A very important question you need to ask yourself is, “What is my risk tolerance?”…
One reason people get involved in commercial real estate is to replace income. Some people think about leaving their jobs but they’re not comfortable with the idea of working the single-family market where they’re constantly out there chasing a new opportunity. In single-family property, that is one of the hazards. If you slow down, the properties themselves become a management issue. However, if you’re dealing in multi-family residential properties, you’ve got a great opportunity to go ahead and replace your job right away.
When you’re determining what size property you need, you can use these guidelines:
- To replace an income of $15,000 to $20,000 per year, to replace that income based on monthly cash flow, you should look for a 10-unit property.
- For someone who’s making $36,000-50,000 per year, you’re really going to need to be in the 20+ unit range. That could be one 20-unit property or even two 10-unit properties, but the total units should be 20+.
- To replace an annual income of $75,000-$100,000, you should be looking for 50+ units
If you’re already buying residential real estate, which is something I recommend, then you’ve got an opportunity to pick up that one gem in your portfolio which is going to be your apartment complex. That can be of any size, whether it’s a 5-unit, 10-unit, or a 20-unit; that’s a great place to get started.
There are a lot of people out there advocating that you get involved in multi-family residential, but they’re talking about duplexes, triplexes, or even four suite units. Unfortunately, when you’re dealing in those you’re not dealing in the commercial realm (which, for apartments, is at least five units and above) and you’re not teaching yourself the things you’re going to need, nor exposing yourself to the opportunities that are really available if you just add one more unit.
If you’re on a slow track right now and you want to find a property to replace your income, then what you want to focus on is dealing in something that’s going to be large enough to replace that income on a cash flow basis and then focusing on an exit strategy that’s going to allow you to continue to move up that food chain.