Small Deals Mean Wasting Time & Making Small Money

General Landlording & Rental Properties
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Small Deals Mean Wasting Time & Making Small Money

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

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?

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Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
6y

By this logic every kid playing varsity basketball should quit today and join the NBA

90Reply
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  • Michael Ealy
    OP
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Anna Villalobos:

    @Michael Ealy

    I’m at duplex now, and ready for larger plex or even smaller apartment, maybe 20?

    Do you suggest getting partners?

    Self management?

    Anna, I am not a fan of self-management. I mean that's how I started but it stunted my growth for several years because I can't do other deals.

    Focus on what you're good at and seek out other people who are better than you in things that you're not strong at. 

    What are you good at?

    What are the things you're struggling in?

    What resources do you have?

    What resources do you lack?

    Based on your answers above, then formulate a plan to reach whatever goals you set.

    Hope that's helpful.

    3Reply
  • Michael Ealy
    OP
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Judy Best:

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

     Thanks for chiming in and supporting my point of view.

    Where do you invest in and how's your market for multi family?

    In Cincinnati, 100+ units are few and far between and those that become available gets gobbled up by institutional players. I found my niche to be between 20-90 units. They're too small for BIG money but too big for the small landlord.

    1Reply
  • Michael Ealy
    OP
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Ryan Hall:

    @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

     Ryan,

    Thanks for chiming in.

    The way to do it is as follows:

    1. Learn as much as you can about the property type you want to invest in. I like apartments and hotels but you don't have to do the same property types as I do. Attend webinars, seminars, read books, talk to people. That's your KNOW-HOW.

    2. Network with as many people as you can.

    "Normal" and broke people try to do everything on their own.

    1 percenters seek out the people who are better than them who can do the things they want to do. And all they do is play "match maker" and put the whole thing together.

    So by networking tirelessly, you will meet the right people who will help you (but you have to provide value to them first so they will provide value to you). This is your KNOW-WHO. I've found that KNOW-WHO is even more important than know-how. NO wonder it has been said that your networth is a function of your network.

    3. Develop your leadership skills and communication skills

    Those 2 skills will make you MILLIONS. BIG deal real estate investing is a TEAM sport. I can't raise capital without the help of my SEC attorney. I can't manage my apartments and hotels without my professional managers. I can't even paint a house - so I have contractors to do that.

    Hiring, firing, developing people and teams - you need leadership and communication skills.

    Makes sense?

    3Reply
  • Luke G.
    Rental Property Investor · Hammond, WI · Member since 2017 · 139 posts · 217 votes
    6y

    @Michael Ealy.  Fair enough, if you didn't submit it yourself that makes it more reasonable. 


    Congrats on the success, I look forward to keep seeing your future posts.  I'm at 60 units now, but will need to scale out of the 2-4 units that most of my portfolio is currently sitting in.  Posts like these certainly help figuring out the next stage.  

    1Reply
  • Kyle Jones
    Flipper/Rehabber · Douglasville, GA · Member since 2016 · 83 posts · 63 votes
    6y
    1Reply
  • Keith Martinez
    Rental Property Investor · Cornelius, NC · Member since 2019 · 16 posts · 5 votes
    6y

    @Michael Ealy. I’m curious your thoughts on purchasing a 30+ rental unit portfolio and how best to finance this so as to maximize profit. Over 95% of the unit come with tenants all of which are around 2 year long rental agreement and updated rental carts. The units have all been renovated within the last 5 years and are appraised between 70-135k depending on the unit. Looking to make and offer of no more that 2.5m for the portfolio does this sound like a good offer? Any advice here on financing and next steps? Open to all comments and suggestions from others as well. Thanks for all the feedback.

    0Reply
  • David Song
    Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
    6y
    Originally posted by @Patrick J.:

    @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.

     What the heck. I just want such a nice certificate hanging on my wall, so I can stare at it everyday and admire my achievement. LOL.

    2Reply
  • Victor Whitney
    Rental Property Investor · Member since 2019 · 4 posts · 1 vote
    6y

    @Michael Ealy

    However everyone cannot start big. Do you have any advice for those just starting off? I’ve acquired 2 properties and looking to head towards your level however it is a process.

    0Reply
  • Nikki Frick
    Denver, CO · Member since 2019 · 11 posts · 68 votes
    6y

    Love this question, @Michael Ealy! I posted it to the BiggerPockets Instagram. Follow along for further discussion if you'd like!

    2Reply
  • Bobby Larsen
    Investor · Newport Beach, CA · Member since 2019 · 190 posts · 176 votes
    6y

    It's true, you can partner with a group or individual on anything to overcome a shortfall but you must also be able to bring something to the table besides time and effort or else you're just "entrepreneurially" making yourself an employee.  You should also look at the math - is 100% of a small pie better than x% of a large pie?

    0Reply
  • Eduardo C.
    New to Real Estate · Cleveland, OH · Member since 2019 · 7 posts · 3 votes
    6y
    Originally posted by @Chris Purcell:
    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..

     Are you looking to sell your hotel?  If so, how much?

    0Reply
  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    6y
    Originally posted by @Eduardo C.:
    Originally posted by @Chris Purcell:
    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..

     Are you looking to sell your hotel?  If so, how much?

     $1.5B firm

    2Reply
  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    6y
    Originally posted by @Bobby Larsen:

    It's true, you can partner with a group or individual on anything to overcome a shortfall but you must also be able to bring something to the table besides time and effort or else you're just "entrepreneurially" making yourself an employee.  You should also look at the math - is 100% of a small pie better than x% of a large pie?

