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.
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.
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.