Can I 1031 my way into a Large Multi-Family?!

Question

Hello Everyone! This is my very first post on BiggerPockets and I have to say BP is AMAZING.  From the website layout and ease-of-use, to the many different avenues that constantly provide great information like the BP Podcast. BiggerPockets has literally changed my life!

So on to the topic at hand. I've been thinking hard on what I want to have as the foundation of my REI portfolio and I've realized ever since I picked up my first REI book I wanted to genereate Cash Flow, Lots of it. I also know, a great vehicle for creating cashflow is an apartment building(s). Now I haven't done any REI as I am still in the stage of soaking up as much knowledge as I can. I am 20 years old and I'm realizing my biggest problem is capital, like How can I get enough capital to even begin working on that level. Even something like a 12 or 24 unit complex?

My Idea would be I start small, buy a property and rent for a couple years then 1031 into another larger property and repeat. Repeat until I have made my way high enough to be able to 1031 into an Apartment complex that produces tremendous cashflow. Then go and do the same process until I can get into another large Complex.

Now basically what im looking for is feedback on my idea, like if thats even possible? Are there better plans to aquiring such size buildings like private investing? Are apartment complexes even the best vehicles for buidling that cashflow or should I go the route of eventually owning 26 houses free and clear like the success example Donis King from the book The Millionaire Real Estate Investor?  I've read many books and listened to just about every podcast on BPpodcast but I know the forums can provide a TREMENDOUS amount of knowledge and enlightenment!

Thank you guys in advance for taking the time to read my post! Hope you guys can teach me something!

Alec Saenz · Answer

Lol New in the since of something I haven't read yet!

Tim Cooper · Answer

New is a relative term.  This book has been around for many years.

Alec Saenz · Answer

Thanks Tim! Im always on the look out for a new good book to read!

Tim Cooper · Answer

@Alec Saenz

Read the book "How I Turned $1,000 into $5,000,000 by Investing in Real Estate"  by William Nickerson.  While it is dated, William did something very similar to your plan.

Tim

Dave Foster · Answer

@Alec Saenz

Good vendors typically lead to good vendors.  Yes, get out in the community go to investment clubs, talk to boards of realtors.  When you find a good vendor be they painter, plumber attorney or realtor - ask them who they use for their needs.

Walter Davis · Answer

@Alec Saenz Totally with you man.  In fact, January 9th of this year I walked away from my job (a 15 year career with the Federal Government) to pursue my dream of becoming a Real Estate Mogul, Philanthropist and Architect of my Family' Legacy.  I'll see you at the top Alec.

Alec Saenz · Answer

sounds great man! And yeah I love the idea of Cashflow! Being able to get up and decide you dont wnat to work for a year while you travel the world has always gave me such a rush of excitement, to acutally be free and not stuck on that 9 to 5 slave cycle where your life depends on a job you care nothing about. Then the whole idea of passing your wealth and knowledge down to your kids so they can take hat you have and grow it is the Icing on the cake!

Alec Saenz · Answer

Very very interesting and exciting to hear! Thank you for your input and kind words of encouragement! Now i've always wanted to know how to find or develop a good team for myself and build a connection of people whom I can go to for aid in certain things, like attourneys, contractors whom I can trust, etc, etc. Do you suggest just going around and speaking to some and get a feel for the ones I like!? then go from there?

And as far as a investor allies, I've introduced my older brother to REI and he seems to be soaking up the info and loving it just as much as I am, He deffinitley seems interesting in getting into REI so should me and him develop a partnership or should I be finding a partnership with someone who has experience and then later introduce my brother to the mix? I believe a team is more beneficial in anything you do because of the ability to bounce Ideas off each other and discover certain things one wouldn't see on his own? Whats your Idea on that?

Alec Saenz · Answer

Ok sound my plan sounds good?! and a quick question about using "good debt" by doing what you stated above, using debt to my advantage to aquire more properties, is that what they call "Over Leveraging?" Could I get myself into trouble if the  market decides to take a turn for the worst would I be essentially left without a paddle? or is that when you are way over 50-60%?

Walter Davis · Answer

I have no personal experience with 1031 exchanges but everything I've read and everything I've heard has been good. My real estate investing dream, like yours, is to maintain a large portfolio of multifamily units that produce positive cash flow every month.