Small Deals Mean Wasting Time & Making Small Money

Michael Ealy · 2019-12-09T13:28:02-08:00

For those of you who don't know me, I have been investing in real estate since 1999 and I have acquired about 3,000 apartment units (and houses) and I still own 1,000 apartment units today.I also own 45 houses and several plots of land. And I buy hotels all over the country now.My passive income in one month is more than what an average American makes in 1 year.And knowing what I know now...here's my realization that may shock some of you:Small deals (singe family homes and apartment buildings below 10 units) are not good because...1. They don't make as much money...2. Too much of a hassle for my team to manage (I have in-house property management and construction/renovation companies)...and3. Believe it or not, takes up MORE time to manage than the bigger dealsGood thing I transitioned over to bigger deals...specially hotels.I mean, my latest hotel acquisition already made $160,000 in tax free income with a $1.7 MILLION investment in just 3 months! And I didn't really do anything.No stress. This is really passive income. If I die tomorrow, my kids will gladly inherit hotels and they can run them because of professional hotel management and their franchised business model.That's a true legacy.In contrast, my houses and smaller apartments...at best, I can classify them as "semi-passive" income. My kids will not be able to manage them and maybe even hate me for even sticking them with "problems".So, the sooner you can transition to BIG deals, the better.If I get enough responses to this post, I will answer the question: HOW can one go from a small deal to a BIG deal in a hurry?I will also gladly answer other questions you may have...Who wants to go first?

Candace Bradshaw

Rental Property Investor · Nashville, TN · Member since 2019 · 1 post · 0 votes

6y

@Michael Ealy

In reference to you not partnering with someone with zero know-how, which I completely understand, where would you suggest said person should begin gaining know- how?

I am extremely knew to REI and eager to learn but need direction. I am inspired by this post and your "go big or go home" mindset. I appreciate any guidance you're willing to offer.

0 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Account Closed:

I love the word reasonable. Is it reasonable to believe that someone who owns thousands of properties and numerous hotels would:

1) have time to post on BP or care about posting on BP?

2) not be trying to sell something?

And if #2 is the case, could they really be as successful as they claim to be?

Just using the old noodle here and asking - does that make sense to you? AKA - does it sound reasonable?

My answer is: no, it doesn't make sense at all, hence, I would not believe what's been presented by this poster here on the internet. Just my take.

Sue, I understand the skepticism.

I really don't need to post on BP. I have enough passive income and I am retired but I can only coach so many of my kids' sports teams. In fact, the more apartment units you have, the more you can afford professional property managers who will do the work for you so I have free time :)

And by the way, there are a few people here on BP who has more apartment units than I do so I am not the only experienced apartment investor here. To find out who they are, all you need to do is check out the Multifamily investing forums under Commercial Real Estate.

My answer to your skepticism is TWO THINGS:

1. I love real estate investing. SO I continue to do deals. In order to do that, I need three things:

a. I need to be in touch what's happening in the different real estate markets I am interested in. What better way to know that by networking with real estate investors nationwide

b. I need to find new deals - and again, by networking with people, some of the people here forward me apartment deals that I can look into

c. With more deals, I need more capital to acquire them. Some of the people here approach me and they want to invest in my deals.

2. I love to teach and talk to people. Money is very important but money is not everything. When I teach, I get a sense of fulfillment. And again, I know you're skeptical but all you need to do is check the number of my posts and the votes I get for them. The people here on BP who provide a lot of value have a high votes:posts ratio and the reason why I have a very high ratio is because people here on BP, newbie and experienced investors alike, find my replies and posts highly valuable and helpful.

2 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Candace Bradshaw:

@Michael Ealy

In reference to you not partnering with someone with zero know-how, which I completely understand, where would you suggest said person should begin gaining know- how?

I am extremely knew to REI and eager to learn but need direction. I am inspired by this post and your "go big or go home" mindset. I appreciate any guidance you're willing to offer.

Candace,

BP has some free resources like webinars they do on apartment investing.

You can also read books on MF investing. You can search the Multifamily Investing forum here on BP for books that people recommend.

There are also apartment conferences you can attend although those are more expensive (and again, BP members have reviewed some of these conferences in the forums).

Hope this helps.

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Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Chris Lockwood:

@Michael Ealy I am just starting out in investing and have a similar goal in mind. I find myself looking to the future deals amd mapping out how I will get there. Reading your story would be great.

Chris,

It's a long story :)

But here's part 1: I lost everything back in 2002-2003

https://www.biggerpockets.com/forums/55/topics/690349-from-bankruptcy-to-1-000-units-part-1-thru-the-dark-tunnel

From there, is a link to Part 2: how I came back and Part 3: how I built my real estate empire

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Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @Junior Soares:

@Michael Ealy

Good morning Michael,

This is certainly my goal. I'm just marinating a bit on my current smaller properties so I can make a smart 1031 exchange in the next 5 years into a larger 20+ unit in San Antonio.

