Many real estate entrepreneurs who want to get into multifamily investing are frustrated by how long it can take to do their first deal. It takes a while to educate yourself, learn how to analyze deals, and to raise money. You have to be consistent with contacting brokers and generating deal flow. And you have to make as many offers as possible.
I also think that you should do the biggest deal you can for multiple different reasons (watch my video Bigger is Better on this topic).
Admittedly, it can take some time to do your first 20-unit apartment building deal. But then again, you're working towards a 3-5 year retirement plan by investing in apartment buildings, and so what if it takes a little longer than expected?
Despite the vision, most people have trouble achieving long-term goals. They want success NOW and if they don't get it, they give up. So if you're one of these people, and you're dying to do your first apartment building deal in the NEXT 90 days – then listen up! This strategy is for you.
So, how do you do your first apartment building deal in the next 90 days?
The answer: buy a duplex.
Why a duplex? Buying a duplex short-cuts the process of getting into multifamily (MF) investing for several reasons:
Reason # 1: There's more of them and they're easier to find: There are many more duplexes and quads than larger MF properties. You don't need to build relationships with commercial real estate brokers so they take you seriously. Just go to realtor.com or call your local real estate agent, and you'll have dozens of duplexes to choose from.
Reason # 2: You need less money. In many parts of the country, you can buy a duplex for the price of a single family house (SFH). According to realtor.com, the median home price in the U.S. is $188,900. If you assume you need 20% down, you only need about $38K of cash to close – a lot more doable than requiring $200K for a million dollar apartment building.
Reason # 3: They're easier to analyze: analyzing a duplex is like buying a SFH rental: you calculate the cash flow and potentially the after repaired value if you're renovating, and you make sure you make the cash on cash return you're looking for. With duplexes, you don't have all of the expenses you have with MF properties: you really only have property taxes, insurance, repairs, and the mortgage.
Reason # 4: You don't need to build a huge team. To get into the MF business, you'll need to build a trusted team of property managers, attorneys, brokers and lenders. To do your first duplex deal, you don't need to spend weeks building a team: you'll probably self-manage the duplex and your local real estate agent will help you take care of the closing and will refer you to their local lender to get the financing. Easy peasy.
Reason # 5: Cash flow per unit tends to be better than for larger MF properties. It turns out that SFH rentals actually make more money per unit than larger multi's. While finding MF deals with a cash on cash return of 10% or higher might be challenging, it's considerably easier with SFH or duplexes.
In short, finding a duplex is easier, faster, cheaper and more profitable PER UNIT than a larger MF deal. As a result, it's not unreasonable to buy your first duplex in the first 90 days when a larger MF might take longer.
Don't let your vision stop you from achieving your goals. Set achievable, 90-day goals that will get you closer to your vision. Buying a duplex could be that perfect, 90-day goal that will give you confidence and keep you going.
And if that's what it takes for you to get into multifamily investing, then DO IT. Buy that duplex. Will you retire from it? No, but at least you're in the game.
Have you bought or own a duplex? What was your experience like? Share your story!