Discover the sad story of an investor whose multifamily mistake cost him a staggering $1.2 million and derailed his dreams of early retirement and financial security for his family. Here’s a deep dive into Alan’s journey, what went wrong, and the key lessons you can learn to avoid the same fate.
Alan’s Multifamily Investing Goals
In the world of multifamily investing, a single decision can significantly impact your financial future. This is the story of Alan, a multifamily investor, who made a costly mistake that set him back $1.2 million! His mistake didn’t just prevent his early retirement; it also affected his family’s financial security and his long-sought financial freedom. What went wrong, you ask? The story begins three years ago, in early 2021, amidst the chaos brought about by COVID-19.
Alan had a clear vision: he wanted to acquire a medium-sized multifamily property. He had always been passionate about investing in multifamily properties, especially as a means to create a steady monthly income stream, not just for his retirement but also for his children’s future. Many of our students share similar goals, and multifamily investments are an excellent vehicle for achieving these goals.
The “Perfect” Missed Opportunity
By mid-2021, Alan had found what seemed to be the perfect deal to meet his investment goals: a medium-sized multifamily property priced at market value. The 18-Unit property was located in a good area, in decent condition, requiring only minor renovations, and it had the potential for rent increases. Most importantly, the property was affordable; Alan had the necessary capital, including the down payment, ready to invest. However, what followed was a series of calculations and assumptions that led Alan to make a decision that would cost him $1.2 million.
The Birth of Alan’s Mistake
Alan’s multifamily mistake began, like many of our missteps, in his mindset. As we all know, from 2021 to 2022, the market conditions were unpredictable. During this time, Alan shared his insights with me, expressing his concerns about escalating interest rates. He noted that these rates had risen from 3.15% to 5.53%. Multifamily cap rates in Alan’s market went up as well, indicating that property values were stabilizing rather than continuing to climb. Meanwhile, national home prices had surged by 15%. The turmoil of that period, fueled by the COVID pandemic, led Alan to the conclusion that a recession was imminent. Alan firmly believed that the perfect storm was brewing and herein lay Alan’s first misstep: his mindset was gripped by fear and speculation.
Analysis and Misguided Conclusions
Real estate cycles typically go through peaks and troughs, and based on his information, Alan concluded that we were at the peak of the cycle with nowhere to go but down. From this analysis he anticipated that the multifamily bubble would burst, leading property prices to plummet and rents to drop. These conclusions led him to make a fateful decision: he decided to wait until multifamily prices dropped in his market before investing. He had the financial capability and the know-how to make the investment but chose to sit on the sidelines. That decision turned out to be a huge mistake.
How Waiting Cost Alan $1.2 Million
In the world of multifamily investing, a single decision can significantly impact your financial future. And Alan’s decision to wait had a costly impact. By not purchasing the 18-Unit property in 2021, he missed out on 4 significant financial benefits that could have dramatically changed his future.
- Lost Cash Flow: Had Alan purchased the property; he would have earned consistent cash flow. The 18-unit property would have generated a monthly cash flow of $4,100. Over three years, this amounted to $147,000 in lost cash flow.
- Missed Forced Appreciation: Moderate rent increases of $300 per unit over the last three years (2021-2024), would have given Alan $64,800 in additional income. Divided by a 7% cap rate, the property’s increased income would have resulted in a forced appreciation of over $900,000.
- Principal Paydown: Alan could have reduced his loan principal by around $29,000, paid down by tenant rents.
- Potential Tax Savings: He missed out on $98,000 of potential tax savings available to commercial real estate investors.
Financial Impact: Altogether, the cost of this missed opportunity was $1.2 million, a sum that could have dramatically changed Alan’s entire financial future. You do not want to make the same mistake!
3 Lessons from Alan’s Multifamily Mistake
By waiting for prices to drop, Alan missed out on an essential investment opportunity. Property values did not fall as drastically as he had predicted, and the post-pandemic rebound saw real estate prices stabilize and, in some areas, continue to grow. This miscalculated wait, cost Alan $1.2 million and delayed his financial goals. To ensure you don’t fall into the same trap, here are three critical lessons from Alan’s experience:
#1. Don’t Try to Time the Market
Alan’s mistake clearly shows that waiting for the ideal time can lead to missed opportunities. The market is unpredictable and trying to time it rarely works out.
#2. The Best Time to Buy is Always Now
The best time to invest in multifamily properties was five years ago; the next best time is now.
#3. Opportunities Exist in Every Market
Regardless of current economic conditions, interest rates, or market cycles, there are always opportunities to invest wisely. Our company and our students have thrived even during the most turbulent times, leveraging our 25 years of experience of helping students achieve their financial goals.
What’s Holding You Back?
What challenges or fears are currently stopping you from investing in commercial real estate or multifamily properties?
- Is it a lack of money?
- High-interest rates?
- Fear of a recession?
We want to hear from you! Share your thoughts with me in the comments below or text PETER to 833-942-4516.
Every Successful Commercial Real Estate Investor Has a Mentor
If you’re ready to take the next step and avoid the mistake that Alan made, apply to our mentorship program here: Commercial Property Advisors Protege Program
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