Here’s a Good Way to Start with Multifamily If You Are Too Nervous to “Go Big”

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Most real estate investors who are considering getting in to multifamily investing think they need to cut their teeth on single family houses (SFH’s) or duplexes before considering larger buildings.

However, as I’ve argued many times before, this is not necessary. It’s actually a myth – one that may keep you from achieving your REAL financial goals for years.

The real issue is the current size of your comfort zone. Most of us have a hard time seeing beyond it. So if you’ve never done a house flip before but you’ve seen it done on TV, you might be able to visualize yourself flipping a house as your first foray into real estate investing.

But going straight for a 15-unit multifamily building? I don’t think so.

In my article “The Simple Way to Gain Experience For Multifamily Investing Without Buying Single Family Homes,” I talk about several tips for expanding your comfort zone WITHOUT doing SFH’s first.

I would rather help you expand your mind over the course of 30 days than have you embark on some real estate strategy for the next few years that won’t really bring you any closer to your goals.

If you’re one of my students learning to get started with multifamily investing, then that’s the first thing we’ll work on: to expand your comfort zone so that you’ll go after the biggest building possible.

Related Article: 5 Reasons Why Bigger is Better with Apartment Building Investing.

If, despite my best efforts, you just can’t see yourself doing a 15-unit building right from the start and you’re about to give up your dream of financial independence, then I would advise you to do a small deal, like a duplex.

There.

I’ve said it.

It goes against my entire being, BUT doing a small deal is better than doing no deal at all.

If you won’t go big, at least go small.

I interviewed Jay Boyle and Drew Kniffin on podcasts recently, and what was interesting about both of them is they both got started with small multifamily buildings before going bigger.

Had I known them several years ago, I’m certain I could have accelerated their progress! But at least they got started. And even though it took Jay TWO YEARS to buy a duplex, he closed on a 36-unit 6 months after that and he’s got a 96-unit in the pipeline.

The point is this: better to do a small deal than sit on the sidelines.

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

Conclusion

Your first step should be to work on your mindset. If you follow some of the tips in the article “The Simple Way to Gain Experience For Multifamily Investing Without Buying Single Family Homes,” you’ll be amazed at how far you can expand your comfort zone WITHOUT first investing in SFH’s or duplexes.

If despite this exercise you still feel you need to get started with a duplex or triplex, then fine.

I will be your biggest supporter.

If you own any multifamily property, how did YOU get started? Did you go big right away or start smaller? 

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".

16 Comments

  1. I did this. At this time, I own almost 100 units. I have *never* bought an SFR for investment. I started with a fourplex in 1996. In 2001, I refinanced the fourplex – and my house – and bought an 8-unit building. Then in 2003 we really took the plunge and bought a 52-unit complex. Then another 20 units in 2006, and a 14-unit building just last year.

    The big jump was the 52-unit guy. I had to hire a staff, do payroll etc. There was as lot of deferred maintenance. I remember my wife and me – sitting in our motel room crying – so much had gone wrong so fast that we were convinced that bankruptcy was just around the corner.

    But we turned it around. I haven’t worked a W2 job since 2003.

  2. Ronald Perich

    I started with my own savings. But rather than touch my ready cash, I used a loan against my 401(k). That was used for the down payment and to complete some much needed deferred maintenance. I’ve also used all of the cash flow to pay for continued improvements, bring in systems, etc.

    On the next one, I would have needed to reach out to other investors or private money. I could also have pulled some equity out of my nine-unit. It would have been a challenge to find the money, but I am certain I could have pulled it together. Probably would have used a preferred-equity return with ownership benefits on that one.

    The next one looks better for owner financing based on their circumstances. Probably with a lease-option to start and a long-term seller finance on the sale in the future. Works better for them and works nicely for me.

    Honestly, if I find an opportunity for a solid deal that has cash-flow potential within a year, I’ll find a way to get the financing. Put it out in the universe that you’re a real estate investor and you’ll be amazed at how many people will suddenly be very interested in what you are doing. But you may need that first one before the private money will flow your way.

  3. Ronald Perich

    One other comment. I wish I could have pulled down that 44 unit. A very wise and learned (and successful) investor in the area told us that it’s easier to run under ten units or over 50 units. Anything in that 10-50 unit range is really tough. Not big enough for staff and too big for you to handle on your own.

    • Roy N.

      Ronald – you received some very sage advice there … though I would put no-man’s land in the 20 – 100 unit rage. Running a 12 or 16 unit on your own is not really that bad. A 50-unit around here is a bit skinny for having staff … which become feasible somewhere between 80 and 100 units

  4. Michael Swan

    My path was start with single family condos in San Diego that I purchased in 2011 and 2012 for less than 1/2 of what they were selling for during the peak. Dramatic appreciation happened from 2013 to 2015 and we started 1031 exchanging those condos for 8, 10, 12, and a 15 unit complex in Northeast Ohio. I basically traded in 4 condos cash flowing at about $6,000.00 each per year on 30 year loans for $15-$20,000 cash flow for each Apartment complex. The power of the 1031 exchange is amazing!!! I read Multifamily Millions by David Lindahl, listened religiously to Lifestyles Unlimited Inc. (LUI) podcasts on TUNEIN RADIO for 2 years and attended LUI’s 2 day seminar in Houston, Texas. On Day 2 of that seminar, I knew that eventually I will have Three or four 300-400 unit Apartment complexes. Right now our Tax deferred cash flow sits at $120,000 per year and in 10 years time, I will be sitting at $1,000,000.00 tax deferred cash flow coming in yearly. I still have 4 pricey rental condos here in San Diego that I expect to sell and 1031 exchange this summer when the tenants’ leases expire. Plus, I am currently fully executing my first purchase agreement for an Equity Partnership with friends. We are purchasing a 21 unit and my total doors will now be up to 78 front doors, with the 8 single family we also own in the same State as our Apartment complexes. In the equity partnership, I will be putting in 10% of the down payment and receive 20% of the cash flow and 20% of the equity for my connections, running the entire thing as the managing partner. The investors will be contributing 90% of the down payment. If a lowly paid teacher earning a combined family income, before taxes of $80,000 can do this. Anyone can!!

    If you change the way you look at things, the things you look at change right before your eyes!!!

    Swanny

  5. steve g.

    this is a really great post, so much info . so I have a question I hope someone here can answer..

    when looking at Commercial Properties, I was wondering How does one go about valuing it before making an offer??? I had a friend when growing up, and as adults we had lost contact for many years. I would hear updates from others that he was this big time Real Estate Mogul. Last i heard, he had bought this high scale restaurant (which had gone out of business) ,anyway, its a large building, used for many purposes, and its highly unlikely you will find comps in the area to get a feel for its underlying value, so how would you value something of this nature???

  6. Ramiro Lopez

    I’m new to real estate investment I like the multifamily idea and I have some money plus investors money for down payment my biggest problem I can’t find info on how to secure finance where to go I have a mortgage on my house but I never finance properties for millions of dollar my income is over 6 figures but still wont support a multimillion dollar mortgage I don’t see a bank just giving me a multimillion dollar mortgage since I don’t have any comparable loans even close to that size any ideas about financing a multifamily for a guy that never finance one before where can I start I’m ready to do my homework all the way I just want a place to start

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