No one wants to admit that quantity is the key to your investment success in real estate. This is because they don’t understand the bigger picture when it comes to make profitable deals.
If you look online for a glossary of real estate terms, they don’t even include the most important term of all!
Number of units.
The number of units included in a real estate deal is more important than any other number.
On the other hand, I understand the other reason why new investors are flipping houses and buying duplexes. Small, residential real estate deals are easy to buy. But being easy to buy doesn’t mean you’ll make money.
Contrary to what a lot of new investors think, the more units a property has, the smaller the risk to your investment success. I’ll illustrate my point by comparing two examples of real deals I’ve been involved in.
One was too small. The other paid off big time.
Deal #1 is too small
I’ll start off by telling you the story of my first real estate deal ever. The short version, anyway.
I put $3,000 of my own money into a single-family home. For the first six months, everything was great. I was making positive cash flow from renting it out.
Then, my tenants moved out. All of a sudden, I was stuck with the whole mortgage and no money was coming in. Because I played too small, I lost money on the deal.
Deal #2 is just right for investment success
Now, the second example is a 1,100-unit property that cost $58 million dollars to buy. My sister invested $400,000 into this deal.
Before these numbers freak you out, listen to this.
A few years later, I refinanced that asset for $158 million dollars. I was able to give my sister all of her $400,000 back, plus an extra $2 million dollars. I call that a real investment success.
Why did the second deal work and not the first?
With 1,100 units, I don’t worry about vacancy. There is a professional management company. I have other investors to help with money on repairs, improvements, etc.
There is less risk.
To sum this up, quantity — or number of units — is truly what will make or break your investment success.
Real estate is a game where there is strength in numbers.
Don’t get intimidated by the big deals. They are the ones that are profitable and have less risk.
This is the first story in an ongoing series called REI Mistakes, where I break down the personal lessons I’ve learned in the real estate game.
Disclosure: This content is intended to be used for educational and informational purposes only. Before investing, you should always do your own analysis based on your own financial and personal circumstances before making any investment. Grant Cardone is an industry expert who has been investing for over 30 years and his opinion is based solely on his own personal experience and circumstances. Individual results may vary. You should perform your own due diligence and seek the advice from a professional to verify any information on our website or materials that you are relying upon if you choose to make an investment. Investment involves great risk and there is no guarantee of performance or results.
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