Small Deals Mean Wasting Time & Making Small Money

If you were starting over, going back 20 years, no knowledge, no experience, no money, how would you begin? What are some actionable steps someone can take to jump into a 10+ unit deal?

I have my current residence and one single family rental, which has tied up most of my capital. I plan on going to meetups regularly to network, but what is there to offer? I have hustle, but also a 40 hour a week Mon-Fri job. There is no substantial capital and no deals or even a pipeline to speak of to offer a potential investor/partner. How would you have made that jump 20 years ago?

2 Reply

Matthew Ryan

Developer · San Francisco, CA · Member since 2015 · 103 posts · 47 votes

6y

I won't refute this argument though I disagree with it. What I will say is learn to run an IRR calculation and let the numbers do the talking. I would be waiting a long time if I chose to wait and find deals to syndicate that had the same IRR of my first three big deals. Can a fully integrated (Property Management, Construction Management, Brokerage) small-time investor hit the same IRR's buying distressed 10 units and under properties as someone doing a hotel development? Absolutely. I've never seen anything to disprove this. I've hit 25% IRRs on all my personal properties across three asset classes in three different markets. High IRR can be achieved anywhere, under any product at any size and scale. But kudos to you @Michael Ealy for rousing up the debate on BP in addition to finding what works for you.

1 Reply

Russell CazeaultPro Member

Contractor · Osterville, MA · Member since 2018 · 41 posts · 30 votes

6y

@Michael Ealy

While I’m interested in what you have to say, my initial response is we are all running our own race.

There is a tendency to measure by number of doors or income, but we are all here for different reasons and I think it’s safe to assume the the things that motivate us to be landlords and what we ultimately want from it vary from person to person.

Personally I enjoy taking a crappy property and making it better and also giving people a better place to live.

4 Reply

Timothy Douglas

Realtor · Austin, TX · Member since 2018 · 154 posts · 82 votes

6y

Originally posted by @Scott Passman:

While I agree 100% with this post, telling people not to limit themselves is like telling Neo in the matrix to "free your mind". He couldn't just manifest his true potential by being told about it, he had to see incremental evidence along with constant reinforcement to realize it. No doubt partnering with an experienced investor is HUGE, but we don't all have the luxury of a Morpheus tracking us down to show us the way. How can beginning investors with limited experience (especially with time constraints due to family and work) who are willing to work hard get the attention of the bigger players? Sorry for the heavy matrix analogy, it just worked for this example.

Would it be crazy to say track down your Morpheus? Morpheus was there for Neo because Neo was needed. While the Bigger players are difficult to get the attention of, everybody needs something! Figure out what they need, and find out how to provide it for them. The most limited resource is time, so if you can find out a way to make them work less, they might just keep you around. Gary Vee always suggests working for free...

4 Reply

Steven Scheetz

Flipper/Rehabber · Reno, NV · Member since 2019 · 38 posts · 37 votes

6y

@Michael Ealy

Thanks for sharing. I’d be very interested in hearing your piece on how to jump to

Big deals. Maybe it's my own self-talk getting in my way, but I feel like credibility is largely what holds people back, which is why the smaller SFR route is more accessible for newer investors. Bigger deals would seem to involve more money. So if you aren't flush with cash to be able to jump into bigger deals, you'll need to raise money. But whose going to invest with someone with no track record?

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Anthony Gayden:

Originally posted by @Michael Ealy:

For those of you who don't know me, I have been investing in real estate since 1999 and I have acquired about 3,000 apartment units (and houses) and I still own 1,000 apartment units today.

I also own 45 houses and several plots of land. And I buy hotels all over the country now.

My passive income in one month is more than what an average American makes in 1 year.

And knowing what I know now...here's my realization that may shock some of you:

Small deals (singe family homes and apartment buildings below 10 units) are not good because...

1. They don't make as much money...

2. Too much of a hassle for my team to manage (I have in-house property management and construction/renovation companies)...

and

3. Believe it or not, takes up MORE time to manage than the bigger deals

Good thing I transitioned over to bigger deals...specially hotels.

I mean, my latest hotel acquisition already made $160,000 in tax free income with a $1.7 MILLION investment in just 3 months! And I didn't really do anything.

