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The Process Of Multiplex Investing

I wrote a post a while back discussing the idea of investing in real estate. After a few weeks of pursuing the idea, nothing really came of it. It wasn’t a dead-end and the process was in fact quite important. In this post I want to talk a little about the process of starting a new project, the process of planning, plans ‘failing’, and witnessing the process.

One of my favorite pastimes is reading blogs. Especially when I get to be a spectator of the thought process. I have realized that I care much less now about the outcome. In the past I had more of a closed loop mindset – come up with a goal, accomplish the goal, aim for a new goal and achieve that.

When reading a blog and suddenly finding out that the author has been plotting a big project without sharing the process, I get a little bummed out. But I get it. Most of the projects we start, we either abandon or they fail.

Culturally, there is a lot of pressure to “finish what you started”. An absolutely terrible mantra when you think about it; think medical school, law school, sex, marriage, a war, a bottle of beer. Instead, it’s the process that matters and in a way I owe it to the reader to be a bit vulnerable and definitely transparent when it comes to the process and the eventual outcomes.

 

My Real Estate Project

I involved my readers in the process of buying my primary residence (my $142k condominium), then looking for some investment properties, then finally settling on the idea of looking for multiplex real estate as an investment.

I probably didn’t share enough about the journey, the reason, nor the thought process and why I don’t own an apartment complex. So let’s dive right into how my mind’s real estate module has evolved.

Personal Real Estate Experience

I have moved a lot, like most of my healthcare professional colleagues. I have had many roommates and I have rented a ton of different apartment complexes. Finally after coming into some money I started wanting to own my real estate instead of renting – mainly because I thought renting was throwing money away.

Renting was easy, there was a landlord/property manager to deal with who handled the move-in process and made sure that their property was returned to them in an acceptable condition. Rent went up regularly, sometimes for no good reason, other times because there was enough inflation or appreciation of the property value – hence, taxes – to justify it.

Buying real estate was far more emotional. I would search for something, my options would slowly dwindle as I would talk myself into a certain type of property. Then I would get either desperate or believe that I stumbled on an amazing deal and jump on a potential opportunity.

While renting only involved a landlord or property management company, purchasing real estate involved insurance companies, banks, appraisers, realtors, tax assessors, HOA companies, and an escrow company.

Real Estate As An ‘Investment’

When I bought my first piece of real estate I honestly didn’t think of it as an investment. I just wanted to own. My first condo was a property I bought in Carmel Valley, San Diego, California. A 1-br unit at around 750 sqft. It was pretty tore up but I was willing to work on it and fix it. I did just that over the next 2 years from 2007-2009. I ended up selling it and breaking even.

My second condo was a penthouse in downtown San Diego for around $475k. 1,000 sqft, 2×2. I bought it with tenants and they ended up not being able to move out as soon as expected. Since my monthly payments were around $3,500/month and they were paying $1,500/month, I didn’t want them in there for too long. I bought that condo in 2013, around the time I was realizing that I was losing the personal finance game with my high spending. So, after less than 4 months of owning it, I sold it for $515k and either made a tiny profit or broke even.

After moving to Portland, Oregon in 2015, I realized that any real estate I was going to buy either better be an amazing investment or truly a luxury purchase – in which case I better work my ass off to pay it off. I looked for only a couple of weeks because my budget was anything less than $150,000. I found my third condo for $130k, entered a bidding war and got it for $140k. It cost me another $1-2k to pay for closing fees.

After living in Portland for 2 years, I realized that I had a pretty good understanding of the market here and I spent some times educating myself about real estate investments. I started looking for single family homes which could be cashflow positive – no luck, I had moved a tad too late and the market was already bloated.

I decided that single family homes in decent areas were out of the question. Did I want to speculate on ‘up and coming’ neighborhoods? Not really. So I started looking for multi-family homes – duplexes and triplexes. The problem was that these units were being sold by the same realtors and the lending was done by the same banks which lent for single family home purchases. This is bad because in a hot housing market everyone wants to buy which drives the prices up.

Finally, after some looking around, I realized that multiplex units – anything with more than 4 units on a single property – were still reasonably prices. How come they weren’t overvalued? Because the people buying these think numerically and not emotionally. If the cap rate (the return on investment) wasn’t halfway decent then the complex wouldn’t attract any buyers.

 

I Ended Up Not Buying A Multiplex

So how come I didn’t buy a multiplex? Before I answer this, first, a tangent.

