22 Units- Too big for first property?

19 Replies

I just found a 22 unit building that costs a little over $1,000,000.00.

I asked if the owner is willing to finance with just 15k down and they actually sound serious about financing me.

I've read Kiyosaki's books and even he says to start small.....but I've also read Tyler G Hicks' books and he really just talks about starting, no matter how big or small the property is.

My question is, is this too big of a property for a beginning investor?......Should I keep shopping around for something smaller?

I don't have all the details yet, I will get them as soon as I send my POF and LOI.

I appreciate your predicament.

I was just watching one of Peter Harris' latest video posts on YouTube ("Ugly Side of Commercial Real Estate") which has some good advice.

But, in a nutshell, it is simply a measure of what you are comfortable with mentally, and skilled with in closing the deal. Other than that, the number of units doesn't matter.

Best to you!

I'm pretty confident in my abilities.  I've been waiting too long to do a deal like this. I'll give it a shot and the worst thing that could happen is I end up learning a lesson on what not to do the next time a deal rolls around. 

Do it you don't want to have regret later on. You learn more from failure than you do from your success.

I appreciate everyone else's feedback above, it's always better to try and fail, then not fail at all. But failing here in REI can set you back a long while if you horribly mess up. I'm not even talking about losing your EMD if you have to back out. it can be a even bigger headache than that

My advice would be to lock down the deal, then find someone who is experienced to partner up with. You can learn a tonne, they can bring money, knowledge, and a team to the party. All in exchange for a cut of the deal. Mitigate your risks. Don't forget the first rule of investing. Don't lose money.

In order for this owner to be in a position to do owner financing on a $1,000,000.00 property it means he is a fat cat with allot of experience who will take 10 to 20 new investors just like you and eat you for breakfast. 

This is way to big of a property for you to get started in. It can very quickly turn into a nightmare for you that you will not be able to get out of without losing your shirt.

However, if you happen to be a person who is very astute and have management experience or who can round up experienced people to help you then you might just pull it off. How well do you understand managing the cost and all relative issues when it comes to a building of that size, Its not really all that big but still 22 units may require allot of work. How well can you accurately evaluate the building and its present and historical performance? What will you use to cover any closing costs, insurance and what have you on hand to create a maintenance budget? Where will your needed reserves come from?

Proceed if you determine you can handle things but be ready to book the minute you suspect this may be beyond what you can handle. there are plenty of fish in the sea, as they say. 

I'd be curious about the terms of the deal, and if it's not a 15-30 year deal, what's your exit strategy?  Will you be able to get the rest financed through a bank if it's a short term deal?

Originally posted by @Travis Beehler :

I'd be curious about the terms of the deal, and if it's not a 15-30 year deal, what's your exit strategy?  Will you be able to get the rest financed through a bank if it's a short term deal?

I won't go through with the deal if I can't get it financed for at least 20 years.

Originally posted by @Gilbert Dominguez :

In order for this owner to be in a position to do owner financing on a $1,000,000.00 property it means he is a fat cat with allot of experience who will take 10 to 20 new investors just like you and eat you for breakfast. 

This is way to big of a property for you to get started in. It can very quickly turn into a nightmare for you that you will not be able to get out of without losing your shirt.

However, if you happen to be a person who is very astute and have management experience or who can round up experienced people to help you then you might just pull it off. How well do you understand managing the cost and all relative issues when it comes to a building of that size, Its not really all that big but still 22 units may require allot of work. How well can you accurately evaluate the building and its present and historical performance? What will you use to cover any closing costs, insurance and what have you on hand to create a maintenance budget? Where will your needed reserves come from?

Proceed if you determine you can handle things but be ready to book the minute you suspect this may be beyond what you can handle. there are plenty of fish in the sea, as they say. 

 Oooooo good questions. I'm going to have to think about those. 

I may end up getting a partner that has more experience than me to go in with me. 

This post has been removed.

Originally posted by @James De Silva :

I appreciate everyone else's feedback above, it's always better to try and fail, then not fail at all. But failing here in REI can set you back a long while if you horribly mess up. I'm not even talking about losing your EMD if you have to back out. it can be a even bigger headache than that

My advice would be to lock down the deal, then find someone who is experienced to partner up with. You can learn a tonne, they can bring money, knowledge, and a team to the party. All in exchange for a cut of the deal. Mitigate your risks. Don't forget the first rule of investing. Don't lose money.

 I'll probably end up getting a partner.

@Brittaney Woods

This sounds like a great opportunity for you.  My one piece of advice, above anything else, is to make sure you get experienced eyes on every aspect of this deal ... you can't afford to make a million dollar mistake, and good analysis and prep will cut out a lot of possible problems.

Make sure they give you all the documentation you need.  Walk the property, and talk to tenants ... current and previous, if possible.

I don't want to rain on you, but @Gilbert Dominguez said it right, this other investor could eat your lunch with ease.

There's so much more we'd need to know rather than just price/units/downpayment to have any real advice about this particular deal. 

Making that work with basically 100% financing would require it being an excellent, excellent (let me say it again, lol... excellent) deal. @Gilbert Dominguez may very well be right - this guy may be happy to take your 15k, watch you fall behind, take back the property and do it again with someone else.

But your question was not really about the merits of this deal and whether it's worth  a million dollars or not. As far as the "right size" to start out with, I would, in a very general way, say it depends on your financial situation and how much you can absorb in expenses/losses. You need to have an adequate reserve fund in place, no matter what size of property you are dealing with, otherwise it can eat you for lunch.  (The bigger the property the hungrier it is for lunch!) Since you're talking about a downpayment of only 15k, that makes me think you might not have a ton of other capital sitting around. I would advise you have access to at least that much again as a reserve fund to start out. This would be in addition to any pressing repairs/upgrades/deferred maintenance issues that need to be done on the property. 

If you have not read “Insider Secrets to Financing Your Real Estate Investments” and "What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures” by Frank Gallinelli, order them from Amazon and read them before you go much further. Good luck!

As an experience investor, I feel you need someone who is a seasoned multifamily investor to partner with you.  Some sellers are looking for inexperience person to take advantage of.  With a seasoned partner you have a decent chance of succeeding.  Without one you may be swimming with a shark.  Good luck to you.

Briefly/bluntly, $15k down on a $1M deal sounds super shady, proceed with great caution.

Originally posted by @Brittaney Woods :
Originally posted by @Travis Beehler:

I'd be curious about the terms of the deal, and if it's not a 15-30 year deal, what's your exit strategy?  Will you be able to get the rest financed through a bank if it's a short term deal?

I won't go through with the deal if I can't get it financed for at least 20 years.

Ah ok.  Just wanted to make sure you weren't getting in over your head on the first deal.  Good luck!  Hope it works out for you!  Gives me inspiration to expand beyond my 6 units I have already. :)

The owner backed out lol. Back to my duplex/triplex search. 


If you have not read “Insider Secrets to Financing Your Real Estate Investments” and "What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures” by Frank Gallinelli, order them from Amazon and read them before you go much further. Good luck!

Thanks!!!!  I will order those books tonight.

You don't have enough money for the closing costs for that building. You have no emergency reserves. Will the building even cash flow? 

I would stop, take a breath, and back away. My advice would be different if working with an experienced partner.

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