The Key to Quitting the Rat Race Using Multifamily Investing

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After having interviewed a dozen or so real estate investors who successfully transitioned to multifamily investing, one thing has become clear: Your first deal is the ONE THING that changes everything. After having done that first deal, they were able to replace their income with the next 2-3 deals — and within 3-5 years.

Don’t believe me? Then check out Drew Kniffin from Minneapolis-St. Paul. Drew bought a small 4-plex with a friend, and then they bought a 5-plex together with their property manager. That gave them the confidence to look for larger deals; they pooled their resources, refinanced one of their previous properties, and closed on a 32-unit building in the Twin Cities.

Two weeks later, Drew quit his job.

An isolated case? Hardly.

Brooks Everline is a truck driver from Falling Waters, WV. He couldn’t see himself driving a truck for the rest of his life and started looking into real estate. He concluded that multifamily would allow him to replace his income the fastest, so he started looking for small buildings in Hagerstown, MD (about an hour away). After several months of looking, he bought a vacant 4-plex with $15,000 in savings and a hard money lender. After filling the units, he refinanced to repay the loan and put some cash in his pocket. He then bought a 5-plex in the same way.

The buildings now cash flow about $1,800 per month. He needs $4,000 to quit his job, and he’s already halfway there with only 2 deals totaling only 9 units. He thinks he’ll be able quit his job with one more (10-unit) deal in the next 12 months (and he already has several in the pipeline).

multifamily-benefits

Related: The #1 Way To Find Great Apartment Building Deals

The Pattern From First Deal to Quitting the Rat Race

Here’s the pattern I observe with successful real estate investors:

  • The first deal is the smallest deal, takes the longest and is the hardest to do.
  • The second and third deal follow in rapid (almost automatic) succession and are larger than the previous deals.
  • Investors are able to replace their income with 3-4 deals — and within 3-5 years.

To me, the message is clear:

Focus on your FIRST deal.

This is why I focus all of training and writing on helping people do their first deal.

Here’s Why Your First Deal is So Important

When you do your first deal, even if it’s only a small deal, here’s what you have you didn’t have before when you got started:

  • Track record and credibility
  • Investors (who invest more with you and refer you to other investors)
  • Brokers feeding you (off-market) deals
  • Team on the ground, ready to go

Most likely, when you close on that first deal, you have several deals in the pipeline or under contract. And I can guarantee you that that second deal is bigger than the first. If you start with a 12-unit deal, then your second deal is going to be 20-50 units. And the 3rd deal is going be even bigger.

multifamily-value

It Took Him TWO Years to Buy His First Duplex!?

It took Jay Boyle from New Jersey TWO YEARS to do his first duplex deal.

Really?

Yup, you heard right — two years. He was just really cautious and looked at every duplex until he felt like he knew the area inside and out.

But then an interesting thing happened.

Related: How a Small Apartment Building Made Me $40,000/Year

By the time he closed on that duplex, he already had his second deal under contract: a 36-unit deal in Arizona (near where his parents live). And he’s now chasing 50+ deals. Another deal like that and he can retire if he wants.

Here’s the ONE THING to Remember From All of This

FOCUS ON YOUR FIRST DEAL.

Nothing else (really) matters.

Yes, long-term goals matter, and it’s important to think big. But you’ll never get there without that first deal. The first deal changes everything.

Do whatever it takes to focus on that one deal. Once you do that one deal, everything else will get much easier, and you will get your second and third shortly thereafter. And being able to replace your “day job” income within 3-5 years can become reality.

To your success!

P.S. If you’re interested in finding out how YOU can get started with multifamily investing, then check out all of my articles on the Bigger Pockets here.

If you’ve done your first deal (single or multifamily), please share your story? What impact did your first deal have on where you are now?

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".

23 Comments

  1. John Bierly

    Great post. My first deal was a 4plex, and I had an idea initially that I would keep acquiring a series of them until I hit the 10 loan max limit. But while 30y fixed loans are nice, I quickly learned this is too limiting a view of how to build equity in real estate. I’ve acquired land next to the first property and am adding 6 more units, and am in the process of developing 12 more in a nearby town. But I never would have built the skills and confidence to push out in that direction without that first deal.

