Invest in duplex/SFR first before jumping to CRE?

Question

Hello BiggerPockets community!

I am  a 27 year old newbie in real estate from LA and this is my first post in BiggerPockets. Most of my life I have been focused more on my career/school (9 years of college/post grad) so the world of investing is completely new, yet very exhilarating. I have been lurking  around here in the forums for a month or two and have been reading books about REI for the past year (like the 10,000th person here on BP right?). I plan to jump into REI in the next year or two to gain some real experience. As of now, from researching the many different avenues of RE, CRE/larger MFR has my complete interest.

My question to everyone in this MFR forum is since I am completely new to REI, should I invest smaller in duplex/triplex first to get into the game (build portfolio/equity) before jumping into CRE as an investor (I am looking to buy outside of LA, and possibly out of state)? How did you start out in CRE?

With my partner's and my modest personal savings, we can get a traditional 750k mortgage, leveraged at about 80%. Possibly 1 mill, after another year of savings. I know its relative to pennies in the game of CRE but hopefully someone can say that it may be enough to be a small-time investor in CRE as part of a syndicate.

We aren't sure if we are even able to invest with a syndicate/sponsor at this point.  Our concern is that we don't want to "use up" the liquid cash we've been saving up and be caught up in a duplex/SFR investment. We could buy and sell to build larger amounts of cash but I just want to focus in one area of investing for now (and to decrease risk). We also know that without experience, it will be difficult to find a syndicate/sponsor to take us seriously.

Since I am a newbie, please excuse any ignorance I have in my post... The learning curve is very steep in REI and I know I must start somewhere. Any advice is appreciated.

Larry

Los Angeles, CA

Nichole Stohler · Answer

@Larry Tran, agree with feedback from others here. A smaller property will give you experience and help you build your "resume" and can also help in in securing commercial loans. There's a lot of "you don't know what you don't know" until you get into the first property. On a smaller scale, those lessons don't have to be as costly...

Building relationships will help as @Ben Wilkins recommends. We found a great Commercial Broker for our first 4-plex who helped us develop a network of the broader team needed to help with the various aspects of owning a property.

@Gay Lloyd, your story is similar to ours as we are in hotels now too.   I haven't found that many people in hotels on BiggerPockets and would love to hear more about what you are doing with syndication.   Will send you a pm -

Larry Tran · Answer

@Ben Wilkins - Until I buy (not for a year or two), I am going to do all the research I can in terms of knowing the exact location to buy (population growth, economy growth, % of renters, etc) and learning the exact numbers to calculate cash flow, and trying my hand at learning how underwrite... hopefully in the mean time I find a mentor that I could learn from to speed the process. Thanks for your response!

Ben Wilkins · Answer

@Larry Tran - I've heard success stories of people starting large, and there's nothing wrong with that if you go into the investment with the correct mindset and knowledge.

Most people will suggest to start smaller to ensure that you can manage an investment, which is a fair point. That said, larger properties are a larger scale of similar principles.

So my suggestion: make sure that you understand the concepts, numbers, management, etc before you jump into a larger investment. If you get all of that through learning / mentoring, then go for it. If you need a hands-on experience in order to learn, then buy something smaller first.

Gay Lloyd · Answer

@Nichole Stohler, I also love the phrase, "you don't know what you don't know" and good point about learning lessons on a smaller scale.  We have found all of this to be true.  I would love to chat more about hotels and syndication with you and learn more about what you do!

Larry Tran · Answer

thanks @Nichole Stohler. I agree, I will most likely start with a smaller property, like a quadplex. Thanks for your feedback

Gay Lloyd · Answer

@Larry Tran we have just recently started with syndication on our second hotel project and are learning a lot.  We have a really great attorney who is coaching us through the process !  (just happens to be on BP also !)

Ben Wilkins · Answer

@Larry Tran - if you're thinking of waiting one or two years to go big, I strongly suggest getting something smaller this year if you can set up for it. You may as well get your feet wet and see what surprises come your way, and a small building will get you there

Larry Tran · Answer

thank @Gay Lloyd. I want to do just that, work my way up to CRE. I have some people in my life that have experience in REI but I'm not sure if they are the ones that may be good to follow. I am looking forward to going to local REIA to build some connections.

Do you have any experience being part of a syndicate?

Invest in duplex/SFR first before jumping to CRE?

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