Christian Osgood and Cody break down three critical mistakes new multifamily investors make: scaling too slowly with single-family rentals, scaling too fast without systems and teams, and letting emotion override financial decisions. They share how their 38-unit acquisition generated seven-figure returns but required a 20-person team and disciplined cash-flow management.
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It has made us 7 figures. It is a fantastic deal, but the hours put into that, it's absolutely extreme.
Today we are talking about the 3 biggest mistakes investors make when they're getting started.
Welcome back to the channel. I'm Christian. This is Cody. And here we go. If you haven't yet, please like and subscribe to our channel because we spend a lot of time on this and we appreciate all of your support. So what is number 1, Cody?
Well, the biggest mistake people make is scaling too slowly. Whether you buy 1 rental or you buy 10 houses in your first year, you're likely going a little too slow and people will get stuck. They'll focus on the wrong things. They'll start to skip steps and people get in trouble. You actually do have to go out and scale to a reasonable size so that you have enough cash flow to actually throw at problems. Money can fix a lot of problems in business.
One of the things I hear a lot of people say is, oh, I feel like I scaled too quickly. I bought these 4 houses this year. In reality, had you bought bigger and bought more, you would have actually outscaled most of your problems. And I think a lot of people don't realize this, but you actually can just outscale your problems. 4 houses will not make you enough money to get through your problems. Our first deal, 38 units, a 38-plex will always outperform what 4 or 5 houses could do, even if they're on Airbnb. Absolutely.
38-plex will outperform it on appreciation. It will outperform it on cash flow. And it will have enough free cash flow day one to throw at your issues. A lot of people, even if they bought 10 rentals in the first year, which is phenomenal, my first deal was 12 rentals, it was one 12-plex. Had I bought 30, I would have skipped some of the problems I had when I had 12 rentals. And I got to skip a lot of problems people have when they have one duplex. So moral of the story here, buy more, buy bigger because you have enough free money to throw at problems in the beginning to get over that initial hump. Mm-hmm.
Most of your problems you can just outscale. And that's the important thing to remember. If you do a lot of little things, you can overwhelm yourself. It can feel like you went too fast, but really, had you gone faster, you would've just had a bigger set of problems to solve. And once you solve them, you are done. Which leads us to the second one. Next big mistake people make is they actually do scale too fast. Now it's not exactly the way you think. Go as fast as you possibly can. I'm a huge advocate for that. Go big or go bigger. I absolutely love that saying. It is how you should think about this. However, some people scale fast and forget to add systems. If you have a ton of real estate, no way to manage it, you violate the principle of how do we own it and how do we never lose it. You will lose it if you do not have systems and people and processes in place.
You absolutely have to systematize everything. You can scale whether you go to 100 units in your first year, 1,000, or 10. Whichever one you do is fine. However, where you're going to get stuck and a big mistake people make, people being us, is lacking the system build out. You have to systematize everything, otherwise it's not repeatable. And if it's not repeatable, it's not worth anything. You will get overwhelmed with your problems if you get into this game and think, I can self-manage 1,000 units the same way I can manage 10. That's not realistic. Even with 100, it is a different ball game. So when you're going in and you're scaling, don't scale too slow, but understand that the scaling too quickly really means I forgot to build out systems. So skip that step. Don't forget to build out your systems because if you do that, and you're going to end up with a lot of problems, you may have a lot of money to throw at your issues, but you're going to have a lot of issues and then you run out of money. Yeah.
And this video is not the one where we go through every single issue and everything you need for build-out, but just a quick highlight reel. You're going to want to have a great property manager and you're likely going to go through more than one property manager finding the right person. That's true for lawyers. That's true for contractors. So as you're scaling, really start to build those relationships. Start out with small projects with different people, try them out and really build out that team. If you just went right now, found a seller-financed 1,000-unit complex, it is possible. $0 down. I now own this complex. You don't have the PM, the contractors. You will lose it. You're going to do something wrong. You want to scale in a stage like for us, we got to, I believe it was about 55 units where we started a property management company after our first one failed. Our first contractor on that did a great job aesthetically, but everything behind the wall was done incorrectly and we were overcharged. Had you done that mistake on 1,000 units where you just scaled and scaled and scaled, you would have got absolutely fried and you would have to start over. We never want to start over in real estate. So that is how you do it. You build, you stabilize, then you optimize it and you do that in cycles and get better and better and better. Don't just scale to scale. Scale the plan.
Now the third, which could be arguably the worst of these mistakes, is getting emotional about your deals. If you get emotionally attached to a piece of real estate, I promise you it's not going to be emotionally attached to you. It doesn't care how you feel, so don't feel that way about it. It is there so that you can fix it up, manage it better than anybody else has ever managed it before, and then eventually, as you start to operate it better, you start to make money so that you can do what you want to do. Some people make the mistake of going out and get emotionally attached their buildings, and then they forget about the money. They stop operating like a business, and they start losing money. And that is not the reason to buy real estate. We buy real estate to make money. It actually helps us advance in life.
Oh, I was wondering.
Imagine that.
Go figure. We actually have a lot of people in that who go, and they're like, okay, if I just buy the real estate and I own more real estate, I'm going to be rich. It does take a lot of work. It's very hard, and you have to make your decisions based on the the financials and stability of the property. You can take on a hard project, but you have to be realistic with yourself and go, hey, if I do this deal, I could make a lot of money and it's going to be a ton of work. This isn't passive income. I'm gonna use that 38 as an example again. That building was a really hard project. We're still in the middle of it. We're on our third phase of hard projects getting that building going.
Almost 2 years into acquisition.
It has made us 7 figures. It is a fantastic deal, but the hours put into that is just, It's absolutely extreme.
There's a team of 20 people working on the portfolio right now. 20 people working to fix our stuff up, and more than half of them are working on that building. Mm-hmm. It's ridiculous.
All day, every day. That is not a free project. We have to come in, there has to be enough cash flow in the businesses and the portfolio to fund that. What you are building needs to be structured on cash flow, good financials, good business plan, If you're coming in saying, hey, I have to do this deal because, oh my gosh, if I get to 25 units, I'm done, and that deal doesn't do what you expect, you have to start over and do it again. You're not done till you're done, and being emotional is the easiest way, hands down, to lose all of your real estate.
So to sum it up, there are 3 mistakes. Number 1, you can build too slowly. Number 2, you actually built the correct speed, but you forgot to build out your systems. And number 3, you got emotional. Don't make those mistakes. That's a good way to lose your real estate, and we are not proponents for losing your real estate. We are proponents for figuring out how to buy it and how to never lose it.
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