Blogging is really effective for 2 main reasons. The first is that you get to think things through on a screen. You type out your thoughts, you edit them, you add to it, you subtract from it and settle on a final concept which is polished. If you are only polishing it to impress readers then you have an entertainment blog – nothing wrong with it but it will be less useful to you.

The second reason that blogging is effective involves what it accomplishes for the reader. My readers get to read about everything I plan, I execute, I fail at, I redo, I try, and I redesign. The inefficiencies are due to my lack of experience and it wouldn’t be hard for someone to surmise why I didn’t achieve the desired outcome and hopefully avoid the same mistakes in their own adventures.

Back to the multiplex. It’s not that ‘I didn’t buy the multiplex’, it’s that I accomplished what I wanted to accomplish on the mission to purchasing an investment apartment complex. Lemme ‘splain.

I wasn’t out to own a multiplex because it’s such a sexy venture. It wasn’t about a deeply buried passion for dealing with a ton of tenants and arranging work on commercial grade heaters or juggling complicated city regulations. Instead, I wanted to own a wise investment option outside of the securities market. I wanted something that could improve because of my input.

I wanted to have the kind of large apartment complex that would have happy tenants, a happy management staff, fair prices and a healthy return on my investment of money and time. Something that wasn’t going to wildly fluctuate every time a politician farted.

I assumed my main hurdle would be securing the down payment which needed to be somewhere in the 30% range for a $1.5 million commercial property. In fact, that wasn’t the limiting factor at all. I found 5 different individuals, all with decent money, who had enough faith in me to invest in this project. It was humbling and scary.

When I realized how easy it was for me to secure the money to purchase such a property, I realized that I needed to really learn my shit. I had little room for error. This couldn’t be a haphazard purchase with other people’s money that might end in negligent failure. Not only would I lose the hard-earned money of my trusting friends but I would also lose their trust for future endeavors.

 

Back To Planning For My Multiplex Investing

Since deciding on the multiplex idea, I have been reading about real estate whenever I come across a good recourse. Even though everyone tells me to get on BiggerPockets, I have avoided reading much on there for various reasons. I think their website is wonderful and an absolute brilliant example of people coming together to share information for free!

However, real estate expertise is shared by those who have a lot skin in the game. These individuals have earned, lost, won and recovered in the real estate investing game. Some will know exactly why they are successful, others will tell you why they think they are successful but in fact, that’s not why. And the loudest person on a forum may not always be the one with the right kind of information that’s pertinent to me.

My planning is going to be a process. I now know that I have investors who are willing to write me a check. They either think me competent enough, nerdy enough or hardworking enough to want to invest with me. This kind of capital is so valuable that I can’t just accept it on the premise that ‘I have read some books – I know what I’m talking about’ even if they have that faith in me.

So, now that I know I have money in my proverbial pockets, I know that my next step isn’t to reinvent the wheel and start from renting out a shitty little condo, then a single family home, then a duplex and work my way up slowly, painfully towards a multiplex.

I do, however, need to find the right individuals who can take me under their wings, individuals with plenty of experience when it comes to multiplexes. I know I can execute a plan, I know I can work hard and I know I can solve a problem. However, because it’s other people’s money I need to be efficient and effective – for that, I want to be under the tutelage of an expert.

 

My Future Real Estate Investment Plans

I have rented one of my condos before but not long enough to deal with any major headaches. If the opportunity comes, and it looks like it might soon, to rent out my primary residence, I will do so because it will help me gain some experience.

More importantly, I will now be seeking out the right mentor to help me navigate the learning process of investing in multiplex residential real estate. It’s incredibly exciting and I have some leads to pursue moving forward.

 

How This Post Could Relate To You

Physicians have earned the privilege to secure a high hourly wage. Having a side-hustle is brilliant, no doubt. However, it’s worthwhile to explore ways to expedite the process by taking on more risk early on.

You see, many entrepreneurs bootstrap a venture or minimize taking out loans in order to prevent major loss. However, a younger physician with a good salary or at least a good hourly wage can stand to take a little more risk.

If you have a particular interest, whether it’s real estate, restaurants, bars, teaching institutions, nail salons, medical offices, etc., it might be worthwhile to do the following:

  1. learn everything you can about the business
  2. start talking to your colleagues to be silent or consulting investors
  3. find a mentor
  4. look to hire solid help to help you get the business off the ground more efficiently

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