5 Ways to Jump Up to Large-Scale Multifamily Investing

by | BiggerPockets.com

So you’ve been reading about the wealth, glory, and life of ease enjoyed by large-scale multifamily owners/syndicators, and you wonder how you can join their club.

You know who I mean. You watch him cruise by in his Tesla. You know he’ll be toking a big Cuban cigar and barking out orders to his staff from his hot tub when he gets back to his mansion.

Meanwhile, you’re struggling to manage a handful of tenants in a few single family homes or duplexes, and the thought of multiplying this hassle times 100 (or a thousand) seems unthinkable.

Yet enticing.

As a multifamily syndicator, author, podcaster, and BiggerPockets writer, I get one question more than any other:

 

“How do I get from where I am to the commercial/large-scale multifamily investment level?”

If that question has been rolling around in your mind, then you’ve come to the right place. My goal in this post is to give you an overview of five avenues to help you jump into the large-scale multifamily investing world.

At the end of this article, I’m hoping you’ll comment on which of these five on-ramps is most intriguing to you. This will give me an excuse to write more articles and take a deeper dive into any or all of these avenues, hopefully avoiding me getting canned by BiggerPockets.

First Things First: Are You Sold on Large-Scale Multifamily?

I’ve been involved in quite a few aspects of real estate investing. In the past, I’ve done residential sales, single- and multifamily flips, single-family rent-to-owns and rentals, financed an office building, flipped waterfront lots, developed a subdivision, built and operated a large multifamily project from the ground up, and helped build a Hyatt hotel.

I’ve made a good profit doing some of this. And I admit, I’ve lost money on some of these projects as well. (Hey, I started the How to Lose Money Podcast, after all.)

I’ve repeatedly told my son, my employees, and anyone who will listen (not my wife) the following about large scale multifamily:

“If I’d have known all along what I know now, I would never have done anything else!”

As I write this, I realize that I’ve said this in different words before. I looked back in my BiggerPockets archives and found that I wrote an article on this topic earlier this year. It’s warmly titled Warning: Your Single Family Rental Portfolio Might Just Be a House of Cards.

I think my title irritated a few folks. It was a bit harsh, but hey, that’s how strongly I feel about this topic. To save space, you can go there to read my “whys” for jumping from where you are into the large-scale multifamily realm.

I also wrote an article affectionately referring to multifamily as The Perfect Investment. (I heard there’s a great book with a similar title.)

As for the “how,” let’s take a stab at that. When I talk to investors looking to climb the ladder from single families (or small multifamily) up to commercial-level multifamilies (I define this as about 80+ units – where you can afford an on-site property management team), our discussion typically focuses on the following five areas.

1. Be a Multi-Millionaire

This reminds me of the old Steve Martin gig. “You can be a millionaire and never pay taxes. Yes, YOU can be a millionaire and never pay taxes. You say ‘How can I be a millionaire and never pay taxes?’ First, get a million dollars. Then…”

Seriously, if you’ve ever tried to do a large multifamily deal, you’ve realized that you’ve gotta have a very healthy net worth to get commercial debt. Total net worth needs to be up to the total amount of the loan with liquidity of up to one year of principal and interest payments.

That is the total for your ownership team, and it can apply to recourse or non-recourse debt. Which means that an alternative is to have a rich uncle, or someone who believes in you enough to cosign on the loan. There are people who will do this for a fee. And you may even get them to bring capital along as well.

Related: Why the Wealthy Put Their Money Into Multifamily & Commercial Real Estate

2. Climb the Ladder from Duplex to 100+ Plex

Is 100+ Plex even a word? I couldn’t find it in my Webster’s 1828 dictionary.

Though this term may be foreign, this process should not be alien to BiggerPockets readers. This is probably the most obvious route to large-scale multifamily success. But it may be the slowest. And hardest.

When looking at multifamily deals in the Dallas area in 2015, I had the opportunity to meet the owner of a 132-unit complex in Arlington, Texas. He told me how he started in 1992 with a $1,000 down payment on a $60,000-or-so duplex.

