First deal size considerations - how big is big?
7 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Alex S.:
*assumes CA averages for valuation, rent, profitability, et
There are strategies for starting small or starting big, that are discussed but I am not entirely sure what would be like too big for a first deal...
My inclination is to assume that the larger the asset or more units the better, as there is less tenant risk, professional property manager, etc. BUT the larger the deal the harder it becomes to pursue a rehab strategy with meaningful impact on appreciation.
Question:How big can a new investor realistically go if they expect to borrow 60-65% on anything above $10M?
If a lender sees that there is a strategic GP involved and LP capital committed, there shouldnt be any issue with the loan?
Why not try and raise as much capital as possible? Is there any reason why going bigger is bad when leverage is not excessive and underwriting is conservative?
Boils down to experience. Five years ago anyone and everyone was getting into owning real estate and many of them right now lost all their investors money and went broke. The real deal with larger properties is you cannot rely on your property manager - you are doomed to fail. You need to manage your property manager, work with them on strategy, market analysis, long term capex decisions etc. Think of an astronaut flying a space shuttle and you are mission control. You canhave the greatest pilot (PM) ever but if you do not know how to operate and manage it overall, your doomed.
7e investments53 Reviews- 1yAlex S.San Diego, CA · Member since 2024 · 13 posts · 2 votesOP
Quote from @Chris Seveney:
Quote from @Alex S.:
*assumes CA averages for valuation, rent, profitability, et
There are strategies for starting small or starting big, that are discussed but I am not entirely sure what would be like too big for a first deal...
My inclination is to assume that the larger the asset or more units the better, as there is less tenant risk, professional property manager, etc. BUT the larger the deal the harder it becomes to pursue a rehab strategy with meaningful impact on appreciation.
Question:How big can a new investor realistically go if they expect to borrow 60-65% on anything above $10M?
If a lender sees that there is a strategic GP involved and LP capital committed, there shouldnt be any issue with the loan?
Why not try and raise as much capital as possible? Is there any reason why going bigger is bad when leverage is not excessive and underwriting is conservative?
Boils down to experience. Five years ago anyone and everyone was getting into owning real estate and many of them right now lost all their investors money and went broke. The real deal with larger properties is you cannot rely on your property manager - you are doomed to fail. You need to manage your property manager, work with them on strategy, market analysis, long term capex decisions etc. Think of an astronaut flying a space shuttle and you are mission control. You canhave the greatest pilot (PM) ever but if you do not know how to operate and manage it overall, your doomed.
What would you say is the leading cause of the loss of capital of the people/funds you mentioned? Aggressive underwriting/leverage?
How many people go into the space without experience in investing and underwriting?
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Alex S.:
Quote from @Chris Seveney:
Quote from @Alex S.:
*assumes CA averages for valuation, rent, profitability, et
There are strategies for starting small or starting big, that are discussed but I am not entirely sure what would be like too big for a first deal...
My inclination is to assume that the larger the asset or more units the better, as there is less tenant risk, professional property manager, etc. BUT the larger the deal the harder it becomes to pursue a rehab strategy with meaningful impact on appreciation.
Question:How big can a new investor realistically go if they expect to borrow 60-65% on anything above $10M?
If a lender sees that there is a strategic GP involved and LP capital committed, there shouldnt be any issue with the loan?
Why not try and raise as much capital as possible? Is there any reason why going bigger is bad when leverage is not excessive and underwriting is conservative?
Boils down to experience. Five years ago anyone and everyone was getting into owning real estate and many of them right now lost all their investors money and went broke. The real deal with larger properties is you cannot rely on your property manager - you are doomed to fail. You need to manage your property manager, work with them on strategy, market analysis, long term capex decisions etc. Think of an astronaut flying a space shuttle and you are mission control. You canhave the greatest pilot (PM) ever but if you do not know how to operate and manage it overall, your doomed.
What would you say is the leading cause of the loss of capital of the people/funds you mentioned? Aggressive underwriting/leverage?
