How soon is too soon to start trying to fund larger projects?

Question

Hello everyone, I've got an interesting question. Is there such a thing as being to new to start trying to fund larger deals? Or at the very least is it too soon for me?

The reason I ask is this.

I'm a new investor, possibly brand new depending on your view. I have bought and sold a primary residence and walked away with $60k and our current primary can easily have value added with some basic cosmetic improvements. Other than that, no other first hand experience. I'm a contractor by trade and my GC has done two flips and one live & flip since I've work for him in the last 3.5 years, but those were outside the norm for our usual workload, but it adds some 2nd hand knowledge to my tool box. I am getting better at estimating construction costs whether it be rehab or renovation, thanks to this job so I'm very thankful for that.

I currently live in a small town that has very few long term rentals in any sense. In fact the city P&Z administrator told me personally that the city needs about 70 more to be where they want it so potential is here. Up the street from us a plot of land is for sale that has been approved for a 20 unit complex. I initially looked at it then wrote it off as to much for me to do starting off but my mindset has shifted in the past couple of weeks to maybe it's possible. Someone is going to develop it, why not me?

Breaking things down a bit. I'm new which means I have no contacts, very little experience with investing in general, none when it comes to multifamily or building one. I also have essentially no cash or equity to pull from and put in this deal. I paid off debts and bought our 2nd primary with what I got from the sale of our first house. I do have experience as a contractor and managing subcontractors. I'd also be willing to give property management a try.

In one sense I feel that I bring nothing to the table. In another, that I do bring an important ingredient to the table. Should I put the time and effort into getting solid numbers and trying to find someone(s) who'd fund/partner on something like this or would it all be for not?

Thank you all for your input.

Eric Johnson · Answer

Anthony, it depends on how concrete your analysis is. Given inexperience with these deal types, how do you truly know it's a good deal? Did you cross reference your numbers with other investors? You cannot invest in a vacuum. I would just be weary that if it's an actual opportunity because nothing in the post really indicates that it is. To do a construction deal like this, you'll be need at least a 30% equity injection, especially if it' a first time. You'll need to get a partner to come in with the 30%. But then again, if you don't know why it's a rock-solid deal, why will they give you funds?

Hope this gives you some thought channels to explore and good luck. Real estate is slow growth at first, there's no truly skipping steps to success.

Charles Seaman · Answer

@Anthony Barnard Being that you lack the capital and experience to do this deal, my first suggestion is to work on expanding your network so that you can find people to partner with that have the capital and experience. Then you'll be in a much better position to do deals like this going forward. If you have the right people on your team, then there's nothing wrong with starting big. You just need to make sure that there's a clear understanding of which party is expected to handle which task and you need to set realistic expectations so that nobody's surprised at the end.

Evan Polaski · Answer

@Anthony Barnard, as others have mentioned, there is no "once this then that" type of timeline per se, but in reality there are some hurdles that may be hard to overcome without more experience. Greg is a wealth of knowledge in development. And ground up development has a lot more moving parts that owning and operating an existing property, or even renovating existing.

Typically, there are three parts to the equation where value can be created: sourcing the deal, financing the deal, and executing on the deal. In this case, it sounds like the value you bring is from sourcing the deal, but need help on the financing and execution piece. This is where networks come into play and create value for all parties.

Anthony Barnard · Answer

@Charles Seaman

Thanks for your thoughts. I've been listening to Multi-family Mavericks w/ Josiah Smelser and Megan Greathouse and one thing that is clearly evident is the need for a network especially in the multi-family arena, let alone in general. Thankfully BP can help with that.

Greg Dickerson · Answer

You can go as big as fast as you are comfortable with, qualified for and have the necessary resources to do so.

Development requires serious expertise, deep pockets and tolerance for risk. One thing is just because a property is zoned for a certain number of units or size of building doesn’t necessarily mean you can actually build it. There are a lot of factors that go into density.

Blake Dailey · Answer

Go out there network, make the connections and continue to learn. And check your ego because it may mean partnering with others to make it happen - as is often the case in large multifamily. You can absolutely raise money regardless of your experience level, how you go about it however may change. Maybe its going to close family and friends first and using your existing network (even if you think you don't have a network). I have always found that if you find an amazing deal you can find the money and someone to help you operate the deal. Like @Evan Polaski said above, deals, financing and operation are key. If you can bring one piece you can find the others. Good luck and go get it!

James G. · Answer

@Anthony Barnard To me, this ultimately depends on your risk tolerance (or as some people call it, your stomach). Real estate investing comes with a lot of problems - maintenance issues, non paying tenants, evictions, etc. If you have the stomach to handle larger deals, then it might be something to consider. However, I see no problem with the "starting small" strategy. My first investment was a single family home, and i was able to grow from there. If you do decide to get into a larger deal, make sure you really study up, or partner with someone who knows what they're doing. You don't want to make a mistake with other peoples money that can run you out of business. All in all, think about your risk tolerance, your reserves, and your knowledge. The speed of growth is different for every real estate investor.

Thomas Greer · Answer

If you can lock up the land...then you can bring that to the table. That said, I don't understand developers. Or better yet, I don't understand how they sleep!

Some great replies, but one thing that I seen underestimated by some others in your position is that larger projects require much more of a "team" and business infrastructure (network, processes, etc). Sure, there are always "cowboys" doing deals by themselves on the back of napkins. But really, you can't underestimate the difference of doing a small deal (e.g. running a local family store) and doing a 5, 20, 100M deal (Senior VP of GE). Both are basically "selling stuff" but the difference in magnitude necessitates different skill sets and network.

I don't mean to be a Debbie downer, though. I am probably just projecting my personal aversion to risk!

Anthony Barnard · Answer

@Greg Dickerson

That's a good point on the zoning and actual ability to make it work.

How soon is too soon to start trying to fund larger projects?

How soon is too soon to start trying to fund larger projects?

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