No stress. This is really passive income. If I die tomorrow, my kids will gladly inherit hotels and they can run them because of professional hotel management and their franchised business model.

That's a true legacy.

In contrast, my houses and smaller apartments...at best, I can classify them as "semi-passive" income. My kids will not be able to manage them and maybe even hate me for even sticking them with "problems".

So, the sooner you can transition to BIG deals, the better.

If I get enough responses to this post, I will answer the question: HOW can one go from a small deal to a BIG deal in a hurry?

I will also gladly answer other questions you may have...

Who wants to go first?

You have quite an impressive bio. It sounds like you have been quite successful. I understand your logic in that the bigger deals are less of a hassle and I agree.

I don't have any questions for you, but I just wanted to say that I respect and admire your success and that you are proof positive that opportunity is out there for everyone.

I appreciate the positive energy Anthony. Let's connect via PM.

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Jeff C.:

Michael,

Can you tell us how many deals you've done with inexperienced partners to get to where you are today and tell us about the most recent deal you made with someone new to real estate investing? What made you decide to incur greater risk with these partners instead of mitigate risk by partnering with experienced and successful investors?

I think this would lend greater credibility to your message and motivate new investors like myself more than stating you know a guy who has $1B in hotels in 10 years.

The kind of inexperienced partners he has in mind are the kind that will hand him their money to fund his deals. No increased risk with that plan.

You got it the other way around. I raise the capital not them.

I understand you being skeptical but please do your research and know who you are insulting.

The city of Cincinnati has declared December 14, 2018 as "Michaeal Ealy Day" due to my contributions to Cincinnati's economy. In 2013, my company acquired 28% of all apartment buildings for sale in Cincinnati.

Has your city recognized your economic impact as an investor?

15 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Trent Chance:

@Scott Passman

The matrix is amazing.

I followed @Michael Ealy s advice a few months ago before I even met him. I just read his posts and managed to get him on the phone once. I started negotiating a 35 unit deal with no idea how I'd close it.

Around that time I went to a seminar in my hometown and had a partner in 48 hours.

"There is no spoon."

Thanks Trent.

There you go: you can go from small deals to big deals in a hurry.

Good job for implementing what you've learned even just from forums.

I wish more people are like you: humble and ready to listen and implement what you learn. You will reach greater heights of success in real estate investing my friend.

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @David Cornett:

@Michael Ealy

So which hotel brands/franchise offer the best value for my money? Which has the best chance of performing well even in down markets?

David

I like Hilton and Marriott but it's not just the flag...your operator, the location and how well you bought the property are key considerations to ensure you don't suffer even during down markets.

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Brett B.:

First I'd like to say congratulations on all your success. It really was a motivational read.

If you were starting over, going back 20 years, no knowledge, no experience, no money, how would you begin? What are some actionable steps someone can take to jump into a 10+ unit deal?

I have my current residence and one single family rental, which has tied up most of my capital. I plan on going to meetups regularly to network, but what is there to offer? I have hustle, but also a 40 hour a week Mon-Fri job. There is no substantial capital and no deals or even a pipeline to speak of to offer a potential investor/partner. How would you have made that jump 20 years ago?

I actually started over - I lost everything in 2002-2003. So starting over with $0 and a low credit score (so low, it could have been a golf score), I was able to go from that to acquiring over 3,000 apartment units and houses (and I keep 1,000 apartment units today).

But, your question is: for someone with NO experience, NO knowledge and NO money, how can one start and go into a BIG deal?

Great question Brett.

The way to do it is:

1. Get the knowledge - read books, attend webinars, seminars and even pay for the know-how if you can afford it. Learn how to underwrite deals and know what a good deal looks like.

2. Get the know-WHO: network like crazy and talk to people. You will meet people with capital, people with exeperience, people who can find you deals, people who can manage, etc. You need to work on your communication, persuasion and leadership skills.

3. Play "match-maker", put the deal together and have a piece of the pie.

You can start with a deal a little bigger than you're comfortable with (I am not suggesting you start with Trump's hotel). Say you feel comfortable acquiring a house...maybe go with a 4-plex instead. Things that you don't have, someone else has it.

4 Reply

Jeff C.

Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes

6y

Originally posted by @Michael Ealy:

Originally posted by @Jeff C.:

Michael,

Can you tell us how many deals you've done with inexperienced partners to get to where you are today and tell us about the most recent deal you made with someone new to real estate investing? What made you decide to incur greater risk with these partners instead of mitigate risk by partnering with experienced and successful investors?

I think this would lend greater credibility to your message and motivate new investors like myself more than stating you know a guy who has $1B in hotels in 10 years.

The kind of inexperienced partners he has in mind are the kind that will hand him their money to fund his deals. No increased risk with that plan.

You got it the other way around. I raise the capital not them.

I understand you being skeptical but please do your research and know who you are insulting.

The city of Cincinnati has declared December 14, 2018 as "Michaeal Ealy Day" due to my contributions to Cincinnati's economy. In 2013, my company acquired 28% of all apartment buildings for sale in Cincinnati.

Has your city recognized your economic impact as an investor?

Yes, you raise capital FROM them. Work on your reading comprehension before you concoct what you believe is a witty retort. I'm quite aware of who I'm talking to. You don't miss any opportunity to remind us, even when none has presented itself. You'll have to forgive me for not being quite as impressed with you as you are with yourself.

3 Reply

Bud Gaffney

Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes

6y

@Michael Ealy This is a terrific thread to read. It should inspire anyone, regardless of where they are in their real estate investing career! I'm focused on the buy and hold 3-4 families, but I plan on using your logic to look into even bigger deals. I also have no partners at the moment, let's chat.

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Matthew Ryan:

I won't refute this argument though I disagree with it. What I will say is learn to run an IRR calculation and let the numbers do the talking. I would be waiting a long time if I chose to wait and find deals to syndicate that had the same IRR of my first three big deals. Can a fully integrated (Property Management, Construction Management, Brokerage) small-time investor hit the same IRR's buying distressed 10 units and under properties as someone doing a hotel development? Absolutely. I've never seen anything to disprove this. I've hit 25% IRRs on all my personal properties across three asset classes in three different markets. High IRR can be achieved anywhere, under any product at any size and scale. But kudos to you @Michael Ealy for rousing up the debate on BP in addition to finding what works for you.

Matthew,

I actually don't disagree with you either.

You can't be locked in with just doing a particular deal size and you don't do anything else because that means, you will wait for a long time and not do a deal.

As always, in life, it's a balance of different principles.

There is such a thing called Opportunity Cost. What's the OC of waiting for a big enough deal vs. the OC of doing a small deal? If you think it makese sense to wait, then wait. But, if 100+ unit apartment complexes are not in your market and they're overpriced, then do something else.

With regard to just letting the numbers do the decision-making...here's a question:

- you can make 25% IRR on a small deal vs. a big deal, but is that 25% IRR on that small deal worth your time and effort and what are you missing out on by having that small deal take up your time?

Let's say, you make $200,000 a year in your job (outside of real estate). So, you make $100/hour. To make the math simple, let's use ROI instead of IRR but the principle is the same. You have access to $100,000 in capital for example. Which one will you do:

Deal A - small one - you need $10K and need 100 hours of your time and you make a 25% ROI; or

Deal B - big one - you need $100K and need 100 hours of your time and you make 25% ROI

You can only do one deal at a time and doing Deal A means you lose out on Deal B and vice versa.

By the time you do Deal A, you make $2500 profit on 100 hours worth of work. That's $25/hour. You're making $100/hr so Deal A is a waste of time. In contrast, Deal B makes sense because you're making 2.5 times your hourly wage. BUT, if it takes you 20 times as long as to find Deal B and you have no other deals, sure: do Deal A during your non-working hours.

Makes sense?

1 Reply

Jeff C.

Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes

6y

Originally posted by @Michael Ealy:

Originally posted by @Jeff C.:

Michael,

Can you tell us how many deals you've done with inexperienced partners to get to where you are today and tell us about the most recent deal you made with someone new to real estate investing? What made you decide to incur greater risk with these partners instead of mitigate risk by partnering with experienced and successful investors?

I think this would lend greater credibility to your message and motivate new investors like myself more than stating you know a guy who has $1B in hotels in 10 years.

The kind of inexperienced partners he has in mind are the kind that will hand him their money to fund his deals. No increased risk with that plan.

You got it the other way around. I raise the capital not them.

I understand you being skeptical but please do your research and know who you are insulting.

