If you don't know anything, start bigger.

186 Replies

Getting into this business ain't easy, not for the weak, and not quick. Its a lot of work to learn the terminology, the slang, the "rules", and to find the knows you don't know you need to know. 

Most start small, look at small, and dream of maybe eventualities. That single family flip is scary enough and they cannot fathom doing a 100+ unit apartment complex.

But that's because most getting into this business don't know what they need to know. Its really simple, this is all about numbers. Its all about "Time vs Money". How much of yourself are you going to invest is a question you should ask before you ask about the money you may lose. Time can get you all the money you ever will need, but money can only allow you to buy someone elses time to add more value to your own. 

Anyway, its like this..on average it takes an "newbie" investor 3-9 months to find their first deal. 2-3 months to complete it after that. So maybe a year for the average of 20k. Its a lot of effort, and a lot of time dedicated to something that with the exact same time you could have done a hundred unit complex and made 200k. 

Sure its more money, but not more risk. Real estate isn't a gamble, its a game of skill. If you are gambling then you are doing it completely wrong; if your goal is to be an investor. 

It takes a bit longer to find that multifamily / commercial deal, certainly. But getting trades and team members to jump is a bit easier on a project that makes them 100x the profit of that SFH that you wanted to start with.

In short, I am an investor of my time. I put it in the right projects and people, w/ less knowledge or passion than myself, give or loan me money to be part of what my efforts made.


I love SFH deals, but love is an emotion and no way to decide to invest. Its not that I never do them, its just never what I seek out or a choice made based on anything but the numbers.

Most newbies start with smaller properties because 

1. that is what they can afford

2. it is better to fall off the learning curve with 20k rather than 200k especially if you don't know how to set up a company or LLC

I disagree, a lot.

1. If you have a deal, you don't need money.

2. I believe its better to gain the highest return possible from your investment of time.

Why waste time using the exact same methods that yeild lower returns? A 10k hicup on a 200k project is nothing, where on a 20k project it could be the loss of everything.

Originally posted by @Jeph R. :

I disagree, a lot.

1. If you have a deal, you don't need money.

2. I believe its better to gain the highest return possible from your investment of time.

Why waste time using the exact same methods that yeild lower returns? A 10k hicup on a 200k project is nothing, where on a 20k project it could be the loss of everything.

 How can you know a deal if you don't have the skill set or experience to evaluate it? Better yet how do you know the person you pitch your deal isn't trying to steal it from you by telling you its garbage? 

Funding is nearly impossible if you don't have the resources/track record or the job/lending set up.... 

It isn't that simple as to just say this is a great deal no matter the price, Other people will recognize it too if it is publicly listed and unless you found an off market deal or some other source of value you still have to have a down payment and qualify for a loan even if it is from an HML. RE is not simple and quick money, thinking like this feeds into that narrative.

It's great you have this strong, confident mindset, @Jeph R. , but it's simply not for everyone.

As logically stated, not everyone can afford to "go big" and yes, while if you have a good enough deal the money will come, that in itself takes skill and experience. You have to have a network. You have to know enough to not get screwed over. 

There is absolutely nothing wrong with starting small and slow, as in reality for MOST people, real estate is a slow(er) game. It is not the flashy, lavish game that some people try to portray. And it's not easy, or anyone could be doing this. Either someone doesn't have the skill, the patience, the ability to learn, or the personality for it. There are tons of factors, and when we simplify real estate, we create false hopes for people (who then might decide to spend tons of money on unwarranted guru courses).

You're right that emotion isn't a way to invest. But at the same time, one can't help but have a little emotion when putting their savings on the line, especially if they have a family to support.

Any deal is a great deal. Little or big, real estate changes lives, and we should never (even unintentionally) make a person feel like their accomplishments aren't big enough or downplayed. The mere fact one is active in REI puts them way past the majority of people when it comes to financial intelligence.

