Should a newbie investor avoid Large Multi-Family?

Multi-Family and Apartment Investing
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Should a newbie investor avoid Large Multi-Family?

Jordan Becker
Investor · Sunnyvale, CA · Member since 2020 · 25 posts · 21 votes

I'm in my mid-50's and just getting started RE investing (haven't yet bought my first investment property). I'm feeling pressure to scale up cash flow quickly because of my age -- so I'm considering jumping right into large multi-family as a way to do that, rather than starting out with SFH or small multi-family to gain experience first. Is that foolish? I understand large multi-family can be a lot of work and has different sorts of problems than SFH and small multi-family. I also have a full-time professional career that takes quite a bit of my time (which I don't want to give up just yet), so worried about biting off more than I can chew. Should I just stick with SFH or small multi-family to start off with? Thanks in advance for any advice.

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Arn CenedellaPro Member
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
5y

@Jordan Becker

I spent most of my life as a real estate broker and investor in Silicon Valley. My office located in Menlo Park CA. At one point I owned a bunch of units down on Ponderosa in Sunnyvale near Sunken Gardens Golf Course but moved to Greenville SC in 2014.

A few points, I am 66 years old, financial secure actually financially free but I still invest and I invest for the long term. While 55 might feel old, truth is life expectancy has increased such that you can plan you have at least another 30 years to invest and even more importantly you need to invest and produce income for the next 30 years to maintain a comfortable lifestyle.

So there is plenty of time to get it done. That being said, a mistake now unlike at mistake at 30 will be a big problem.

As @Charles Seaman mentioned, best approach would be partnering with other more experienced investors who know how to own and operate multifamily properties and learn as you go while reaping the investment returns.

You can invest either actively in a Joint Venture or passively in a syndication.

Due to the compounding impact of investment when done properly - investing $50,000 a year every year for 10 years should provide the income you need at 65 let's say. Living and working in Silicon Valley, it is possible you have assets in your 401K that can be moved to real estate. Disclaimer: I am a strong advocate of diversification - I am not saying move all your assets to REI rather consider moving a portion of assets into REI.

Work on education, investigate markets outside CA to invest - I suggest Southeast or perhaps Mountain West, select a few markets you like, and then network like crazy to find investors looking to partner.

Hope this provides some insight and value.

[email protected]650-575-6114
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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    I'm from Sunnyvale too. I agree with the assessment. I noticed large MF > 10 units is more reserved to institutions and professional Real Estate/syndication. The risk and the unknown are just too great. In the Sunnyvale market, it's even almost impossible to think about it with the 3-4% cap rate that the market has right now. 

    2Reply
  • Charles Seaman
    Apartment Syndicator · Charleston, SC · Member since 2017 · 519 posts · 631 votes
    5y

    @Jordan Becker There's nothing wrong starting with larger multifamily.  The problems that you'll encounter with larger multifamily properties are similar to the problems that you'll encounter with smaller multifamily and single-family.  The only difference is that the numbers are bigger.  I'd argue that larger multifamily actually has less risk than smaller multifamily or single-family, simply because of economies of scale.

    You can start with larger multifamily, BUT (yes, there's a but) you should spend a lot of time learning before jumping in and you should also build relationships with more experienced people that you can partner with.  This will accelerate your learning process and it'll also give people more confidence in your ability to close a deal and to execute a business plan that will deliver successful results.

    5Reply
  • Erik Hatch
    Rental Property Investor · USA · Member since 2018 · 325 posts · 222 votes
    5y

    Try to go big enough to where part of the cash flow pays for professional management. Focus on increasing the noi. 

    6Reply
  • Chris Herrera
    Real Estate Agent · Addison, IL · Member since 2015 · 185 posts · 88 votes
    5y

    @Jordan Becker I agree with Erik, if you want to start big then make sure the numbers have ample room for professional management since you don’t have the time either way to take care of the property. Just make sure you clearly communicate what you want out of a property manager so you have it looked after properly.

    2Reply
  • Arn CenedellaPro Member
    Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
    5y

    @Jordan Becker

    I spent most of my life as a real estate broker and investor in Silicon Valley. My office located in Menlo Park CA. At one point I owned a bunch of units down on Ponderosa in Sunnyvale near Sunken Gardens Golf Course but moved to Greenville SC in 2014.

    A few points, I am 66 years old, financial secure actually financially free but I still invest and I invest for the long term. While 55 might feel old, truth is life expectancy has increased such that you can plan you have at least another 30 years to invest and even more importantly you need to invest and produce income for the next 30 years to maintain a comfortable lifestyle.

