My wife and I have spent the last year reading and educating ourselves on real estate investing and primarily Multi-Fam. We are now at a point where we are both just very eager and itching to get started, as I know that is by far the best way I learn is by taking action. Our long term goal is to become full time investors on a large scale and for us to retire from our W2 so we can have more freedom and time with our children and to give back to others.
Where we are feeling sort of stuck is on where we should start. Should we start out by seeking smaller Multi-Fam such as 12-24 units to get our feet wet and gain experience or should we invest a 100k passively on a much larger deal like a 200+ unit with our mentor/coach and learn that way? Which do you all feel is our best approach to getting started and gain the experience and confidence we need to scale higher in the future?
Side note: we are accredited and have very high annual income!
Thank you all for your support and guidance as we start our journey.
Ah, this is the $64M question.
Everyone will have their own opinion.
I think making a few LP investments to start is fine. But honestly, as an LP you won’t learn much about syndication. Getting the monthly newsletter and quarterly financials with no access to the “behind the scene effort” yields little actual knowledge in my opinion.
Perhaps your mentor can bring you in as a co-GP on a few deals, you will learn more this way than being an LP.
The other question is: What is your vision of the future? Do you want to be lead operator sponsor on a syndication? If so, I would suggest owning your own property and dealing with all facets of operation is probably a good idea. One learns by doing. You will learn so much more owning and operating a 16 unit property than being an LP or co-GP in a larger deal.
And of course, it’s not an either or question. One can look for a smaller DIY deal while being an LP or a coGP.
My path was decades as a SFR rental investor. Moved to MF a year or so ago. Started with a few LP investments. Bought a quad bought a 12 unit. Educating and networking all along the way. Did two co-GP deals and then just completed my first lead sponsor deal. Trust me, that was exciting and a huge learning experience.
I think you are in a good place to start your journey.
Personally, I like to have control over my investments. I'd buy a smaller MFH on my own. Good luck.
I agree with @Arn Cenedella the question needs to be what is your end goal and then work backward from that. Steven Covey said to begin with the end in mind. If you take the time to actually envision the future and then the steps it takes to get there you may discover an entirely different path than you expected.
Personally, I would prefer to stay on the LP side if I could but I don't have enough capital to invest in that side to create the lifestyle I want so I am focusing on doing my own deals and helping raise money for others while building my nest egg.
If you would like to dive deeper I would be happy to chat with you in more detail sometime just shoot me a private message.
@Arn Cenedella , how different has your experience been with MF compared with SFR?
Both can be great investment vehicles.
Building a SFR rental portfolio is a tried and true method of building wealth but it does require more attention than scaling into MF.
Multifamily is more of a team sport where partnerships are put together to buy larger assets. I enjoy that.
I believe there is greater potential to create higher cash flow with MF plus all your rental units are in one place which is nice.
I did SFR all my life for 40 plus years and it's been fun learning MF.
I believe MF can provide higher cash flow than the same equity in SFRs. So if cash flow is what you want, MF is maybe better.
At the end of the day, it’s personal preference.
I believe in real estate. Buying real estate with proper leverage and sufficient capital reserves will 9 out of 10 times be a good thing.
Thanks, @Arn Cenedella . I thought MF required more attention than SFRs.
What sources have you used to learn about MF?
@Eland Lord we have no experience in either. We’ve never done single family nor multi.
@Arn Cenedella great feedback! The main dilemma right now for me is time. I have a very demanding corporate career where I’m the operating partner for a large GM dealership and work a ton. The little free time I have is spent with the kids. My wife doesn’t work so she’s been taking the lead role on this journey to get us to a place cash flow wise to where I can eventually join her and pursue this with full focus.
Happy Father’s Day!
I hear ya. I understand. Between work career, husband and father, there isn’t much time or energy left over. After I got out of grad school, I went right into real estate. So investing and brokerage were all part of the same “job” for me. I had the easier road to investing than you.
Perhaps passive investing would be the best path for you and your family at this time. If you can make one $50,000 to $100,000 passive investment a year - in five years once your first deal cycles over, you will start to see some real cash flow and capital growth. At $50,000 investment a year for 10 years, you should have $70,000 to $80,000 a year passive income and $1,000,000 in equity (round numbers).
As all of this is going on, your wife can continue education and networking. I would also let your personal and professional sphere know what you are doing and start picking up some investors so you can raise capital and get a share of the GP.
@Arn Cenedella thank you again for the solid feedback. With our income it’s not out of reason for us to invest much more per year than that. Realistically we could probably invest 150k -200k per year. What would that look like in 5 years?
Arn said it right that multifamily is a team sport AND begin with the end in mind. I also agree that doing both is a good way to get going. You could break that $100k into two $50k chunks and invest with multiple experienced sponsors to get multiple perspectives and experiences.
