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All Forum Posts by: Michael Ealy

Michael Ealy has started 68 posts and replied 1506 times.

Post: Small Deals Mean Wasting Time & Making Small Money

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
Originally posted by @Brian Ploszay:

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.  

 You are right Brian - 99.9% of people here on BP can't start BIG right off the bat. In fact, the point of my post is to encourage people to scale up as soon as they can to do bigger deals. So, that means they start with a smaller deal then as they gain experience and capital, scale up.

As to how soon they can do that, it depends on their situation, goals and existing resources.

The human tendency is to stay at a level that you're comfortable with. I know of investors who started the same time as I did who are still making the same amount of money and they complain that they are working too hard.

The other human tendency is to think that bigger deals are necessarily riskier than smaller ones. That's not always the case. As you said, the middle-sized deals have full recourse loans while the bigger sized deals have non recourse loans.

The post has opened the eyes of many people here and it has done its job.

Post: Small Deals Mean Wasting Time & Making Small Money

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
Originally posted by @Brianna M.:

@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!

 Thanks Brianna for being positive. The world needs more people like you :)

Post: Small Deals Mean Wasting Time & Making Small Money

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
Originally posted by @Erik W.:

@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!

 Congrats Erik. Raising capital is not that hard. It's a matter of being referred to and talking to the right people.

Post: 84 Unit Complex- How would you structure the deal?

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
Originally posted by @Trent Chance:

@Canesha Edwards I'd still take an acquisition fee if I were you. I think it's standard and shouldn't affect your equity.

Maybe see if @Michael Ealy has any ideas for you to find a partner or on structure

 Thanks Trent for the mention.

Canesha, since you can't qualify as a buyer by yourself, be HONEST with the seller and tell him that you can't. However, tell him that you can line up high networth individuals you know who can partner with you on this deal.

Ask him basic things that will give you an idea whether this deal makes sense or not. Ask him the average rent per unit. Research the area (is it A, B, C, D, or F). Ask him old is the building (or you can search public records to find out when the building was built). Based on that, you can have an idea whether the deal is a good one or a bad one based on his asking price.

Once you know the deal has potential, approach the other high networth individuals you're talking about. 

Are these high networth people experienced apartment investors? Or are they just there to put up the money? As @John Casmon and @Greg Dickerson point out, in order for you to even get bank financing on this, they will require 2 things which you don't have (or actually 3):

1. If you want to borrow $1 Million, you need to have a net worth of $1 MILLION

2. You need apartment investing experience (specially since we're talking 84 units here)

3. Banks will also have some LIQUIDITY requirements. Depending on the lending institution you talk to, they will require 6 months of mortgage payments + 20% (or sometimes 25%) down as cash in a bank account you control

In other words, you need to structure it this way:

A. You need an experienced apartment investor as partner who can be on the loan - likely 50% partner

B. You need 1 or 2 money partner - likely 40% partner

C. You - 10% partner

Makes sense?

Post: Small Deals Mean Wasting Time & Making Small Money

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
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?

Post: Small Deals Mean Wasting Time & Making Small Money

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
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?

Post: How to Invest in Hotels and Leave a Legacy - want to learn more?

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
Originally posted by @Ryan Seib:

Does owning hotels mean you have to have a "sense" for the design of hotels, for presentation, aesthetics, etc? That would be a barrier for me. I like Bach and Handel and all but I am not sure how well I can get into the mindset of the hotelier, picking out expensive tile and chandeliers, etc.

Thanks for the post!

 Ryan,

No you don't need to have an "eye for design".

I have some eye for design but that's not my strength and I don't really make those day-to-day decisions. I let my hotel operating partner do that.

Post: Small Deals Mean Wasting Time & Making Small Money

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
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?

Post: Small Deals Mean Wasting Time & Making Small Money

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
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. 

Post: Small Deals Mean Wasting Time & Making Small Money

Michael EalyPosted
  • Developer
  • Cincinnati, OH
  • Posts 1,582
  • Votes 3,434
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.