    So there is plenty of time to get it done. That being said, a mistake now unlike at mistake at 30 will be a big problem.

    As @Charles Seaman mentioned, best approach would be partnering with other more experienced investors who know how to own and operate multifamily properties and learn as you go while reaping the investment returns.

    You can invest either actively in a Joint Venture or passively in a syndication.

    Due to the compounding impact of investment when done properly - investing $50,000 a year every year for 10 years should provide the income you need at 65 let's say. Living and working in Silicon Valley, it is possible you have assets in your 401K that can be moved to real estate. Disclaimer: I am a strong advocate of diversification - I am not saying move all your assets to REI rather consider moving a portion of assets into REI.

    Work on education, investigate markets outside CA to invest - I suggest Southeast or perhaps Mountain West, select a few markets you like, and then network like crazy to find investors looking to partner.

    Hope this provides some insight and value.

    [email protected]650-575-6114
    10Reply
  • Andrew Schutsky
    Investor · Glen Mills, PA · Member since 2019 · 185 posts · 208 votes
    5y

    As your planning out your next few moves, it would help to really think about your goals - both financially and professionally.  What is your reason for wanting to invest in RE? Is there a certain target you want to achieve? Think about how much capital you want to invest and what types of returns it will take to achieve your goals.

    As others mentioned, investing passively in your first deal or or two has huge benefits - namely, it won't take up much of your time but will get you plenty of exposure to MF investing.  I'm doing that right now myself as I'm getting rolling.

    4Reply
  • Adam Lacey
    Investor · Castle Rock, CO · Member since 2018 · 297 posts · 159 votes
    5y

    @Jordan Becker It's important to do your research and understand the ins and outs of any form of investing. I think if you do that, you'll realize that there really isn't anything preventing you from starting with larger properties if that's where you want to end up. Reach out if you would like to connect or would like any book or podcast recommendations to help you on your journey.

    5Reply
  • Aubrey Tatarowicz
    Investor · Brooklyn, NY · Member since 2019 · 57 posts · 51 votes
    5y

    @Jordan Becker You may want to consider passively investing in MF via syndication.  It is passive so you don't have the day-to-day of managing the asset.  You'll want to as a first step figure out your financial goals.  1) How much cash flow do you want per month?  2) how much capital do you have to invest?

    Another thing to consider: When investing passively via a syndication, there is the benefit of not having to do any of the day-to-day but you give up control.  The General Partner makes the decisions and the exit timeline is out of your hands.  Happy to chat in more detail.  I started out purchasing single family homes and renting them out for cash-flow, then moved to LP (passively) invest in syndication, and now working toward actively investing on the GP side of syndications.

    3Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    5y
    Originally posted by @Jordan Becker:

    I'm in my mid-50's and just getting started RE investing (haven't yet bought my first investment property). I'm feeling pressure to scale up cash flow quickly because of my age -- so I'm considering jumping right into large multi-family as a way to do that, rather than starting out with SFH or small multi-family to gain experience first. Is that foolish? I understand large multi-family can be a lot of work and has different sorts of problems than SFH and small multi-family. I also have a full-time professional career that takes quite a bit of my time (which I don't want to give up just yet), so worried about biting off more than I can chew. Should I just stick with SFH or small multi-family to start off with? Thanks in advance for any advice.

    The real Question is “do you have the wherewithal to take down a large apartment building?” Most people don’t. If you do that’s great. If you do not have the wherewithal to take down a large purchase then I think that should answer your question. 

    5Reply
  • Jordan Becker
    OP
    Investor · Sunnyvale, CA · Member since 2020 · 25 posts · 21 votes
    5y

    Thanks to all who replied, great feedback! It sounds like partnering with an experienced investor is the best way to go for a newbie interested in larger multi-family.  Regarding syndication as an option, as a LP/passive investor in a syndicate, would I likely have enough visibility into the process to gain enough experience to eventually enable me to be a sole (or more active) investor in those types of properties?  I had assumed not.  BTW, I would *never* try to *manage* a large multi-family myself, my questions here assume I would hire professional management if I were the sole/active investor.

    2Reply
  • Aubrey Tatarowicz
    Investor · Brooklyn, NY · Member since 2019 · 57 posts · 51 votes
    5y

    @Jordan Becker as far as LP-ing helping to eventually be on the active side, I 100% believe it does.  For one thing, it is important to experience the passive side so that you can have a better idea of what you want to provide your passive investors?  Do you want monthly or quarterly distributions.  What is the level of communication between GP and LP?  You can look for syndicators who are communicative and give you updates monthly or quarterly.  There is a lot to learn in that sense.  Often syndicators will give you insight into P&L on a quarterly basis as well.

