Courage to Buy My First $2 million Dollar Property

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Courage to Buy My First $2 million Dollar Property

Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

Let me start out by saying this question has less to do with finding the money and more to do with finding the courage. 

I have been investing in real estate, buy and hold, as a side business to my day job since 2004. Early on in my investing, I owned a 6 unit apartment building and duplex. Around that time I also started buying single family homes in B+ neighborhoods. My experience was that the multifamily properties made good money, but were very time consuming. The single family homes didn't make as much money, but my time investment was very limited. My day time job demands 50 hours a week and includes travel, so I may be gone for days at a time. It is a good paying job which I enjoy. As I was starting my family, I made the decision to sell the multifamily and focus on the single family. The main reason for this decision was to reduce my time investment. I also like that single family homes can be easily purchased and sold. With my day job it is not difficult to save up a 25% down payment and get conventional mortgages. I am now up to eight single family homes and I am trying to define my strategy going forward.

I have been shopping single family and with higher prices, it is getting harder to find a good cash flow. I want to accelerate my business, so I opened up my search to multifamily. I got an off market opportunity for a 24 unit apartment and the owner wants $2,000,000. I am not going to get into the deal analysis. For the sake of this discussion, assume it is a good purchase. I have the means to come up with the down payment and get financing.

The question is how do I get courage to buy my first two million dollar rental property? My largest rental property deal up until now has been $160K. This one deal would more than double the value of my rental portfolio. I am comfortable with what I have today, but my experience is that my greatest growth has come from getting totally uncomfortable. My why here is that I want to accelerate my growth and increase my rental income. I would have to add 12 more single family homes to get to a similar size. Without finding someone to sell a portfolio, it would be time consuming. 

I am looking for others to share their stories, thoughts, tips or wisdom. 

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Vinay H.
Cambridge, MA · Member since 2017 · 268 posts · 247 votes
9y

I am not thinking it is just extra zeros. I am thinking you may need to review all your systems from rent collection, book keeping to property management. As you said, the single family houses were "hands off" for most part. With 2M multi, I am assuming you will have at least 10 to 20 doors to manage, so you can expect one move-in, one move out, one delinquency and one major repair or issue every month. It is still an exciting opportunity and I am sure a stepping stone to the big league :) It's like anything in life - going from managing a team of 3 to a team of 30 requires different (and better, more efficient) processes and systems.

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  • Nick Leamon
    Investor · Mc Kinney, TX · Member since 2013 · 49 posts · 6 votes
    9y

    This is always tough, I had the same issue when I went from buying SFH to buying my first multi-family home.

    Take a zero off all the numbers and see if it still is a good deal, i.e. a $200,000 deal. Since that seems to be your typical level of deal, then you can say its as good as these deals I have done(or better), but on a 10x scale.

    I would never suggest someone invest in something they are uncomfortable with, but it seems to me like you are comfortable with the investment, but the size of the numbers involved is psyching you out.

    You got this, and after you do this deal, $2mil deals will be your new comfort level.

    Best of luck, and keep us posted on how it goes.

    1Reply
  • Seetha G
    Rental Property Investor · SFO, CA · Member since 2013 · 80 posts · 18 votes
    9y

    @Joe Splitrock We are in the same boat. I took plunge and did 10X this year. Huge leap and certainly worth the risk. If the numbers make sense and you anticipate solid growth then i believe you shouldn't hesitate at all. Look at 2MIL as a number with additional zeros, that's all it is!

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  • Joe SplitrockPro Member
    Moderator
    OP
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Nick Leamon thank you, that is a good way to look at it by just taking zeroes off. I am a very logical person, so that helps me. Now my wife is a different manner. I think she still has bad memories of our previous multi-family investments. I attribute most of those problems to the age and condition of the properties, but she attributes it to multi-family as a whole. Her concern is constant vacancy and inter-tenant issues.

