Developing on the side

I have my eye on a 12 unit new construction deal with approved plans about 3 hours away from my home but with a full time job and only being able to go out there on the weekends I feel as if it's too much risk to take on. At 12 units It's not a crazy big dev deal it would only be about 15,000 SF but the thought of shoddy work, delays, interference with my 9-5 job makes me think it's too much to handle. 
 

Does anyone have any experience developing / building while they have a FT job? 

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (90)

Jun 20, 2022 - 2:14pm
Ozymandia, what's your opinion? Comment below:

Yes.

But more importantly, why do you want to do this?  You're buying what amounts to a fully baked deal, which means you are taking on all the risk of the equity raise, the construction process, and the lease up/sell out, while presumably paying the current developer a massive premium for entitling the property.  In other words, have you really thought about the risk/reward here?  You have a FT job - why don't you buy a piece of land and then do what these folks have done, and go through the headache of entitling the land for someone else and get paid?  That's a job that can be done from your current office, mostly over email/phone.

Jun 20, 2022 - 2:49pm
Bobias, what's your opinion? Comment below:

Yeah, construction execution and lease-up take a lot of hands on work and would be tough to run on the side. Doing entitlement flips is a much better path to work through on the side as most of the work can be done in the off-hours. I'm a broker, so have access to deals, and am looking to do the same on the side. Entitlement flipping is the best solution for that.  

Jun 24, 2022 - 7:33pm
JDSRealEstate, what's your opinion? Comment below:

I never understood how this is a viable business - more based on ignorance to this subset of the industry not intended to be criticism. I understand horizontal development for large scale developers who subdivide the lots, bring in the utilities, and obviously handle any entitlements, permits etc, to ready the site for vertical construction, but not this entirely. Is the entitlement process difficult, long or expensive? Is land with entitlements really worth the premium over ones without? Whats the entitlement process like? Again not criticism more for my own edification.

  • Intern in AM - Equities
Jun 21, 2022 - 8:15am

This guy is always fair with his pricing. He usually renovates houses and sells them at low enough prices for investors to earn 20% on your cash. The price he offered me is what I believe a small premium over land basis plus cost plus time. I think he has a partner that what's to get out. 
 

Working on entitlements isn't a bad idea I guess I fear being stuck with a lemon and bunch of cash sunk into a deal. And I'm probably the only idiot in the area looking to buy a development deal. I'm also looking for long term plays. 
 

maybe I'll see if I can buy the partner out then convince the guy to build it himself or I can reach out to a bunch of regional developers to hustle for a sale. 

Jun 21, 2022 - 9:28am
Ozymandia, what's your opinion? Comment below:

This guy is always fair with his pricing. He usually renovates houses and sells them at low enough prices for investors to earn 20% on your cash. The price he offered me is what I believe a small premium over land basis plus cost plus time. I think he has a partner that what's to get out. 

Renovating homes and selling them on to an end consumer is WAY different than selling someone a piece of dirt.  And regardless of what you believe... I sincerely doubt this guy is putting up risky and expensive predevelopment dollars just to do you a favor.

Working on entitlements isn't a bad idea I guess I fear being stuck with a lemon and bunch of cash sunk into a deal. And I'm probably the only idiot in the area looking to buy a development deal. I'm also looking for long term plays. 

So you're more concerned about sinking a small amount of money into a piece of land that you cannot then sell, than you are about putting up personal guarantees for construction completion?  

maybe I'll see if I can buy the partner out then convince the guy to build it himself or I can reach out to a bunch of regional developers to hustle for a sale. 

And why is someone buying your flip?

Look, it doesn't sound like you have a great handle on how this business works, and what the points of risk and reward are.  Just because you buy a piece of land with approved plans, doesn't mean the building magically springs into being on time and on budget.  Just because the underwriting you put together in your spare time seems to work, doesn't mean a bank will lend to you at a rate or amount you can afford to pay.  Just because you have a construction loan, doesn't mean an equity partner will come in on terms that makes the deal pencil.

You're so focused on not losing a relatively small amount of money and time on entitling land, and yet you've just blithely skipped over the fact that you'll be pouring way more money and time into the actual construction process.  Your handle says your an intern in an entirely different field - maybe you should get a couple hours worth of experience in real estate before you start thinking about taking on a development job?

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Most Helpful
  • Intern in AM - Equities
Jun 21, 2022 - 10:49am

I'm not sure I follow. First off, I'll just say that we all get it… you're the man.  You clearly have spent a lot of time on this site and I should have just not posted anything or maybe PM'd you for my lashings in private.  Sorry I haven't updated my handle in 9 years- You should put your banana count on your resume (that would be really cool). 

Back to the deal. He renovates 4 / 5 unit stick frame houses and sells them to individual investors at very fair prices. Hence why I said investors make out well when they deal with him. also the numbers here are side hustle numbers -150k for the land and entitlement (everyone in this small area works real estate as a side hustle there are no local players for at least a 60 mile radius). 
 

I never said he was doing me a favor, it's just a good deal- are you the type of guy who walks past a $20 bill and says "if it was worth anything someone would have picked it up already"? prick.
 

Its a 12 unit (1 beds) stick frame building on a mat foundation with electric baseboards and in unit water heaters. It's essentially a very large house with a sprinkler system. I'm not trying to build the Empire State Building. 
 

I have 6 rentals in the area so I have a good mason, plumber, electrician, and general handyman and have done small renovations to my properties (bathrooms, kitchens, foundation work) but new construction scares me which is why I'm posting here. 
 

Why would someone buy my flip? Because it's a good fucking deal which is why I want to buy it. Current owners are two individuals who are construction guys and use flip phones.  they're good at building / renovating but I have seen them sell everything too cheap and this deal is the topper. 

I understand the construction risk which is why I created the post I want to see if people do it on the side. 

why comment if you're going to be a douchbag?  It's people like you that rev me up like a v12 babbyyyyyy

  • Principal in RE - Comm
Jun 21, 2022 - 12:45pm

Oof, this is a lot. I think the summary of the feedback is:

- The upside on an entitlement deal is multiples more than development

- The downside is likely around the same (yes you may never get the land entitled, but construction can be a sinkhole)

- This is a ton of work while working a FT job. If I knew a colleague of mine was working on real estate construction "on the side," it would impact my view of them in terms of their commitment to their job, role, organization, etc.

