Small Deals Mean Wasting Time & Making Small Money

Michael Ealy · 2019-12-09T13:28:02-08:00

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)...and3. Believe it or not, takes up MORE time to manage than the bigger dealsGood 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?

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

6y

Originally posted by @Darren Pacheco:

Having a been a commercial mortgage guy for 15 years, and financing a variety of commercial property types...here is my two cents. Hotels are often boom and bust, they have incredible upswings during periods of economic growth (think business/recreational travel). They can take a big hit during recessions. Most people who have been "investors" over the last 10 years, should have done great to excellent (if they know what they are doing). We've gone from all time lows to all time highs, during this period. With that said...finding value-add hotels deals can be very profitable. The play is acquiring a non-flagged property, putting in cap ex (via PIP), rebranding with a known "Flag," then refinancing out your equity after stabilization.

With that said hotels like self-storage are a business/real estate play, not just real estate. So you really need to understand how the business models works.

what you said.. these are business's with real estate as a component.. just like those that lend money they are in the money lending business real estate is just one of the securities you use to create income via fee's and interest delta.

I did a little business with the hotel folks I think that the Patel's own about 50% of all 100 unit and under hotels in the US.. Not one family but its a culture thing.

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1 Reply

Ryan Hall

Rental Property Investor · Tampa, FL · Member since 2019 · 74 posts · 27 votes

6y

@Michael Ealy

Thank you for offering us your insights Michael!

I’m ready for that next step, small multi-family, to 10+ units. Eager to hear your advice on “how”!!!!

Thanks again

0 Reply

David Song

Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes

6y

@Jeff Cagle

This is truly funny. A certificate that anyone can request.

Great. I shall order one tomorrow. LOL.

5 Reply

Patrick J.

Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes

6y

@Jeff Cagle

I think Michael is providing value by answering all of these questions but of course, hes always looking to "raise capital." This is what all of the top investors in the world do. They all raise capital. Even Brandon Turner and a lot of people who do the Bigger Pockets podcast try to raise capital from this community.

People don't just provide free value if there was nothing in it for them. Everyone is selfish deep down. Everyone comes on here to take take take and some will mask their true intentions to try to manipulate people for their own needs.

If anyone is stupid enough to just hand over hundreds of thousands of dollar to some random guy on bigger pockets, then they deserve to lose their money. Look at all the so called sophisticated investors who lost their money to Bernie Madoff.

You and I are similar in that we can tell when people are masking their true intentions but there is no one on earth that does something without seeking something in return. The owners of this platform even seek to raise capital.

I personally would never hand over money or start a partnership with someone unless I knew you for a long time. I would rather lose all of my money on my own terms, then lose my money to a Bernie Madoff.

3 Reply

Jeff C.

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

6y

Originally posted by @David Song:

@Jeff Cagle

This is truly funny. A certificate that anyone can request.

Great. I shall order one tomorrow. LOL.

Make it says some really glowing stuff about you.. like I know it will, since you get to write the text yourself! I'm glad someone took the time to actually look at that. BP degrades pictures so much that it's hardly legible, but if anyone else is in need of a certificate, you can go to this link: Request a Proclamation from the City of Cincinnati

0 Reply

Stephen K.

Specialist · Mauldin, SC · Member since 2018 · 14 posts · 3 votes

6y

@Michael Ealy

I love your post as I always think big. Very interested in going your same path as you and managing hotels! I’ve listened to a-lot of biggerpockets podcast and read quite a few books on the subject (and prowl these forums often). I see you say its all about the KNOW-WHO, but I think my struggle is everywhere I look the suggestion by-and-large when finding partners and mentors is to add value. The problem I am having (and I think others posting this same type of question) is I don’t really feel I have much if any value to add being a newbie... Like another has mentioned I have a family and a full-time job and certainly don’t have enough cash to be the funder of the deal. With no experience but a burning desire to get into Real Estate, what would you suggest people like me do to find partners and mentors and add enough value where they’d be willing to take you under their wing? Thank you again for the post, it was very motivational!

1 Reply

Chris Purcell

Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes

6y

Originally posted by @Eduardo C.:

@Michael Ealy Reading your bio I see you started out with a duplex. This is exactly what I would like to do within the next year. I am brand new to REI. I have a realtor, family that owns a remodeling company with connections to contractors, and multiple partners willing to invest. How can we grow as quickly as you did? Any help/information is greatly appreciated.

Why are you thinking about buying a duplex when you could just jump right into buying hotels..

1 Reply

Chris Purcell

Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes

6y

Originally posted by @Matt M.:

@Michael Ealy

I have a question- is the first 3/4 of this post supposed to be an ego boost? Not trying to be rude, and it’s obvious you have done well for yourself, but some of us are more that happy owning SFRs and small multis. I mean, some of us have done pretty well with SFRs, maybe not a years salary in a month but...

Seems egotistical to me but has definitely opened my eyes a bit. Already started thinking about ways to scale bigger.