    1Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    5y

    Bad idea. Take down smaller investments with a partner first. If you're worried about scale, leverage any expertise you have to find a partner with money in your market and start doing deals with them. They can be flips or BRRR deals. Focus on deals you KNOW you can do. Don't bite off more than you can chew.

    After you do the first couple, you will start to understand that vision/big picture of what you want to do. Good luck

    2Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    5y
    Originally posted by @Eric Johnson:

    Bad idea. Take down smaller investments with a partner first. If you're worried about scale, leverage any expertise you have to find a partner with money in your market and start doing deals with them. They can be flips or BRRR deals. Focus on deals you KNOW you can do. Don't bite off more than you can chew.

    After you do the first couple, you will start to understand that vision/big picture of what you want to do. Good luck

     Good advice. People want to skip kindergarten and go straight for the doctorate degree. And the strange thing people are cheering them on.

    2Reply
  • Justin Goodin
    Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
    5y

    @Jordan Becker You can most certainly go straight into large multifamily assets. You will need a team behind you. Most likely you will also want a mentor or experienced investor helping you and looking over your shoulder. It will take a lot of grit and determination to be successful in this business. 
    I would recommend getting started by passively investing. Great way to get involved in a deal quick and learn the process. 
    @Carlos Ptriawan I agree the market you pick is very important. If the market is solid, then multifamily is a great investment. 
    @Charles Seaman Hey Charles, I agree with your points. Going straight into multifamily will require you to be extremely educated on the subject. You are taking money from investors. It also wouldn’t hurt to have a mentor helping you along the way. 
    @Arn Cenedella Amazing story! Glad you made the switch to multifamily and you are killing it now! 
    @Andrew Schutsky Yes he should really figure out his goals and what exactly he is wanting to get out of it. Actively investing is a lot of hard work as you know. I agree passively investing would be a great way to get started. 
    @Adam Lacey Education is extremely important no matter which path you choose. I agree. Thanks for sharing this 👍

    @Aubrey Tatarowicz I agree! Passively investing is a great way to get started. Yes, you give up control, but for people investing passively...that’s what they want! Some people don’t want to do deal with any of the operations. They just want mail box money 😃

    @Joe S. Having a solid team behind you for going after apartments is a must. Definitely a team sport. 
    @Eric Johnson Interesting perspective. I would disagree on some points. Most people start small because we are trained to be cautious and start small. When you think of getting into real estate, most people think they will start with a single family house. If you have the resources, time, grit, and willingness to learn, there is no reason why you can’t go straight into large multifamily. I’m proof! 😉

    1Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    5y

    @Justin Goodin that's great, but there's no context here on BP, I don't even know what skill set OP has. That being said, not all people need or want to scale to multifamily. It depends on your goals as an investor. Sure, I'm not saying don't to big things, but realistically, if you can't even rehab a 3.2 1,200 SF bungalow right, then there won't be any magic success.

    Success and more specifically, execution is determined by the underlying principles one sets into motion & having a high level understanding of the craft/strategy being executed upon. 

    Hope this clarifies my point.

    3Reply
  • Justin Goodin
    Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
    5y

    @Eric Johnson I totally agree! Yes, that makes a lot of sense. It wouldn’t be a good fit for just anyone. Great feedback. Thanks Eric. 👍

    0Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    @Jordan Becker well one advantage of the larger units is that everything is much more professional: so if you work with a good property management firm you should be fine. BUT and this is a big BUT...to go solo like that you need to have the money. Not just for the ability to finance and close but to maintain. 100k—200k for a set of roofs anyone?

    Not sure what market you are in but I think you are talking about having at least $1M in liquid, investable form.

    2Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    5y

    @Jordan Becker 

    Short answer: YES!!! Absolutely, yes!

    I am assuming that you don't have the problem most "newbies" have: lack of funds. 

    So, the smart thing to help scale up cash flow is to find Large Multifamily Investors who you like and partner with them!

    There is no other secret here: partner with others by adding VALUE to the relationship.  