Be proud of your fast track to bigger deals. But don't make others feel small for it. Choice in wording/phrasing means a lot.

I agree 100% in principle but hard to recommend in practice

I started small, looking to go bigger now.

When I started I had a net worth of -$40K and didn't even own a single family house. I wasn't sure I ever WOULD own a house, never mind 200 unit apartment. It wasn't that SFR was small for me, buying an investment house was a very big deal. I also had a wife who was in school, and her well-being to think of, I'm not taking risk just for myself, I have to manage her risk and risk tolerance as well.

Now that I have a decent track record, going big is a more reasonable proposition, and yet still not easy. I do bank underwriting now and being well-qualified and low risk buyer for a commercial building is no simple feat. From the U/W side, we care far more about resource allocation than a borrower's ability.

So to say go straight to big deals is the proper way, I agree from a theoretical standpoint, but from a real world application standpoint there are very good reasons why most people start small: risk management, availability of resources, confidence from experience

@Matt K. the same is true of any real estate deal. You need knowledge before going into any deal, regardless; so why not go big?

If you have a 100 unit apartment for 20k a door less than value of 40k, you will have the resources via the deal being the most important element. Being an investor is about sourcing the work out to others, professions, experts even.

@Aaron K. I never, nor would I ever say, "this is a great deal no matter the price."

You are right, publicly listed deals aren't that great for investors who like profit...I am not talking about those.  I also never, nor would I ever; say that "RE is simple and quick money".

Respectfully, if you need to put meaning behind statements I never made and then claim them as faulty...you may need to do a quick evaluation on your own "narrative".

A lot of investors are brought deals by others, because they are known to be able to make things happen, instead of making excuses about "lack of down payment" or "not qualifying for a loan."

These types of excuses are what stop people from ever taking the jump into being involved in REI.
Stop.

@Nicole A. , few things in this life are for everyone. 

It takes skill and experience to do any deal, big or small. But, I can rally a team of "investors" around partnering on a 100+ unit apartment, while it would be much tougher for a SFH. Thus, "Team", "Connections", "Experience".

ANYONE can do this. Its free to gain the knowledge needed. Once the knowledge is gained it can't be unlearned and can be used anywhere. ANYONE can do this. MOST just aren't willing.

I would, nor should anyone, ever suggest putting their life savings into an investment (diversity is key, remember when everyone lost their "safe" retirement just a few short years ago? Nothing is 100% safe) ; nor put their family at risk.

I am starting to believe, based on your repeated comments, that I hurt your feelings; or made you feel belittled. I am sorry. I would think that my last line stating that I "love SFH" and that I still do them would be taken for what it was, I am still doing them. How could I belittle others for something I am doing? Maybe my "tone" is off, my "blunt" responses sometimes garner negative reactions. Its not my wish or hope to upset.

Finally, lol @ fast track. I have been doing this over 20yrs. I wish I had the "glamorous" or "easy" path to where I am. But I learned the hard way. I am not boasting about where I am; I am simply pointing to the path I took as one that may not be the best route.

@Alexander Felice Congrats on making moves!

Its rough, but let me say this "Think outside of the box".

The last 3 deals I did on properties worth over 20million were all owned by an LP that had 4 partners. 3 of them money partners, one the "expert".  All cash deals via these 3 private money (lenders) partners. 

Like has been mentioned, learning this business is rough and not pretty. BUT...the worst part is all the cliches. i.e. I get more push-back telling investors to learn to "go big" than people do for telling newbies to "wholesale". Both require a ton of knowledge before they ever make any profit, I am just saying that if you are going to invest your time do it in an arena that pays the most. Sometimes thats a SFH, hell I have 3 going right now. BUT, its not my focus.
Focus on how to solve problems (i.e. money, lenders, credit, etc.) and then act like those dont exist. Figure a way w/out that stuff. It can be done, its worth the time.

To clarify, you did not hurt *my* feelings. Going to take quite a bit more than that for any hurt feelings here, but it is quite interesting that you think you have that power over someone you don't even know.

