High income earner, Total beginner, Start with SFH or multi?

Question

I am a high earning professional in a high stress job.   I love my job, but I’m also often burned out, and my biggest goal with real estate investing is to find a way to pull back from my job.  I think I can reasonably take about $35k from my income annually to put towards REI.

I’m a complete newbie.  Originally, I was most interested in SFH.  The more I read, the more I lean towards multi family.  I can’t help but wonder if I should wait and save and make my first purchase a multi family. I’m obviously not going to purchase a huge apartment complex, but I could theoretically purchase a 4-15 unit building with a few years of saving.

Is it better to wait and go big with the first purchase even if it means waiting, perhaps for years, to save enough?  Or is it better just to get started and maybe trade up later?

Tyler Gibson · Answer

@Jared Ebert If you are interested in Multi Family I would start by being part of a syndication. Be a limited partner in a syndicated deal. Many syndication will offer you 8% preferred return and some equity. The added benefit is you will be part of the deal and will get to see how it is done allowing you to learn the process so that when you are ready to get your own building you have some first hand knowledge. This experience as a LP could help you get funding also since the lender will see you have some experience already.

Luke Miller · Answer

@Jared Ebert if you're a high-income earner I doubt your time would be best spent dealing with 1-4 family properties. That being said, $35k/year might not be enough to pull back for several years. If you're interested in transitioning syndications are probably a good option. I recently did a case study where I highlighted how $50k per year invested can achieve about $40k/year passively in less than five years. That's the power of compounding investments, but it takes the ability to save/invest $50k per year.

Ronan Donnelly · Answer

Hi @Jared Ebert, I was in a similar position to you having a fairly intense W2 job which gave me excess cash and very little spare time. I started out with SFH’s but as I got up towards 10 units I realized that it required many more hours of my time than I had available, even with property management in place. I subsequently started looking for more passive investments and ultimately landed on investing in multifamily syndicates as a limited partner. This gave me the ability to pick the market I want, to have a professional team in place and to get all of the benefits of physical ownership of real estate (depreciation, LT capital gains, etc.), all in return for a reasonable, performance based fee. I would encourage you to think about what you really want to achieve as this might guide you to the strategy most aligned with that. Good luck!

Aaron Taylor · Answer

Honestly, I think it's worth doing both an active investment and a syndicate deal, just so you know what you like better.  Right now it's probably easier to find a syndicate deal to invest in than local real estate for most people, a lot of the 1 to 4 range properties are really heated and don't make a lot of sense anymore unfortunately.

We've invested in both and may go more syndicate here just because people are overpaying so much for KC area property...I can't see how it's going to pan out longer term, and if most syndicates hit 50% of their goals it's going to be better than most of the local stuff.  There have been some properties listed lately where I just laughed at the list price and how absurd it was, only to see it under contract the next day.  Are they out of state buyers using all cash?  I don't know, but for some of them that's the only thing that would make sense.  There was one property with foundation issues where they couldn't get $460k for it locally after making the rounds past all the local investors, they broadcast it on facebook for $560k and I think it sold in one day....cap rate of like 5%.

Bryan Hancock · Answer

Define "high income earner."  That will color your possibilities when combined with your overall net worth net of your personal residence equity.  If you're an accredited investor you may be well-served just investing passively, but you're not going to learn how to actively participate without actively participating.  Investing passively is a lot different than being active and it also requires a lot of your time if you do it correctly.

A lot depends on your overall goals.  Anything worth pursuing that is lucrative is going to take time to learn to do well so decide if active real estate participation is right for you or if you'd be happier and leverage your time better consulting, operating other small business interests, doing a startup, or something else.  Autonomy, mastery, and purpose are what most humans are after to optimize their self-actualization while balancing health, wealth, and relationships.  A lot really depends on your overall circumstances and what is important to you.

Haydn Zeis · Answer

@Jared Ebert it's tough to answer where you should start without knowing what your income and lifestyle goals are.  If you're looking to replace some of your income, while reducing stress, you can absolutely, do that through passive real estate investing.  If you plan on being an active investor, owning and managing your own property, depending on the asset size and type, your stress level might just end up being transferred rather than eliminated. Managing rental property (even when you have a property manager) can be demanding.

Alina Trigub · Answer

@Jared Ebert

Welcome to BP and congrats on deciding to start investing in real estate! First you need to take a step back to determine your bandwidth and how strong your "Why" to start real estate investing. Once you have these two figured out, you can go ahead with selecting a niche within either active or passive side of real estate investing.

More details in this article: https://www.biggerpockets.com/member-blogs/10850/86621-six-steps-approach-to-getting-started-in-real-estate

Theresa Harris · Answer

@Jared Ebert  Start with a single family or duplex and see how it goes.

Chris Szepessy · Answer

Since you have no experience, I would recommend a 1-4 family house first. If you don't already own your own home, you could live in one unit and rent the others out. You can learn the ropes with less risk than if you were to buy a 15+ unit.

High income earner, Total beginner, Start with SFH or multi?

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