  2. Shawn Ginder

    Loved your article, this year for our first deal was a single family home and two 2/unit properties in two different cities. Completely agree the first deal is most important to understanding the process of taking ownership and all that is involved. The one two unit has a detached garage we rented to a third tenant. So we have 6 units, within 30 days of taking ownership have 100% occupancy.

  3. The first unit was terrifying, and took us the longest to acquire. But it set us up for the subsequent deals. And, 4 deals/years later, we had enough cash flow to replace one income.

    However, the circumstances of the last crash were extraordinary, and we were at the right place at the right time of our lives. I doubt we’d be able to do it again any time soon.

  4. Nick B.

    First deal is the most important one and I agree with this statement wholeheartedly.
    But how do I find that first deal that is also a good deal? That is a problem!

    Everything offered for sale these days is overpriced by at least 20% if I underwrite conservatively and by 50% if I throw in a few bad case scenarios.

    Is waiting for the next crash the only option if I want to buy at a discount and not overpay?

    • Jerome Kaidor

      My first deal just fell into my lap. My broker had been trying to sell this 4plex and nobody wanted it. My wife wanted a tax writeoff and dragged me in kicking & screaming. It was 1996, and people were making 15% with high-tech mutual funds. And your mutual fund would never call you with an upchucking toilet. By 2001, that fourplex was standing tall, and high tech was in the toilet.
      So I refi’d it and bought an 8-unit building. Then a 52 unit building in 2003. In late 2003, I said
      goodbye to the W2 world, and haven’t been back since.

      • Nick B.

        Good for you! However your fist deal was 20 years ago and prices were much lower then. It’s different now. Everything is overpriced and there are plenty of people willing to pay even higher prices. Makes no sense to me but they justify it somehow. Oh, well 🙁 Where is the crash when I need it?

        • Jerome Kaidor

          Indeed. Both prices and rents were much lower then. I’ve been unsuccessfully looking for cash-flow deals for a couple of years. Prices are ridiculous. Cap rates are in the toilet. People seem to be buying
          just on speculation that prices will rise even more.

      • Mark Shtayerman

        You can still find deals. they are hard to find. but they are available. I did a 4-plex in 2015 and one in 2016. Some forced appreciation and cycling the renters making 3K per property a month. But at first those deals were ok. Bearly making any money

  5. Jerry W.

    Micheal,
    Thanks for the article. I bought a 4 plex at the beginning of this year. I have been investing for some time, but about 3 years ago I bought out the investment company we had been using. It is a little more scary being the lone ranger instead of one of the group. Getting positive feedback or even just bouncing ideas off of someone can be helpful. While my deals have slim cash flows due to 15 year financing and poor rent to purchase price ratios, I am beginning to able to pay off some smaller older mortgages and hope to improve cash flow that way as well.

  6. Peter Mckernan

    Michael,

    Great breakdown and very inspiring! This gives motivation to everyone even if they are not interested in multifamily, because these are real tangible stories that people can hear to inspire their investing careers!

    Great job!

  7. Hi,

    I’m Jason. I like the information you’ve shared. And it’s a great piece, but I’d like to know about the pitfalls and how to create legitimate deals. Oh yeah, and I’m only basing this comment on this post, I haven’t had a chance to read your other posts.

  8. Joseph Copeland

    I got started in real estate a little different than most investors by turning my first primary residence into a rental (not the best investment but was a start). My parents in dire need of a retirement jumped in (after two years of me pushing them to it) and obtained there first purchase (SFR). That first purchase led them into purchasing two more rentals that same year (2015) and successfully flipping a home for 40k profit. Building up the courage for that first deal transformed there outlook for retirement and there investing futures.

    My investing has brought me to the conclusion that multifamily investing is the way to go as my 4plex, and 5plex out perform my SFR in every aspect. I do not agree, however that in order to reach the “I quit stage” it would require each purchase being larger than the last. If someone is solely focused on this you could miss out on a lot of great purchase on the smaller multi unit purchases, which would look great in any portfolio. Also some area have these large multi unit dwellings so the options are there but many areas it is hard to even find the small multis. You could look outside your local market, however the first couple deals would generally be better in your back yard and not half way across the country.

    Know your market and ensure that you are financially ready to invest. Spend the time to find the first deal, building your courage for the second and buy what makes sense and produces positive cash flow with good ROI. Before you know it you will be able to quit the W2 job whenever you see fit.

