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How I Got Started in Mulitfamily Real Estate Investing

I talk a lot about multifamily real estate investing – but I haven't really gotten into how I got here! My journey to multifamily was not nearly as direct of a path as some of my students are taking, where they are quitting their job within one year of getting started.

No, it took me a long time and it cost me literally millions of dollars in my journey to financial freedom.

My Background

I have a software background and I was in the right place at the right time in the late nineties. I joined a software startup company called Web Methods that went public in March of 2000. At the time, it was a successful software IPO and put a bunch of money in my pocket. I felt like the man! I was in demand for a while and then the startup started getting bigger and it started feeling more like a job.

All the fun people left.

I was literally one of the last ones left and I found myself slogging through work every day. I was working hard but didn't find what I was doing very fulfilling until I read “Rich Dad, Poor Dad” and I was like, Holy cow. It's not how much money I have in the bank or what my salary is, is how much passive income I have.

At the time I had almost zero passive income. I wanted to fix that! After stirring over the pros and cons, I decided to quit my job to pursue financial freedom. Since I had some money in the bank, I decided I would do everything all at once. Everything that Rich Dad talked about, I would do.

So I started flipped some houses. I learned how to trade stocks and options. I took an apartment building bootcamp. I learned how to negotiate short sales.

But my big idea at the time was getting into restaurants. I was surrounded by the Five Guys Burgers franchise. I met a few of the people who were involved with them and they were like, “Yeah, I'm just going to fund these things. We're going to hire someone who is going to run all of these restaurants and we're going to sit back and count the passive income.”

I thought, “Holy cow! That's what I want!”

Going all in on Restaurants

I took my entire net worth, plowed it into restaurants and thought, “This will be my financial freedom plan.” It worked fairly well. We had six restaurants at one point and then the recession came and everything changed.

Sales went way down. We really struggled. I sold two of the restaurants because they were losing money and hung on to four. We managed to stabilize them. But over the course of time, those sales then eroded slowly. One day I could no longer afford my operator. In fact, all these restaurants started losing money to the point where I had to let my operator go and now I was running six restaurants.

Not really what I was looking to do. I was looking for passive income. What's worse, I ended up having to sell these restaurants. On top of that, it took a really long time to sell. All the while these restaurants are bleeding money.

It exhausted all my remaining cash and all my lines of credit. I maxed out $200,000 on my credit cards. I couldn't even get a coffee at Starbucks anymore! It was a really dark time for me.

Fortunately, I was able to sell one of these restaurants for pennies on the dollar. It cost me about $300,000 to open a restaurant and I sold it for like $30,000 cash. They were all like that. It was unbelievable. Absolute utter loss of capital and emotional distress to go with it.

Clawing My Way Out With Real Estate

I learned a lot, of course, but it was not a very pleasant experience to go through. Meanwhile, while this is going on, I was trying to figure out what to do. I decided I was going to claw my way out with real estate. We started with single-family house investing. My strategy at the time was to flip houses.

Because I had flipped a couple of houses early on and had taken an apartment building bootcamp in 2007 I decided to go back to that. I raised the money because I didn't have anymore and I started flipping houses. I actually flipped about three dozen houses in three years, which was great! We were making great money, which was good, but it was a lot of work.

If I wasn't buying, fixing or selling a house, the money would stop flowing. I was scratching my head. Being a full-time real estate investor was good for me, but it's not really earning the passive income I had set out to acquire.

Meanwhile, one of my wholesalers brought me a 12-unit in Washington, D C.

I dusted off my apartment building course, my financials, and my analyzer at the time. I proceeded to buy this property and let me tell you – it was a complete nightmare. I really regretted the whole thing of going in on a multifamily. This was a value add deal. It only had one tenant and for some reason, he wanted to make my life miserable and he did everything to do that. He was suing me every six weeks for the same 12 made-up offenses. He would call the commissioner and the inspectors and I was in-and-out of court constantly paying fines, settling fines, dealing with this guy who of course never paid rent.

It was a complete nightmare. I almost ran out of money in that deal. I thought I was going to lose that deal or do a giant capital call. Needless to say, I missed my performers by many miles.

It has a good ending, as many multifamily deals gone array do. We ended up selling it five years later making the money that we were thinking of making, but in the beginning, it was a complete and utter nightmare.

Making the Shift to Multifamily

However, after about a year and a half or so when things started settling down and I was still flipping houses, I noticed that this building kept on sending me mailbox money. I was busting my butt on the house flips but that passive income was making me wonder how I could do more of this and less of that.

That's when I shifted. I moved away from single-family houses to apartment buildings and that's also when I started blogging and sharing what I've gone through. At this point, I had analyzed 150 deals and I had gone through this nightmare with this building.

In hindsight more went wrong in that building than all of our other deals since then combined. I learned so much. Right? Which was really cool. So I started blogging about it and that's when I put out the Syndicated Deal Analyzer. Soon, more and more people came to me about raising money and multifamily investing.

Looking at my own journey, once I started investing in apartment buildings the passive income came very quickly to cover my living expenses. And as I started teaching other people about that, I saw that same thing was happening for them.

That's what gets me really excited!

I call myself the crash test dummy of financial freedom if you will. Because I've tried so many different things and some worked, but they had a fundamental flaw.

For example, house flipping worked just fine, but it wasn't very passive. The restaurants worked fine for a while, but then it had a fundamental business model flaw, right? Software works great, but the probability of you going IPO or being bought is really, really minuscule.

Meanwhile, you're working your tail off. Multifamily checks many, many boxes. There's not a single business in the world that checks as many boxes as multifamily. This is why I'm so excited about multifamily and about this first deal, right? Because I know now for a fact that if I can help you do your first deal, you're about a year away from quitting a job!

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