I am a real estate development manager. I am 27 and have 75k of investable capital outside of retirement accounts. How much money do you need to start doing your own deals? How quickly can you snowball your wealth by doing this? Or is it better to focus on climbing the latter at a development shop
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With that much cash, I’d say just try to go up the ladder. Unless you think you can raise $$.
I think you could do a small multi acquisition with as little as $50k. I don’t think it snowballs too fast at first because you will have to pay someone to be the guarantor.
I'll do this, I'll provide you with persona real life case studies on my previous clients I've worked for. Do as you may with this information.
- Case Study #1:
A fellow Immigrant from Russia moved to the states at 25. Started off as a construction worker, -> Then property Manager. Did those 2 jobs for about 5-8yrs.
Then, he started raising capital to do high-rise apartment building development. For the next 31 yrs he would build a 250 unit+ building and never sell. He kept doing this until about 2019.
In 2019 he had 13 high rise buildings, AUM was $600m and about 5,500 units, in place cap rate were 5% to 5.25%.
He then sold the portfolio for a little over $610m to a Private Equity firm that has $15B AUM.
His strategy was to build high rise apartments in a single tertiary major city.
Now he's travelling the world.
The END.
Case Study #2:
A Young CRE Broker build an insane boiler room brokerage house back in the 80s and did that for 6yrs. Alongside that venture, he built a property management business that grew to having 10,000 units under management.
Then, he sold both businesses and used the couple millions he had to find an experienced acquisitions guy from one of the bigger real estate firm.
Him and that other dude came together and used the same boiler room hard sales skills to buy up BUNCH of apartment buildings across NY & NJ in the 90s and early 2000s.
In the very first 2 yrs of acquisitions, he used his own capital. Then he needed to use outside capital to grow even more.
BUT many investors in the US wouldn't give them money because they didn't think the 2 can do a good job.
So, he flew to the Middle East where his roots are from and starting meeting many wealthy politicians and private business owners.
Was easier to raise capital in these countries.
Then came back to the states and bought apartment buildings. He would do the bare minimum in terms of managing his holdings.
Today his portfolio is worth over $2.5B that turns over around $150m in revenues.
He was approached by many banks to do an IPO as a REIT but he doesn't want to.
The one quote I kept getting from these larger RE Owners was:
" In real estate you don't need a fancy degree, all you need is patience and large sums of cash. If you got both, you'll do very very well."
So... two totally anecdotal examples.
Should I give counterexamples of well-capitalized people who failed? Of course there are rags-to-riches success stories. Hearing them is fun, but it isn't helpful.
I actually would like to see some examples of failure. I’m being serious not trolling you.
Failure... in general? Or what do you mean? Half the people who fail do so because they couldn't source a deal - that's just as much failure as blowing up because you took on too much. Some people buy duplexs in vacation markets and never get beyond 2-3 properties owned - that's failure (assuming they wanted to grow). Read through the Real Deal, there are tons of stories/examples of people who fail and lose their assets. I remember last summer there was a long article there on Silverback Development - that probably qualifies.
I mean, it's SO much easier to fail than to succeed, it's just that the run of the mill failures never get reported on, because why would they? The high profile implosions do, but that's much rarer than the numerous examples of entrepreneurs who never take flight at all (to keep up a labored metaphor).
Shouldn't you have a pretty good idea to your question as an experienced development manager?
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