1 Reply

Michael King

Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes

6y

Originally posted by @Chris Mackinlay:

@Scott Passman

Voted for post because of the Matrix reference.

Voted for post because of Matrix reference reference.

1 Reply

Patrick J.

Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes

6y

@David Song

It's like going to Walmart, buying a certificate and writing it up for yourself. A certificate of recognition means nothing if you're giving it to yourself. That kind of ruined this great post.

3 Reply

David Song

Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes

6y

@Jeff Cagle

I have to say that Cincinnati is a great city that will make your dream come true.

It is also surprising that so many people will fall for this kind of scam. This website has officially turned into a scammer paradise. Now, I view this website as an entertainment site. Scammer performance show.

1 Reply

Patrick J.

Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes

6y

@Jeff Cagle

His website says "Minimum investment 100k." Anyone who hands over 100k to a guy who creates his own certificates is an idiot.

There's an idiot born every day.

4 Reply

Deanna O.

Rental Property Investor · San Diego, CA · Member since 2010 · 377 posts · 314 votes

6y

I think I'll stick with my money, my properties, my decisions, my mistakes, my successes.

People who want me to follow them or give them money give me the heebie jeebies.

9 Reply

Kata Walters

Rental Property Investor · Palm Desert ca · Member since 2016 · 101 posts · 72 votes

6y

@Michael Ealy firstly congrats on your success ! Quit an accomplishment getting to that level. But like I am sure many will mention, scaling up that far isn't always the goal for every investor. As you know, will bigger assets there's bigger responsibility and bigger risk. And like myself and many smaller investors we are limited in he beginning with smaller deals because available capital and experience. Now when I say limited, I don't think 40% cash on cash return is limited :) I have had massive returns with my single family "small deals " and the best part? I get to keep all the return and reinvest because I can handle the portfolio myself without having to pay employees to manage, and pay shareholders and partners who I would have to bring in for hotel projects. There is a good book out now on BP called "retire early with real estate " and in the first chapter it talks about how sometimes scaling too big can have a negative effect. It's just not everyone's main goal to scale to large commercial but it doesn't mean the small investors are doing anything wrong:)

3 Reply

Judy BestPro Member

Investor · Little Rock, AR · Member since 2017 · 81 posts · 62 votes

6y

We are transitioning to multi family this year, because we believe this is true.

1 Reply

Michael Ealy

OP

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

6y

Originally posted by @Bill F.:

@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.

Thanks Bill - as always your answers and comments are good and shows you are a very smart man.

And I agree with you that there's no one size fits all advice. Exactly why the "Start small - start with a house when you invest in real estate" is also not a good advice for everyone.

Just sharing with you and everyone my experience that my smaller deals take up more time/hassles than my big deals. And I can see here that I am not the only one with that experience.

Appreciate the counter-points.

1 Reply

Michael Ealy

OP

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

6y

Originally posted by @Kata Walters:

@Michael Ealy firstly congrats on your success ! Quit an accomplishment getting to that level. But like I am sure many will mention, scaling up that far isn't always the goal for every investor. As you know, will bigger assets there's bigger responsibility and bigger risk. And like myself and many smaller investors we are limited in he beginning with smaller deals because available capital and experience. Now when I say limited, I don't think 40% cash on cash return is limited :) I have had massive returns with my single family "small deals " and the best part? I get to keep all the return and reinvest because I can handle the portfolio myself without having to pay employees to manage, and pay shareholders and partners who I would have to bring in for hotel projects. There is a good book out now on BP called "retire early with real estate " and in the first chapter it talks about how sometimes scaling too big can have a negative effect. It's just not everyone's main goal to scale to large commercial but it doesn't mean the small investors are doing anything wrong:)

I actually agree with you Kata. Going BIG too fast, and in the wrong way...can become disastrous.

Here's what most people don't know though: BIG deals are not necessarily big risk plays.

With single family homes, if you get one bad tenant who skips a month or two in rent and you have negative cashflow for the entire year.

With multi's and hotels, you get one unit vacant, you're OK. So your vacancy risk is actually LOWER with bigger deals.

Also, big multis and hotels can afford a full time property manager and full time maintenance personnel. As a result your cost of property management is lower than 10%, sometimes as low as 5%. As you know, in rental properties, unexpected repairs sometimes happen and with houses, the risk of being down to $0 cashflow or even negative is very high.

Makes sense?

0 Reply

Kata Walters

Rental Property Investor · Palm Desert ca · Member since 2016 · 101 posts · 72 votes

6y

@Michael Ealy yes I agree , when I first started I only had a couple of singles and yes I really felt the loss when it was vacant or a tenant was paying late for sure . I agree that multi has an advantage over singers for that reason ;)

0 Reply

Matthew Terry

Rental Property Investor · Mesa, AZ · Member since 2019 · 138 posts · 144 votes

6y

Originally posted by @Patrick J.:

@Jeff Cagle

I think Michael is providing value by answering all of these questions but of course, hes always looking to "raise capital." This is what all of the top investors in the world do. They all raise capital. Even Brandon Turner and a lot of people who do the Bigger Pockets podcast try to raise capital from this community.