This guy fixed it up, rented it, and sold it. He took the proceeds and bought a four-plex, rinsed and repeated. Same with a 12-plex, then a twenty- or thirty-something, and so forth, all the way up to the sale of his 132-unit asset for about $11 million. He was preparing to trade up to a larger complex next.

To my knowledge, he was utilizing 1031 exchanges to defer taxes all along the way.

When I met his staff, I realized a few of them shared his last name. This was a family business, and they had given their lives to this process. Self-managing, marketing, and maintenance. Wow. Or yikes.

While I can’t imagine enduring this process, this is admittedly an opportunity for higher profits and wealth creation. He had leveraged a thousand dollars – mixed with 23 years of blood, sweat, and tears – to create a fortune for his family with a great income along the way.

3. Be a Deal Finder for Another Syndicator

Do you have connections to multifamily owners? Or can you make them?

Are you in a local meetup or REIA where you can make connections with multifamily owners who may sell?

Do you have the experience and drive to use direct marketing (for example online or mail) to drum up multifamily owner leads?

If you are in a position to refer deals to multifamily syndicators (companies who buy and manage multifamily assets using investors’ funds), you could be well-positioned to earn a seat at the table in their deal.

Please note that this is not an easy route to take. In these days of intense competition to source multifamily deals—in a time when deals are being tracked down like foxes in a royal hunt—it will be important for you to work hard and hopefully have an inside path.

And if you’re a commercial real estate broker yourself, you may want to consider taking an ownership stake in place of real estate commission. (I guess you’d have to discuss this with your broker and check regulations.)

When you bring a deal to a syndicator, you should position yourself to do more than just get a seat at the general partnership table. If you want to learn this business, you should ask them to allow you to shadow their team during the process. You should have the chance to learn everything you can about the deal and the route to closing.

Note that there may be SEC regulations involved in remuneration for this, and you could get into an arena of crossing legal lines in the real estate brokerage arena as well. You are responsible to assure that you don’t cross any lines or accept any fees that would put you at risk.

Related: How to NOT Sound Like a Multifamily Newbie (& Actually Land Deals!)

4. Raise Capital for a Syndicator. Or Invest Your Own

Do you have a lot of capital to invest? Or do you have connections who do? If so, you may be in a position to work with a syndicator to earn a seat at their table.

In the case of you bringing capital, you could just negotiate with them upfront. Tell them that you have many investment options and you’re looking to invest with a firm that allows you to look over their shoulder to learn the process.

This will probably work best if you are investing quite a bit above their minimum level, or can bring some additional value to the deal.

If you want to raise capital for a syndicator, realize first that you cannot be compensated for doing this unless you are a licensed financial professional. Even then, there are strict FINRA regulations that your firm will impose on you.

Of course if you’re licensed, you’re well aware of this. If you’re not, you need to get the facts.

So don’t expect to be compensated.

But if you know a syndicator, or get to know one, you may be able to convince them to give you a capital development role for their firm. Most syndicators are entrepreneurs, and can’t offer you a paid position. But perhaps you could work out a deal with them to offer you ownership in their deal in exchange for raising capital.

Again, to my knowledge, you should not do this for a percentage of the capital raised. This type of arrangement could be an SEC violation.

I don’t want to offer legal advice here, and I’m not. I’m just raising the issue and inviting readers to explore this arena.

5. Find a Mentor

You may be able to find a mentor. I did a podcast on this topic earlier this year. In it, I encouraged would-be mentees (another fun word) to offer their services to someone they hoped to be mentored by in order to add some value to their life and reduce their workload in some way.

But let’s be honest. Finding a good mentor – who is accessible and knowledgeable and helpful – will be a hard nut to crack for most of us.

Unless you want to pay for one.

There has never been a time in history when there are more real estate mentorship opportunities available. With the availability of technology and the realization that real estate is perhaps the greatest path to wealth on the planet (short of inventing a cool new app or scamming the world by selling semi-boneless holiday ham), opportunities for mentoring are plentiful.

I know at least a half-dozen multifamily mentors, and when I started in the multifamily stream I’m in now (class B, value-add, etc.), I hired an expensive, and very thorough, mentor.