I am speaking for those who are just starting out. Those who might feel really excited that they just bought their first rental property, but then they come here and read the tone you have in your post or hear someone talk like this in person especially. Suddenly, they might not feel so excited and proud anymore. 

I simply am not a fan of posts with the tone that yours has. It has an arrogance about it, and that takes away from any helpfulness that you may have been trying to put out there. It sounds like it's possible you did not mean for this tone to come across. But that is how it came out.

I assumed you jumped right into this based on your first post, hence my fast track comment.

Okay @Nicole A.

I can tell you are emotional over this post (because you state so.) so I will allow it to be dropped as I am not looking to argue, but share and learn form experience in REI. I have no interest in investing my time in emotion here, as my original post stated.

If you would like to talk about real estate, instead of you calling me arrogant or making unwarranted assumptions about me or my intentions.  

Thanks.

Big is relative

like you said, you started 20 years ago, I assume your first deal was just as big as your latest?

last 3 deals were only 20 million? Why didn't you go bigger!??! American home 4 rent has 55,000 houses across the US, if it's so easy to beat them? why not?

big is relative, again, I agree with your premise but it's riddled with contradiction. This is why you are getting push back. I think not only does not everyone want to do real estate BIG, many just want a comfortable retirement vehicle so they can spend time on other things, others who want to go big know that it takes significant ramp up time. It's quite easy in hindsight to tell people how easy things are, and it's a good perspective to bring, but it doesn't lend well to your credibility.

I'm certainly not one who would advise for moderation, or sugar coating things, just pointing out why this thread is causing friction considering the people posting are common and heavy posters who are also not new investors.

Though I'm not really sure what your overall motive here is so maybe this comment is not warranted ;)

@Jeph R. I am not taking issue with things you never said the "great deal no matter the price" is in regards to how expensive a property is; correct me if I'm wrong but your point is 20% on 1M is better than 20% on 100k.  The comment about quick and easy money is a narrative that I see to often and it is my belief that telling a newbie to start big contributes to this way of thinking.  (Which I think we can both agree is incorrect).  It is true that investors are brought off market deals, but most newbies don't know how to find those deals or will spend money chasing them in a market that is too hot to make that cost effective.  I'm not trying to be confrontational but I'll second what others have said in regards to tone.

@Alexander Felice your entire response being an attempt to "show me" my faults, instead of addressing my post, or response to you. Yea, it was unwarranted.

"push back" is fine, its challenging my point. What you are doing is going after me personally instead of my points. Thats not professional, even if you "feel" like I am out of line, or whatever emotional trigger my words hit with you.

I stated why I was here, if you ignored that because it was in a response to someone else I assure you it applies across the board.

@Aaron K. - So if I am to understand; you made two counterpoints to things I never said? Seems an odd way to respond to someone you don't know. 

I don't write as if I am trying to convince people of doing this business, no more than those above that said "this isn't quick or easy".  I am giving MY personal FIRST HAND view. If you have a counter to a statement I made that would be great. I will not, however, argue against points you believe I may intend based on conversations you have had with others; that had nothing to do with me.

because it wouldn't make any sense to know when you are addressing me and when you are talking to the ghost of conversations past.....

Originally posted by @Jeph R. :

@Matt K. the same is true of any real estate deal. You need knowledge before going into any deal, regardless; so why not go big?

If you have a 100 unit apartment for 20k a door less than value of 40k, you will have the resources via the deal being the most important element. Being an investor is about sourcing the work out to others, professions, experts even.

@Aaron K. I never, nor would I ever say, "this is a great deal no matter the price."

You are right, publicly listed deals aren't that great for investors who like profit...I am not talking about those.  I also never, nor would I ever; say that "RE is simple and quick money".

Respectfully, if you need to put meaning behind statements I never made and then claim them as faulty...you may need to do a quick evaluation on your own "narrative".