Jun 21, 2022 - 1:00pm
Ozymandia, what's your opinion? Comment below:

I'm not sure I follow. First off, I'll just say that we all get it… you're the man.  You clearly have spent a lot of time on this site and I should have just not posted anything or maybe PM'd you for my lashings in private.  Sorry I haven't updated my handle in 9 years- You should put your banana count on your resume (that would be really cool). 

Back to the deal. He renovates 4 / 5 unit stick frame houses and sells them to individual investors at very fair prices. Hence why I said investors make out well when they deal with him. also the numbers here are side hustle numbers -150k for the land and entitlement (everyone in this small area works real estate as a side hustle there are no local players for at least a 60 mile radius).

If your post sounds like it is coming from a person who has never in their life had an intelligent thought about real estate, and your handle also implies such, then I actually think I'm being generous in ascribing your lack of knowledge or ability to assess risk to inexperience and not idiocy.

I never said he was doing me a favor, it's just a good deal- are you the type of guy who walks past a $20 bill and says "if it was worth anything someone would have picked it up already"? prick.

No, but your not picking up the land.  You're buying it.  And I very much am the kind of person who, if you were to walk up to me an offer to trade me a $20 bill for a fiver, would immediately think I was being cheated.  This isn't charity, it's business.  Giving a slight discount to ensure a steady stream of buyers is one thing.  Shaving off all your margin just to be a nice guy is another.

Its a 12 unit (1 beds) stick frame building on a mat foundation with electric baseboards and in unit water heaters. It's essentially a very large house with a sprinkler system. I'm not trying to build the Empire State Building. 

Says every person who ever went bust.  Construction materials get delayed.  Unexpected conditions crop up in the dirt.  No shit you're not building a skyscraper, but my guess is you haven't done the diligence that those developers do, either.  If building a small asset was that easy, you'd never see a homebuilder lose a dime.  Since that isn't the case, maybe you're being a little too sanguine.

I have 6 rentals in the area so I have a good mason, plumber, electrician, and general handyman and have done small renovations to my properties (bathrooms, kitchens, foundation work) but new construction scares me which is why I'm posting here. 

This is the first wise thing you've said.  It should scare you.  It's insanely risky to build new and your margins can wiped out in a heartbeat by small problems.  Hence why I said to you that perhaps the smart move is to stick to what you know, and not pay someone else to extract all the value out of this deal before you even get a shovel in the ground.

Why would someone buy my flip? Because it's a good fucking deal which is why I want to buy it. Current owners are two individuals who are construction guys and use flip phones.  they're good at building / renovating but I have seen them sell everything too cheap and this deal is the topper. 

I understand the construction risk which is why I created the post I want to see if people do it on the side. 

why comment if you're going to be a douchbag?  It's people like you that rev me up like a v12 babbyyyyyy

I do new construction on the side.  I've built (or rather, the GC did, I "developed") a small building.  I know what I'm talking about.  You pretty self evidently don't, and you seem pretty defensive about the fact for someone who is just looking for advice.

You do not understand the risk, and you also don't seem to understand that you're paying someone else to take on the risky portion of a job for them.  You think I'm being a douchebag because I'm pointing that out, which just further reinforces my suspicion that you don't have a great handle on any of what you're telling me.  If your business plan is "have the local developer do all the entitlement and plan approval, and then he'll sell it to me for a song because he's a great guy, and it's a simple design so it'll be no problem to get it out of the ground on budget and on schedule" then you shouldn't be doing this.  It's just one blithe assumption after another.  You should be asking "why is this guy not building this project versus any of the others he's doing?"  You should be asking how every step of this can and will go wrong, and how you'll mitigate it.  The fact that you're doing the exact opposite is telling

  • Intern in AM - Equities
Jun 21, 2022 - 3:33pm

Material being delayed? It's 12 units lol I can buy everything at Home Depot. And if that's delayed I'll try lowes. He's not giving it to me for a song and a dance maybe he'll make $40k as I've said they aren't the best at pricing their assets. and his partner wants out so he's willing to sell it. This whole process for him is 6/7 years so far and I think they're tired of it.

All you're doing is telling me that construction is risky (yes no shit which is why I'm here) I work in RE for a developer / GC we've built (GC/GP) 2,000 units ground up in NYC over the last 8 years. I think you're in nyc too, let's meet up???

I'm not just shooting from the hip here  I've been investing and working in this small niche market since 2016 with great results. I know the blocks, the rents, the contractors, exit prices, etc.

my goal is to expand beyond apartment renovations. I grew up in construction and work in construction so I'm comfortable with the process, just not part time and being out of town.  I'm not going to get fucked on pricing or design inefficiency's, I can review shop drawings ect.  My risk is not being there to solve problems and kill change orders. I.E. my framer can call and say that our foundation is out of square and it's a CO because he needs to adjust and I have no choice but to pay to keep things moving. If it was local I'd be able to stop by after work and see what's going on and step in before errors are made. maybe I can mitigate this by making my handyman act like an owners rep and collect a fee. 

I'm more worried about the finished carpentry and the foundation. I have great contractor relationships for framing, siding, roofing, and all the electric and plumbing rough-in work.  It's a hard area to get people to work construction and local prices can get out of whack. 
 

We would build with no loan and raising money is easy - 100% cash between my partner and I, lease up is also easy as the area is desperate for workforce housing and the rents are solid plus it's only 12 units for the market to absorb. 
 

Jun 21, 2022 - 3:55pm
Ozymandia, what's your opinion? Comment below:

Material being delayed? It's 12 units lol I can buy everything at Home Depot. And if that's delayed I'll try lowes. He's not giving it to me for a song and a dance maybe he'll make $40k as I've said they aren't the best at pricing their assets. and his partner wants out so he's willing to sell it. This whole process for him is 6/7 years so far and I think they're tired of it.