    @Seetha G thanks, it really is about taking the plunge. I am in the same boat, looking to 10X my effort. 

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  • David Lilley
    Rental Property Investor · Dallas, TX · Member since 2016 · 261 posts · 170 votes
    9y

    @Joe Splitrock assuming this is a good deal, you have already overcome the hardest part. You have an opportunity to buy with no competition AND you have the money. Make sure there is room in the profits to hire a PM and get a signed offer already!!

    Or you can pass it on to me and I will sit back and collect the checks!

    1Reply
  • Vinay H.
    Cambridge, MA · Member since 2017 · 268 posts · 247 votes
    9y

    I am not thinking it is just extra zeros. I am thinking you may need to review all your systems from rent collection, book keeping to property management. As you said, the single family houses were "hands off" for most part. With 2M multi, I am assuming you will have at least 10 to 20 doors to manage, so you can expect one move-in, one move out, one delinquency and one major repair or issue every month. It is still an exciting opportunity and I am sure a stepping stone to the big league :) It's like anything in life - going from managing a team of 3 to a team of 30 requires different (and better, more efficient) processes and systems.

    2Reply
  • Vinay H.
    Cambridge, MA · Member since 2017 · 268 posts · 247 votes
    9y
    Originally posted by @David Lilley:

    @Joe Splitrock assuming this is a good deal, you have already overcome the hardest part. You have an opportunity to buy with no competition AND you have the money. Make sure there is room in the profits to hire a PM and get a signed offer already!!

    Or you can pass it on to me and I will sit back and collect the checks!

     We all wish that real estate was about sitting back and collecting checks. The 2 am water line bursting service call is also part of the process, as you know :)

    1Reply
  • David Lilley
    Rental Property Investor · Dallas, TX · Member since 2016 · 261 posts · 170 votes
    9y

    @Vinay H. that is why you hire a property manager! Which is one huge benefit of investing in multis. There is more money in the budget for a PM and the more units you have the less (%) you have to pay them.

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  • Joe SplitrockPro Member
    Moderator
    OP
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y
    Originally posted by @David Lilley:

    @Vinay H. that is why you hire a property manager! Which is one huge benefit of investing in multis. There is more money in the budget for a PM and the more units you have the less (%) you have to pay them.

    That is my plan, but I still expect some problems to spill over. I think up to a certain amount the PM will just fix the issue, but over some dollar amount I would need to get involved. Probably my biggest fear is adding (24) stoves, (24) dish washers, (24) water heaters, (24) washer and dryers, (24) HVAC and of course (24) tenants. It just amplifies the opportunity for things to go wrong, but I guess the "bulk" advantage outweighs the disadvantage. 

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  • Joe SplitrockPro Member
    Moderator
    OP
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y
    Originally posted by @Vinay H.:

    I am not thinking it is just extra zeros. I am thinking you may need to review all your systems from rent collection, book keeping to property management. As you said, the single family houses were "hands off" for most part. With 2M multi, I am assuming you will have at least 10 to 20 doors to manage, so you can expect one move-in, one move out, one delinquency and one major repair or issue every month. It is still an exciting opportunity and I am sure a stepping stone to the big league :) It's like anything in life - going from managing a team of 3 to a team of 30 requires different (and better, more efficient) processes and systems.

    You are right, I have been easily self managing eight, but with 24 doors, I need a PM. My full time job is too demanding to keep up with that many units. This is probably one of my sticking points is passing off control to a PM. I have tried to use PM to do leasing in the past and they just aren't motivated like I am. 

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  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    9y

    My first job out of college was an assistant trader/doing grunt work for all the traders. One thing I learned while doing that is the risk is the same, you are just adding zeros. You can try to take that statement apart and use examples, but at the end - it's true. If it's a good deal, it's a good deal. Doesn't matter if the purchase prices is $200k, $2m or $20m. Once you come to grips with that, price won't scare you.

    [email protected]732-289-3823
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