Just wondering if anyone knows anyone who build a group of real estate holdings one property at a time? If so, do you know the process; did they buy one then save up the rental income for the down payment the other? Did they continually leverage to get new properties?
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I know someone that started with one Mixed use Retail/MF property it was 16 units, raised capital from family and friends. Going into his 7th year they are up looking to add their 8th property, much larger in growing market, think Carolina's. They did it smart bought in Tenn/Carolina's and GA. They were able to do Cash out Refi's and most initial investors stayed and moved their capital to acquire keeping some of the cash flow as their profit. Though this was before the valuation depletion in these markets, but they are operating still strongly and just closed on a $22M MF property.
They set it up strongly and then required min investments of $100k from those involved. They had strong institutional internships and still work for a institution and do this on the side. Most people in the institutions if their doctrine or charter allows them, own or are backers within the CRE and MF space.
Thanks, this was the kind of thing I was looking for.
Do you know/think that pace was reasonable? Seems like your friend is able to do both as you said.
I believe his brother does it full time and one other investor is not a silent investor. They also outsource the property management and take home less due to paying a well respected PM group. I think now that they only dabble in class A properties in secondary growing markets it was. As the demographics and markets slow down, I'm sure more will need to be focused on more natural growth than the crazy growth that the industry experienced with free money. They both also have their MSRE's which helped with connections to firms and PM groups in their general networks, so those connections were already established. After bonus season I will be investing with him.
My friend's family. They bought land a while ago for super cheap. Developed a retail center in mid 90s (20k sqft). It was much cheaper back then and was built for around $4M (they put the land up as a downpayment). They used all excess cash flow to paydown the property in full in 6 years. Lived very frugal with old Toyotas, small house, etc. Bear in mind, cap rates were significantly higher back then. The family also did all the maintenance, PM, TI, etc. themselves. After year 6, they were able to buy a shopping center in year 8, so basically 2 years of cash flow plus leverage paid for a new center. They ended up buying a retail center every 3 years or so. They still continued to live frugally. My friend and his sibling had good jobs, none of them used the income stream from the real estate. All they did was let it cash flow and pay down debt quickly. They now have at least 6 retail centers, 5 of which I believe are paid down. Theyre using the five properties to fully pay down the 6th. After this happens, theyll have 6 retail centers with no debt and at a minimum generating a free and clear NOI of $2.5M. None of this was easy though. Family lived a frugal life, raised two kids that are making atleast $150K each on their own. However, in 25+ years it all paid off and they have achieved generational wealth.
I think the people on this forum are trying to be the next Sam Zell. Honestly, I would never want to be him. I'd rather have a few fully paid off assets in prime locations and chill. Wealth is only valuable if you can use it and enjoy it.
Amen to this. Building an "Empire" is something people care about at 21. At 36, I just want to be rich, happy, and have a cool life.
I think these two thoughts are both insightful and both connected. Not only do people want to be Sam Zell, they want to do it in 5 years, not 50. I've said this many other times on many other threads, but real estate is a business that rewards long term thinking. Taking out a 20 year mortgage and paying it down is anathema to a ton of people, who look at tech bros who became paper billionaires in the space of 20 months, let alone years. I mean, look at @RElawyer, who is out here explicitly saying that the best possible business plan is one where you raise a lot of money, take as much as possible of it for yourself, and then let your business/asset go bankrupt or fail and let the suckers you conned hold the bag. If you think along those lines, you'll lose. The whole industry is about building relationships and trust and managing assets well, and all of those things take years and years.
That being said, if you shoot to do what this family did and slowly accumulate assets, and only take the next step when you know your footing is secure, you can still end up extremely wealthy. Maybe not Sam Zell wealthy, that's an outlier, but nine figures wealthy for sure. If your family friends keep buying an asset at a time and paying down the debt at the same rate, in another 25 years they'll be sitting on like $7.5-10mm of free cash flow. That's well over $100mm of value. And yeah, it takes 50 years... but it took Sam Zell 50 years, too.
To add to this, I think the primary people that think this way are the 1st year analysts or new grads. They want to achieve crazy status/wealth in a short span of time.
Honestly though, I was guilty of this too. Young age and ambition causes your brain to be wired differently. After having kids, I realized building an empire sounds awful. Give me a clean free cash flow of $1M and I am good. I'll travel like a king, eat like a king, spend time with my kids, and be super happy.
Its very hard to help a 21 year old grad understand that it takes 20-30 years to really be successful.
Ironic because sam zell built his empire one building at a time down by UChicago way back when.
I've seen all variations. In residential many people do a value-add and then cash out refi to buy the next This was easy to do post-2008 with double digit every year.
People also do 1031 exchanges to trade into larger properties.
Yes, I know three people who are living in town. They started from a single property, and now they have their own empire. But the time was good when they built their empire. But I think, now this is very difficult, am I right?
Yes
Yes, me
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