Starting small

Starting small in everything you do is a good idea. There's no doubt you'll fail along the way and it's good to know you won't lose everything if a deal goes south.

Imagine trying to bench 300lbs for your first workout. There's a high chance that you'll get crushed to death.

As far as RE examples - my step brother (no experience in RE, has a different highly demanding FT job) started with a duplex. Rented it out, started generating cash flow and reinvested in another unit. I think he's up to 4 - 5now? Recently he bought a cabin, flipped it for 1.5x a year later and is doing that again with another cabin. All these incremental deals will make him a millionaire in the near future.

Yeah I'm definitely in the boat of starting small and developing a track record. Especially if down the line you want to get into larger deals, you're going to need to raise money at some point. So it would be prudent to start with small commercial and then go big. Not to mention the fact that you can build up equity in those units to potentially 1031 to something larger. I feel like it's much more difficult to go the "guru" route and start with something big.

Many people buy small residential (1-4 units) close to where they live using conforming loans to start and then grow their portfolios over time.

For personal investing I think it's key - it limits your risk and allows you to get comfortable with the asset class. Even coming from a CRE background, it makes sense to start with small 2-4 unit residential at first instead of jumping into a small retail property or something of the like (one exception I might make is something like a single tenant NNN asset that is relatively simple and low maintenance).

I live in the SF Bay Area and invest in the Cleveland and Columbus metro areas.

Currently flipping a house in an A neighborhood there, buy for 54k, rehab for 54k, interest another 5k, all in 113k. ARV is 180-220k, split 50/25/25 with my contractor/partner/me. Financed acquisition via private money and rehab with 0% interest credit cards.

Bought a 6 unit with my partner, 220k purchase price with 27k NOI as is. I can bump it up to 36k NOI using section 8 rents and get it appraised at a 10% cap at 360k. Pull out my money and have it cash flow still.

Ironing out a JV with an affordable housing developer right now where we split profits 50/25/25, develop/me/investor. Found an investor who needed 400k of capital gains sheltered. My developer friend does Opportunity Zones and timing happens to work out with my investor friend.

Planning on buying a 50 unit in Q4 with my dad in Cleveland once I refi my 6 unit. Can buy 50 unit for 2m and cash flow from day 1. We split equity 70/30, dad/me.

i did start small (first deal involved a $10k downpayment on a $30k purchase price and most of that $10k came from a friend) and i do truly value the experience i got on these couple baby deals early on but i just want to be clear:

if you are trying to make the leap to self-employment and must rely heavily on OPM - and not everyone here is asking that question - you can potentially skip these baby deals, especially if you think you'll end up in a different product type as an entrepreneur.

trying to start your own little shop focused on MOBs while your cash is tied up in cheap rental properties ... you're better off putting your cash somewhere more passive and using those "spare hours" to become a fucking world-class EXPERT on MOBs and looking and looking until you can lock down a killer MOB deal where the numbers are screamin and you can more easily slam the money together and close the deal.

i absolutely love Sam Zell but he came up in an era where people didn't specialize as tightly, plus he was making money off management fees when he was like 19 or whatever. in today's dollars he was like a millionaire (or something like that, if i remember correctly) by the time he graduated. when most of US graduate we have a negative net worth.

BUT if you're not like the MOB guy in my example and you're more patient and just looking to build wealth, do the baby deals and you will build wealth that way too. and maybe eventually you buy MOBs with your own cash and might not need OPM!

Starting is the most important thing, and starting small is generally the easiest way to start. If I was to start again I would "House Hack" (phrase coined on Biggerpockets). This is essentially buying a 2-4 door multifamily property, living in one unit and renting out the rest. You will qulify for an FHA loan so in many cases the rent will cover the whole note payment so you can live rent free. Even if you are coming out of pocket a little it is still much better than paying rent as you are building equity and land lording skills. You can also move out after a year and do the same thing at another property so you are building your doors up and utilizing cheap financing.