Small Deals Mean Wasting Time & Making Small Money

General Landlording & Rental Properties
6yFollow

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?

80Reply
920 views

Most Popular Reply

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
See this reply in the discussion

204 Replies

Jump to latestLatest
  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    6y
    Originally posted by @Michael Ealy:
    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.

    Oh yeah the city is really checking these proclamation applications. Like here, when the mayor issued a proclamation declaring June 17, 2017 "Trey Day" in Cincinnati because a request came through. The problem? Tre was known for having murdered a Cincinnati police officer. Oops.

    Mayor Apologizes for Cop Killer proclamation

    Others are enjoying their proclamations as well!

    You're in the company of other greats.. like "Animatic Con Day" (whatever that is), "World Falun Dafa Day", "Pet adoption weekend", and one of my personal favorites: "African American breastfeeding Celebration and Promotion day". 

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

    @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"

     Raul,

    I agree - it's hard to start off with a BIG deal right off the bat. And yes, doing a few small deals helps build credibility.

    That's why my suggestion is to figure out how to scale up as fast as you can. Which means you need to have done a few small deals and all you need to do is scale up. For that, once you have credibility (and actually made mistakes on your dime before making mistakes on someone else's), raising capital is much easier.

    Now small and big is a matter of perspective also. What's big for you can be small for another.

    I guess the whole point of this forum post is to challenge yourself and push yourself to bigger and better deals...because, just based on many years of doing this, the bigger deals are, believe it or not, less hassles and less headaches than the small ones.

    0Reply
  • Steven Lowe
    Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    6y

    @Michael Ealy The essence of what you are saying is that small thinking will keep you small. That's great advice. Really resonated with me.

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

    @Michael Ealy The essence of what you are saying is that small thinking will keep you small. That's great advice. Really resonated with me.

     Exactly Steven.

    And not only that...people think that BIG deals mean that they are harder to do or riskier.

    Nothing can be further from the truth.

    Sometimes, big deals are easier to do than smaller ones. For the longest time hedge funds or institutional investors, they focus on apartments and commercial properties because they can get scale and management is actually easier vs houses. It was only during the 2008-2009 Great Recession that house prices dropped low enough that they become interested in acquiring tens of thousands of these SFRs.

    So if BIG money finds bigger deals easier to manage, that is telling you something isn't it?

    The question now for most people is raising capital for bigger deals...I like what Robert Kiyosaki said: instead of saying "I can't afford it" when encountering a great (but) BIG deal...is to ask the question "How can I afford it?"

    What trips people up is usually how they think, not so much what resources they have or don't have.

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

    @Michael Ealy

    I guess killing a cop and breast feeding are both impactful enough for the city of Cincinnati to give their stamp of approval.

    That's a high bar the city set.

    2Reply
  • Michael Ealy
    OP
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Victor Whitney:

    @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.

     Victor,

    Yes, I agree. Not everyone can start BIG and also, what's big for one can be small for another.

    My point though is to not get stuck doing small deals by getting to bigger deals as fast as possible.

    The limited thinking that "BIG deals require a lot of capital and therefore I won't do it" - I mean, I had that limited thinking for the longest time. And knowing what I know now, I wished, I scaled up faster than I have done.

    All of wealth-building is about leverage. Whatever you lack, someone else has it. You lack money - someone else has it. You lack experience or track record - someone else has it.

    In my webinar today someone asked me: "How do you raise capital for a hotel deal if you're someone new to it and without a track record?" I answered, "I didn't have the track record when I started. But, I leveraged on someone else who has." I got an experienced hotel operator with the track record and lenders and investors love that. 

    I got the deal put together because I did not allow that "problem" become a stumbling block. From where you are at, and where you want to go, you can use the same principles to do bigger and bigger deals.

    Hope this helps.

    1Reply
  • Luke Saglimbeni
    Rental Property Investor · East Longmeadow, MA · Member since 2019 · 154 posts · 64 votes
    6y

    @Michael Ealy

    I’d rather learn and make the mistakes on the smaller deals than on the big multi million dollar deals

    1Reply
  • Luke Saglimbeni
    Rental Property Investor · East Longmeadow, MA · Member since 2019 · 154 posts · 64 votes
    6y
    Originally posted by @Michael Ealy:
    Originally posted by @Victor Whitney:

    @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.

     Victor,

    Yes, I agree. Not everyone can start BIG and also, what's big for one can be small for another.

