Remember what it was like to step into the world of multifamily investing for the first time?
The excitement, the potential… and of course a lot of uncertainty.
While we all wish for smooth sailing, it’s the rough waters that truly teach us how to navigate and conquer the real estate market. Because the truth is, every real estate investor’s journey is filled with learning opportunities, and mine was no exception.
Looking back at the first ever property I purchased over two and a half decades ago, there were DEFINITELY some significant lessons that shaped me to become the investor I am today.
And now, I want to share with you the top 3 mistakes I made from my first multifamily deal and the lessons I learned from them. It’s my hope that these lessons will help you navigate your own real estate journey more confidently.
So without further ado, let’s get started! 👇
Mistake #1: Failing to Develop and Implement a Solid Business Plan
My first multifamily deal was for South Moreland Apartments in Cleveland — I paid “only” $575,000 for it. (I say “only” because the deals we close today are MUCH larger than that now).
So, here’s what happened…
I bought the property, started receiving applications, and quickly realized that they were far from ideal. The credit scores were abysmal to say the least, and my dreams of making millions with multifamily started to crumble. I was freaking out!
Then, I met a woman named Karen.
Karen suggested that I upgrade the units, enhance their appeal, and raise the rents.
To say I was hesitant and scared to death to pull the trigger would be an understatement.
After all, I’d already spent all my money on the purchase (and when I say all I mean ALL), and now I was being told I needed to invest another $5,000 per unit?!
But after some convincing, I ended up taking a leap of faith, renovated the units, and waited.
Fortunately, Karen’s advice paid off… and it paid off almost INSTANTLY.
The very next application I received was from a grad student from Case Western Reserve University with excellent credit. And after everything was said and done, my rent increased from $415 to $599 per unit.
The biggest mistake here is to always have a concrete business plan from the get-go, and don’t be afraid to renovate your units (if you know what you’re doing)!
Mistake #2: Neglecting Thorough Due Diligence
Due diligence is a critical part of any real estate transaction. Unfortunately, I severely underestimated its importance during my first multifamily deal.
The good news?
I was lucky; the seller was an honest man and didn’t exploit my lack of knowledge. However, there were still many issues with the property that I missed due to my rookie due diligence efforts.
For example, I didn’t fully understand the implications of the property’s age.
Since it was built in the 1930s and I bought it in the ’90s, the property was around 67 years old at the time and had a really old brick structure… I didn’t really grasp what that could mean for maintenance and repairs.
Looking back, actually taking the time to do some in-depth due diligence process would’ve saved me from a lot of surprises (and frankly, a lot of headache)!
Mistake #3: Not Understanding How the Building Actually Functioned
The third major mistake I made was not taking the time to understand the building systems.
For example, the property had a steam boiler and a flat roof — two things I didn’t know anything about at the time.
This was an issue because not many people knew how to fix steam boilers, and the flat roof required A LOT of maintenance. Also, the cold climate’s effect on flat roofs and the implications of multiple existing roofs were things I hadn’t considered.
So in hindsight, having a clear understanding of building components would’ve helped prepare me for the challenges I faced. Not knowing this stuff led to unexpected expenses and complications.
So, what’s the moral of the story?
Learn as much as you can before you venture into your first deal. And remember, every mistake is an opportunity to learn and grow.
And remember… if you’d like to enjoy the upside potential without the pain (both mentally and financially) of learning from those mistakes, you can invest with us in one of our funds. Just click here to schedule a call with someone on our team to find out more.
Stay tuned for more multifamily stories and insights. Until then, happy property hunting!