank stare in return.  So they come here.  You have both!

    Tell your dad I said hello!

  • Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes
    7y

    @Noah Levenson you're in a unique position here that not a lot of people have. Use it to your advantage. If your goal is to make real estate your full time job, you need to take steps to make that a reality. I'm going to be a bit controversial here, but buying a 2-4 family property will not get you there as quickly as you could by partnering with your family. I wasted so much time on my house-hack duplex that I missed dozens of opportunities. Just because you would only own 10% (which is a nice chunk of the deal too) of the property does not mean you will only learn 10%. Partner with your family and learn as much as you possibly can about asset management, lending, and doing this on your own then move on if that's what you decide. 

  • Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Noah Levenson since you are friends with @Brian Burke and your family is in the apartment business, I think you may have a little bit of an unfair advantage in the multifamily space! Just saying!

  • Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    7y

    @Noah Levenson for residential properties, I only do value add deals. There is no betting on appreciation, but I am a long term buy and hold guy, so time is on my side in this market. Honestly speaking I enjoy the hunt of finding deals more than the actual deals themselves, so I don't mind spending tons of time analyzing deals and driving neighborhoods every week. I also know that I will make mistakes and that my deals might not be the best possible, but I am cool with that. As long as I have money coming into my pockets then I am good with my decisions. When you play the long game, the aggregation of minimal gains always leads to success. It might not be as fast as others or as efficient as others but I don't compare myself to the success of others and I don't care what others think of my strategy. I just know that I am quietly stacking paper ever month and I am good with that. 

  • Commercial Real Estate Broker · Sacramento, CA · Member since 2015 · 102 posts · 50 votes
    7y

    @Noah Levenson  Hi Noah, expand your search to towns just outside the Bay Area and you might find your investing dollars will go further and will allow you to achieve your goals.  We are seeing a lot of Bay Area investors over here in the Sacramento area.

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    @Brian Burke Hey Brian, I'm honored that you remember me! I was just talking about you the other week with my dad after reading Brandon's book coming across your section. It was so cool to see you there. (I've got to listen to your episode this weekend). 

    I really appreciate your advice here. I'm not sure if the forum is the right venue for it, but I'd love to hear your thoughts/view on where the market is at across the US. 

    I'm leaning heavily towards partnering up with my dad & brother, but they're looking more into lending right now  + selling some assets to be in a strong cash position for the next downturn. So it may be a waiting game for me to get hands on experience which is an opportunity cost there as well. 

    I'm doing everything I can to learn in the meantime, analyzing deals, going over property financials,  building relationships etc. but I feel like nothing can substitute for really doing it. 

    It would be great to learn more about your current strategy at Praxis in this market (here or "offline") 

    Thanks again Brian, I'd love to drive up there sometime and say hi + let me know if I can ever help you guys out, I work in very large scale online advertising.

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    @Brian Burke seems the @ didn't work on my post above. 

  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    7y

    @Noah Levenson seems to me that a lot of people are timid these days as they anticipate market turmoil lurking around the corner.  While I do think that there are a lot of reasons to remain cautious and underwrite as if there will be an adverse cycle during the life of any asset acquired today, I think the long bull run in income property has a lot of runway left in a lot of geographical areas.

    Your family is smart to save some dry powder to take advantage of opportunities, but I suspect that if they are waiting for a reset of pricing and an opportunity to buy at a discount to today's pricing they'll be waiting a while.

    A key difference between you and your dad is you have a lot more time to make your money back if you get into the market and subsequently get wiped out.  He doesn't.  I speak to this first hand, it happened to me.  I climbed high and fell all the way down but then I came back and accomplished things that I would never had even imagined before.  But if I fell off the ladder again it would be devastating to me.  So you can do it, maybe he can't.

    You are totally right that you learn by doing.  I read all the books and took the classes but nothing taught me more than hands-on experience.  Even if that experience was buying and fixing up a mobile home, it didn't matter.  Doing something is what built the track record and experience to get me to where I am today.

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 33 posts · 16 votes
    7y

    @Brian Burke thanks for the terrific advice. Or as my dad said “he’s spot on”.

    They have some things in the works that may require a pretty large 1031, so one there’s clarity there I’ll finalize my approach. The opportunity cost of waiting 5 years to get in on a deal with them is too great for me in terms of all the learning I’ll be missing out on, so just need to determine their realistic timeline & plans.

    Thanks to everyone who commented too, looking forward to becoming a more active member of this wonderful community!

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