All Forum Posts by: Michael Ealy

I cannot tell you how to start - as that is a personal decision. I can only share with you how I started.

I started with a duplex and work my way up - and that is the LONG WAY to do it - and after 20 years, I own 1,000 apartment units.

There is a short cut - which is what I did when I transitioned to hotels. I swallowed my pride and partnered with an experienced hotel operator partner. 

I leveraged on a partner that has $1.5 BILLION worth of hotel under management - and it allowed me to break into the hotel investing world that is otherwise not open to me. Banks bent over backwards to lend me money once they know who I partner with. Investors are more than willing to invest in my hotel deals because they're really investing in my partner's track record and credibility.

You can do it the long way or go through the short cut.

It's up to you.

Your cap rate is your NOI/purchase price which is about 7.6% (not 34%)

The deal is a marginal one - at 5% cash on cash and you have all the headaches of property management, it's not worth it.

The only reason I will buy a deal like this if I can improve the value by increasing rents substantially. Otherwise, NO DEAL.

 You can check the HUD1 in my post but here is the breakdown again:

Proceeds from HUD-1: $1,620,947.06
less Land contract: $1,250,000
add back Mortgage pay-off: $256,696.26
equals: $627,643.32 PROFIT FROM THE SALE!

 I have private lending experience. It does not satisfy AP's goal of $10M networth in 10 years - even if he starts with $1M. Private lending is good for converting one's capital to cashflow (yield) but not multiply one's networth in a hurry.

AP,

I forgot the link to show you how much apartment investing can increase your networth:

More than $1.5 MILLION profit in 2.5 Years
https://www.biggerpockets.com/forums/432/topics/765918-whats-your-most-successful-apartment-deal-ever

And while I am at it, here are 2 other apartment deals and what I've learned from them:

$627K Profit in 15 Months
https://www.biggerpockets.com/forums/52/topics/802703-41-units-no-money-down-deal-627k-profit-in-15-months-how

All in for $789K, Worth $2.1M in Just 3 Years
https://www.biggerpockets.com/forums/52/topics/807254-36-units-acquired-for-789k-valued-at-21m-in-just-3-years

 AP,

Based on your answers, I recommend you learn apartment investing and become an active syndicator. BUT, you need to partner with an experienced syndicator to minimize your risks as well as leverage on the experienced partner's expertise, experience, network as well as networth. He/she can do renovation management better than you can because that's something you don't want to do.

1) Your goal of $10M networth in 10 years - very doable with apartment syndication. Here's an example of a deal we made $1.5M profit in just 2.5 years

I've owned houses (and still have 45 houses), land (I have a few parcels) and bought mortgage notes and also did and continue to do private lending. Nothing beats investing in apartments (I have 1,000 units) in terms of multiplying your networth in a hurry (except hotel investing). Every apartment and hotel I buy adds $1M to my networth and $100K/yr to my cashflow. With houses, you're doing great if you add $30K-$50K to your networth and $2K-$5K/yr to your cashflow. How many more houses do you need to buy to equal the wealth-building potential of apartments?

2) Since you have great credit, you can definitely become an active syndicator and guarantee mortgage debt. In exchange, you get paid a lot and you own part of the deal on top of your ownership share based on your cash investment. For example, I can own 10% of a property as General Partner or active syndicator without using my own cash in exchange for signing for the debt.

3) You want control - active syndication gives you more control vs. passive syndication.

4) You can spend 15-20 hours/week - again, go with active apartment investing vs. passive syndication since you can devote the time.

5) high risk tolerance - once again, since your tolerance for risk is high, then you should have no qualms guaranteeing a mortgage debt, say on a multi million dollar deal (assuming of course, you understand what you're doing and know the deal backwards and forwards)

Private lending does not help you multiply your networth. It's good for converting capital to cashflow but not multiplying it 10X in 10 years.

With your skill set, entrepreneurial bent, networth, cash, credit and goals, active apartment investing makes the most sense. Let me know if you want to talk this further and I am willing to give you more guidance.

 William, they don't lower the price.

What they lower is the net cash that goes to the seller.

 Yes Amit - I will send the link to the anayzer to your inbox

 Becky,

The fact that all you've done at this point is 1 duplex and it is not cashflowing yet, it's unlikely, even if you have the 20%-25% downpayment that banks will lend you money.

Apartment lenders usually require:

1) You have enough (25%) downpayment
2) They also have liquidity requirements: meaning you have to have at least 6 months of mortgage payments set aside
3) They require you have some experience with rentals (the more units the better) or have a partner/loan guarantor who has the experience
4) They also have net worth requirements, which is usually equal to the amount of the loan. If you're borrowing $1M to buy a 30 unit apartment, your networth has to be at least $1M or more

So your only option at this point is to look for an experienced apartment investor who is willing to guarantee the debt as well as supplement your downpayment.

I strongly advise for you to NOT raising capital from private investors at this point (without an experienced partner/ loan guarantor) because of your lack of a track record. Without any track record, you have no right to risk other people's hard earned savings in your deals.

(I mean no offense - I own 1,000 apartment units and been doing this since 1999 and when you're new to this, you don't know what you don't know and you should use your own money first on your first few deals before risking and possibly losing other people's money. Because once you lose other people's money, you lose your credibility and it's going to be hard to raise capital again.)

Why not do both?

Invest $100K in an apartment syndication and $150K in a small apartment (4-10 units) in the Midwest. By doing this, you learn from the experienced syndicator on how big apartment deals are being done and then see what you can implement in the smaller deal that you own.