The city of Cincinnati has declared December 14, 2018 as "Michaeal Ealy Day" due to my contributions to Cincinnati's economy. In 2013, my company acquired 28% of all apartment buildings for sale in Cincinnati.

Has your city recognized your economic impact as an investor?

Anyone else in Cincinnati want to request their own certificate? I've helped make the process easy for you. See below.

14 Reply

Matt Ward

Specialist · San Francisco Bay Area · Member since 2018 · 221 posts · 160 votes

6y

what % of your hotel portfolio is long distance (250+ miles away from you)?

0 Reply

Bernadeau C.Pro Member

Rental Property Investor · Orlando, FL · Member since 2014 · 540 posts · 230 votes

6y

@Michael Ealy I am taking the approach of starting small but also partnering up with individuals who are ahead of me, so essentially working in parallel. I am looking to get a duplex next year and go from there!!

0 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Steven Scheetz:

@Michael Ealy

Thanks for sharing. I’d be very interested in hearing your piece on how to jump to

Big deals. Maybe it's my own self-talk getting in my way, but I feel like credibility is largely what holds people back, which is why the smaller SFR route is more accessible for newer investors. Bigger deals would seem to involve more money. So if you aren't flush with cash to be able to jump into bigger deals, you'll need to raise money. But whose going to invest with someone with no track record?

Steven,

Anything you lack, someone else has it.

Can you leverage on one with the track record?

Come to think of it this is exactly what I did on my first hotel deal. I didn't have a track record so the banks refused to give me financing. So, I found a partner with the track record and the rest is history.

You can do it - it just takes a little bit of creativity and lots of hustle.

0 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Russell Cazeault:

@Michael Ealy

While I’m interested in what you have to say, my initial response is we are all running our own race.

There is a tendency to measure by number of doors or income, but we are all here for different reasons and I think it’s safe to assume the the things that motivate us to be landlords and what we ultimately want from it vary from person to person.

Personally I enjoy taking a crappy property and making it better and also giving people a better place to live.

I agree. To each his own...and what one considers a big deal might be small for another anyway.

But do you want to do it 1 house at a time or you get a 20 unit "crappy" building in a good location that is improving and give 20 families a better place to live?

If you can do the latter, help more people, make more money and it does not take 20 times as much of your personal time (because the with the 20 units you can have contractors who can do the work faster than you can), why NOT?

0 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Bernadeau C.:

@Michael Ealy I am taking the approach of starting small but also partnering up with individuals who are ahead of me, so essentially working in parallel. I am looking to get a duplex next year and go from there!!

I like it man. You are on the right track.

Then scale it as fast as you can, when you can. But everything does not have to be done by you.

0 Reply

Terrin Horton

Rental Property Investor · Wilmington, NC · Member since 2019 · 12 posts · 5 votes

6y

@Judy P. Thats my question. I must be missing something.

1 Reply

Bernadeau C.Pro Member

Rental Property Investor · Orlando, FL · Member since 2014 · 540 posts · 230 votes

6y

@Michael Ealy agreed! Thank you for the insight!

1 Reply

Bill F.

Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes

6y

@Michael Ealy Inspiring story and it is always interesting to see what path people have taken to arrive where they are at.

You mentioned Opportunity Cost and I think that is the concept which is the downfall to this one sized fits all advice. If someone wishes to make Real Estate investing their full time job than you have provided folks with a great case study on how to do that if they what for their lives.

However,to simply say that small deals are not good drastically oversimplifies the reality of the situation. You can either use REI to make money or use it as a place to put money. For some people with a high implicit opportunity cost the "smaller deals" give them a higher return on their time due to the lower barriers to entry (less complex to learn) and/or a quick and easy way to protect their capital in an asset that is uncorrelated with their main source of wealth.

For some trying to make money, while your advice to aim higher is great at pushing limiting believes out of their head, simply getting larger deals for the sake of the large deal is nonsensical. Investors should only invest where they have a competitive advantage and that advantage aligns with their goals. If they don't have an edge in the space they are in and they move in hoping economies of scale can save them are in for a shock.

Anyway, thanks for sparking an interesting discussion.

3 Reply

Small Deals Mean Wasting Time & Making Small Money

Small Deals Mean Wasting Time & Making Small Money

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