Look, if you are of the opinion that you can run a professional job site by commuting back and forth to Home Depot during your lunch break, more power to you.  

And fine, lets assume this guy is bad at pricing his assets.  You know you're not his only client, so why are you getting this opportunity?  Why isn't someone else paying $1000 more than you?  You said I'm the person who finds $20 on the street and starts looking for the scam.  Well, yeah.  

All you're doing is telling me that construction is risky (yes no shit which is why I'm here) I work in RE for a developer / GC we've built (GC/GP) 2,000 units ground up in NYC over the last 8 years. I think you're in nyc too, let's meet up???

Construction is risky.  You can say "no shit" all you want, but your answer to "what happens when windows get delayed" is "I'll go to Home Depot".  That isn't risk mitigation, that's sticking your head in the sand.

I'm not just shooting from the hip here  I've been investing and working in this small niche market since 2016 with great results. I know the blocks, the rents, the contractors, exit prices, etc.

Just not the construction piece.  You know, the only actual value add you're putting in here. 

And again, you're not the only one who knows this market, presumably.  Why isn't someone paying more than you?

my goal is to expand beyond apartment renovations. I grew up in construction and work in construction so I'm comfortable with the process, just not part time and being out of town.  I'm not going to get fucked on pricing or design inefficiency's, I can review shop drawings ect.  My risk is not being there to solve problems and kill change orders. I.E. my framer can call and say that our foundation is out of square and it's a CO because he needs to adjust and I have no choice but to pay to keep things moving. If it was local I'd be able to stop by after work and see what's going on and step in before errors are made. maybe I can mitigate this by making my handyman act like an owners rep and collect a fee. 

So you know the construction business really well, but your concern is that you can't effectively manage a construction process.  The whole freakin business is problem solving, anyone worth half a damn can value engineer drawings or solicit competing bids. 

I'm more worried about the finished carpentry and the foundation. I have great contractor relationships for framing, siding, roofing, and all the electric and plumbing rough-in work.  It's a hard area to get people to work construction and local prices can get out of whack. 

So again, as per above, you have no worries about keeping men and materials on site, because "you can always run to Home Depot."  All your concerned about is.... keeping men and materials on site and working.

We would build with no loan and raising money is easy - 100% cash between my partner and I, lease up is also easy as the area is desperate for workforce housing and the rents are solid plus it's only 12 units for the market to absorb. 

Alright.  If you're gonna build all cash, great.  But again, if the process is so easy and the rents are so good and the supply so constrained.... why are you the only one doing this?

Jun 22, 2022 - 1:46pm
FreelancerCRE, what's your opinion? Comment below:

Can you post the deal numbers?

Cost of construction, purchase price, rents achieved, noi. 

Providing Quality Underwriting Services for CRE
  • Intern in AM - Equities
Jun 21, 2022 - 4:42pm

Do you keep forgetting that it's 12 units? A professional job site? Wtf is your issue lol you're back tracking like the idiot you are. Yes if someone needs to go to Home Depot for screws then by all means go. If windows are delayed and I need to pay 10% more at Home Depot than dangggg I just spent an extra $1,500 I guess I shouldn't do the project. 
 

I have known the owner for a few years now and we talk often. The site isn't for sale it just came up during conversion and I told him I'd think about it. To be honest I'm not sure why people aren't building and investing here but before they figure it out I'd like to own some more. 
 

you remind me of an efficient market theory economists. You figure out why the local economy is swoon for investors and I'll keep on buying.  
 

To be honest I'm really convinced you don't  know what you're talking about. How is it that you casually slip in that you developed a building on the side? Instead of being a dick offer something that you learned along the way maybe do an AMA if you actually did this.
 

You really like windows maybe I'll take you up on that advice and negotiate my very large 48 window purchase with a Turkish wholesaler the shipping alone would cover my total Home Depot bill but hey, it's all about professionalism and when people see my Turkish windows they'll know I know what I'm doing. 

Jun 21, 2022 - 5:13pm
Ozymandia, what's your opinion? Comment below:

You came on a public forum and asked for insight from people who have developed a building while working a FT job.  I'm here raising my hand, telling you I've done that, and asking you a bunch of questions reflective of my experience for you to mull over as you decide, and pointed out some possible flaws in the plan presented here, and you're getting exceptionally defensive.

If you wanted a pat on the back and a bunch of questions about how much you think you'll make, you should have said that.  Intelligent people and developers who know what their talking about are going to go straight to your risk factors and how you intend to mitigate them.  That you've repeatedly ignored that is telling.

Do you keep forgetting that it's 12 units? A professional job site? Wtf is your issue lol you're back tracking like the idiot you are. Yes if someone needs to go to Home Depot for screws then by all means go. If windows are delayed and I need to pay 10% more at Home Depot than dangggg I just spent an extra $1,500 I guess I shouldn't do the project. 

So you're shrugging off 10% cost overruns?  Once again... this isn't the attitude of a developer.  Moreover, it's worth pointing out for those reading along at that a lot of the value creation in a new construction project which might actually cover that 10% blowout (which is what it is) is in the entitlement process... which you've already paid (close to) market for!

And yeah... if I thought my budget was going to blow up and be 10% over budget on Day 1, I'd seriously rethink doing the project.

I have known the owner for a few years now and we talk often. The site isn't for sale it just came up during conversion and I told him I'd think about it. To be honest I'm not sure why people aren't building and investing here but before they figure it out I'd like to own some more. 

you remind me of an efficient market theory economists. You figure out why the local economy is swoon for investors and I'll keep on buying.  

I'm just a guy who understands that there is probably someone smarter than he is in any given room.  I'd be hesitant to pour a significant amount of cash into a project where I can't put my finger on a reason why no one else is interested.  If you don't know something someone else doesn't, or don't have a lower cost of capital, you are a fool for investing.  That's it.  That's the whole business.  Skills, knowledge, or money.  You're outright telling me you don't have knowledge.  Seeing as you won't be actually overseeing the construction, the skills are irrelevant.  And it's your money, so it isn't a low cost of capital you're promoting off of.

