The Simple Way to Gain Experience For Multifamily Investing Without Buying Single Family Homes

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By the time I got started with multifamily investing, I had flipped about three dozen houses and started several businesses. I thought my flipping career would serve as a useful stepping stone to the big leagues.

I was wrong.

First, I got woefully little credit for my prior real estate experience.

I was surprised that the vast majority of my single family house (SFH) investors did NOT want to invest with me in apartment buildings. They either didn’t have the capital or didn’t like their money tied up for a longer period of time. Whatever the case, only very few investors made the transition with me.

Not only that, but when I “bragged” to commercial real estate brokers, sellers, and lenders about my track record as a house flipper, they yawned. Despite my best efforts, they viewed me as a multifamily (MF) newbie and treated me as such.

I was essentially starting over from scratch.

Maybe the SFH investing thing was not a stepping stone at all. In fact, maybe it was actually a distraction.

I’ve come to the conclusion that SFH investing is not necessary to get into multifamily investing. If you want to get into apartment buildings, then do it. Don’t get into a “temporary” other strategy.

Most newbies get into SFH investing for the wrong reasons. They believe that they need to cut their teeth with SFH investing before getting into multifamily properties.

Related: Thinking About Buying a Multifamily? STOP! Wait Until You Read This!

They are wrong.

If you closely examine WHY newbies say they should get started with SFH, the real reason they think they should do it is to get comfortable enough to get into multifamily investing. In other words, they want to expand their comfort zone with SFH investing.

I’m all for expanding your comfort zone. But you don’t need to “waste” several years of your life pursuing a distraction only to expand your comfort zone.

There are other, more efficient ways to achieve the same thing.

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How to Expand Your Comfort Zone WITHOUT Investing in SFHs First

I’ve advised my students to expand their comfort zones by focusing like a laser on their first apartment building deal.

The first step is to create a “Sample Deal Package,” which is a deal overview for potential investors. Everything is real, including the photos, financials, projections, etc., except that you don’t have it under contract. You use it as a tool to speak with potential investors and build credibility with other professionals.

Read more about a Sample Deal Package here.

Creating a Sample Deal Package does several important things to expand your comfort zone:

  • You become skilled at analyzing deals, which increases your confidence.
  • You become very familiar with this one deal. You’ve analyzed the numbers, you’ve spoken to the broker, maybe you spoke to other professionals like lenders and property managers. Perhaps you even toured the property.
  • As you use the Sample Deal Package to speak to potential investors, you let your excitement shine through. People sense your excitement and want to be part of it.

In other words, you’re behaving as if it’s real — as if you actually have it under contract and are doing due diligence. You become so familiar with this deal that you, too, start to believe it’s real.

And your comfort zone expanded far beyond what it was just a few short weeks before.

I remember when I bought my first 12-unit building, I was completely overwhelmed. Yes, I had flipped a bunch of houses and owned restaurants, but for some reason I was anxious about this. With shaky hands I signed the contract and started down my due diligence checklist.

Then a funny thing happened.

I was so engrossed in the due diligence process, spending hours reviewing documents, making phone calls, and visiting the process that after about 10 days, my angst about buying this building had completely vanished.

Not only that, I suddenly wished the property was bigger. Buying a property is a lot of work, and I realized that buying a building TWICE this size would have been about the same amount of work.

What an odd phenomenon. And it only happened in a couple of weeks.

The same thing happened with one of my students, whose goal was to buy a small 10-unit apartment building before going bigger. He managed to get agreement on a 51-unit building and brought the deal to me. I put it under contract, and he stayed involved. After 14 days of due diligence, this is what he told me: “Michael, I don’t know what I was thinking looking at these small apartment buildings. From now on, I’m looking at nothing less than 50 units.”

Again, comfort zone explosion in just 14 days.

Related: What Newbie Investors Should Be Prepared to Do to Land That First Multifamily Deal

Conclusion

If you know apartment building investing is the strategy to help you achieve your financial goals, then don’t make the mistake of going the SFH route first. It won’t actually serve you in the way you think, and it will in fact delay your goal of financial independence.

Please don’t misunderstand me. There is nothing wrong with SFH investing, and I’m not saying you shouldn’t invest in SFHs. I know a very accomplished investor whose strategy is specifically to build up a portfolio of SFHs. I’m just saying, do it INTENTIONALLY. Don’t do it for the wrong reasons.

And if you’re primary reason is to “get comfortable” enough to get into apartment building investing, then maybe you should examine your plan.

You absolutely have to expand your comfort zone to play the game at a higher level with multifamily. But do it in the way I described in this article: Don’t waste several years pursuing a strategy that won’t directly get you to your goal.