The question is, how do you find the perfect mentor? And how do you differentiate the so-called gurus from the helpful mentors?

If there’s enough interest in this topic, as judged by followup comments and questions, I may write another article on this topic.

What about you? How are you scaling the ladder to commercial-level multifamily investing? If you’ve made the transition already, and have some wisdom to share – especially if it adds to or contradicts what I’ve said above – we’d all love for you to share it!

About Author

Paul Moore

Paul is author of The Perfect Investment - Create Enduring Wealth from the Historic Shift to Multifamily Housing, which you should probably get if you want to learn to invest in multifamily. He leads Wellings Capital, a multifamily investment firm, and hosts the How to Lose Money podcast. Paul was 2-time Finalist for MI Entrepreneur of the Year, has flipped 60 homes and 30 waterfront lots, developed a subdivision, and appeared on HGTV. Paul's firm invests heavily to fight human trafficking and rescue its victims.

71 Comments

  1. Ahmad Eltawely

    Thanks for sharing Paul. I’ve been investing in SF flips for the passed 4 years in Northeast Minneapolis primarily. I’m starting a couple SF new construction projects in 2018. I was originally planning to invest in several 2-4 MF Properties over the next 5-10 years (Climb the Ladder). The more I read on BP the more I’m encouraged to accelerate that process by being more aggressive and acquiring the capital sooner to build/acquire a 50+ unit property. I look forward to reading more from you on this topic!

  2. Anudeep Yapala

    Thanks Paul.

    I am jumping in to MF, getting my education in to this. Your article gave good insights and what to look for financing, legalities and deals. Networking is key and also know the rules. Keep motivating people like me. Happy Thanksgiving.

      • JOSHUA REID

        Hi Paul,
        My name is Joshua and I am very much interested in moving to the next level. (commercial Real Estate). I have 6 duplexes and 1 triplex. I figure I liquidate and get something 30+ units, but I don’t have a clue about commercial investing. I don’t know where to start. I was hoping that you could give me some finer points on mentors. Great article.

  3. Nate Schlitzer on

    Scaling up has been on my mind lately. I’d love to read a more in depth article about step number two. It seems like there are two basic paths to moving from a duplex to a fifty plus unit property. Number one being the snowball method where the investor uses rental profits to buy more properties while holding everything. Number two would be selling properties and buying bigger ones.

    • Paul Moore

      Nate,

      I think it would be ideal to hold on to all of your properties and use those profits to buy more. But it may take a very long time to do that. Trading up has the disadvantage of losing the earlier properties, but you get to move up faster since you get appreciation profit + mortgage principal paydown in addition to the cash flow profits. And you can start the depreciation clock over to lower your taxes (if using a cost segregation study).

      I wish you the very best in all you do, Nate.

  4. Daniel Andrews on

    I like the climb the ladder part. I love the idea and think it’s an amazing way to grow your business. I currently have one rental house, one vacation rental and just started my first flip. My goal is to take my flip profits and purchase multi-family for cash flow.

    • Paul Moore

      Hi Cynthia,

      That’s great. I will try to write an article on how to choose a mentor. I know of several multifamily mentors. I will research some mentors for the single family home world as well, to balance out my article. What are one or two questions you’d like to see answered in an article?

  5. Brian Karlow

    Great article Paul! I’ve jumped from SFR investing over the last 7 years to multi family in 2017 by acquiring (1) 10 unit building and (2) 4 unit buildings as well as transitioning the portfolio to professional management!!

    It’s been a busy year but I’m already looking ahead to my approach for acquiring the next larger building and your arrive had singe great advice…thank you very much for sharing!
    Cheers!!

  6. Hi Paul,
    I would like to fine a multi family mentor. If you do another pod cast on this subject, please alert me to it.
    I have done a lot of learning/reading about multi family and notes, yet a mentor would shorten my education quicker.

    Thank you.
    Evelyn F.

  7. sri ram

    Great Article. I have been through the route single family to duplex to multifamily 28 units. Looking forward to your next article to getting hold of a mentor to a next level of buying 100 plus units in one deal.