How many people go into the space without experience in investing and underwriting?
lack of experience is the #1 cause - people will take a $20,000 class over the course of a week which focuses more on marketing than how to properly manage an asset and think they are ready.
7e investments53 Reviews - 1yAlex S.San Diego, CA · Member since 2024 · 13 posts · 2 votesOP
Quote from @Chris Seveney:
Quote from @Alex S.:
Quote from @Chris Seveney:
Quote from @Alex S.:
*assumes CA averages for valuation, rent, profitability, et
There are strategies for starting small or starting big, that are discussed but I am not entirely sure what would be like too big for a first deal...
My inclination is to assume that the larger the asset or more units the better, as there is less tenant risk, professional property manager, etc. BUT the larger the deal the harder it becomes to pursue a rehab strategy with meaningful impact on appreciation.
Question:How big can a new investor realistically go if they expect to borrow 60-65% on anything above $10M?
If a lender sees that there is a strategic GP involved and LP capital committed, there shouldnt be any issue with the loan?
Why not try and raise as much capital as possible? Is there any reason why going bigger is bad when leverage is not excessive and underwriting is conservative?
Boils down to experience. Five years ago anyone and everyone was getting into owning real estate and many of them right now lost all their investors money and went broke. The real deal with larger properties is you cannot rely on your property manager - you are doomed to fail. You need to manage your property manager, work with them on strategy, market analysis, long term capex decisions etc. Think of an astronaut flying a space shuttle and you are mission control. You canhave the greatest pilot (PM) ever but if you do not know how to operate and manage it overall, your doomed.
What would you say is the leading cause of the loss of capital of the people/funds you mentioned? Aggressive underwriting/leverage?
How many people go into the space without experience in investing and underwriting?
lack of experience is the #1 cause - people will take a $20,000 class over the course of a week which focuses more on marketing than how to properly manage an asset and think they are ready.
Interesting. So what it sounds like is there is a lot of opportunity for groups that understand operations and economics/finance of investing in real estate to stand out of from the rest. Where did they go wrong in the underwriting?
- 1yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
Quote from @Alex S.:
*assumes CA averages for valuation, rent, profitability, et
There are strategies for starting small or starting big, that are discussed but I am not entirely sure what would be like too big for a first deal...
My inclination is to assume that the larger the asset or more units the better, as there is less tenant risk, professional property manager, etc. BUT the larger the deal the harder it becomes to pursue a rehab strategy with meaningful impact on appreciation.
Question:How big can a new investor realistically go if they expect to borrow 60-65% on anything above $10M?
If a lender sees that there is a strategic GP involved and LP capital committed, there shouldnt be any issue with the loan?
Why not try and raise as much capital as possible? Is there any reason why going bigger is bad when leverage is not excessive and underwriting is conservative?
I mean, if you go big enough, someone may eventually write a book about you.
The risk is that the cover looks like this:
- 1yAlex S.San Diego, CA · Member since 2024 · 13 posts · 2 votesOPHaha funny.
Quote from @Scott Trench:
Quote from @Alex S.:
*assumes CA averages for valuation, rent, profitability, et
There are strategies for starting small or starting big, that are discussed but I am not entirely sure what would be like too big for a first deal...
My inclination is to assume that the larger the asset or more units the better, as there is less tenant risk, professional property manager, etc. BUT the larger the deal the harder it becomes to pursue a rehab strategy with meaningful impact on appreciation.
Question:How big can a new investor realistically go if they expect to borrow 60-65% on anything above $10M?
If a lender sees that there is a strategic GP involved and LP capital committed, there shouldnt be any issue with the loan?
Why not try and raise as much capital as possible? Is there any reason why going bigger is bad when leverage is not excessive and underwriting is conservative?
I mean, if you go big enough, someone may eventually write a book about you.
The risk is that the cover looks like this:
- Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes1y
Limiting factors on purchasing the property are EM (5% on $10M is $500k of your own cash you're putting at risk), needing a net worth of guarantors to equal the loan amount and last but not least, finding enough capital who's willing to invest with a first time investor.
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