It's very hard to save money in RE outside of MF REPE or REIB. Change my mind.
Ik people usually go into real estate to start their own shop, which is why many people enter regardless of lower pay compared to other finance roles. Real estate can make a fulfilling career, but how plausible is it to really start your own shop with your own money?
It is difficult for a RE professional to save up 1MM until 35; not saying it isn't possible, but it is def a grind and the majority don't reach that milestone at that age. Even then, how much of that can you really tie up to put in as GP equity for a decent size deal, especially when you have a wife and kids. And ik people will say "oh start small with buying houses", but doesn't that defeat the point of being in real estate and getting knowledge to start your own shop? Most REPE professionals won't be able to raise their own funds, and most people working for developers won't be able to start their own shop. If I was planning on buying a portfolio of SFR and chilling, wouldn't I just worry about maximizing my pay with ANY high paying job so I could then have more disposable income to invest.?
This isn't a post saying that it isn't possible to do these things. Clearly a lot of people have and many are very, very rich. But my thoughts are that for the average real estate professional, this dream gets harder to achieve every single year. MF REPE and REIB would help you save a good amount and have cash later on to throw into some real estate, but the experience at those places is so high-level that the investments that you would be looking at for your personal portfolio would be very different.
TLDR: You need a lot of money to start your own shop in RE, hard to come by it by just saving. The allure of being in RE to start your own shop isn't achievable for the average RE professional, and most deals that people do personally do not utilize the same skillset learned from a RE job.
Based on the most helpful WSO content, here are some insights regarding the challenges and considerations for real estate professionals aiming to start their own shop:
Income and Savings:
Career Fulfillment and Goals:
Starting Your Own Shop:
Alternative Perspectives:
In summary, while the dream of starting your own real estate shop is challenging and requires significant capital, it's not impossible. It involves strategic planning, balancing immediate and long-term goals, and possibly starting small to build up experience and capital.
Sources: "Don't worry about pay at the start." - Do you agree?, Does anything pay better than finance?, Why work the best years of our lives away?, Where are the real pre-MBA superstars?, Is IB not as attractive anymore?
I’d say that you are correct - certain groups within a MF and/or REIB folks that do portfolio level transactions will not necessarily see/work on/understand the nuances of smaller transactions/asset level investing.
That said, I know quite a few individuals that went out on their own and crush it - honestly more that are successful versus the flip side - there are nuances there, however.
A good way to start your own shop with limited capital is to co-gp the first few deals. You’re going to need a guarantor to sign on the loan anyway, so you might as well have the guarantor also provide 50-90% of the GP equity.
How do you go about finding a GP to guarantee your position in the deal? It doesn’t sound very advantageous to the sponsor GP to take on a Co-GP and act as a guarantor for them.
You would find the deal for them and then do all of the actual work. The reward for them should be that they're functionally equivalent to an LP (not doing the actual work, putting their capital at risk in exchange for a return) and that their expected return is higher than an LP's return.
This has been done before many times. Do the leg work and find the deal, tlak to potential LP's and have a loan guarantor/sponsor sign onto the loan. You can do it in exchange for a fee or some GP points or something like that.
You can get creative :)
I wrote recently on another thread that it’s your second start up that could become your payoff venture (or third, etc).
The first one, you are mainly sweat equity (you get a % higher than what $ you contributed) and you learn how to start up and scale. Your partners bring the money and net worth.
The second start up is where you apply what you learn and get a bigger piece, with new partners.
Why with new partners? Because your old partners will always see you as that sweat equity gopher and want the old economics. Human psychology.
You’ll learn, your partners don’t necessarily care if you get wealthy, there could be exceptions.
Almost always if the business is doing well, the wealthy partners (and they have control) will want to double down on the platform business, and reinvest cash flow, leaving poor guy you still cash poor and possibly even diluted. Human nature. This is a tragedy.
If things are going badly for the business, partnership relationships can be strained. Behind every news story about a struggling business, are multiples of such stories that you never hear about. Divorces, bankruptcies, litigations, suicides.
