There are a lot of challenges to getting into multifamily investment and making a success of it. Leading up to my own investing career, I worked in corporate America for a number of years, but I had wanted to get into multifamily since I was a sophomore in college. I just didn’t know how to get there.
Fast forward a few years. I stepped away from corporate life and began self-educating, and eventually, I learned how to get involved and make a go of what I originally wanted to do. Now, I want to share the formula that has worked for me in overcoming the challenges of getting into multifamily investing: knowledge → deal flow → experience → capital.
One of the biggest challenges for me starting out was a massive knowledge gap that I tried to fill through listening to podcasts, watching YouTube videos, and reading books. I spent hours doing this every week trying to learn from guys all over the country how to get involved, and I felt overwhelmed and confused because I did not feel confident that I was getting something concrete out of these materials to help me get to the next level.
Now, I know that what I should have done was attend conferences, take courses, and join social media groups to build up networks and learn from what they did. Regardless of my roundabout path to self-educate, I do believe that working smartly to gain as much knowledge as possible on multifamily investing is the foundation of this formula.
The next level is deal flow. Once you have enough knowledge, the next step is to put that knowledge up against leads that, once vetted, will set you up to make a deal. I cannot emphasize this step enough.
Some of the most effective ways that I have gotten deals are through LoopNet, directly mailing letters, and through networking. In particular, with smaller properties, it is possible to interface directly with owners. For example, I have found that owners who are looking to retire are ready to make a deal.
Through your local networks, you might hear more about deals nearby, which is one reason that I like to invest in properties in my own backyard. And especially when you get that first deal, you then take it to an experienced operator and get them on your team.
You take that first deal to an experienced operator, and it is that operator’s experience that is going to draw capital and open up opportunities. When I had my first deal, I went to the bank to get them to back me up, and despite hard money and my corporate experience, I was denied multiple times. This was because it was my first deal, and I didn’t have the experience of executing a business plan on a similar kind of property. Eventually, I was able to partner up with someone with experience and close on a deal that I had my name on. After that I could get banks interested in lending to me.
Capital Through Joint Ventures
A lot of newcomers to this field want to go straight to spending all their time raising money. However, as a newbie, you are not necessarily credible because you don’t know what you are doing and haven’t taken the time to educate yourself and get experience with what deals look like and how to execute them. In addition, you may lack the needed connections for closing deals.
The big thing to remember is that just because you lack access to capital now does not mean you can’t get started in multifamily investing. For me personally, I had access to savings outside of my 401K, access to credit lines, some cash value from a whole life policy, as well as my W2 from working the year before. But even without these assets, I could have still accessed multifamily investments by opening up joint venture investments opportunities to my friends, family, and acquaintances who were interested in participating as partners.
Gain the knowledge, apply it against the leads so you know what deals look like, and get an experienced operator on your team so that you can get the big money—usually bank money. Then, you can get the risk or equity money to put behind a deal.
Everyone wants to catch Moby Dick, or that one massive deal, but it’s better to start out smaller with a group of friends and family along with a more experienced operator to see if multifamily investing is something that you really want to get into.
Buying multi-family homes or apartments for real estate investing is a great way to grow wealth, as well as a way to offer access to investors who aren’t already wealthy. Starting out, I didn’t see a lot of diversity in investors in the multifamily space. There weren’t a lot of people who looked like me or who went about multifamily investing the way that I do. And since I’ve enjoyed a great deal of success in the multifamily investing field, I feel that I owe it to everybody else to share my experiences and create a path for people from all different backgrounds to be profitable in this space.
Watch for my next blog to learn more about the best ways to raise capital for your investments.