Are we smart, or taking the easy way out? We need your opinion.

[Chad Miles]

Hello BiggerPockets!

Let's call this a... re-introduction. My name is Chad Miles I have been a member on BiggerPockets for a year or two now and have participated in some discussions and learned a ton. Now, I want to reintroduce myself and also gather feedback from a more experienced community on the course of action that my brother and I are currently on.

To back up, my brother, Evan Miles, and I are 23 and 21 respectively and currently each own duplexes in the Metro Detroit area of Michigan that we "house hack" by living in one side and renting the other to pay our mortgages. We love multifamily investing because of the reduced transaction costs and benefits to having more units in one location. We are ultimately interested in going into multi family apartment buildings using a syndication model and have spent the last few months making connections in our area and assembling a team of contacts that we can utilize in all steps of our business plan as we purchase value add apartments.

As we have gone down this road, we have realized a couple things including: financing is a much different beast for commercial loans rather than for standard residential mortgages. Finding investors that trust and believe in you can be difficult with a lack of experience or track record. Utilizing a syndication model has many nuances as far as who can invest and how deals and LLC's are structured which plays an important role. The more we research and listen to people with experience, we hear that there are always deals to be found (even in this stage of the cycle) and the most important thing is that we "buy the property right". The problem lies in that statement; as first time investors, we lack the knowledge base to know that we are "buying properties right" and to make sure that our numbers are sound.

In essence, we have learned that we still have a lot to learn... So we are thinking that we may pivot our course of action over the next couple of years in order to learn more about the industry and gain some first hand experience that will be crucial as go into business ourselves. Here are the three main things that we see ourselves doing over the next couple of years in order to position ourselves best to successfully plunge into our business when the times comes:

1. I currently work in IT at a large company and while I enjoy it, my passion lies in real estate and this job does not help me to gain experience that I can then take into our business. I plan to leave my current job and seek employment in the real estate industry. My question to you is this: What job experience do you think would be most beneficial for me? taking into account what we ultimately want to do. I have heard people coming from brokerage, property management, acquisitions, etc. to going into business for themselves. Maybe a combination of a few of these! What background did you have before starting your own investing business and how did it help you?

2. We are in real estate investing to put our money to work and earn residual cash flow. If we do not feel ready or totally comfortable with the multi family apartment space, why not focus on something smaller that we know well? Duplexes. We want to spend the next couple years acquiring as many du/tri/quadplexes as we can so that we are still putting our money and building wealth as we also build our knowledge base. This also can give us more of a track record when the time comes to get financing and gather investors for bigger deals. I have feeling that as we do this, we will become more connected in the real estate community and maybe start to gain connections into the larger multi family space. 

3. Lastly, we still want to get into apartment buildings because of the scalability of that business model. Our goal is to spend the next couple of years seeking opportunities to at least be a part of large multifamily deals in some way. Whether it's bringing money to other larger more experienced investors in exchange for the experience of being part of a deal, volunteering our time and skill sets in order to help make investors lives easier in exchange for some of their time or knowledge, or maybe something else! As an experienced investor: what would you want from us in order for you to take the time to walk us through deals and help us to gain the knowledge and experience that we need? We are young and have time and drive on our side, but of what help can we be to you? 

If we combine these three courses of action, we hope that when the market takes a foreseeable dip in the next few years, we are then ready to take advantage and pursue our own deals with knowledge and experience to back us.

What do you think of this plan? Are we taking the "easy way out" by not continuing to push through and pursue larger multifamily deals at this time? Do you have any answers to our questions or advice to us based on your experience when you were at our stage in your career?

Thanks for your input, we value it more than anything and appreciate everyone on this great community!

[Parker Ihrie]

Hey Chad, 

I am a commercial real estate attorney in the Detroit area with some small investments on the side (please note that none of this is legal advice and shouldn't be taken as such). I am just getting started in my career as an attorney (I've been practicing for three years) and investor, but I have worked on hundreds of large deals. Many of those deals involve the acquisition, financing (CMBS loans, usually) and disposition of large apartment complexes located throughout the country. I do not think that your ultimate goal is too lofty, but I do think that you should probably gain a good track record and learn as much as you can first. You will need access to money - not just bank financing, but private equity, as well. In order to do that, you will need experience. Obviously each deal is different and there are different requirements depending on the size, but I think you guys have it right. Learn as much as you can. Keep acquiring 2-4 unit properties (5+ units qualifies as commercial, as I'm sure you already know). Grow your cash flow and continue to save money for bigger and bigger deals. Our clients are generally moderately to very sophisticated. They have been in the real estate world for years, starting as either a second generation developer/investor or beginning their careers as attorneys, accountants, brokers, agents, etc. Obviously that doesn't apply to everyone, though. Some certainly start from nothing and create a career simply from real estate investing.

As far as leaving your day job in IT for a day job in real estate, only you can make that decision.  It depends many factors, such as your seniority and pay in your IT job versus where you would have to start in real estate.  You may have a very solid salary that you wouldn't be able to obtain right off the bat in real estate.  It would probably take you some time to really start making some more money in a real estate day job.  For example, you would need to be a real estate salesperson for at least three years before you can take the broker's test.  The people that I deal with day to day are developers/investors (some of which are institutional, but many of which are private major players - I mention this because you can certainly pursue working for a developer in some capacity), title companies, property managers, brokers, real estate agents, leasing agents, mortgage brokers/loan officers, large tenants' real estate departments and many city officials/workers.  It totally depends on what you want to do.  The title people I know are, in my opinion, the most immersed in the community (meaning they have the most real estate connections) due to the nature of what they do; however, they don't necessarily get much experience on the business or mechanical side of the transaction.  Brokers and agents closely follow the transaction from start to finish (if they're worth their salt), so they get a very good idea of the acquisition, sales and leasing aspects; however, they are not involved with day to day activities.  They are generally gone once the transaction has ended.  Mortgage brokers and loan officers, if they're good, can get to know many people in the industry and learn a ton about financing.  These are just a few examples that don't require extra schooling (although many title people are lawyers and certain other certifications may be required for the other examples).  It really just depends on what you want to accomplish with a RE day job and what you think you would enjoy.  Plus, you're young so you have time to switch careers!

The bottom line is that I don't think you are taking the easy way out.  I think it's smart.  You will build your RE knowledge brick by brick (no RE pun intended) while continuing to grow your own portfolio.  These are just my opinions from my short experience, so take it for what it is.  Feel free to reach out to speak further and good luck!