    Yep. There is no alchemy in real estate deals. If you do a deal that's 10 times larger than one you can afford and only own 10% of it you aren't really ahead. The only way someone gets ahead is if they suck up more than 10% of profits for their 10% capital contribution (Hint: It's the deal sponsor). This is only possible if someone else in the deal is getting less than their proportionate percentage of returns (Hint: It's the investors). This all of course assumes that you have some ability to complete deals on your own, however small.

    3Reply
  • Eduardo C.
    New to Real Estate · Cleveland, OH · Member since 2019 · 7 posts · 3 votes
    6y
    Originally posted by @Chris Purcell:
    Originally posted by @Eduardo C.:
    Originally posted by @Chris Purcell:
    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..

     Are you looking to sell your hotel?  If so, how much?

     $1.5B firm

     Not a fan of firm offers.  Too much of an ego boost

    0Reply
  • Anna Villalobos
    Member since 2019 · 26 posts · 16 votes
    6y

    @Michael Ealy

    Haha! Yes, I read your words and Immediately started nodding, YES!!

    I currently self manage. Both sides are short term rentals. I have tried to take my hands off but somehow I have not reached the mindset that has me stepping fully into that position.

    I will employ your suggestion to write down my “good ats”, my guess is that will get my mind looking at the next place from a bigger perspective.

    I now know from my journey that reaching the next level requires leaning into faith.

    1Reply
  • Patrick J.
    Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes
    6y

    @Matthew Terry

    His attempt at credibility backfired when he said the State of Cincinnati awarded him a certfiicate when he wrote everything himself on that piece of paper lol.

    Shady characters all over this website. He would've been smarter to keep that piece of paper himself so he wouldn't have gotten exposed.

    2Reply
  • Patrick J.
    Rental Property Investor · Tucson, AZ · Member since 2019 · 173 posts · 87 votes
    6y

    @Luke Grosskreutz

    Because he wants to build credibility even though everything on that piece of paper was written himself lol.

    2Reply
  • Grant Cardone
    Investor · Miami Beach, FL · Member since 2015 · 29 posts · 105 votes
    6y

    Everytime i say this someone hates on me.   If people only knew the truth - its all the little deals that go back to the banks during corrections... the big deals just keep on working.   GC

    6Reply
  • Account Closed
    Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    6y

    Oh damn you got Uncle G @Grant Cardone to reply 

    0Reply
  • Michael Ealy
    OP
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Patrick J.:

    @Matthew Terry

    His attempt at credibility backfired when he said the State of Cincinnati awarded him a certfiicate when he wrote everything himself on that piece of paper lol.

    Shady characters all over this website. He would've been smarter to keep that piece of paper himself so he wouldn't have gotten exposed.

     Patrick, you can ask the City of Cincinnati to confirm it for yourself that this proclamation comes from the city. 

    Sure - anyone can apply to get a day proclaimed after themselves BUT, not everyone gets approved by the city. You have to have done something impactful before they can approve it. And people who know me are the ones who applied for it - not me. The city approved it.

    I have been the President of Corryville Community council and have brought in investment and development dollars for that part of the city.

    0Reply
  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    6y
    Originally posted by @Grant Cardone:

    Everytime i say this someone hates on me.   If people only knew the truth - its all the little deals that go back to the banks during corrections... the big deals just keep on working.   GC

    If my business model was predicated on scraping a return off of OPM, I'd be trying to raise and deploy as much of it as possible, with as little work as possible as well. Of course syndicators want to do large deals.

    0Reply
  • Michael Ealy
    OP
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Grant Cardone:

    Everytime i say this someone hates on me.   If people only knew the truth - its all the little deals that go back to the banks during corrections... the big deals just keep on working.   GC

     Cool Grant.

    It's an honor you chimed in.

    Is this really your profile? How come you only have 1 post?

    Yup - I got a few haters here already.

    1Reply
  • Raul R.
    Rental Property Investor · New York City, NY · Member since 2017 · 493 posts · 386 votes
    6y

    @Michael Ealy

    Similar do what Cardone preaches.. I'm sure you are correct given the option an investor is better off doing larger deals but I don't believe everyone is capable of doing large deals early on. I have a combination of Condo, Townhomes and SFH struggling in finding a small multi in my market. I'm still no where close in leaving my day job but I feel that I'm more prepare for any outcome than any of my W2 Colleagues. What I'm gaining from my small deals is credibility I believe. I hope some day to be at your level but it not I have no regrets in doing the "small deals"

    0Reply
  • Heshel Mangel
    Member since 2018 · 208 posts · 90 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.

    I wouldn't call it "selfish" as much as providing value and building a business. People value value and will pay for it. If the guy has value to share, why not leverage that and use it to build his business? Please tell me one person in the universe that just goes providing value without expecting anything in return? Being in win-win situations isn't called selfish, it is called going about business the right way.

    3Reply
  • Ryan Hall
    Rental Property Investor · Tampa, FL · Member since 2019 · 74 posts · 27 votes
    6y

    @Michael Ealy

    Thank you for the tailored reply Michael. It does make a lot of sense. While I have had some small scale success on SFR and small multi, I'm still finishing out my step 1 Know How phase. Currently building up cash and networking to build the team for the next big jump (hopefully spring 2020). and I agree going big is definitely a "team sport!"

    1Reply
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