To be honest I'm really convinced you don't  know what you're talking about. How is it that you casually slip in that you developed a building on the side? Instead of being a dick offer something that you learned along the way maybe do an AMA if you actually did this.

Because I want you to understand that I understand the risks involved.  I'm not some 26 year old fresh out of an MSRED program working for someone else, with someone else's money, spouting some inane theory I heard my boss say while I was on the shitter.  When your carpenter can't make payroll for a week because we're in a recession and his guys don't come in?  That's on you, that's a week lost.  When Home Depot is sold out of the 48 double hung windows you need and you can't find them for a week?  That's a problem for your sequencing.  Perhaps you know this.  If you do, you are being remarkably blase about it.  Because it will happen, not might.  There are always unexpected issues that cause your schedule to fall behind, your budget to blow out.  $1,500 seems meaningless, but when it happens across a dozen trades?  And suddenly you've spent $50,000 more than you thought?  That isn't nothing, and as you say, it's a 12 unit building in the middle of nowhere - I don't know what market rents you're talking about, but I gotta imagine that blows a hole in your expected returns.

And you can think whatever you want - I'm not particularly put out that the person who just told me that a 10% budget overrun is no big deal thinks I don't know what I'm talking about.

For what it's worth, I am offering you insight on what I learned.  You've just completely missed it in your rush to assure me that you've gotten a sweetheart deal, that you know better than any other person in your market, that you can always mitigate supply chain issues or labor issues by a quick trip to Home Depot. 

You really like windows maybe I'll take you up on that advice and negotiate my very large 48 window purchase with a Turkish wholesaler the shipping alone would cover my total Home Depot bill but hey, it's all about professionalism and when people see my Turkish windows they'll know I know what I'm doing. 

Yes, and you're 8 hours of driving to buy those windows are being done when?  Presumably not on a weekday, when you've got work to do for your FT employer.  Maybe Sunday, won't it be great for your bottom line to pay whoever is installing those windows some overtime so they get in.

You're telling me that you do this for a living, and yet you're ignoring or are just straight ignorant of the way that small problems snowball into bigger ones.  If you want to go out and do this on your own, more power to you, and I hope you make a lot of money.  Come back and tell us how it goes.

  • Intern in AM - Equities
Jun 21, 2022 - 5:47pm

Sure shit happens that's life  I can pick up my double hung windows anywhere and the worst case (if lowes and homedepot close down).  we can wrap up the outside and move things along and if we are delayed a month big fucking deal It's my money and I'm the boss.  Maybe you can GC this for me? When someone leaves to pick up something at Home Depot you can execute them on site for me. 

  • Associate 2 in RE - Comm
Jun 21, 2022 - 5:29pm

Not sure why Ozymandia shit all over this post. The post seemed to pose a fair question, and instead Ozy just tried to make a case that this must be a bad investment. Developers buy entitled land all the time and can make deals pencil. Real estate markets are are some of the most inefficient out there particularly for smaller assets…. It's zero surprise that someone could dig up a great off-market 12 unit development like this.

  • Intern in AM - Equities
Jun 21, 2022 - 5:35pm

Thank you. I just wanted helpful advice over a fun public forum and this guy just shits on me calling me an idiot putting me down. It's like bullying. 

Jun 23, 2022 - 2:08pm
Ozymandia, what's your opinion? Comment below:

Thank you. I just wanted helpful advice over a fun public forum and this guy just shits on me calling me an idiot putting me down. It's like bullying. 

I didn't call you an idiot.  I said that based on your responses, it sounded like you didn't have a great grasp of the risks involved.  You were upset that someone came on here and made some legitimate criticisms instead of patting you on the back and calling you a genius, and decided to get personal in response.

I can't make you any more receptive to constructive criticism, but your inability to take it isn't a great sign.

Jun 21, 2022 - 5:46pm
Ozymandia, what's your opinion? Comment below:

Not sure why Ozymandia shit all over this post. The post seemed to pose a fair question, and instead Ozy just tried to make a case that this must be a bad investment.

I didn't shit on this post, I asked why he's taking on the risky piece instead of doing to less risky bit, which is entitling land.

What I was shitting on was the insanely lackadaisical response to my question of "why this".  His initial answer, as you can clearly read upthread, was "I don't want to spend the time and risk the money on an uncertain entitlement process"... as if it doesn't take a ton of time and risk and cash to build the asset.  That attitude is what I shit on, and I've seen nothing since which gives me a sense that I was misinterpreting the point the OP was making.  In fact, the only thing I can even remotely interpret as being obnoxious is my assumption that he's not in the industry.... which I got from his professional handle in his title.

Developers buy entitled land all the time and can make deals pencil.

Developers who have construction capabilities in house, perhaps.  Or who, you know... don't live and work 3 hours away from the construction site and have a self-professed inability to actually visit to troubleshoot issues 5 days of the week.

Again, just because someone else can do it, doesn't mean everyone can.  And beyond that, just because someone else did it, doesn't mean it was a smart investment from a risk/reward standpoint.  I know developers doing shit deals that aren't really worth it because the fees feed their guys, and the alternative is laying off folks with years of experience, people who will be needed when the next, actually lucrative, deal comes along.  It's a stopgap, not a long term business plan. 

This guy doesn't need to do this.  It's not his full time job, it's not paying his rent, it's not even his main side hustle.  So again, asking "why this use of your limited time and resources" is the most relevant possible question anyone can ask.

Real estate markets are are some of the most inefficient out there particularly for smaller assets…. It's zero surprise that someone could dig up a great off-market 12 unit development like this.

Except that goes both ways; and this guy could be the idiot in the room, and not everyone else.  Plus, construction is risky, despite our friend here telling you that all it takes to get a project back on track is a quick nip down to Home Depot for some copper wiring and some windows.