    My point though is to not get stuck doing small deals by getting to bigger deals as fast as possible.

    The limited thinking that "BIG deals require a lot of capital and therefore I won't do it" - I mean, I had that limited thinking for the longest time. And knowing what I know now, I wished, I scaled up faster than I have done.

    All of wealth-building is about leverage. Whatever you lack, someone else has it. You lack money - someone else has it. You lack experience or track record - someone else has it.

    In my webinar today someone asked me: "How do you raise capital for a hotel deal if you're someone new to it and without a track record?" I answered, "I didn't have the track record when I started. But, I leveraged on someone else who has." I got an experienced hotel operator with the track record and lenders and investors love that. 

    I got the deal put together because I did not allow that "problem" become a stumbling block. From where you are at, and where you want to go, you can use the same principles to do bigger and bigger deals.

    Hope this helps.

    the book by Donald Trump, Art of the Deal goes over these in detail as well.

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

    @Michael Ealy I agree with you. But In an expensive market it can be pretty tough to get started with more units. 

    For me, it has been extremely difficult to "scale". Ive been able to take advantage of the owner occupy fixer upper. But other than that it is just way out of my league to invest in commercial space, although id love to.

    My question to you is: How would you go about networking to find partners and other investors? Or do you think staying the course and continue to grind for now is the way to go? I only have a few years experience at this point.

    Thanks!

     Brian,

    I hear you and I know it's tough. One of my partners - Daniel - he lives in San Francisco CA and he told me a 1-bedroom 'dump' is a $1M+. I can only imagine what a 40-unit apartment cost there.

    To answer one of your questions...you don't have to abandon fix-n-flipping smaller deals. You can do that AND figure out how you can scale. I mean if flips are your bread and butter and you're making money with it, great. Continue doing that. But keep in mind that flipping is a "job" and you need to convert that cash into recurring passive income.

    Now, how do you scale in a high priced-market? As I answered others before, my answers are the same even in your market:

    1. Get the KNOW-HOW. Decide which property type you want to focus on and learn as much as you can about it. Read books, attend webinars, seminars, etc. The most important "Know-How's" you need to learn are:

    -how to underwrite deals; and
    - how to raise private capital

    2. Get the KNOW-WHO. Network - make it a point to meet a new 'real estate' person everyday. Network online and offline. Cold call the people in your market doing big things. See if you can provide value to them in exchange for you learning from them.

    3. Focus on 2 personal skills:
    - leadership and
    - communication skills

    You need those 2 skills to assemble your BIG deals team. Doing big deals is a team sport. You can't do it alone. You need partners, lenders, brokers, managers, etc. If you know how to communicate and lead, you will succeed.

    I hope the above answers your questions. 

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

    @Michael Ealy

    I’d rather learn and make the mistakes on the smaller deals than on the big multi million dollar deals

     Luke, I agree. In fact, I answered here on BP that it's better for a newbie investor to invest his/her own money first and make mistakes on their dime not someone else's. 

    However, the human tendency is to get comfortable doing small deals. If you have big goals and dreams, scale up as fast as you can. But, start where you can or push yourself to start a little bit higher than you can. For example, if you're comfortable buying an SFR, maybe push yourself to find a good 4-plex instead. If 4-plex is your BIG deal, then strive to go for that. Then scale up some more once you've achieved success.

    That's what I've observed successful real estate investors do: they continually improve themselves and push themselves out of their comfort zone.

    Someone said this but it goes something like this: "Everything worth while achieving in life is just outside of your comfort zone."

    Makes sense?

    1Reply
  • Nick Rutkowski
    Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Michael Ealy

    Did you get enough responses yet?

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

    @Michael Ealy

    Did you get enough responses yet?

     You're funny Nick.

    How are you man? How's your market doing nowadays?

    0Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    Well, I wasn't going to chime in but what they hey...

    1st, I like the OP's original message...think big, grow big, partner big...why not?  I started in cheap houses and still have mostly nothing except cheap houses, but now I'm moving into small apartments.  Made my first offer on a 20-unit yesterday.  Have 2 money partners.  I'm looking forward to moving toward better quality assets that have a dimension of scalability and ways to make one change uniformly over many units to increase revenues and decrease expenses, thereby creating value.  Looking forward to having a part-time tenant manager to assist and part-time maintenance now that I'll have the number of units to make it worthwhile.

