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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  • Daniela Andreevska
    Real Estate Consultant · Member since 2020 · 44 posts · 71 votes
    5y

    Hi, @Jordan Becker!

    Welcome to the exciting world of real estate investing. The best strategy and the best property type to invest in vary widely and depend on your experience, budget, market, and investment goals. However, I would generally recommend that you start with a rather small property since this is the first time you invest in real estate. A small multifamily property (duplex, triplex, fourplex, etc.) could be ideal in your case. It's a good compromise between a single family and a big multifamily. Starting out small gives you a chance to get a flavor of the real estate investing business, make sure that it's the right path for you, and learn about the industry while still generating a good return.

    Investing in smaller properties also has another important advantage over investing in large properties - diversification. Diversifying your real estate investment portfolio is important for lowering risk which is a major benefit of real estate vs. other investment strategies, so I wouldn't give it up. If you buy a small multifamily property now, you can use the cash flow to invest in another property in a couple of years; then use the profits from the two properties to buy a third one, etc. In this way you can still make enough cash flow before retiring but in a much safer and less stressful way.

    Since you want to keep your full-time job - which is the right thing to do at the beginning of your real estate investing journey - professional property management makes perfect sense with small multifamily properties. This gives you the opportunity to invest out of state in markets which offer the highest return rather than being restricted to your local marker which might be sub-optimal for this strategy.

    Are there any specific markers you are thinking about? Our team has recently analyzed the investment potential of small multifamily properties across the US housing market. According to our analysis, Manchester, NJ is the top market for buying a small multifamily property to rent out on a long-term basis with a city average cap rate of 11.8%. Following are Napes, FL (8.6%), Cincinnati, OH (6.3%), Fort Wayne, IN (6.3%), and Detroit, MI (6.1%). While these figures might seem modest, these are just city-wide averages, and individual properties can offer double-digit returns.

    Good luck and please let me know if you need help with anything else!

    4Reply
  • Luke Miller
    Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes
    5y

    @Jordan Becker you can really do anything you want if you work hard enough. However, taking investor money as a brand new operator is something you should really think through. I like the idea of passive investing in deals, but I doubt you'll learn much unless the sponsor is willing to share every detail with you. Many don't have the time for that. 

    Your best bet would be to join a mentorship group and learn from them before doing it all on your own. 

    2Reply
  • Marc RiceBusiness Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
    5y

    @Jordan Becker

    It’ll be easier and safer to learn on a small 1-4 unit. Or if you bring an experienced partner in to tackle a large deal it may be viable also.

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  • Lucia Rushton
    Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes
    5y

    @Jordan Becker. Just my two cents - Small SFH- small team; large MF - large team. If you've ever bought and sold your personal residence you will understand the basics of investing in houses. In my opinion large MF is a whole different ball game. Unless you are buying all cash, brokers and lenders won't even consider you as a first time investor without an established team who has a track record.

    Now if you are equating MF with 2-4 doors then it's basically the same as SFH.

    If you have the resources and would be considered an accredited investor then you could consider a syndication to learn about investing in larger MF.

    Lastly, I totally understand your concerns having hit the 50 mark, but it’s ok you are on the road now. Build a solid team and the rest with follow.

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  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    5y

    It really depends on what you classify as large multifamily. If you mean a 10-50 unit, then in my opinion, you would be just fine starting at that level. If you are talking larger, then getting in at that level is possible, but likely will require partnership. 

    Make sure that you are using professional property management and find a partner and mentor if you're lacking in areas that will control your success. Quite frankly, the right partnerships and mentors will get you much farther, faster and will help you be more successful and avoid many mistakes. 

    Start as big as you can wrap your head around - maybe even a little larger. 

    5Reply
  • Chinyere Orie
    Real Estate Agent · Baltimore Maryland · Member since 2019 · 98 posts · 75 votes
    5y

    If you do, I would recommend partnering with someone who has experience and knowledge in commercial REI and study, study, STUDY. Make sure you learn as much as possible before you jump in, Also, only jump in to larger MF if that's what you truly want to do. Don't succumb to external pressures because of your age. Best of luck!

    1Reply
  • Michael Orlando
    Investor · Cleveland, OH · Member since 2019 · 147 posts · 156 votes
    5y

    I would not shy away from larger deals if you have the time or the proper partners to take the deals down! My first deal was a 22 unit and now we have a couple hundred units in the pipeline and I'm sooo happy I didn't first purchase something much smaller. That being said, there is a big difference between 22 units and 100 on your first deal. So I recommend starting "smaller" which to me would mean between 10 and 20-ish units. 

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  • Jimmy Cantave
    Miami, FL · Member since 2015 · 154 posts · 38 votes
    5y

    Going big is the way to be. 

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

    I would not shy away from larger deals if you have the time or the proper partners to take the deals down! My first deal was a 22 unit and now we have a couple hundred units in the pipeline and I'm sooo happy I didn't first purchase something much smaller. That being said, there is a big difference between 22 units and 100 on your first deal. So I recommend starting "smaller" which to me would mean between 10 and 20-ish units. 

    Did you buy your first 22 unit by yourself?

    0Reply
  • Michael Orlando
    Investor · Cleveland, OH · Member since 2019 · 147 posts · 156 votes
    5y

    @Joe S. I have a few partners on the deal

    1Reply
  • Kent Kiess
    Rental Property Investor · Brea, CA · Member since 2016 · 73 posts · 34 votes
    5y

    Congrats Jordan, right there with ya on the age factor. Best advice is to educate yourself with every book and/or podcast out there. We don't have all the answers but always enjoy a conversation on building wealth. 

    1Reply
  • Kent Kiess
    Rental Property Investor · Brea, CA · Member since 2016 · 73 posts · 34 votes
    5y

    @Daniela Andreevska are you finding any multifamily in Ft.Wayne at this time? We been looking for opportunities in that area but they are very few at this time. 

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  • Sherwin Gonzales
    Rental Property Investor · San Francisco, CA · Member since 2015 · 236 posts · 156 votes
    5y

    @Jordan Becker, I think if you feel comfortable jumping right into large multi-family properties, then you should just go for it! 

    I started out with SFH and smaller MF deals and wished I started out the larger MF sooner. I was able to scale bigger and build my wealth much quicker thru larger MF. I was fortunate enough to partner up with people to mitigate my risks so that I don't have to jump right in all by myself.

    Especially since you want to keep your full time job, have you considered partnering with other people? That way, you don't take all the risks yourself and you can share the rewards and slowly get your feet wet and experience in these larger deals.

    Good luck with your journey!

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