Again, in a generic sense, if you don't have an answer to the question "why am I better suited to do this than anyone else" then you shouldn't do it.  He's buying this from a guy who sunk 6 or 7 years into entitling this tiny piece of land.... does it make a ton of sense that they don't have the capacity to do a project which can be run out of the local hardware store?  You can't have that both ways.  Either it is a meaningful commitment of time and resources (and thus, risk) or it isn't.  It can't be a huge lift for the local guy who does a lot of these, and simultaneously a walk in the park for the guy who lives three hours away and probably works 50+ hours a week.

  • Intern in AM - Equities
Jun 21, 2022 - 6:05pm

The current owner isn't local we are from the same area. Like I said he has a partner and the partner wants to get out and he's the type of guy that everything is for sale and like I mentioned always at a very fair price this is no different.

You talk about construction like it's Godzilla. I've don't my share of remote side renovations and ready for the next step.
 

it's  called a margin of safety and this deal has plenty.
 

Jun 22, 2022 - 4:14pm
Ozymandia, what's your opinion? Comment below:

Ozy is both autistic and hates most people, ignore him

I have little patience for fools, that is true.  And I think someone who lashes out when being questioned about a high risk, low reward project could be reasonably described as foolish.

Jun 22, 2022 - 11:27pm
Ozymandia, what's your opinion? Comment below:
billy_boy79

Ozymandia thinks he's just better than 99.99% of people and therefore feels entitled to poop on them. Sad that the site banned buttombuckethardo but hasn't banned him

I am certain that I am better than 100% of the people I'm better than.  I don't know who those folks are, so I generally wait for them to open their mouths and identify themselves.  People like you, whose post history seems to be confined to posting whatever the latest shitty conservative meme is, are the kinds of people who are incapable of not opening your mouth about it.

  • Intern in AM - Equities
Jun 21, 2022 - 6:35pm

Let's put the guns away maybe we can end this on a good note 

I'm renovating a duplex in the same area and am having foundation issues. The house is 120 years old and was built on blue stone which is typical for the time. The back left of the foundation is buckling about 6 feet in length. This weekend we are digging it out and replacing with CMU while trying to fix the rain runoff issue that contributed to this issue. Contractor is all set, utilities are all marked out, neighbors notified, permit pulled, but my nerves are on edge! I don't like working with foundations especially when the houses are close together. The work should take about a week and run about $15k. I'll grab some photos this weekend.
My dumbass walked it twice before buying it over a year ago and didn't see the buckling foundation wall. I added a lolly column in the basement to alleviate some of the pressure on that side of the foundation but the problem worsened over the winter so it became necessary to fix.

I'll also be replacing 4 double hung windows on Saturday ozzy will like that but they're not from Home Depot :( next time. 

Jun 21, 2022 - 7:59pm
redever, what's your opinion? Comment below:

So, just FYI,  I haven't read or even really skimmed the above back and forth with ozy (I glanced too many references to Home Depot and decided I can't help on that one lol), I'll let you settle all that on your own. Anyway, my thoughts..

- How much do you care about your FT job (you give no details in the post)? If your motivation to doing this sort of deal is to "break away" then I'd be far more inclined to suggest small-scale development as a side business than if you say you are "career oriented" in this field. This is a business not an "investment", and you correctly identify the risk of interfering with your FT job. Since any good "career" provides the potential for a ton more upside than a 12 unit bldg, the risk/return is probably not in balance. If the "career" can be thrown away per se.... then consider it (FYI, I've legit know people who started their real estate empires doing side deals kinda like this, so it is a legit pathway if so motivated). 

- The 3 hrs is a big deal in being manageable, even without a FT job, UNLESS you really know that market and have contractors and such you trust/know/have relationship. If you have that plan mapped out, then I guess, but with 3hr each way..... you lose full day doing anything over there. Not sure how mobile/remote and schedule flexible this job is... but if it is a legit "9-5" with weekends only good time to go, I wouldn't dare it personally. 

- You don't mention your financial position (and I wouldn't on a forum like this...), but if you aren't hyper liquid (at least relative to cash outlay and risk overruns/delays of this deal) or are being backed by someone who is, I wouldn't mess with ground up development tbh. That's a personal opinion (and don't ask me to define hyper liquid, I mean it conceptually, not like a fixed ratio or something), but all the risks you identify get solved or create cash issues, so without that backstopping you.... I'd walk away. (tbh, risk tolerances are personal, so really do as you wish here, but i'll drop my personal philosophical on this below for the fun of it).  

*My personal philosophical view of risk taking, entrepreneurship, careers (in as short as I can make it).... FYI... without my whole life story (which I'm not about to write, you prob won't understand why this makes so much sense to me... but oh well... just say that YMMV). 

- I'm a big fan/reader of Nassim Taleb when it comes to risk taking and measurement, thus I want "barbell" type exposures (risky on one end, very safe on the other) and be generally positioned for antifragile gains and positive black swans (read his books if you want to understand all that). In short, I want high risk with strong upside but protection from downsides. 

- Since I wasn't born with huge amounts of cash and don't have rich parents.... a high earning career is my personal best strategy for upside return. Thus my "high risk" position comes from exposure to upside in career field, but the chance of layoff or termination. Yet, these are not equal, upside (for me personally) far outweighs downside on relative basis (at least as I perceive it). I also really enjoy what I do and seem to be good at it, so win win. 

- Given that a career in institutional real estate (at a large corp developer no less) carries legit risk of layoff, or even being fired, and such risk is increasing and correlated with economic downturns and market crashes.... I keep my personal investments fairy liquid and boring (mostly Vanguard index funds and high-yield savings) with the cash liquid position being much larger than the often recommended "3-6 month emergency fund". This provides legit financial protection, but also a great deal of psychological safety and personal control. Cash is also an option (as are liquid securities to a greater extent), so I could make an "entrepreneurial" type move when/if I wanted to with greater ease.

- Thus, I really don't want to get tied up in small deals or rentals... too illiquid and too much negative black swan exposure. I'd rather be liquid to drop into a few firm venture if thought I had a great opportunity (not actively seeking this, but who knows, that's why I want my liquidity). Thus, I'd personally avoid 12 unit type deals, as I don't want to be a small scale developer (personal goal choice). I used to own a few rental houses (acquired via "house hacking" type strategies), but have sold and glad to be free of landlord duties/risks (personal choice, I've got nothing against those who want to build a portfolio of rentals, or even do small dev deals). 