Our current situation:

Currently live in the Bay Area and will be relocating my family to Austin, TX. (Home already purchased in January)

Our property here in the Bay Area has been serving as a rental and we've been living with my wife's parents as we save money to invest in some more deals before we move. We currently have just north of $300k in equity in our Bay Area Home alone.

The goal:

In the next 5 years sell the Bay Area home and 1031 Into a 20+ unit in San Antonio. These next 5 years will be spent analyzing what areas of SA I'd like to invest in since it will be 40 minutes south from my home.

We also have a quad in Austin that we acquired this year that I plan to condolise in the next 5-7 years and sell off each unit as our neighbor did across the street in North Austin, I too plan to 1031 this deal into a second large multi family property and then grow from there.

Also have a few properties in the midwest that I'm having the tenants pay down that will eventually turn into sales and 1031 conversions into other deals.

Thoughts on my 5 year plan? Good plan? Bad plan?

We currently have plenty of reserves for our properties (6 months total for all combined properties for full total income) with a separate cash reserve to aquire a deal once the right one presents itself

Best,

Junior

Hi Junior,

Sorry for not responding sooner.

I got wayyyyy too many responses than I anticipated.

The answer to your question is: YES, it sounds like you have a good 5-year plan. Here are the reasons why:

1. You have a lot of equity built up and more importantly, you have adequate cash reserves. My suggestion is to continue building up that reserves by getting 3-5% of your gross collected rents to that cash reserve account.

2. I always advocate investing close to where you live so you doing that is very smart.

3. You intend to minimize your taxes when you sell (down to $0) through 1031 exchange and that will save up a ton of your capital for reinvestment

Having said that, here's my suggestion on what you can do to improve your 5-yr plan:

Learn not just the different markets you can invest in San Antonio but also learn how to do VALUE-ADDs (and do so, very cost effectively).

To be honest, that's how I made the most money. I buy apartment buildings (between 20-90 units) that have rents below market, I take over - put in some property improvements and then increase the rents up to market. By doing so, I increase the value significantly.

But, my advantage is vertical integration: I have an in-house construction and renovation team - and it allows me to renovate properties very cost effectively.

So you need to network and find out good GCs or if you want to manage the construction/renovation yourself, find and build a team of contractors. Then find properties that with rents way below market because it needs work and then leverage on your team.

Hope this helps!

1 Reply

Travis Wilkes

Member since 2018 · 29 posts · 9 votes

6y

Michael, thanks for sharing your insight, taking the time to respond to folks and give encouragement.

A few couple responses for the community,

1 – for those that don’t want to scale….don’t. Michael isn’t saying you have to go big. He is just letting the members, who want to go big or have that little voice deep down whispering wow that must be nice to own 1000 units, know there is a way and it might not be as difficult as you think.

2 - I am very familiar with municipal government, in almost every City over 100k population anyone can submit for a proclamation its standard practice. As Michael suggested it doesn’t mean you get one! The Mayor is not out every day looking for productive citizens to give awards to. He/She is typically focused on his Or her family, job and city. Same for the City Manager etc…. the City relies on the community to find these worthy citizens and then reviews the request. Every now and again a not so worthy person may get one, that doesn’t take away from the ones that deserve the recognition.

I don’t know Michael nor can I attests to his character or business expertise good or bad, and this is his first post I have read, just wanted to give some insight.

1 Reply

David Friedman

Property Manager · San Bernardino, CA · Member since 2014 · 473 posts · 238 votes

6y

@Michael Ealy, Have you ever incorporated a historic building into one of your hotel developments? I'm interested in converting a 1920's building into a boutique hotel and developing a brand new hotel that would be "attached" in an effort to attract high end customers. The building is in a dense downtown area and I can purchase it for peanuts including some excess land (For the new hotel development). Thoughts?

0 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @David Friedman:

@Michael Ealy, Have you ever incorporated a historic building into one of your hotel developments? I'm interested in converting a 1920's building into a boutique hotel and developing a brand new hotel that would be "attached" in an effort to attract high end customers. The building is in a dense downtown area and I can purchase it for peanuts including some excess land (For the new hotel development). Thoughts?

Hi David,

No I have not done that. My question to you is - have you renovated a historic house? If not, I will probably start with a house first or partner up with someone who has done what you want to do.

If I am going to do it, I will find out the specific requirements on how to develop a historic building in your county/town/city. There are things you can't replace. Restoration of historic articles/structures of the building might also costs way more than replacement but it you can't replace, then you will have to eat up the significant cost upcharge.

Utility costs might also be higher than modern, better insulated buildings specially if you get below freezing weather.