People don't just provide free value if there was nothing in it for them. Everyone is selfish deep down. Everyone comes on here to take take take and some will mask their true intentions to try to manipulate people for their own needs.

If anyone is stupid enough to just hand over hundreds of thousands of dollar to some random guy on bigger pockets, then they deserve to lose their money. Look at all the so called sophisticated investors who lost their money to Bernie Madoff.

You and I are similar in that we can tell when people are masking their true intentions but there is no one on earth that does something without seeking something in return. The owners of this platform even seek to raise capital.

I personally would never hand over money or start a partnership with someone unless I knew you for a long time. I would rather lose all of my money on my own terms, then lose my money to a Bernie Madoff.

Michael is simply promoting himself on a forum. It's a common social media marketing formula:

1. State credibility

2. Take a contrarian view

3. Let people think you are a thought leader

4. Use the forum post in future marketing endeavors

3 Reply

Michael Ealy

OP

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

6y

Originally posted by @Jay Hinrichs:

Originally posted by @Darren Pacheco:

Having a been a commercial mortgage guy for 15 years, and financing a variety of commercial property types...here is my two cents. Hotels are often boom and bust, they have incredible upswings during periods of economic growth (think business/recreational travel). They can take a big hit during recessions. Most people who have been "investors" over the last 10 years, should have done great to excellent (if they know what they are doing). We've gone from all time lows to all time highs, during this period. With that said...finding value-add hotels deals can be very profitable. The play is acquiring a non-flagged property, putting in cap ex (via PIP), rebranding with a known "Flag," then refinancing out your equity after stabilization.

With that said hotels like self-storage are a business/real estate play, not just real estate. So you really need to understand how the business models works.

what you said.. these are business's with real estate as a component.. just like those that lend money they are in the money lending business real estate is just one of the securities you use to create income via fee's and interest delta.

I did a little business with the hotel folks I think that the Patel's own about 50% of all 100 unit and under hotels in the US.. Not one family but its a culture thing.

You are right as always Jay.

And Darren, your response was buried in the flurry of responses so I was not able to reply. Thanks. And I totally agree with you.

That's the issue with hotels is their sensitivity to a recessionary environment. I've looked at the historical results and what's interesting is that during recessions, hotel's RevPAR drops during a recession which usually last 12-18 months - and then they go back up immediately after. SO my philosophy is you protect your hotel investments from recessions by buying them right. I only buy buildings (apartments and hotels) that I can do value-adds and only buildings in locations that are growing with diversified employment base. I buy significantly below rebuild cost so I can lower my ADR if needed to be competitive.

I really don't buy for cashflow or converting capital to a certain yield. I want my and my investors' capital to GROW through value-adds and through appreciation (since I buy in growing areas)...and while waiting to sell, me and my investors want to get paid a healthy cashflow. This investing philosophy has protected me and my investors with no investor losing capital with me even during the Great Recession.

0 Reply

Luke G.

Rental Property Investor · Hammond, WI · Member since 2017 · 139 posts · 217 votes

6y

I'm getting the popcorn ready here. He's obviously done very well financially, but I'm still waiting for a simple response on why he made himself a proclamation.

3 Reply

Michael Ealy

OP

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

6y

Originally posted by @Luke G.:

I'm getting the popcorn ready here. He's obviously done very well financially, but I'm still waiting for a simple response on why he made himself a proclamation.

Go ask the City of Cincinnati so they can confirm it for you.

0 Reply

Michael Ealy

OP

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

6y

Originally posted by @Kata Walters:

@Michael Ealy yes I agree , when I first started I only had a couple of singles and yes I really felt the loss when it was vacant or a tenant was paying late for sure . I agree that multi has an advantage over singers for that reason ;)

Even now, out of 45 houses, 1 or 2 of them every month becomes negative cashflow because of vacancy or unforeseen repairs. I want to get rid of them because they're messing up my cashflow.

0 Reply

Luke G.

Rental Property Investor · Hammond, WI · Member since 2017 · 139 posts · 217 votes

6y

@Michael Ealy I never said it doesn't exist, I just want a simple explanation why you submitted the paperwork for it? I'm guessing someone didn't do it for you...

I enjoy following you, but this thread took a pretty odd turn with that.

2 Reply

Michael Ealy

OP

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

6y

Originally posted by @Luke G.:

@Michael Ealy I never said it doesn't exist, I just want a simple explanation why you submitted the paperwork for it? I'm guessing someone didn't do it for you...

I enjoy following you, but this thread took a pretty odd turn with that.

I don't know why you think I submitted it myself. I did not. People who know me submitted it and the city approved it. I've done so much for the city of Cincinnati. You can apply for a "proclamation" but they don't give it willy-nilly to just about anyone.

0 Reply

Small Deals Mean Wasting Time & Making Small Money

Small Deals Mean Wasting Time & Making Small Money

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