Starting big or small?

Question

Hello BP Community!

I have dived deep into the info provided in BP and other areas including books and have come to a conclusion that in order to reach the goals I have set I will need to venture into apartment rentals. What I am struggling with is whether to start at 5+ or go big like 30+. I do have a number in mind. What has helped you decide?

I appreciate your collective wisdom and experiences.

Thanks

Maua

Emily Lopez · Answer

For me it was simply what I could or couldn't afford.  I started with a single family town-home.  I wouldn't have been able to afford a multi-unit property.  I don't feel with comfortable with all the alternative financing people discuss and went with a mortgage on the home.  It was a great call and I was able to save the income from that property (while working full time also so that yielded additional savings and cushioning) to buy the next one and over a few years worked up to four homes, three of which are rentals (one a two unit).

The other thing to consider is if you are just learning and dipping your feet in the water, you will make mistakes. Even after doing it for years you will still make mistakes.  If its a smaller investment, your mistake may be smaller and manageable.  I'd rather make a $10,000 mistake than a $80,000.  I could also bounce back from the former but probably not as easily from the latter.

At the the end of the day, you will receive a lot of advice and you have to decide what works for your and your budget.  This was just the place I came from starting out.

Maua A. · Answer

I just listened to podcast 167 with @Kevin Wood, the webinar last week by @Brandon Turner  and a few others as well regarding commercial investments and bottom line is starting. So, that is what I will do and will share progress as I go including whether I jumped in big or waded in the water slowly. Thanks again for all the thoughts, greatly appreciated!

Andrew Hamilton · Answer

I would recommed starting small. You can always go bigger. Smaller investment=lower risk, larger investment=higher risk. I'm just speaking from financial stand point. If you buy a place for a million you are going to put down 100-200k. More units is also more to take care off. The most successful people long term don't leverage themselves too much. I'm talking about people that made it through 2008 without losing it all.

Maua A. · Answer

Thank you guys for your input. It is much appreciated. I am learning a lot and trying to figure out what risks I am comfortable taking because there are pros and cons to either way.

Xu Som · Answer

I'm new myself, but I find that starting small would be the lesser risk to take especially if you're a new investor.  Just in case you take a loss, it won't be as monumental as starting off big.

Simon Cox · Answer

Hi @Maua Alleyne!

Check out podcast # 4 with Frank Gallinelli. He makes the argument that it's not always necessary to start small or residential. Thought you might be interested. Link here >> Podcast 4

All the best!

Joshua Pavao · Answer

I personally wouldn't go big if my only option were to partner up and have a very small percentage of ownership...

That being said, my plan is to start as big as I can with what I can in apartment buildings.

My view on it is this: would you rather go broke and fail (potentially but not likely with the right team and education) on a duplex? Or on a 100-unit building?

If I'm going to make a mistake, I want it to be on a building with over X amount of units, but that's just me. You can always go the comfortable and "secure" route with a 2-4plex.. Which, depending on your market, may actually be less secure considering you have very little action to take in regards to the value of the property.

Scott Trench · Answer

I think that for most new investors the idea of starting big vs starting small is a question of "Will I want to own 100% of the business, or own 10% of the business and manage the rest for an investor."

A good way to look at this is if you have $20K, you have two ways to get started.

Option A: Put the $20K down on a $100,000 small property

Option B: Raise some amount (perhaps $180K More) and buy a much larger property with a team of investors (perhaps a $1M property).

If both properties have proportional cash flow, you make the same amount, right? The difference is that in Scenario A, you have 100% control over the situation and are only responsible to yourself. In scenario B, you have only 10% of the ownership.

Which is better?

In most cases, I personally would argue for option A - why complicate things by bringing in others? Exceptions to this would include scenarios where the investors are willing to work you through mistakes (i.e. they aren't Uncle Joe, they are seasoned investors that will walk you through difficult projects) and scenarios where the truly great deal is simply out of your reach alone.

But, for most people, I bet that getting started small, on your own, with 100% ownership is probably ideal.

Starting big or small?

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