    • Paul Moore

      That’s great, Sri.

      Jumping up to 100 units is a big jump. But it’s great to have an asset that can be professionally managed by an on-site team. There are many other benefits to large scale, including non-recourse debt.

  8. Lee Ripma

    Great article. I’m sold on MF investing after finishing my first major value add deal on 6 units. I’ll have my cashout refi by the end of the year and want to do a 12-30 unit major value add (complete rehab fine) next. I’ve got a mentor who would team up with me, investors, and a lender. My problem has been sourcing deals that make sense. The brokers don’t have anything that works (so far) and so I’ve been driving for dollars, finding LLC owners, and contacting them to see if they want to sell-nothing yet. I’d love an article on deal sourcing! As deals are currently my limiting factor. I know I have to look at lots of deals before I find the right one but off-market MF deal sourcing article would be the most valuable to me.

    • Paul Moore

      Thanks Lee.

      That’s wonderful. I think the deal sourcing is the limiting factor for almost everyone I know in this business. Not sure how to overcome this at this time. But give it a year. I think it will change.

      My best advice is to stay in touch with brokers regularly. Some of them have told me it’s fine for a buyer to reach out to them as often as twice a month. Keep a list, stay in touch via email, phone, and text. Stay in front of them.

      Anyone else have ideas on deal sourcing?

      • Lee Ripma

        Thanks Paul, I’m certainly doing that with local brokers but they just don’t have any value-add deals. If they do they have priced the upside into the deal already. So they market it as a 8 cap but it’s really an 8 cap based on the proforma and a 5 cap based on actuals. I’m looking to build out a system where I can market directly to owners since I’m not seeing brokers as a viable option at this point (although I do keep in contact). I just emailed all the ones I know again!

  9. Tom Furlough

    Very nice job! I’m currently trying to decide on whether it would be better to invest in a syndication or purchase an apartment building on my own. I would like to maximize my monthly cash flow, but finding a multifamily deals isn’t easy, particularly when you’ve never done it before haha.

    • Paul Moore

      Hi Tom,

      There are certainly pros and cons to each. That’s why I like the idea of joining an experienced syndicator to look over their shoulder through the whole process. Finding multifamily deals is incredibly hard right now, but it won’t be forever.

  10. Great article Paul! A four plex is my largest building right now and I have been trying to figure out the next step. The cash flow on my buildings is really good so I would hate to sell them. I agree a mentor is what I need!

    • Paul Moore

      Thanks Mike. I’m going to attempt to do an article on mentoring at some point soon. I don’t blame you for not wanting to sell your assets. But I would recommend extracting as much safe equity as possible to invest in more assets.

  11. kris patel

    Got 3 investments inTIC in 2007, one office bldg & two student housing. Lost office in foreclosure and one student gag in bad management. Second student housing just gives 1.70 % COC. So tic was bad, but STNL drug store in 2010 @ 7.35% Cap Rate for 25 yrs lease n fix rate gives 4.50 COC, not great, but happy.

  12. William S S.

    Paul, thanks for putting this together!

    I’ve acquired 29 units over the past year (mostly duplexes) and looking to step up to 10-20 unit apartment buildings next. I’d be interested in hearing more about your ideas for finding deals and additional thoughts on paid mentorship opportunities.

  13. karen young

    Darn, I wasn’t interested in MF but wanted to read the article to see if semi-boneless ham was mentioned (and it was – semi-boneless HOLiDAY ham of all things).
    and now i’m interested in MF.

    How does syndication work – legal structure, cash flow, depreciation?

    • Paul Moore

      Hi Karen,

      Glad you are still enjoying the ham references. I’m afraid that 1st time readers must be writing me off as mad! But you don’t… do you? 🙂

      Syndication. That is a long answer. I would be glad to get into that if we schedule some time to talk. Please email me. There is a book on the topic that I can recommend if you have a significant interest, or I can give you an overview. In a sentence… Pooling together a group of investors to fund a deal, where the sponsor/syndicator is paid a fee and portion of ownership for their efforts to bring together, manage, and ultimately sell the asset.

