How big is too big for first deal?

Question

Hello, I am just getting started in my RE investing career. I do not want to buy a single family and would like to delve into 8+ units for my first multifamily transaction (first RE transaction). How big is too big? I have $100k in liquid assets, a good debt:equity, and solid credit score. My career has been in structured credit finance in New York, but I now live in south Florida. 16 unit properties here are all $4mm+, should I be looking elsewhere? If I have sponsor equity of another $100k, what type of price point should I start at? Am I reaching too far to look at $2-3mm deals if I can enable creative financing?

Joseph Schults · Answer

Thank you to everyone for their input. I will aim to partner up with a more seasoned RE investor, possibly as a LP on a deal. I live in Boca Raton, but work in Ft Lauderdale and Miami so happy to meet up with anyone in the business that is looking to put skin in the game (not just a broker). Let's collaborate on ideas, markets, strategies and (props to Pace) -- creative financing strategies. Like I mentioned earlier, I am liquid for 100-150 on a deal so hopefully something can line up with a veteran who holds a few deals under their belt. Let's punch this forward.

Jon Kelly · Answer

@Joseph Schults if the numbers make sense and you have the ability to do a deal, why would there ever be a maximum limit?

You're taking a risk by not learning through smaller deals and building relationships, but you know what they say about taking more risk...... more reward.

I would absolutely go for it. Worst case scenario is you get down the road and a lender won't allow it because you or your equity partner don't have the capital or experience. However, you won't know this until you go through it.

Account Closed · Answer

@Joseph Schults @Thomas Cooper Here's a curveball...have you thought about large multifamily? (100+ units) If you syndicate it and raise the capital, you'll never run out of resources... you can continue to scale.  AND you aren't limited to the size of a property based on your liquid capital. You could take that same $100K and acquire 4-5 properties totaling 1000 + units.

You'd have to be ok partnering with others and working as a team, but you'd own % of a MUCH larger pie.

Plus you won't have to deal with the headaches of tenants because Property Management companies are MUCH less when you go bigger - only charge 2-3% vs 10-13% in smaller multifamily.

Bud Gaffney · Answer

Go Big or Go Home !

Mike D'Arrigo · Answer

@Joseph Schults Capital is your limiting factor. If you have $200,000 to work with, your top end will be about $1M. That being the case, you'll probably need to look towards less expensive markets, like the Midwest. We're active in Davenport in the Quad Cities where you can get in to an 8 unit for somewhere between $500K-$600K that will probably cash flow better than FL due to the lower insurance rates. The operating expenses on multi family apartments is much different than SFR so you'll have a lot more due diligence to do.

Jon Huber · Answer

@Joseph Schults. We have an investor meetup this weekend in Delray. I’m based out of Boca Raton as well. Let me know if you’d like more info.

Frank Wong · Answer

Let's break this down to what you have available in cash. You said you have a $100k liquid assets. Don't want SFRs. Then you are looking at multi units maybe 2-4 units in a price range of $350-400k. Bring in another equity partner for $100k then double that price range as long as you qualify for financing.

As far as the size of the deal it really depends on the deal and if its turn key or needs work. You asked if you are reaching too far at 2-$3m deals?  Yes it will be too big for the amount of money you have available.

Thomas Corley · Answer

@Joseph Schults

Sounds like you don’t have much to lose other then money (most people have family and others to support) so I would say it wouldn’t hurt to try to tackle a bigger deal. Good luck regardless just take action that’s the biggest deal!

Thomas Cooper · Answer

I’m in the same boat as you. Not looking for single family wanting to get in to multi family! Good luck!

Jared Hottle · Answer

I think it is all up to you and your personality. What strengths you have, how much risk you are willing to take on. If you listen to the podcasts or talk to anyone you will see everyone has a different journey and there are advantages and disadvantages to all. The biggest fear I would have if I were you are the unknown-unkowns of someone who has never done real estate before. There is just so much you do not know or haven't considered that only experience and learning from setbacks and wins can teach you. When it is a single-family home or small multifamily the stakes are much lower when you make a mistake. On larger multifamily it could potentially cause huge issues so it is nice to learn on smaller deals. The positive is of course more units earlier mean more cash flow, appreciation, wealth, etc.

How big is too big for first deal?

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