Instead, exercise your mind muscles by believing, visualizing and acting as if you already have your first deal. You’ll find that this will expand your comfort zone much faster and will bring you a HUGE step closer to your goals, whatever they may be.

What do you think of this? Do you think this theory hold some water, or would you advise to do SFH before getting into multifamily deals?

Let me know with a comment!

About Author

Michael Blank

Michael Blank’s passion is being an entrepreneur and helping others become (better) entrepreneurs. His focus is buying apartment buildings by raising money from private individuals. He’s been investing in residential and multifamily real estate since 2005. He is the creator of the Syndicated Deal Analyzer and the eBook "The Secret to Raising Money to Buy Your First Apartment Building".

22 Comments

  1. Roy N.

    Michael,

    I fully concur with your position. We started with conjoined wall residential property (duplex, triplex, quad), only to have the same experience as you w/r to financing (the commercial boyz & grrls don’t care).

    We later realized that a quadraplex conversion from an old Victorian manse provided a little operation experience of dealing with multiple tenants, but, from a facilities perspective, was night and day from a purpose built apartment building.

  2. Danny N.

    I think most newb investors target the rehab flip strategy as a way to accumulate cash too…. Multi’s are definitely way easier to finance from Banks, but even then, they ( banks) do like to see some level of experience managing rentals, so you are absolutely right

  3. Clayton Rokosh

    Interesting post! It relates to my situation because I’m stuck on the fence on whether I should pursue wholesaling, flipping houses, or doing what I want to do, buy and holds with multifamily homes + small apartments. Although I was thinking of wholesaling and flipping houses for two major reasons. One like @Danny N said, was about building capital, but the other is to build a “good REI foundation” and apply the knowledge from wholesaling or flipping houses to buy and holds.

    I’m slowly starting to believe that I should just jump into buy and hold multifamily homes and small apartments, but there’s still the issue of capital and cash reserves. I live in Canada, and apparently little or no money down strategies are illegal. So I guess the only options left are bank/credit union loans or private investors.

    But all in all, thanks for nudging me to the right side of the fence! 🙂

  4. Most investors start small to raise cash. Having a deal under contract means very little with sharks circling. Contracts expire.

    It’s hard to compete with guys who can write a seven or eight figure check.

    It takes either a long track record or a lot of cash to do the big projects. Jumping in from ground zero doesn’t happen, I have never met someone like that in the field. Unless ground zero is I’m a hedge fund guy with $20m to invest.

    I was looking at a 50 unit project to build, the building permit alone is $100k.

  5. Interesting article. Love real estate as there are so many facets and strategies and “realities”. I have a very profitable and cash pumping portfolio of “only” 6 properties in SF Bay area. 4 in the city. Value would be in line with significant apartment building investing in most US. Think about trading via 1031 to fatter cash flow and less appreciation out of state….but afraid of so many of the unknowns of trading up to ~5MILLION in apartment units.

  6. Danny Gill

    @ Danny N. is right. While this is a good article it leaves out the bit about capital. Multi-family is obviously more expensive especially when deciding between a 12 unit property and a 24 unit property or a 500 unit property. The due diligence may be the same amount of work but you still need some experience and lots of capital in order to attract investors. If you have the money, then great; buy a 12 unit property yourself and get multi-family experience that way in order to attract investors for the bigger deals. If someone came to me with a little money and no experience and wanted to buy a 50 unit property I would not give him any money. I am facing this dilemma right now. I am looking to build capital and some experience. And after awhile when I have enough capital to buy a multi-family property I will be able to attract investors and have a good chunk of my own money in the deal.

  7. Gerald Jordan

    Michael I agree with what you have said in this write up….. I left a Rich Dad seminar knowing that I was going right to multifamily units. I also have an interest in taking large SFH and carving out rooms to rent, which is what a friend of mine did. It was very profitable for him and he is working on a second property of 6 or 7 bedrooms. I have secured the interest of a bank and they have an invitation to obtain a mortgage ….. so I am on track time wise to start the process.

  8. Great post.
    the thing is for newbies that it’s much easier to come up with $10-20k down payment for a SFH or a smaller MFH (like a duplex or similar) than it is to come up with $100-$200k to put down for a larger one. I think that as pros you guys and girls forget that you gotta start soewhere. And maybe the distraction is not a distraction but a way to 1-get your feet wet and get familiar with dealing with tenants and 2 a way to raise the capital for larger MFH. Also what investor would take a newbie serious enough to invest a large sum with someone with no experience. I know of plenty of deals that t he numbers look great,but needing 20-35% down on a $500,000 MFH is out of my reach,so I’m starting with smaller MFH then working my way up with the capital I’m making.