      • Hi Paul,
        I see the three books that you recommend in another reply – do you recommend any particular order that they be read?

        what email address would you like me to use?
        Karen

        PS. humor is a sign of intelligence and I get a good chuckle out of the SBH reference

  14. Reuben H.

    I’m also interested in the perspective of out-of-state investing. I’m looking to jump right into a 6-12 unit MF for optimal cash flow. Sourcing deals that makes sense is difficult, but with lots of hunting I have scared up a few that have good numbers. Just have to pull the trigger, scary!

    • Paul Moore

      Reuben,

      It probably goes w/o saying, but finding a great local trusted property management firm will be key to that out of state deal. We are currently buying a 125-unit townhome community two states away. We could never dream of doing that without a great property management team.

  15. Christina LaBorde

    Great article, Paul, and thank you for sharing. It took me five years of non stop grinding, including leaving my long time career to take a big pay cut and work for a MF syndicator, to finally get a break through. A couple months ago I bought a 70 unit apartment complex. I own a 33% share and I didn’t have to bring any of my own money into the deal. Not only that but I’m currently in escrow on a 77 unit complex and the same ownership structure will apply. It still feels a bit surreal but it’s a testament to what can be done through perseverance. I’d be very interested in what more you have to say regarding finding mentors. Sure, MF investing has finally started to “click” but I know I have a lot to learn and would love to find a mutually-beneficial mentor relationship. The constant thought of “what am I missing” is always running through my mind and I know I would benefit from the wisdom of a seasoned mentor.

    • Mena George

      Wow , Congratulations Christina!

      This’s amazing to hear and still hard to believe!

      Is it because you found the MF opportunity and provide it to the MF syndicator, they gave you 33% share without any of your own money to the deal ?

      • Christina LaBorde

        Yes, Mena. I own a 33% share with none of my own money in the deal and I’m now in escrow on a 77 unit where the structure will be the same. The numbers work for the capital partner to make money, which is why they agree to it. Plus, in addition to their 33% share, they get a 10% return on their capital – which comes out of the rents – until we refinance. Both of the deals are value-add so the idea is to reposition them and then cash out refinance. My business partner and I find/secure the deals and then handle all the “work” on the repositions. In exchange, we get an even ownership share, or at least that’s how we’ve been able to structure it so far!

    • Paul Moore

      Christina,

      That is awesome! Wow, congrats. It sounds like you need a serious mentor… someone who has been at it longer than you and the MF syndicator that you worked for. I know of one or two like that. Feel free to message me on the BP message app and I will give you a few ideas.

      Honestly, it sounds like you are well on your way, though. Congrats.

  16. Michael Malloy

    Well, I’m glad to see that I’m not the only one that’s been asking the questions of, “how the hell do I get started in large multi-family investing.” I’ve scoured the internet (and BiggerPockets.com) asking this question but surprisingly found few answers. Thank you, Paul. And yes, I demand even more detail about trying to get my foot in the door. Could you recommend a book that has all of the basics and could serve as a nice foundation before jumping all the way in?

  17. Paul Moore

    Michael.

    Thanks for your comments. As far as I know, there are about three books out in our circles on this topic. One is by Jake and Gino and it is called Wheelbarrow Profits. A second is from Rod Khleif: How to Create Lifetime Cashflow Through Multifamily Properties. And a 3rd is mine – The Perfect Investment – How to Created Multi-Generational Wealth through the Historic Shift to Multifamily Housing.

    I hope that is helpful to you!

  18. John Murray

    What a great article. Like most successful RI that have built a solid income and appreciation from SFH rentals leveraging millions it is hard to let go of the control. To have cash flow of $100K per year my skin in the game is about $850K. To make the jump to multi family investment, building an investor pool, pitching your plan, finding your wheelhouse and making the plan seem easy is challenging to me. I do enjoy a challenge and jumping to the next level maybe for me, I just have to convince my wife to believe in me for the countless times she has in the past. Better get a biz plan together and impress my partner before launching the my next progression in RI.