- I care greatly about "time sucks", and that is why for me I would avoid such type deals, the TVM of your "hourly" can get eroded too easily, or worse degrade your output at your main career. So, the time risk of something you propose makes it an easy no from my personal playbook. 

That's it, my long-winded diatribe, not sure if even close to what you were looking for..... but I just felt like writing it! Enjoy! 

  • Intern in AM - Equities
Jun 21, 2022 - 8:51pm

I appreciate your thoughtful comment. Thank you. I'll digest and get back to you in the am. 

Jun 22, 2022 - 4:12pm
Ozymandia, what's your opinion? Comment below:

I appreciate your thoughtful comment. Thank you. I'll digest and get back to you in the am. 

I'll point out that he's making the exact same arguments I did.  You are welcome

Jun 22, 2022 - 4:25pm
Ozymandia, what's your opinion? Comment below:
redever

- How much do you care about your FT job (you give no details in the post)? If your motivation to doing this sort of deal is to "break away" then I'd be far more inclined to suggest small-scale development as a side business than if you say you are "career oriented" in this field. This is a business not an "investment", and you correctly identify the risk of interfering with your FT job. Since any good "career" provides the potential for a ton more upside than a 12 unit bldg, the risk/return is probably not in balance. If the "career" can be thrown away per se.... then consider it (FYI, I've legit know people who started their real estate empires doing side deals kinda like this, so it is a legit pathway if so motivated). 

I would argue that there is an issue about sustainability in what sounds like a small suburban/rural community.  If you start your own shop doing small deals that is great, but at some point this kind of construction in this kind of market may not be infinitely replicable.  As you say below, there is a huge distance and time commitment involved for OP, so unless the game plan long term is to build this into a going concern, it makes even less sense to commit that time to a project which isn't going to replace a day job or anything.

 

- I care greatly about "time sucks", and that is why for me I would avoid such type deals, the TVM of your "hourly" can get eroded too easily, or worse degrade your output at your main career. So, the time risk of something you propose makes it an easy no from my personal playbook. 

That's it, my long-winded diatribe, not sure if even close to what you were looking for..... but I just felt like writing it! Enjoy! 

Interesting philosophy, even if I'm not a big fan of Taleb.

I know my pal the OP ran off in a huff because I refused to tell him he was a genius and probably won't read this, but since others might, I may as well build on what you're saying and add my 2 cents.

Development takes a ton of work, and the amount of work it takes to do a 12 unit wood frame building like OP is envisaging isn't linearly less than it takes to build a skyscraper.  The further down you go in terms of absolute returns, the less attractive it is, because you're spending more time per dollar earned.  As I said initially, this is why I thought it made more sense for this guy to do land entitlement, which creates a lot more value, or to keep buying existing assets, which takes less time and is less risky.  At some point you have to take a risk and do something if you want to open your own shop, but a tiny new construction job as a side hustle in a tertiary market while staring down the barrel of a recession, in a highly inflationary environment with rising interest rates, seems like the absolute perfect storm of awful conditions.  OP wanted to be patted on the back for doing his own deal, and not hear about the risks, but it seems to me that unless the rewards from something like this would be enough to compensate for all the time and the effort and the likelihood of real professional consequences in his "day job," it's a silly move to make.  Risk is vastly outweighed by reward.

Jun 22, 2022 - 4:11pm
Ozymandia, what's your opinion? Comment below:
TheDebtStar

I say just do it. If you're getting a good deal on the land already (and I trust that you are correct) just figure out a building plan, price everything out, and if it doesn't pencil, try and sell the land for a profit or at least get your money back. 
 

Don't die with regrets.

But someone else is going to do the exact same math, so why would they buy the deal for more than this guy would, knowing that even at his basis it wouldn't work?

I agree, sometimes you have to take a leap and take a risk, but this is explicitly a situation in which there is less upside than normal, and the entire project is incompatible with having a full time job.  Construction is a full time job, even on a small site

Jun 21, 2022 - 9:50pm
senbi808, what's your opinion? Comment below:

There is a ton of risk in construction generally but right now there is also a ton of macro headwinds. I don't know where you are and RE economics are very local, but even in a hot area like where I am (Honolulu) I would be looking very hard at this deal to see if it can pencil. Material and labor are at all time highs and so are interest rates. Could all this pop and give you room to drop vertical costs, sure, but how long is that going to take and can you hold the dirt and be ok with a potential 35% haircut on your value (which has already happened to affordability with the recent rate move) plus the dollars in soft costs you have invested while you wait? That is what I would be asking myself.  

  • Intern in AM - Equities
Jun 22, 2022 - 7:29am

Sorry guys I can't look at this thread without getting pissed off so I can't answer anymore questions. 
 

I think the people who use this site should decide what value this guy Ozy brings and what it's worth it to keep him active on the site. 
 

maybe I'll post an update in a few weeks but this is too toxic. 

Jun 22, 2022 - 4:10pm
Ozymandia, what's your opinion? Comment below:

Sorry guys I can't look at this thread without getting pissed off so I can't answer anymore questions. 
 

I think the people who use this site should decide what value this guy Ozy brings and what it's worth it to keep him active on the site. 
 

maybe I'll post an update in a few weeks but this is too toxic. 

Amusing, seeing as every other comment is echoing exactly what I said in regards to risk and the complexity of managing a construction site while having a full time job from 3 hours away. 

Perhaps work on developing a slightly thicker skin and come back and you'll have a more productive experience.

  • Associate 2 in AM - Equities
Jun 22, 2022 - 5:08pm

Ozymandia is probably the one person on this site I know who isn't a decent person. Most people you disagree with like financeabc, you know they at least are coming from a decent place but with Ozymandia he's a toxic, hate-filled person. Just forget about him and move on

Jun 22, 2022 - 5:14pm
Ozymandia, what's your opinion? Comment below:

Ozymandia is probably the one person on this site I know who isn't a decent person. Most people you disagree with like financeabc, you know they at least are coming from a decent place but with Ozymandia he's a toxic, hate-filled person. Just forget about him and move on

It sounds like your definition of "decent person" is "someone who is nice to me, even when I'm being an idiot, or a bigot, or a hypocrite."  I have no patience for people doing any of those things, and I think trolls like that (and I am not accusing you of being such a person, since I know you'll take take the opportunity to play the victim card if possible) thrive when people treat their garbage opinions as something worth responding to except with utter disdain.

