All Forum Posts by: Michael Ealy

 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.

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

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

 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?

 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?

 You're funny Nick.

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

 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.

 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?

 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. 

 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.