Hey all. Long time lurker, first time poster.
I am currently in commercial construction in a top ten CRE market. I am looking to make a career change and I have it narrowed down between doing brokerage or starting my own little development company.
I like the idea of the “eat what you kill” mentality and entrepreneurial spirit of brokerage. My roomate is in industrial brokerage and is absolutely killing it for his second year, so that’s why brokerage is appealing to me.
On the other hand, I would like to go into business for myself and start with flipping small industrial properties and then leasing them out or sell them.
I just can’t seem to find out which direction to go. I am 25 years old, debt free and have about $75k in my savings. I would use that money to fund my first project if I went the development route. On the other hand, I would more than likely be using that money to scrape by the first year or two in brokerage.
I have met and talked with a few brokers and developers, would just like to see what insight/advice you guys could share with me.
Thanks
Developers can chime in here, and I don't mean for this to come off as bashing your accomplishments because $75K is a good amount of dough to have saved at that stage, but I don't think it's enough to start your own thing. In the best case scenario, it takes 9-12 months from what I've seen to actually get a building delivered, and this is assuming that you don't hit any snags that would delay the construction (entitlement, zoning, approval, etc.) and that you have a tenant in-tow around that time, which could end up extending the rent/income start unless you get lucky with a pre-lease. I would imagine that it will take a lot longer for you to start earning money on the development side than the brokerage side. Long term it's a good option, but unless you are able to quickly raise a lot of capital and get through the process, I think you need to adjust your expectations.
Thanks for the input. That’s kind of what I expected. Didn’t want to sound like I was bragging or anything (not that $75k is worth bragging about) just wanted to put my situation out there.
Sounds like brokerage would be a good way for me to get started and build my network in the area.
The beauty of brokerage is you'll meet all the players. Long term keep your eye on the development side though. You'll wind up seeing lots of deal flow in brokerage that you may be able to spin off into personal development deals with clients.
JV/Syndication via brokerage. Do it all dude.
Regarding the development option, do you have a project and clients/tenants/investors sourced yet? Would it be a flip like you mention, or ground up? I feel like you can do a lot of the deal making part time and after hours before you need to quit your day job. Just a thought.
It would more than likely be a flip. I agree I wouldn’t need to keep my day job.
I think you misunderstood, sorry if I wasn't clear. I would keep your day job until you're contracted to start collecting your dev fee and CM fee. You can try to do all the front-end sourcing, financing, and deal making while you are working your day job.
You're talking about very different things here. The skillset that makes one a good broker is very different than what makes a good owner, which is also different from being a developer. What you're describing - "flipping" small industrial properties - isn't development either.
I would look into all of these options waaaaaay more before you put your $75k into anything. You need to boost your knowledge base or you'll get wrecked out there. I don't mean that in a mean way at all either - everyone started somewhere.
I guess I should have asked “should I use my savings to keep myself afloat for a year or two in a career in brokerage or use it to fund a small flip?”
Since writing this post I have cold called several people in the industry and met with a smaller developer and have two meetings set up with a principal and senior director at two different brokerage shops here in the next two weeks. Definitely trying to talk to as many people as I can before I just waltz off and do something.
Candidly.... I don't know if I'd do either at the moment if I was in your shoes. I'm sure that your roommate is hard working, smart, etc, but he or she also got extremely lucky with their timing of entering the cycle as the market has been in arguably one of the strongest CRE booms since the 80's and your roommate has not yet experienced a downturn. At the same time, prices are at all time highs and it's extremely hard to find any investment with 'meat on the bones' still. Therefore you would theoretically be entering either path on what many are speculating is at the end of a fairly pro-longed bull market, meaning that there could be a legitimate 2-3 years+ of low transaction volume and demand for space (meaning lower $ for both leasing and IS brokers) as well as a declining EQM/IRR if you were to buy in at the peak for the flip scenario. I realize that this is entirely speculative and you could argue that there's never a good/bad time to pull the trigger if you 'what-if' enough, but just something to think about.
Sounds like you have a fairly solid gig and you've been able to save some dough... My gut reaction would be to say to keep doing what you're doing for the time being. If you're 25, I'll assume that you've been working for roughly 3 years, meaning that you've saved on average of $25K/year. I'll be conservative and - ignoring the fact that it's probably safe in assuming you're being compensated more than when you were 22 and probably have less debt as well if some of your early income went to paying it off - that means you should have no problem saving another $25K this year. So another option is to bank a little bit more cash (as much as you can), take some time to research how much you'd need to have for a rainy day fund in addition to some startup equity, and make the jump when the market conditions are more in your favor.
everyone's saying the same thing but just to reiterate: development is really hard. finding a site is hard. money doesn't solve any of that.
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