Recently, I saw in a private Facebook group a request for support from someone clearly new to the business of investing in real estate. He wanted help with the purchase of a multi-unit property. I responded by saying, “Just sent you a direct message.”
This young man reminded me so much of myself from when I first got into real estate investing. That was when I knew nothing about how to do it. Ignorance, combined with plenty of 401(k) savings, can create a disastrous outcome for your “investments.” I was eager to quickly solve a problem; that is, how do I secure my retirement income without having to rely on Social Security and pension?
He and I went back and forth via DM. In the end, I had to say, “No” to him from becoming my student/client. Here is a summary of how the correspondence went.
- I said: “I did something quite similar to what you’re trying to do when I first started out. That turned out to be a disaster, a very expensive mistake. Unless you’re working with a coach with a track record, may I suggest that you start out with a single residential property, or a duplex at most, learn as much as you can with that very first investment while ensuring positive cashflow with it for a year? Then you’ll be ready to bite a bigger deal, such as the one about which you’re asking, with confidence. I work with a select few first-time buyers, just in case you’re interested. Either way, good luck!”
- He was very much interested. We scheduled an appointment for a few weeks later when I would be able to give him all the time he needed to ask questions. Just a few days later, clearly not wanting to wait until the scheduled time, he came back with a question about the multi-unit property. It was obvious that he really wanted to buy it, believing that the proforma schedule of rental revenues – provided by the seller – was solid; he wanted me to be the sounding board.
- I responded: “You are intent on doing something I strongly advise against for reasons I already explained. Therefore, I will not be able to help you. Good luck and take care.”
- He responded: “I was asking advice from someone more experienced than myself before making a decision. I am lost and motivated and looking for help. I understand if you no longer wish to help and apologize for asking for your help.”
- I responded: “Apology accepted. I will not be giving you a call in February, however. Peace.”
- He responded: “I will remove it from my calendar. I wish you the best! Peace!”
- I responded: “Remember what I had to learn the hard way; the importance of learning as much as possible while keeping potential losses to a minimum. The solution is to stick to one single unit for your very first rental property. Wishing you success!”
- He responded: “Thank you for that! I appreciate you!”
- I gave ❤️ to his last remark.
I do not fault him at all for wanting an “instant solution” to his goal of becoming financially independent. He is a mirror image of myself from a decade and a half ago. In fact, I had someone, a Certified Commercial Investment Member (CCIM), tell me something similar. I did not listen. I was convinced, at that time, that money could help solve my problem. I simply wanted two-dozen, cash-flowing properties. Instantly.
Result: I’m continuing to pay for the residual effects of that bad decision to this date. It is unfortunate that some of us have to make our own mistakes first to learn valuable lessons.
Buying a multi-unit property without the foundational knowledge of how to buy an investment property correctly is akin to building a castle on sand. It may be beautiful when first built but can easily turn ugly.