Investing in syndications isn't really the best way to learn how to go out and buy small apartment complexes. That's a different business that is commonly done by individual investors or multiple investors using a JV structure.
@Wes Mccullar Welcome and super pumped for you to start your journey. The first thing you need to really consider and think about is your long term goal and your Why. Finding the answers to these make things much easier and clearer. It takes time to discover and recognize these in my opinion.
Secondly learn from and shadow people who are doing what you want to do and are doing it successfully at a very high level. This will accelerate your learning curve tremendously.
@Arn Cenedella this looks very good. Which companies are doing this? Investing $500k for passive income of $80k is fantastic.
Here’s a link into a blog post I wrote about investing $50,000 a year for 10 years
Of course, returns are never guaranteed but the returns I use in this illustration are quite doable
Demonstrates the power of consistent investing in syndications. Happy to discuss more
Good question, let me clarify.
#1 Passive investing requires little attention from the passive investor as compared to an investor owning a sizable number of single family homes or a multifamily building.
Passive investing in any asset type requires less attention than active investing in any asset type.
Even if active:
#2 MF investing offers economies of scale in several different ways.
These economies of scale can allow for less attention. Please allow me to illustrate a few.
Let’s compare say 20 SFRs v say a 40 unit apartment.
A) 20 houses presumably in 20 different locations (even if in same market) takes a lot more driving and running around than having 40 units in one location.
B) Property management is more affordable on 40 unit apartment than 20 SFRs.
On a 40 unit building, PM might be 6% or 7% whereas on a bunch of single family houses, it may be more like 8% to 10%. On even bigger apartments, PM fees go down more. Property management reduces attention time. Property manager from professional PMs is generally better than one (usually) can find with SFRs.
C) Each house is often different. With an apartment, there might be just 2 or 3 floor plans.
Once you come up with a renovation plan for apartment units, it can be repeated over and over. This saves time and money.
This also helps on repair and maintenance costs and time. The 20 houses may have 4 different kinds of HVAC systems or roof materials. The apartment probably has one.
D) 20 houses - 20 loan payments, 20 insurance payments, 20 property tax payments. One 40 unit building, one loan payment, one insurance payment, one property tax payment.
E) Less (exterior) maintenance on 40 unit apartment than 20 SFRs.
Think about how each house it has four walls and one roof - times 20 that 80 walls and 20 roofs.
A 40 unit apartment may have several buildings but there is still a lot less surface area to maintain.
There are probably other economies of scale available.
Hopefully, this list gives you a partial idea of what MF can offer.
Instead of just being a passive investor in the deal, I would try to work yourself into the deal. Possibly bringing in some additional capital from your network, helping with due diligence, helping with asset management, technology implementation and/or signing on the loan.
Buying a smaller property could also be great depending on your goals. Owning a 20 unit is great to have in your portfolio and will give you a little experience to buy more 10-40 unit properties. Ultimately if your goal is to own 100+ unit buildings though, the 20 unit is a step in the right direction, but that alone will not give you the experience and resume to buy large MF.
Great feedback from @Arn Cenedella to @Wes Mccullar in this thread. You really have to be clear on your goals. Unless you want to make a career out of real estate management (notice I did not say "investing") then doing some LP deals makes the most sense.
Do you want a part-time job on top of your demanding career, responsibilities, and interests? Or do you just want confidence that you are making sound investment choices? If the real plan is to switch careers, you should certainly go the hands-on approach, but if you just want the returns consider focusing on the passive route.
Bingo! Hit the nail on the head!
It depends a lot on whether you want to be a passive investor in a syndication or own yourself (or be the principal in syndication). I would lean toward owning myself (more control) and going with a bit smaller building. Unless you find a bigger one, then go ahead and be the ones to syndicate it.
@Arn Cenedella and others. If I want to make real estate my career and want to start with a lead syndicator, does it make sense to join clubs such as Lifestyle Unlimited (LU)? If so, what are the other clubs like LU?
@Wes Mccullar is there a way you can do one deal with just and you’re wife and then another deal where you partner with someone reputable...highly reputable. That way you’re moving faster with less risk.
@Arn Cenedella I’ve recently attended a class called “MulitiFamily Mindset” here in Las Vegas and they talked about teaching you how to become a “deal maker” where you find the deal (apartment unit) between 6%-9% and sell to other investors (hedge funds investors) either sell doors or portfolios.
The numbers sounds great as far as how much one can make. They mentioned that one can even make money in 3 different ways :
1- Acquisition fee 2%-5% of PP which is paid by the Private Investor
3- Equity growth
This does sound really attentive to do vs SFR flipping and/or owning 5+ properties as for rentals.
Have you heard of this strategy?
@Josh Loayza which club/group offered "MulitiFamily Mindset"?