How to Gain Experience For Multifamily Investing Without Buying Single Family Homes

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.

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.

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.

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!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.