Building Personal Real Estate Portfolio
Hey all. I have not perused the RE on here much but have been generally interested in real estate for a while - participating in the public real estate investing club in college and having a summer REPE internship as well. My parents over the past few years have started buying rental properties spanning multifamily, single family and mixed-use in our small, rural hometown. The relatively low prices and high cash flow potential (rents being as high as 2% albeit without the appreciation potential of Austin, California, etc.) is quite attractive to building wealth and I believe there is a strong moat by being very involved in our town community in terms of getting off-market deals as well in an extremely inefficient market. My parents have done quite well with just trial and error by going at it but I'm in a privileged position of getting more formal finance training by being in banking. My question is - would it make sense for me to try to pursue something in real estate after banking, whether REPE or something else, to develop more formally a real estate background if my goal is to eventually start RE investing personally, or would it be smart to just continue in banking to accumulate cash and a nest egg faster and figure out real estate on my own?
Some of the factors I've considered are that (1) I am not particularly passionate about IB or going down the traditional IB -> PE path anyways but it is a nice way to make good money relatively risk-averse (2) I think real estate is much more interesting but have been wary about pigeonholing career-wise though anything post-banking will do this anyways though I am admittedly also not well-informed on the RE paths outside of REPE right now (3) With interest rates the way they are I'm a bit hesitant to make the switch to RE junior roles in a generally bad market Appreciate any perspectives and advice, especially if anyone made a move to real estate after banking or those that have or plan to start personally investing in properties themselves.
If your plan is to go off on your own eventually or build your own portfolio, then from a learning perspective, you ideally want to work at a shop that works on projects/investments as similar to the ones you want to pursue in terms of size/property type etc...I also worked for a smaller development shop prior to the large developer and the work/deals I was doing was much more similar to my family's business, so not only was I able to learn a lot, but I was able to apply some of the same exact investment strategies that I learned from that smaller developer to my family's business. I also built very important relationships with the same architects/zoning attorneys/engineers/banks that the smaller developer uses and now I use them for my projects. The downside to working for a smaller developer generally is less money.
As for the larger developer, I was bored out of my mind and absolutely fucking hated it because the work I was doing was mind-numbing, but I also didn't like the institutional environment. There were very specific procedures of how everything gets done. For example EVERY decision requires multiple levels of approvals, so a lot of my job was writing approval emails to the dev manager, then the dev manager would provide comments and then once I made the edits I would send it to the VP and then the VP would have comments and finally when I made those edits, I would then send it to the managing director. I also hated the level of detail orientation that was expected because it was to a point that it didn't move the needle, but I would spend hours trying to achieve perfection. For example, when building a financial model for a new development, our goal was to build to a 5.50% ROC, but the deal was only coming out to a 4.70% because of the city's affordable housing requirement. We were so fucking far off the mark that unless market rents increased significantly, there was no way we were going to come close to 5.5% (we already owned the land, so a lower acquisition price was not an option), but my dev manager would dig so deep into the model such as wanting me to check every single soft cost line item of the budget and make sure that they are accurate, but in the grand scheme of things these soft cost items were very small dollars...i'm talking about tens of thousands of dollars on a ~$250mm TPC...knocking off $10k here and there was not going to fucking do anything to move the 4.70% ROC. It was clear as day that the affordable housing component is what is killing this project, but my dev manager had me spend hours combing through the budget. This type of work is just not relevant to the small projects you will do on your own. The "model" that I literally use for all my family's projects is Revenue - Cost = Profit or I just calculate cash-on-cash return for rentals. I don't need a complicated model for a triplex investment. There are a plethora of examples I can give of what I do on the day to day with my family vs at an institutional shop and the skillset/type of work is so different I don't even know where to begin. At a large developer, you are an office worker. You don't even need to go to the site to do your job and there is an entire team for the project. On your own smaller projects, you have to do everything and will have to go to the property multiple times to do various things. You may also need to get down and dirty at some points and do some work yourself.
In my experience at the large developer, I realized very quickly that I was just being trained to be a very good employee and realized that I did not want to be a dev manager there. My perspective of the dev managers was that they are very good at their job and doing their day to day. But none of them own property on their own (other than maybe their own home if that). If you were to ask any of them to develop an investment thesis/strategy on how to make money on their own in real estate they wouldn't have any idea how to because that is simply not their training/background...tbh even the VP would be clueless.
[EDIT] However, you may want to consider moving to a larger shop eventually because it pays better. Once you feel like you have learned enough at the smaller shop and you eventually want to invest in real estate on your own, then your goal is really maximizing your income and savings (although maybe you get promoted faster at the smaller dev shop and maximize income that way) or you could raise some money maybe from friends and family
Work in REPE and own/manage a small portfolio on the side.
The skills you learn in REPE (especially in asset management) will help, but its not necessary to change your career to learn them. The technical/finance aspects of buying and managing small-cap properties is pretty simple and can be learned quickly, and the rest (managing tenants, leasing/marketing, renovations, contracts, taxes/permits/other local nuances, setting up LLC & bank accounts etc) will best be learned just by buying that first property and learning as you go (just be extra conservative with cash reserves til you have it all figured out). ETA: would also recommend speaking to a local attorney and CPA to make sure you have a proper system set up for asset protection and bookkeeping.
If you want to start building a portfolio outside your W2 job, I'd say getting a RE job is not a priority. I'd focus on whatever job a) gives you the most earnings potential to build capital to invest and b) gives you enough WLB/flexibility to be able to find properties and manage them on the side (being able to randomly sneak out for an hour to tour a potential acquisition + chat with the broker about their pipeline, tour a potential tenant, do a quick repair yourself so you don't have to pay a handyman, etc is very helpful... I got my best deal by being the first person there to tour it + make an offer when the broker texted me at like 10am on a tuesday and i rushed over).
If you're genuinely interested in making the jump from IB-->RE then go for it, its a great career path. Just don't do it solely to learn how to build a personal portfolio because you can learn all that on the side if needed.