    2nd, the OP sounds like a smart, successful guy... but I suggest he drop the thing about the certificate.  The folks who put him in for it may be more cool and legit than Neo and Santa Clause combined, but we don't know who they are, can't know if they are credible without doing tons of research none of us are equipped or have the time to do, and several folks here have showed how easy it is to get one.  Continuing to double down on, "They don't just hand these out like candy / the city scrutinizes these" isn't working.  In fact, it seems to be doing the opposite.  Let's call it what it is, an albatross that should be disposed of in this and future discussion....and then we can all move forward.  

    My 2 cents.  That plus $4.98 will get you a quality micro-brewed beer at any pub in my town.  If you come visit me I'll buy if you pick up the tip.

    It's been an informative and entertaining discussion!

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

    Well, I wasn't going to chime in but what they hey...

    1st, I like the OP's original message...think big, grow big, partner big...why not?  I started in cheap houses and still have mostly nothing except cheap houses, but now I'm moving into small apartments.  Made my first offer on a 20-unit yesterday.  Have 2 money partners.  I'm looking forward to moving toward better quality assets that have a dimension of scalability and ways to make one change uniformly over many units to increase revenues and decrease expenses, thereby creating value.  Looking forward to having a part-time tenant manager to assist and part-time maintenance now that I'll have the number of units to make it worthwhile.

    2nd, the OP sounds like a smart, successful guy... but I suggest he drop the thing about the certificate.  The folks who put him in for it may be more cool and legit than Neo and Santa Clause combined, but we don't know who they are, can't know if they are credible without doing tons of research none of us are equipped or have the time to do, and several folks here have showed how easy it is to get one.  Continuing to double down on, "They don't just hand these out like candy / the city scrutinizes these" isn't working.  In fact, it seems to be doing the opposite.  Let's call it what it is, an albatross that should be disposed of in this and future discussion....and then we can all move forward.  

    My 2 cents.  That plus $4.98 will get you a quality micro-brewed beer at any pub in my town.  If you come visit me I'll buy if you pick up the tip.

    It's been an informative and entertaining discussion!

     Thanks Erik. I am glad you're moving on to bigger deals and on your way to scaling up.

    I might take you up on your offer for a beer...specially if it's "drink-all-you-can". LOL

    How did you find the deal? How did you find your 2 money partners?

    What made you decide to do bigger deals? Why 20 units - is that a deal you're comfortable with or is that a deal you've found?

    1Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    @Michael Ealy...

    20 units is 5 times bigger than anything I've ever done. Up until now, all SFH's, a handful of duplexes,and a 4-plex. If it goes well... I'll go bigger. I'm comfy with a combination of whatever makes a profit at the numbers we're talking. 50 units...100 unit...more? Comfort comes from know my numbers and market backwards and forwards, so honestly I can't say there's ANY size of deal I'd NOT be comfy with based on size alone. I'd do 1,000 units at a shot if it penciled out and I could get the capital raised.

    Money partners.  One is a relative who I did deals with in the past.  The other is an associate of a friend.  We met for breakfast last Saturday and I introduced him to the deal I was tracking.  He was excited and wanted in for six figures.  Works for me!

    1Reply
  • Brian Dreher
    Member since 2019 · 1 post · 0 votes
    6y

    Awe man! This is the end? Was enjoying this discussion

    Great stuff! Thank you for the insights. I'm inspired, excited, and thinking big in this moment.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y

    I have been thinking of getting into apartments (I have quite a few SFR to quad) but my market is costly. Some of my units cost as much as apartments elsewhere. I realize I am not restricted to my market, but I know my market. I know the indicators. I know the history. I know most of the areas and their upside and downside. Basically I have a lot of knowledge about this market and believe in continuing long term appreciation.

    1Reply
  • Brianna M.
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 43 posts · 9 votes
    6y

    @Michael Ealy

    You’re handling the haters quite well. I’m appalled by some of the replies here. Some of the negativity and skepticism I’m seeing from some commenters really speaks to their own insecurities in my opinion than anything related to your post.

    Since when is it not okay to talk about and be proud of your own accomplishments? Especially in a post where you’re trying to encourage others and add value to the BP community.

    Thanks for the inspiration and advice, Michael!

    3Reply
  • Victor Wasson
    Member since 2019 · 18 posts · 6 votes
    6y

    @Jeff Cagle

    Followed the link to the guys story and it never says how he reallly did it or how he got started just that his first deal was huge now come to this webinar...

