Starting Small or Diving into an Apartment Building? Help me Decide!

First-Time Home Buyer
3yFollow

Starting Small or Diving into an Apartment Building? Help me Decide!

Imran Syed
Member since 2023 · 15 posts · 6 votes

Hey everyone, I'm an aspiring real estate investor with 200k in cash. Recently, I read Brandon Turner's real estate investing book, and now I'm torn between two strategies.

On one hand, I could start small with single-family homes and gradually multiply my investments over the next five years. On the other hand, I could dive right into an apartment building, using my cash as a down payment.

Brandon Turner's strategy suggests starting with multi-family properties for the first few years and then exchanging those for an apartment building. However, his strategy assumes the investor is starting with little or nothing.

Since I already have 200k in cash, I'm wondering if I should skip the multi-family properties and invest directly in an apartment building.

My ultimate goal is to achieve 1M of passive income annually within the next three years. Some might say this is unrealistic, but I'm determined to try.

What do you think? Should I start small or dive right into an apartment building? Any advice or suggestions would be greatly appreciated. Thanks in advance!

1Reply
12 views

Most Popular Reply

Jack Nazarian
Rental Property Investor · Las Vegas, NV · Member since 2019 · 38 posts · 38 votes
3y
Quote from @Imran Syed:

Hey everyone, I'm an aspiring real estate investor with 200k in cash. Recently, I read Brandon Turner's real estate investing book, and now I'm torn between two strategies.

On one hand, I could start small with single-family homes and gradually multiply my investments over the next five years. On the other hand, I could dive right into an apartment building, using my cash as a down payment.

Brandon Turner's strategy suggests starting with multi-family properties for the first few years and then exchanging those for an apartment building. However, his strategy assumes the investor is starting with little or nothing.

Since I already have 200k in cash, I'm wondering if I should skip the multi-family properties and invest directly in an apartment building.

My ultimate goal is to achieve 1M of passive income annually within the next three years. Some might say this is unrealistic, but I'm determined to try.

What do you think? Should I start small or dive right into an apartment building? Any advice or suggestions would be greatly appreciated. Thanks in advance!

Hey Imran,

as someone who has just started and recently purchased a duplex as my first deal, i would say it is best to start with small multifamily as training at the very least.

You will be shocked by how
much random crap pops up that you did not or could not have in your plans.

If i made the mistakes on a ten unit that i only made on 2 unit… i would be in serious trouble. Now that i am stabilizing a duplex i feel very confident in getting a four or five unit next. 

my advice is to cut your teeth, for a little and then you bite off a bigger project.
2Reply
See this reply in the discussion

8 Replies

Jump to latestLatest
  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Imran Syed:

    Hey everyone, I'm an aspiring real estate investor with 200k in cash. Recently, I read Brandon Turner's real estate investing book, and now I'm torn between two strategies.

    On one hand, I could start small with single-family homes and gradually multiply my investments over the next five years. On the other hand, I could dive right into an apartment building, using my cash as a down payment.

    Brandon Turner's strategy suggests starting with multi-family properties for the first few years and then exchanging those for an apartment building. However, his strategy assumes the investor is starting with little or nothing.

    Since I already have 200k in cash, I'm wondering if I should skip the multi-family properties and invest directly in an apartment building.

    My ultimate goal is to achieve 1M of passive income annually within the next three years. Some might say this is unrealistic, but I'm determined to try.

    What do you think? Should I start small or dive right into an apartment building? Any advice or suggestions would be greatly appreciated. Thanks in advance!

    @Imran Syed

    I think you are going to find your money doesn’t go as far as you think it will.  I can’t see where you are located, but if you are looking for anything bigger than a 4-plex you will be using commercial financing which is typically more expensive than residential financing.  If you leverage your money you will have about $800,000 of leverage power.  Presuming you are not house hacking, where I’m at in Florida that will buy you 2-3 duplexes (financed) and likely yield you about $14,000 - $20,000 a year in passive income.   Keep in mind that you also need reserves as well, and there are closing costs as well… so usually you won’t be able to max out that number.  If where you are at your money goes further then that you will definitely be using commercial financing if buying an 5-8 plex and there is no opportunity to only put 3.5% down when using commercial financing.

    While your $1 million passive income goal is fun… if you figure you will make $500/unit/ month - which is a lot in today’s market - you will need 166 units to achieve that cash flow.  Let’s say you could pick those up for $75,000 a piece, and put 20% down… (both really optimistic where I’m at…)  you will need 2.49 million dollars of your own money to make that happen… ($75,000*.20 down = $15,000 * $166 = 2,490,000 down.  And this is neglecting closing costs. At a more realistic $300/unit / month you would need 277 units, and at the same calculation you would need $4.16 million of your own money to achieve your goal.  So I wish you well on that! (I just hope you have many more $200,000s behind the one you have now!)

    Also - Fannie Mae has a 10 loan limit for residential properties… so after that many residential purchases you would be forced to turn to commercial financing.

    With all that said - a couple of duplexes is manageable starting out.  Know that landlording  has a learning curve though.  You have to be able to deal with people, their issues, maintaining your properties, know how to market your properties, screen tenants, etc.  it’s not hard… but until you’ve done it you don’t know what you don’t know.  There are other challenges… like debt to income ratios and other metrics the lenders will judge you by as well that could be problematic.

    All the best!

    Randy 



    2Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Make your own mind up, buy both and come up with your own pro/con list. 

    0Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y

    First of all, nice job saving up $200k in cash. That is no easy feat. This capital will definitely help you jumpstart your real estate investing journey.