  19. Erik Nowacki

    Hi Paul, thanks for writing this article. I bought, rehabbed and 1031 exchanged my way into a 41 unit portfolio in San Diego, then 1031 exchanged 18 San Diego units for 254 units in Memphis (76 decent units and 178 in a major fixer project).

    It was a way to quickly build the scale needed to hire a couple of property managers and a rehab crew. I still have 115 empty units left to rehab and fill up. Lots of fun.

    I think that puts me on track 2 from the article. I like the control and dealing with risky projects means I don’t want to be responsible for other people’s money. I used geographic arbitrage to scale faster. It would have taken many decades to scale up to 250+ units in San Diego.

    Happy investing!

    Erik

    • Paul Moore

      Erik.

      That’s brilliant! Not something most of us could pull off – would be hard to get into a market like San Diego. I guess if it could be timed perfect… buying in a CA market at the very bottom (would take nerves of steel)… then selling at the top – exchanging into a lower priced market.

      I wish you the best in your efforts to fill up those units!

  20. Whitney Sewell

    Great article Paul! Would you say without your mentor you would not have found the success you have found, or maybe as quickly? What were some ways you used to pick the perfect mentor for you? Thank you Paul! I look forward to more articles from you!

    • Paul Moore

      Whitney,

      Thank you! I would absolutely say that. My mentor gave us significant acceleration into this business, and I still rely on them today. I only wish I would have joined their program earlier.

      I honestly chose my mentor without looking at any others. I’m not sure that many of the current mentors were around back then. I made the perfect choice for me. Was costly, but well worth it. (My business partner and I spent over $25,000.)

      I’m going to try to write about mentors soon.

  21. Sarah Lorenz

    Thanks for the article. I also enjoyed your book. What would you say that the broad price range, low to high, would be for an 80 unit property in a B area? And what kind of income would you expect from that, if you were purchasing?

    • Paul Moore

      Sarah,

      Thank you. Glad you enjoyed the book.

      We generally look at the Cap Rate more than the price per unit. At $50,000 per unit, a certain deal could be over-priced. At $100,000 per unit, another deal could be great. We are looking for stabilized deals that are 6% or higher cap rate. If it is poorly managed, under-marketed, etc., the cap rate could be much lower. As long as we can operate the property at a higher cap rate in a short time.

      That said, most of the B Class assets we see are in the range of $60,000 to $90,000 per unit.

      I hope this helps.

  22. Jerome Kaidor

    I’ve been in multifamily ever since the mid 90’s. Started with a fourplex. Then an 8-plex, then a 52-unit complex, then a 20 unit building, and now a 13 unit building.

    I have never seen the sense in investing in single family houses. With my present 3 properties I have 73 doors, but only three mortgages. Only 3 property tax bills. Only 3 insurance policies. 3 water bills…etc.

    If I had 73 SFR’s, I don’t think I’d be able to do it.

    • Paul Moore

      Jerome.

      Thanks for contributing to the conversation. I agree. I know that some people thrive going the large scale single family route, but I know that I would not. It sounds like you’ve had a lot of success taking the hard, profitable route of growing your multifamily business. Congratulations!

  23. Paul, great article. My wife and I own 10 single family rentals, but are truly looking to make the jump to multi-family in 2018. We both work full time so all of our single family investments come from a turn key RE Investing firm, which has worked great for us.
    I’d love to get your advice on securing a mentor, even if it’s one you would have to pay, as well as referrals if you have one’s your trust.
    Thank you.
    Todd

  24. JOSHUA REID

    I really liked the article and am very much interested in going commercial. I have 6 duplexes and 1 triplex. I want to liquidate and go for 30+ units, but I don’t know where to start. Mentor sounds good but where do I find one. I doesn’t seem easy to contact an owner of an 80+ unit building.
    Great Article.

  25. Kamila Flores

    Hi Paul,

    Thanks for the article. I’ve bookmarked the page so I can go back and read your other articles about multifamily investing as well. After researching a variety of strategies, I’ve decided that multifamily makes the most sense for me. I’m very interested in learning how to go about getting a mentor including one who you pay for their time and expertise.

    I’m wondering how you vet a mentor and whether you would partner with them on your first few deals. Thanks in advance!

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