Straight to the Big Leagues: 3 Lessons Learned From Stepping Right Into Commercial Real Estate
Updated: Dec 27, 2020
Alex Rodriguez was my favorite baseball player growing up (after Juan Igor Gonzalez, of course). One of the things that defined him is that he jumped straight into the Big Leagues and had a Hall of Fame career. As I learned that he had been investing in real estate since 2003, specifically multifamiliy real estate, I loved him even more.
Through my lenses, I grew up watching millionaires play in the commercial real estate space and hard-working individuals investing in single family residences. Does this sound familiar? The first real estate investment books I picked up were written around “how to get your first rental” or “how to flip your first house.” It seemed that no one came to my neighborhood to show me a book about “build wealth through multifamily real estate” (no one was actually talking about wealth anyways).
Real estate was always around me, so much that it seemed normal. My grandparents owned several properties in Puerto Rico and my uncle as well. The lessons were the same: “live frugally, save every penny and eventually buy your first investment house.” Seems like sound advice, right?
In 2004 I was officially a college grad with an engineering degree and my first real job (UCF Knights). So, I started to save and purchased my first house in 2005. Then I looked at my bank account and said, damn, how long is it going to take to recoup my 20% down payment? So, I started following the rules and saving. The real estate market then took off, I mean blasted off to the historic highs that saw homeownership hit it’s highest level in recorded history in 2004.
Then real estate crashed and took the residential market with it. We saw our neighbors and family members, and some landlords, unfortunately lost homes. They were forced to leave and flocked to apartments. While no one was looking, apartment rentals crept up and demand skyrocketed. Homeownership has since been on a downward trend, to it’s lowest ever in history, somewhere in the low 64% range. While the country reeled economically, there was the commercial real estate space, thriving.
It seemed that no one came to my neighborhood to show me a book about “build wealth through multifamily real estate”
Who were these apartment owners? Well, it turns out, they are all like us! We can all be owners in apartment complexes. You see, while my teachers were teaching me to save my modest income to purchase a single residential house, savvy investors were teaming up and scaling. What’s scaling? It’s leveling up. Just like the video games, Dota or Call of Duty, where you level up as you accomplish goals. These savvy investors were teaming up and pooling their modest savings to create one large fund and purchasing large assets together. Their reward? Multiplying their profits and reducing their risk footprint.
How did I miss this? It’s the secret hiding behind the book Rich Dad, Poor Dad, by Robert Kiyosaki. Kiyosaki invests solely in apartment complexes, period. When the book starts talking about assets and liabilities, and mentions real estate as one of his top assets, he does not mention multifamily. I don’t know why that is. Maybe he’s just trying to prime you to the idea of thinking different if you weren’t familiar with real estate? Kiyosaki is friends with Tom Wheelwright, who basically dissected the tax code and discovered that it has seemingly been written to benefit the apartment investor (more on that on another blog).
Then David Lindahl creates the blueprint in “Multi-Family Millions.” I picked this book up by chance and it was like a bucket of cold water was poured over my head. I realized how wrong I had been about commercial investors. Here I was, over 10-years playing in the residential space, flipping houses, wholesaling, negotiating short sales… grinding for dollars. Don’t get me wrong, yes it was very stressful with a demanding engineering career, but I did make a decent side hustle cash reserve. It is in its own way rewarding. Anyways, David Lindahl and his “Multi-Family Millions” completely blew the lid off my dome piece (mind).
David Lindahl and his “Multi-Family Millions” completely blew the lid off my dome piece
Here are the 3 lessons I learned and why I feel that you need to jump RIGHT IN to multifamily, skip the residential scene, especially if you are a busy professional like I was.
Let’s do this.
Anyone can own a building. Now that I have dove headfirst into this space, I have realized that literally anyone can own a small apartment building. I am in negotiations with an owner on a 10-unit complex and he has completely mismanaged this thing so bad he’s begging me to take it from him. His mistake? He didn’t get educated. The idea is to partner with a good, especially with a seasoned investor, pool the money together, then hand the keys to a solid property manager. The lesson is, you can save up your cash, hit up a couple of your professional friends who are saving theirs, pool it together and purchase a small complex. You are getting more total income because it’s multiple doors, and when you have a tenant leave, the one vacancy isn’t taking all of your projected profit with it. You’re still getting income from the other units!
Scale. There is that word again. Working in construction, I think of scale of a drawing. But in this sense, we’re talking “economies of scale.” For instance, I could own 10 houses (almost do), in different areas of Orlando (yep), with 10 different HOA’s, insurances, property taxes, landscaping contracts, change 10 roofs when they need it and other costs to hold. Or, I could get Hiram’s 10-unit building (my bad bro, didn’t mean to blow your spot) and have ONE roof, ONE insurance, ONE tax bill, ONE landscaping contract and have to only worry about this ONE asset.
Syndications. If you don’t have the time to chase down Owners and brokers to get leads, syndications are for you. If you don’t have the time to chase down rents and worry about what to do when tenants refuse to pay, syndications are for you. If you don’t have the time to scrutinize the numbers and analyze the profit and loss sheets, syndications are for you. The reason this model is so popular with the kids right now is that it is truly passive. I mean, passive. I have personally invested my family’s capital in a few of these and I brought my friends and family in on them because I love passive income. Dude, you’re getting direct deposits quarterly and all you did is put in $25-50k to get started with no other commitment from you.
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