    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    You need to understand the actual risk for each strategy. Here's the general risk for larger MF vs Passive Syndication vs Public REIT Investing

    - large MF market is a very high efficient market, there's not much room for error. Your projection,ROI and capex analysis need to be right. There're not too many mispricing/skew available in the market, unlike small res/MF where you can pinpoint deals easily. Even a market guru can't can't find deals much more easily like before because we're already at the higher end of economic cycle.
    - You need to know at least the conservative price projection after 5-6 years to calculate EM,CF. It's extremely market-specific. The good thing is it can be projected nationwide by market research.
    - when you buy large MF, you are purchasing the whole economy/job growth up/down. 
    - you need to know how to bring value to add to the property
    - even with proper PM you need to develop process and strategy otherwise it's the fastest way to lose money

    For syndication, the risk is the following:
    - if you invest in wrong team/market , the realized return of investment is going nowhere and far from the projection, but at least this is the least risky way for newbie
    - Crowdfunding syndication generally has a higher risk than private deals syndication/fund.
    - post-covid times, many syndication failed to deliver their numbers. If you are OK with losing CF for a certain period of time, go ahead.
    - Good thing is some type of sector investment is generally more stable than the other: eg: industrial compare to the hospitality sector


    For public REIT
    - in general, investing in REIT could give you steady 10% return but even then you need to know when to buy and when to sell.
    - Due to the covid , asset price is generally cheaper in REIT compare to syndication as it's traded below the NAV. Many also stopped paying dividend.

    3Reply
  • Danny RandazzoPro Member
    Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
    5y

    @Jordan Becker you need to get right into larger multifamily properties. There is no rule that says you can’t. You need to let your mind allow you to do it. People before you have jump right into larger deals and you can too

    1Reply
  • Tucker Cummings
    Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes
    5y

    @Jordan Becker

    I’d say yes. Do some smaller deals to get your team together and figure out the process, then scale as you gain good experience.

    2Reply
  • Enrico Angella
    Rental Property Investor · Rome Italy · Member since 2020 · 42 posts · 19 votes
    5y

    I’m my opinion, if large multi family deals are what you want to do, you should start with a couple of more manageable small multi-family investments.

    I would skip SFRs and passive investing. I don’t think it is the kind of training you need to have for larger MF.

    You will make some mistakes on your first deal and you don’t want to bet that everything will be perfect, because it won’t, when you start. You will makes mistakes on your projections, renovation budgets and team members.

    It’s never too late to start. I would focus on your execution with small MF first. Once you’re on top of your game, scaling up isn’t that hard.

    Best on luck on your investments!

    1Reply
  • Justin Goodin
    Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
    5y

    I appreciate all of the other perspectives in this forum. That's what makes Biggerpockets so great! However, I totally agree with @Danny Randazzo.  Go straight into multifamily. Your mindset and hunger will allow you to be successful. Your self doubt and excuses will hold you back. 

    One of my mentors said to be successful in this industry you need to have a "white hot desire." When steel is at its hottest point it will actually turn white, not orange. Many people get in this industry and do not have a 'white hot' desire, meaning they are not willing to do whatever it takes to be successful. 

    1Reply
  • Daniel E.
    Investor · Member since 2021 · 19 posts · 5 votes
    5y

    I am invested in many large multi-family deals as a limited partner in sydications but I actually prefer investing in Real Estate Investment Trusts (REITs) that own large portfolios of multi-family properties.

    A few examples of ones I have purchased the past few months are Essex, Avalon Bay, and Equity Residential.  You can find their websites online to see the types of properties they own.  

    Recently these public REITs have been trading at large discounts to their Net Asset Value and you can buy passive ownership with less risk in these portfolios at better prices and far less work and likely better returns than on your own.  Once you learn how to analyze REITs it's a great way to invest in large multifamily properties and get passive income from quarterly rent checks (in the form of dividends).

    - Daniel

    Business And Investing Sherpa

    1Reply
  • Jordan Becker
    OP
    Investor · Sunnyvale, CA · Member since 2020 · 25 posts · 21 votes
    5y

    Thanks again to all who have replied (and apologies for not individually acknowledging each one)! This is all really helpful feedback! To clarify, I was not thinking of going into large-multifamily totally on my own as a newbie (I'm new at REI, but not stupid :-) ). I definitely was thinking of putting together a team with some solid experience in that area, and hiring professional management. But I also really like the idea that several of you suggested of starting with passive investment in a syndication, *provided* that would still give me enough visibility into the whole process to gain some actionable knowledge. At least @Aubrey Tatarowicz seems to believe it would, so . . . cool.

    @Daniel E., just curious, why do you prefer REITS to syndications?

    2Reply
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