    What's more important that what type of deal you buy, is that you don't blow that money on a bad deal. You should spend a few months studying different markets that you might be interested in investing in. Look at demographics, migration, local development, etc. Pick an area that you believe will have nice growth over the next 5 years.

    Regarding buying single family or multifamily, if I were you I'd skip the single family homes and get right into a small value-add multifamily. You say you have $200k but plan on hanging onto at least $25k of that for reserves. So really you have $175k to invest. That should be enough to get you into an ~8 unit complex (leverage is tough right now with interest rates being so high).

    Last comment... You're not going to get to $1M in passive income annually within the next 3 years. In fact, it would be an incredible and near impossible achievement to reach $100k in passive income annually within the next 3 years. It's good to keep up your optimism and shoot for the moon, but be realistic with what is possible.

    2Reply
  • Hamp Lee IIIPro Member
    Real Estate Agent · San Antonio, TX · Member since 2019 · 1k+ posts · 832 votes
    3y

    Welcome to BP!

    If you're trying to have $1M of passive income in three years, you'll have to go BIG. Apartment building. 

    Plenty of people start out that way and grow a massive portfolio. Here's one example from BiggerPockets:

    1Reply
  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    3y

    @Imran Syed

    If that is you goal, It will be difficult to scale SFH to that income level in such a short period of time. You can start in an apartment building that has 4 or 5 units. That to me is starting small.

    I know of many investors that regret starting in dingle family homes, but they are thankful that they at least started. I would focus on multifamily for the next several months, and if you feel it is out of reach, you can always pivot to SFH

    Gino

    Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
    1Reply
  • Jack Nazarian
    Rental Property Investor · Las Vegas, NV · Member since 2019 · 38 posts · 38 votes
    3y
    Quote from @Imran Syed:

    Hey everyone, I'm an aspiring real estate investor with 200k in cash. Recently, I read Brandon Turner's real estate investing book, and now I'm torn between two strategies.

    On one hand, I could start small with single-family homes and gradually multiply my investments over the next five years. On the other hand, I could dive right into an apartment building, using my cash as a down payment.

    Brandon Turner's strategy suggests starting with multi-family properties for the first few years and then exchanging those for an apartment building. However, his strategy assumes the investor is starting with little or nothing.

    Since I already have 200k in cash, I'm wondering if I should skip the multi-family properties and invest directly in an apartment building.

    My ultimate goal is to achieve 1M of passive income annually within the next three years. Some might say this is unrealistic, but I'm determined to try.

    What do you think? Should I start small or dive right into an apartment building? Any advice or suggestions would be greatly appreciated. Thanks in advance!

    Hey Imran,

    as someone who has just started and recently purchased a duplex as my first deal, i would say it is best to start with small multifamily as training at the very least.

    You will be shocked by how
    much random crap pops up that you did not or could not have in your plans.

    If i made the mistakes on a ten unit that i only made on 2 unit… i would be in serious trouble. Now that i am stabilizing a duplex i feel very confident in getting a four or five unit next. 

    my advice is to cut your teeth, for a little and then you bite off a bigger project.
    2Reply
  • Imran Syed
    OP
    Member since 2023 · 15 posts · 6 votes
    3y
    Quote from @Jack Nazarian:
    Quote from @Imran Syed:

    Hey everyone, I'm an aspiring real estate investor with 200k in cash. Recently, I read Brandon Turner's real estate investing book, and now I'm torn between two strategies.

    On one hand, I could start small with single-family homes and gradually multiply my investments over the next five years. On the other hand, I could dive right into an apartment building, using my cash as a down payment.

    Brandon Turner's strategy suggests starting with multi-family properties for the first few years and then exchanging those for an apartment building. However, his strategy assumes the investor is starting with little or nothing.

    Since I already have 200k in cash, I'm wondering if I should skip the multi-family properties and invest directly in an apartment building.

    My ultimate goal is to achieve 1M of passive income annually within the next three years. Some might say this is unrealistic, but I'm determined to try.

    What do you think? Should I start small or dive right into an apartment building? Any advice or suggestions would be greatly appreciated. Thanks in advance!

    Hey Imran,

    as someone who has just started and recently purchased a duplex as my first deal, i would say it is best to start with small multifamily as training at the very least.

    You will be shocked by how
    much random crap pops up that you did not or could not have in your plans.

    If i made the mistakes on a ten unit that i only made on 2 unit… i would be in serious trouble. Now that i am stabilizing a duplex i feel very confident in getting a four or five unit next. 

    my advice is to cut your teeth, for a little and then you bite off a bigger project.

    Good Advice. Much appreciated
    0Reply
  • Imran Syed
    OP
    Member since 2023 · 15 posts · 6 votes
    3y
    Quote from @Scott E.:

    First of all, nice job saving up $200k in cash. That is no easy feat. This capital will definitely help you jumpstart your real estate investing journey.

    What's more important that what type of deal you buy, is that you don't blow that money on a bad deal. You should spend a few months studying different markets that you might be interested in investing in. Look at demographics, migration, local development, etc. Pick an area that you believe will have nice growth over the next 5 years.

    Regarding buying single family or multifamily, if I were you I'd skip the single family homes and get right into a small value-add multifamily. You say you have $200k but plan on hanging onto at least $25k of that for reserves. So really you have $175k to invest. That should be enough to get you into an ~8 unit complex (leverage is tough right now with interest rates being so high).

    Last comment... You're not going to get to $1M in passive income annually within the next 3 years. In fact, it would be an incredible and near impossible achievement to reach $100k in passive income annually within the next 3 years. It's good to keep up your optimism and shoot for the moon, but be realistic with what is possible.


    Really appreciate the response. I am leaning towards small multi-family as you and other folks seems to be suggesting the same thing for me as real investor. Much appreciated
    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free