    2Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    Going big is not an option for the far majority of people on bigger pockets. First, it takes the ability to raise larger amounts of capital and syndicate deals. And most money doesn't want to invest with someone without a track record. Usually, those who get to that higher level were working for investors and developers in their early years, gaining valuable experience. For example, someone who worked for an apartment REIT or investment group that held thousands of units. But you'd be surprised that there are those who started from a lower level and accumulated over time. There are many different paths...

    I find that the larger deals (non institutional) are very sought after by groups, whose business model is heavily dependent on the fees that they generate for themselves:  Acquisition fee, development fee, management feet, percentage of the deal.  Or percentage of the upside.  Disposition fee.  The successful folks are really skilled dealmakers and operators.  Many hats you have to wear.

    The highest quality large deals are funded / invested by institutional capital, which entrepreneurs, outside of developers, can't compete with.  Reits, pensions funds, Family office money.  These are the groups that pay the most aggressive prices for top notch quality assets.  They are not on bigger pockets...

    You can shoot for bigger deals.  But for me, it is important to "know what you don't know."  I therefore would never be a lead investor in hotel and office deals.  

    Be careful with the loans you take out.  Medium sized deals - such as a 30 unit apartment building or a strip center, often have full recourse loans.  A poor performing property can result in a financial wipe-out.   Everyone at this level should target non recourse loans.  

    6Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    @Michael Ealy - i missed this thread entirely..... i have 10 class B units now and would love to figure out how to safely leverage what I have to create more.... its a bit challenging here as CAP rates are around 5%....

    1Reply
  • Joshua Amaker
    Rental Property Investor · Augusta, GA · Member since 2017 · 1 post · 1 vote
    6y

    @Michael Ealy where can I find these partners you speak of?

    1Reply
  • Dominic Balli
    Rental Property Investor · Ventura, CA · Member since 2019 · 1 post · 1 vote
    6y

    For what it’s worth Michael, I appreciated the accolades at the beginning. I don’t know you, so it made me tune in. And maybe you’re looking to raise money from this post. Maybe not. Not sure it matters honestly. Either way you brought something of value to the table. For that I’m grateful. And honestly, I’m not sure why the certificate thing even matters if it’s legit or not. You’re obviously providing housing for the city. You’re making money the way you want to. You’re even taking time to reply to people on here buying quads on here, not hotels. I Doubt they’re your “target market” for your next syndication. Anyways, just letting you know some (most) of us appreciate this post.

    Lastly, on a personal note, I'm an out of state investor from CA about to buy my first SFH or duplex, but I was only doing that and not a quad because I thought I "had to" start like that. Truth is my risk tolerance is higher and a duplex feels easy. A quad is a doable stretch. So thanks for that - for calling me UP.

    1Reply
  • Leandro Zhao
    Rental Property Investor · London, Ontario · Member since 2019 · 40 posts · 10 votes
    6y

    @Michael Ealy Thank you for your post!

    So what can I do to start buying an apartment complex? There is a great deal of a 23 unit complex for 2.3M that can potentially achieve the 1.5% rule. 

    I don't have this kind of money and to partner up would be hard because I don't have that much experience to bring to the table.

    What is your suggestion for me to get that property as a beginner?

    1Reply
  • Luke Saglimbeni
    Rental Property Investor · East Longmeadow, MA · Member since 2019 · 154 posts · 64 votes
    6y
    Originally posted by @Michael Ealy:
    Originally posted by @Luke Saglimbeni:

    @Michael Ealy

    I’d rather learn and make the mistakes on the smaller deals than on the big multi million dollar deals

     Luke, I agree. In fact, I answered here on BP that it's better for a newbie investor to invest his/her own money first and make mistakes on their dime not someone else's. 

    However, the human tendency is to get comfortable doing small deals. If you have big goals and dreams, scale up as fast as you can. But, start where you can or push yourself to start a little bit higher than you can. For example, if you're comfortable buying an SFR, maybe push yourself to find a good 4-plex instead. If 4-plex is your BIG deal, then strive to go for that. Then scale up some more once you've achieved success.

    That's what I've observed successful real estate investors do: they continually improve themselves and push themselves out of their comfort zone.

    Someone said this but it goes something like this: "Everything worth while achieving in life is just outside of your comfort zone."

    Makes sense?

    Makes sense and right on. I am near the end of the book the art of the deal by President Trump. He is all about thinking Big amongst other things. It's a very good read and I'd recommend it for all REI, regardless of opinion on him.

    2Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free