  9. Francesca S.

    Great article! I haven’t considered just jumping into Apartment Complexes, as I had absolutely no idea how to get into it. Like you mention in the article, it seemed like single family homes or small duplexes would be the stepping stone to these bigger properties.

    These complexes still make me jittery just because the numbers are so large! If I mess up on a 100K single family house, it would be hard but I could absorb the cost over time. But if a large complex messes up….thats a huge amount of debt that I just made everyone including myself responsible for. Of course I should do my due diligence, but like most of BP articles allude to..anything can happen.

    Any thoughts on this?

  10. Gary Alford

    I’ve just just can’t to this realization myself Micheal! It is a complete waste of time to buy a bunch of sfh or duplexes to start building experience instead of just jumping in. Most people forget your only as good as your network. Even if you are buying your first property most investors will feel more than comfortable giving you their money if you around yourself with the right people in the project. You’ve never managed tenants? Then why are you even trying to if there are plenty of managers out there to do it that you can network with and bring in as your manager and use their experience to help gain investors. The same goes for every aspect that you find your self lacking know how, just use the experience of others and build your team. That is the route I’m taking. Most people I think forget to look at real estate investing like a regular business. Thanks so much for this article and the comments I loved reading them all.

  11. Hello Michael Blank,

    Your article has some good suggestions, but in reality “Capital is King.” I am sure there are a lot of investors who would like to start with Multi Family units, but as noted by several other REI posting, the financial investment is much higher and experience is vital to securing funds.

  12. Mimi H.

    Great suggestions but highly dependent on your market. As with any investment, yes, the numbers do matter and sometimes it’s a factor of 10.

    A few other people noted similar sentiments and here’s my personal experience.

    In the Bay Area, SFHs start at the $1+M mark, duplexes at $1.6+M and larger units? $5+M. So sure, if you have 25-30% of $5M jump right on in. However, I’d bet that if you’re comfy with tossing in $1.25M cash then you already have a great relationship with banks. Securing funding in the millions is substantially different than securing funding in the $100k mark, especially without partners.

    Same deal in the NYC metro area.

    Then perhaps play in a cheaper market? Well, I know of a couple of investors who are in less hot markets who have many more doors, many more tenants, and similar cashflow.

    At the end of the day, I see a lot of articles on BP about increasing the doors, personally, I’m more interested in increasing cashflow. To each their own though…

  13. Kurt Gardner

    I started in SFH bc of my capital and overall timidity. It was a challenge back in 2012 to pull that trigger, mostly because I tried back in 2003 and failed miserably.

    Nevertheless, with a better foundation on finance/deal costs, I have purchased 7 homes since December 2012 (5 currently rented, 1 flipped and one I had to by bc it was owner occupied, so I still live there!), and this week, I’ll close on my first duplex.

    I CHOOSE – as the article states – this path because of two factors: the money required and the long term goal of equity investments. Also I prefer the easier exit strategy of selling SFH versus trying to sell a large multifamily unit. I can afford to bail out of any of my properties at 80% ARV and still make a profit and my market scope is much higher than the potential buyers for a large apartment complex.

    It’s all a matter of preference and what your goals are. If you want to get big fast, you probably will have to take the bigger risk/step to own bigger units. I am slow and steady and love the pace of where we are.

    One interesting note about pace…I read an interesting article on this site from an investor who bought 2-3 SFH per year for the first 5 years, then his business exploded the 6th year and he bought 18. Assuming I will close on this duplex this week, I will have in three months doubled my equity and efforts in that time as it took me the previous 3 years. The growth isn’t necessarily linear, it’s just basic fundamentals (as the author pointed out…just on a bigger scale). In either case, you will be successful if you pursue right thinking on your investments and you can have a blast along the way.

    Enjoy and blessings!

  14. Dwyanne June

    This article and comments are very helpful for my wife and I. We, too, are on the edge of jumping to REI with Buy and Hold SFHs game plan. Slow and easy is our plan since we are still able to work full-time, moving to working full-time on our REI business. Its our choice to take baby-steps. We are learning a lot, and we continue to learn from posts on Biggerpockets. For us slow and steady is our plan.

  15. Raymond Atzbach

    Great article! However, as a newbie here, I’m curious as to WHERE and HOW you come across these large multifamily apartment deals? Is there a specific website that lists large, non-conventional residencies? I can only seem to find SFH-4Plex on places like Zillow and Trulia.
    Or is there a specific type of agent I need to talk to, that can help me find these large properties for sale? Any help would be awesome!

  16. Jerome Daughtrey

    I definitely like the idea of just jumping in, but isn’t the financial risk for unexpected repairs greater on something like a 51-unit vs. a smaller unit? I would imagine an investor needs larger cash reserves at the beginning? Or do investors phase out the larger CapEX expenses in the due diligence process so there’s no need to worry about them?

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