A lot of investors are brought deals by others, because they are known to be able to make things happen, instead of making excuses about "lack of down payment" or "not qualifying for a loan."

These types of excuses are what stop people from ever taking the jump into being involved in REI.
Stop.

 The knowledge doesn't just appear, you need to grow. Same reason you don't jump into calculus before you take basic math. There are aspects of a deal that go far beyond just a number on paper... and some of these things a person has no way of putting a value on them until they do it. 

People don't have the same risk tolerance nor do they have they put the same value on time. One person may love the fact they are leveraged to the max and clear 100/door and snowball that into the next down payment.  Other people might want minimal debt and "higher" cash flow per mo...  but no one knows till they cut that check each month. Doesn't make one right or wrong.

A person needs to have a plan, that plan should be like as you said to learn. You can learn a lot from your first deal... and start to see things past numbers in a spreadsheet. I can tell you from personal experience that I overlooked some things on my first deal, applied them to my next one and I am better off. You can always pull equity/cash out of a house... if it's there.


Lastly, 99% times the numbers tossed out are junk... and you can hide a lot in a proforma to those that don't know any better. That 20k less deal, one could easily pump of the values of projected rents (where a seasoned investor would know its junk), go low on expenses, and play around with maintenance to make it seem low. Then the dreamer is going to have a sewer line burst and not be able to float the 10k to replace it then a few tenants stop paying and now they're in a world of hurt.

Or if it was really that good of deal, a shark will hustle them out of it and tell them fake numbers to make it seem worthless.

@Jeph R. what I am saying is that what you have written has an impact on people that probably isn't the best in my opinion.  I believe, and maybe I'm wrong; that it may cause them to do 1 of two things if they put any weight behind your words.

1. Encourage people to go big or go home, which will work out great for some as you have said but very very poorly for others

2. Convince people that they shouldn't invest at all because they don't have the ability to go big.

Thinking that your words will have an impact on others is not asking you to argue with ghosts.  

And my original point still stands that for people who are still learning going small may be the best option.  It is unrealistic to expect anyone to be perfect on their first property, and when you look at flippers especially many do not perform well on their first property.  Some of them perform so poorly that they never get to a second property "going big" in this situation would be bad

Originally posted by @Michael H. :

Jeph, I will be buying properties from you in the next downturn.

 Unless you have a crystal ball or saving up funds why wait? Plenty of deals to be had... sure you might have to wait for one to come up, but it doesn't mean you have to wait for the "downturn" that may or may not come.

@Matt K. - @I have never said "there is only one option and its my way".

I agree, I am just saying something rarely said by seasoned investors publicly.  "You can do bigger deals than you think". i.e. "Bigger". 


I am only offering my view, and that includes options. I am not crapping on anyone; as I have said repeatedly I still do SFH.

@Aaron K.   I am nobody, if someone makes a life choice based on an "arrogant" post by a stranger online then I don't really concern myself with what paths they take. I am not responsible for others behaviors.

1. I said bigger. Go bigger than you think you can. "Shoot for the moon and even if you miss you will land among the stars" - Someone famous


2. "Go big" is suggesting to people (as stated above) to go BIGGER.  i.e. Do more with their time and value the results they get. Investing is hard, make the reward worth it. 

Feel free to explain to me the difference in doing a SFH and a 100 unit complex. I believe it is some slightly different information, but essentially the same time to acquire. (if not easier for the aforementioned reasons. i.e. scale of projects directly effect the desire for pro's to work with you.)

Seems several are you are VERY upset at the idea of newbies not starting at the bottom, and that my encouraging of "going bigger" struck a nerve with those who are still doing SFH only and dreaming of "one day".

@Ryan Proffit I am assuming you don't do creative REI.

Well for one thing.... it's a lot easier to value a SFH then a 100 unit complex for someone new..... I can pull up plenty of comps for SFH, 100 unit complex, nope.