  9. sri kand

    I have been hovering and reading to get into 4plex or 6plex, but things in west coast are so expensive. I have some good cash in hand, and can bring in more people to invest. My biggest issue is finding those multi family homes and some reliable broker who can get me off market deals.

  10. Great article, Michael. My business partner is writing a book on Multifamily and he just interviewed a Texan who took $1,000 and bought his first duplex about 25 years ago. He traded that up over and over, and his multifamily portfolio is now at $17 Million. He started with that first deal. I appreciate the way you continually beat this drum, Michael.

  11. Brad T.

    Great article, Michael! Concise and spot on! My first was a 12 unit, second another 12 unit, next followed a 63 unit all in about 9 months after I closed on the first one. I couldn’t agree more that you need to jump in and then it gets easier from there.

  12. Christopher Neeson

    In 2013 I made my first deal, – 4 plex in the Anchorage Alaska Downtown Market. Because of high prices in the Alaskan Market I utilized an FHA to accomplish this feat. Between the price of the property and FHA PMI I get hit hard with monthly payments. Off this property I learned a lot though. I learned how the deal works, from offer to closing. I learned how to utilize property management, and then how not to. I gained confidence and understanding in property investing. That property now only cash flows about $800 a month which with possibly upkeep can be easily washed out of savings.

    The biggest thing here is I saw potential, after meeting my wife we started investing in the lower 48. Best move ever when we found the right markets. Properties that bring in the same or better rents then my high stakes Anchorage 4 plex. Best part is they are 1/4 the cost and can easily pay a 5 year ballon due with ease and normally still cover anywhere from $40,000 to $80,000 in updates and repairs in the first year!

    We are talking $20,000 to $40,000 down on properties that make $55,000 to $90,000 annually in current conditions.

    Cashflow on a 10 or 30 year would be through the roof. But we choose 5 year balloon payments because we have very large plans after we pay off our first 6 lower 48 investments. Currently in the pipeline 100unit to 300unit options between $800,000 and $4,000,000.

    By rolling current property equity over we will have a gurenteed down payment and have the cashflow to support the repairs with ease.

    For 6 years I’ve been reading the likes of Kyiosaki and Trump, as well as Chavis and Loftus and many more.

    Anyone who commits themselves to smart property investing will not be let down. You just have to be smart and do your do diligence. Opportunities are endless, there are always people retiring, and there are always markets falling and adjusting.

    Biggest thing I did was invest outside of a balloon market.

  13. Patrick Huey

    I know all investing in real estate is individual and local, and there’s a big difference in investing in a duplex, triplex, fourplex, and anything five units or higher, as the former is still considered residential property while the latter is commercial property, but what do you think about the news that there’s a huge bubble in commercial real estate that’s about to burst if not deflating already? While there will always be deals to be found, many multifamily markets have peaked already, and larger units will probably crash in the near future.

  14. Richard Andrade

    I’ve been having a hard time grasping the understanding behind sentences like these:
    ” After several months of looking, he bought a vacant 4-plex with $15,000 in savings and a hard money lender. After filling the units, he refinanced to repay the loan and put some cash in his pocket.”

    How do you refi to accomplish a) loan repayment and b) take out cash after such a short time? Doesn’t the refi then leave you with another loan that replaces the first (at, I assume, the same terms or possibly only slightly better terms as the initial loan)?

    I guess I’m just having trouble understanding how the refi is used as a beneficial tool in real estate investing, unless you’ve owned the property for a good number of years and have built up considerable equity and/or property appreciation.

    • Nick B.

      This is a typical rehab scenario:
      – a distressed property is bought for $100K ($15K down, $85K hard money loan)
      – the property is then repaired (another $25K) and the value increased to $150K (based on comparable sales)
      – the property is refinanced at 75% of the new value ($112K).
      – the old loan is paid the the buyer is left with $27K cash and $38K equity.

  15. Vikram Sharma

    Michael, I want to say THANK YOU for this post. I am getting into Real Estate as a new investor (have my own home which I bought being high on emotions) and was bit overwhelmed after reading the success stories on Bigger Pockets and Overwhelmed too as having burnt my hands in a bad business investment am cautious of Risk now. I read your article and I love it the way you keep it bringing back to the basic “Complete your first deal”. After reading your blog, it suddenly occurred to me that I am letting Fear create a monster in my head. Rather I should just focus of “Completing my first Deal”. Thanks again !!

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