I am unfailingly nice and polite to people who seem willing to engage in good faith, or have genuine questions.

But to take this OP... he had a business plan which didn't make a lot of sense to me, and when I pointed out that he seemed to be missing the forest for the trees in terms of risk (I mean... he sat there with a straight face and said he was more concerned about losing some predevelopment dollars than he was about construction risk) he got extremely defensive.  Which led me to believe that he wasn't looking for actual advice, he was looking for a pat on the back.  I don't think anyone should have patience with that, and if you catch me doing it, please call it out in the same language I do to others.

Jun 22, 2022 - 4:08pm
Ozymandia, what's your opinion? Comment below:

Just posting to say that Ozymandia is a sack of shit (sack > piece).

Well I wouldn't want to settle for just being a piece of anything.

But seeing as basically every other post has echoed every single one of the concerns I brought up, I'll take all this as validation.

  • Works at Other
Jun 22, 2022 - 12:32pm

If you have a trusted partner that can be the boots on the ground, it would be easier to give him sweat equity for doing a lot of the leg work. Project risk aside, I think the biggest hurdle is you physically driving 3 hours each way even if it's once a week or something.

Jun 22, 2022 - 4:06pm
KClubs, what's your opinion? Comment below:

- The distance is non-trivial and challenging. Without being able to see the trades during the week (when they're onsite and working), you would basically need a site supervisor, as your daily point of contact. This is someone you'd either have to trust or pay a decent amount

- It isn't big but total size can be misleading when correlating to complexity (eg. $50M deal might be more brain damage than a $200M deal). If you have previously built a house/townhome/cottage, things like that help. 

- Small deals often have tighter margins and so cost and schedule overruns can have a bigger impact than on something much bigger. Repeating this is worth it.

- I wouldn't put much weight into comments about whether this is a good deal / right for you / do you have the expertise / etc. What I would do is assume worst case scenario on costs, schedule issues, timing delays, etc. Effectively put some real numbers to the situation and see whether you are personally okay with the risk (also see what your partner thinks). Basically, assume it will be the opposite of a slam dunk deal and see if you are comfortable with that. This will also force you to connect with all your trades and see if they are ready for it (labor, materials, schedule, pricing, etc.).

- There are a lot of moving parts but if you work in the industry + have a little bit of experience, you know that. I would treat this like your most important work deliverable. If that reduces your work quality at your fulltime job, maybe reconsider?

Honestly though, good luck and give 'er. Real estate has been the breeding ground for countless entrepreneurs, so I would say go for it if you are confident you can execute.

Jun 22, 2022 - 4:09pm
Ozymandia, what's your opinion? Comment below:
KClubs

-

- I wouldn't put much weight into comments about whether this is a good deal / right for you / do you have the expertise / etc. What I would do is assume worst case scenario on costs, schedule issues, timing delays, etc. Effectively put some real numbers to the situation and see whether you are personally okay with the risk (also see what your partner thinks). Basically, assume it will be the opposite of a slam dunk deal and see if you are comfortable with that. This will also force you to connect with all your trades and see if they are ready for it (labor, materials, schedule, pricing, etc.).

Amen

  • Intern in AM - Equities
Jun 22, 2022 - 5:41pm

Thanks for the comment. Yes for sure, my father does small scale flips (gut renovations and new builds- all single family) and the new construction is always much less of a headache than a gut renovation. Most of the new construction jobs he can run from the phone if he wants to. He's just a 1 man band with good subs. I can see this from the renovation projects that I'm currently doing in this area which I run mostly from the phone. The smaller the renovation the bigger pain in the ass it is, especially on a 120 year old house (better off keeping the lights off so you can't see your fire rotted studs and floor joist jkjk). 

 I have a great handyman who's skilled in every trade and I would look to him as an owners rep overseeing the trades, deliveries, site prep, etc.  I have good relationships with most of the subs (foundation, framing, siding, roofing, plumbing, electric). It's really the finished work I'm worried about.  The area is very tough to get people to work in. Number wise I have a nice margin of safety for overruns and or delays. It would be built to a 13 cap so theres my room for error. 

I don't want to defend it so much it's really going to be a MASSIVE pain in the ass to complete. It does really come down to career goals and maybe I'm afraid of the answer….  

  • Intern in AM - Equities
Jun 22, 2022 - 6:06pm

Ya I looked at some of his other stuff its pretty odd. Might have some mental stuff going on.

Jun 22, 2022 - 11:39pm
Ozymandia, what's your opinion? Comment below:

Ya I looked at some of his other stuff its pretty odd. Might have some mental stuff going on.

Such as?   I can't say I remember every single thing I post, but if I'm genuinely going off the rails I wouldn't.  Most of what I write I'd be proud to say out loud in the office, at a conference, etc.... that goes for real estate related and political musings.

So perhaps you'll let me know what you found objectionable - self reflection never hurts, and I'm not above receiving help or listening to advice

Jun 22, 2022 - 7:39pm
StrawMan004, what's your opinion? Comment below:

Three hours way on a small project.  Idk, maybe your guys selling it are a good enough indicator of whether it makes sense.  You can send it and take a shot, but I only would if in an everything goes terribly wrong scenario I'm still financially ok / insulated.  That's just the bare minimum hurdle to get me thinking more.  And there's more than one everything goes wrong scenario.  Any number of combinations of it becomes delayed, you sink more cash, delayed, another issue you couldn't foresee, liens, etc.  

  • Intern in AM - Equities
Jun 22, 2022 - 10:43pm

Ozymandia you have provided me with no advice. Literally nothing useful.
 Again, let's meet up I live in NYC and from your other post it seems like you do as well…. 