Historic buildings might be cheap but renovating them usually cost a LOT higher than the usual buildings. Partner up with someone who is very experienced and has connections with the city & very familiar with historic building renovation/restoration.

Makes sense? Do you have an actual deal lined up?

0 Reply

David Friedman

Property Manager · San Bernardino, CA · Member since 2014 · 473 posts · 238 votes

6y

Originally posted by @Michael Ealy:

Originally posted by @David Friedman:

@Michael Ealy, Have you ever incorporated a historic building into one of your hotel developments? I'm interested in converting a 1920's building into a boutique hotel and developing a brand new hotel that would be "attached" in an effort to attract high end customers. The building is in a dense downtown area and I can purchase it for peanuts including some excess land (For the new hotel development). Thoughts?

Hi David,

No I have not done that. My question to you is - have you renovated a historic house? If not, I will probably start with a house first or partner up with someone who has done what you want to do.

If I am going to do it, I will find out the specific requirements on how to develop a historic building in your county/town/city. There are things you can't replace. Restoration of historic articles/structures of the building might also costs way more than replacement but it you can't replace, then you will have to eat up the significant cost upcharge.

Utility costs might also be higher than modern, better insulated buildings specially if you get below freezing weather.

Historic buildings might be cheap but renovating them usually cost a LOT higher than the usual buildings. Partner up with someone who is very experienced and has connections with the city & very familiar with historic building renovation/restoration.

Makes sense? Do you have an actual deal lined up?

I do have a deal lined up. $1,050,000 for 26,000 sq. ft. not including the basement space. I’ve never developed or purchased a hotel space before, but I do own several adjacent properties. I own a building on the same block that is 30,000 sq. ft. and we are currently converting the ground floor to retail and upstairs to creative office. The historic building has a parking lot and we could further develop that lot (Zoning allows 100% lot coverage).

I’ve remodeled several historic houses before and I’m confident I can return this property to life. It’s mainly available capital and hotel experience that I am lacking. Maybe we could discuss?

0 Reply

Adrian Fajardo

Rental Property Investor · Killeen, TX · Member since 2017 · 338 posts · 100 votes

6y

Finally made it to the very end! I've read every post in this thread for learning purposes. I got more than I hoped for.

@Michael Ealy I appreciate that you providing detailed answers to those who asked for your advice. I find them quite helpful. I am following your advice you gave in our conversation. I'm still waiting on the invite on your next webinar though 😁

I don't know Michael personally but here's my opinion on what he's done here... Kobe Bryant is retired. Now, he created his own basketball camp. He certainly doesn't need the money. If I had to guess, it's because he loves basketball and coaching. It's an honor to learn from those who are amazing at their craft because they certainly don't need to teach it if they don't want to.

I'm grateful to everyone here in BP who've helped those who are less experienced than they are.

1 Reply

Michael Ealy

OP

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

6y

Originally posted by @David Friedman:

Originally posted by @Michael Ealy:

Hi David,

No I have not done that. My question to you is - have you renovated a historic house? If not, I will probably start with a house first or partner up with someone who has done what you want to do.

If I am going to do it, I will find out the specific requirements on how to develop a historic building in your county/town/city. There are things you can't replace. Restoration of historic articles/structures of the building might also costs way more than replacement but it you can't replace, then you will have to eat up the significant cost upcharge.

Utility costs might also be higher than modern, better insulated buildings specially if you get below freezing weather.

Historic buildings might be cheap but renovating them usually cost a LOT higher than the usual buildings. Partner up with someone who is very experienced and has connections with the city & very familiar with historic building renovation/restoration.

Makes sense? Do you have an actual deal lined up?

I do have a deal lined up. $1,050,000 for 26,000 sq. ft. not including the basement space. I’ve never developed or purchased a hotel space before, but I do own several adjacent properties. I own a building on the same block that is 30,000 sq. ft. and we are currently converting the ground floor to retail and upstairs to creative office. The historic building has a parking lot and we could further develop that lot (Zoning allows 100% lot coverage).

I’ve remodeled several historic houses before and I’m confident I can return this property to life. It’s mainly available capital and hotel experience that I am lacking. Maybe we could discuss?

David,

Sounds good and sorry for not responding sooner.

Let's discuss offline if the property is still available. Thanks!

1 Reply

Chunwu Wu

Member since 2021 · 1 post · 0 votes

5y

Very helpful post. I also start to buy my first hotel. I looked at a couple of hotels that have good revenue and income numbers. But how do I verify these numbers during due diligences time? It would be idea if I can request buyer's tax return directly from IRS like the mortgage company does when you apply mortgage.

What is a common way to verify the finance data especially revenue? Thanks for your help.

Chunwu

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Small Deals Mean Wasting Time & Making Small Money

Small Deals Mean Wasting Time & Making Small Money

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