Jun 22, 2022 - 11:23pm
Ozymandia, what's your opinion? Comment below:

Ozymandia you have provided me with no advice. Literally nothing useful.
 Again, let's meet up I live in NYC and from your other post it seems like you do as well…. 

The advice was to understand risk and reward.  So, for example, instead of buying entitled land at a premium, buy dirt and upzone it.  You know, the same thing as others did.  You thought that was a good idea, but said you had a fear of sinking cash into a deal that doesn't work out - which, again, is exactly the risk with construction, just to a much greater degree.

I asked why you wanted to do this versus buying another cash flowing asset; in other words, why development, and why this deal?  The obvious advice there being "stick to what you know".

I told you that the questions you should be asking involve how to identify and mitigate risk.  Instead of thinking about that, you responded by telling me your contingency plan is "Home Depot".

If you can't see the obvious advice in these questions or explicit suggestions, I guess that's that.  My life won't be affected one bit if you think I'm a dick, or if you go bust, or even if this starts you on the way to becoming a billionaire.  But any serious person will realize I'm not a troll, I'm not spending my time because I want to shit on you or your idea for the lulz, or to build myself up at your expense.  As I said, I've done this before; I've built a small project which I bought at an awesome basis and watched a lot of the upside evaporate.  I'm telling you that things are going to go wrong, and the first one or two or ten may be fixable by driving 3 hours to Home Depot, buying some windows or wiring or whatever, and driving home.... but the twentieth time it happens, you're going to realize you're out of pocket nearly as much as you stand to make.  And given that you won't be on site even a small fraction of the time, things will go wrong.

So listen or don't as you please, but don't tell me there isn't plenty of valuable information there: you just ignored it in your haste to take offense.

  • Intern in AM - Equities
Jun 23, 2022 - 7:03am

Officiis possimus recusandae qui natus id. Alias et ea distinctio tempore eos. Ratione et non eum dolor ducimus est.

Qui velit velit nesciunt. Qui quis facilis exercitationem nemo in animi maxime et. Quam sed inventore recusandae laboriosam molestias nemo veniam. Eligendi quo molestiae facilis cumque est ullam.

Molestias dicta cumque et possimus tempore. Aliquid ut aut sed similique adipisci nemo iure. Nam modi et esse quis totam quo amet praesentium. Et est quo omnis minima eos molestiae tenetur. Doloribus id ut ipsam animi odio.

Jun 23, 2022 - 10:21pm
ATL RE, what's your opinion? Comment below:

Eius similique error est autem. Ab blanditiis dolore aperiam dolor repudiandae eaque omnis. Ut maiores nemo non quo vitae sed.

Non ut et tempore provident. Atque exercitationem nesciunt et necessitatibus voluptatem dolores. Adipisci enim hic excepturi soluta. Rerum itaque nesciunt et quo id vitae. Voluptatem molestiae corporis facilis sunt neque facilis tenetur aut. Reiciendis maiores aspernatur consectetur aut nostrum.

Quis consequatur in numquam ea perferendis vel qui. Suscipit odit aperiam quas perspiciatis dolorem quod. Itaque nisi maiores reiciendis architecto qui vel. Labore laudantium quia voluptatibus sit. Facere iusto id dolorem maiores quod ad voluptate.

Nihil dolores quia eos laudantium. Omnis illum deserunt explicabo. Velit est commodi illum temporibus sed dicta eveniet non. Error mollitia amet doloribus rerum est porro cumque.

  • VP in IB - Gen
Jun 24, 2022 - 8:44am

Quidem assumenda in magni omnis. Aut ipsam deserunt aut animi aut. Atque et consequatur quibusdam error doloribus animi quia. Est praesentium rem saepe voluptatibus. Ut autem sunt totam consequatur magni. Velit reiciendis atque provident quo similique sunt illo. Eaque non voluptatem unde repudiandae velit.

Aspernatur quos voluptatem quaerat dolor aliquam maiores. Accusantium et ut sit. Et consectetur est quis. Perspiciatis error libero in modi commodi. Sunt optio necessitatibus harum aut repudiandae aperiam in.

Start Discussion

Popular Content See all

Developing on the side
+97REby Intern in AM - Equities
Construction cost / deal penciling / YoC
+45REby Developer in RE - Comm
REPE Chicago
+34REby lemickey
Interest Rate Caps
+24REby Associate 2 in RE - Res
Agency Floaters & Cap Costs
+23REby Analyst 2 in RE - Comm
Not ready for promotion?
+20REby Analyst 2 in RE - Comm
Active Adult (55+) Apartments
+18REby The Duke of Wall Street
GP Co-investment Funds
+16REby PropertyMonkey202
Bedrock Detroit
+15REby crewbf

Career Advancement Opportunities

June 2022 Investment Banking

  • Jefferies & Company (▲03) 99.6%
  • Lincoln International (= =) 99.2%
  • RBC Capital Markets (▲07) 98.8%
  • Bank of America Merrill Lynch (▲01) 98.4%
  • Houlihan Lokey (▲06) 98.0%

Overall Employee Satisfaction

June 2022 Investment Banking

  • Jefferies & Company (▲12) 99.6%
  • Lincoln International (▲05) 99.2%
  • Greenhill (▲07) 98.8%
  • Evercore (= =) 98.3%
  • Rothschild (= =) 97.9%

Professional Growth Opportunities

June 2022 Investment Banking

  • Jefferies & Company (▲04) 99.6%
  • Lincoln International (▲04) 99.2%
  • RBC Capital Markets (▲09) 98.8%
  • Houlihan Lokey (▲07) 98.4%
  • Bank of America Merrill Lynch (▲04) 98.0%

Total Avg Compensation

June 2022 Investment Banking

  • Director/MD (9) $661
  • Vice President (37) $394
  • Associates (189) $246
  • 2nd Year Analyst (115) $162
  • 3rd+ Year Analyst (17) $156
  • 1st Year Analyst (369) $150
  • Intern/Summer Associate (77) $148
  • Intern/Summer Analyst (289) $91