Hence, you learn that the biggest thing you get out of going out on your own is trusting your instincts, self reliance, some cool stories, and hopefully more money than you would have gotten from a W2 job. But even if you got the same amount, I think that’s a win given the personal growth.
Keep your high ambition and goals, you’ll need them to make risky bets and give high effort. Your future self will be different than your current self.
Yes, CRE pay isn’t the highest. You learn about scaling the business at work. There is money out there that would find your experience useful - especially monied people who worked in another industry and dream about being more wealthy, successful. Sound familiar? The lower pay makes the opportunity costs to try entrepreneurship more tempting especially after being kicked to the curb from a layoff.
However timing is key and it is a lot easier to start up for the first time in a rising and optimistic market. If you are trying to hustle in this bad market and with no job, first learn how to Survive the Jungle (I wrote a WSO topic on this), usually via consulting. At least you will learn self reliance and how to sell yourself. Consulting however is a junk lifestyle - because clients want the deliverable yesterday, you charge by the hour/project so you don’t use leverage, and work can be unsteady. But there are a lot of struggling owners who need a consultant willing to do this kind of work.
https://www.wallstreetoasis.com/forum/off-topic/surviving-the-jungle
This question and variations of this question have been asked a couple times in the past few months and I posted two answers here:
https://www.wallstreetoasis.com/forum/real-estate/re-upside
https://www.wallstreetoasis.com/forum/real-estate/are-we-suckers
I will start by saying that generally speaking, working in real estate finance tends to have better work life balance and decent pay compared to other finance/business roles such as IB or consulting. I don't think it is fair to discount that work life balance, but if you are someone who wants to make the biggest paycheck from day 1 at all cost, then by all means go the IB route or if you can SWE.
Your assessment is not wrong, but it is not 100% correct either. It depends. I made a comment a couple years ago about 3 successful developers that I know. One came from a construction background, the second started as a real estate broker, and the third came from a back office finance role (he was only mid 20 to late 20's when he quit his job to do RE full time.) I don't have the statistics, but I would argue that most real estate developers come from a real estate background before starting their own shop for one very simple reason: Risk. When you start any new business or project, you don't know what you don't know. The developer who started off in construction built his business off of construction. He started by buying triplexes and renovating them himself because he was within his comfort zone. He wasn't going out raising capital and acquiring cash flowing properties because that was not his competency. To do that would be to increase his risk because he is entering uncharted territory. The developer who started off as a broker saw so many deals that he knew not only where people were investing, but also what they were doing. So he found a partner and started buying real estate on their own and eventually started doing ground up construction. Because he had seen so many deals, what developers were doing, and how much people were making, his job as a broker gave him the confidence to invest. I actually see this type of developer a lot - the ones who start as real estate agents and eventually start investing themselves. A lot of smaller brokerages own real estate and the advantage they have is that they can buy off market deals. When a seller calls them for their services, the broker gets the very first pass at that deal. Now the last developer who started off as back office in finance took the most risk of the three. He had no experience at all in real estate. His story is that he didn't want to pay rent any more, so he decided to buy a triplex, did some renovations, and live in it while the other two units offset his mortgage payments. He sold it after 2-3 years and now that he had the experience renovating triplexes, that's what he continued doing. Eventually he did one and made $600k and quit his job to do real estate full time. Now he is the developer of a 400 unit high rise...he's 35. But this is a success story. How many people have been in his position and lost money in a real estate? I have some family members who didn't know what they were doing, lost money, and swore never to invest in real estate again outside of their own home.
You need $0’s to start your own firm…. You need the skills and experience to understand the game, but once you have the correct skills you need nothing to do it and can be very dangerous still.
Entrepreneur: “hi investor, I have a deal that’s off market that hits returns that are above market today, give me 100% of the capital and I will do all of the work for you and only ask for 20% of the profits.” Zero dollars required.
Depends on your experience but I find that hard to believe. I would never give my money to someone for their first deal if they didn't have at least some skin in the game. They could completely screw up and lose all of my money that they clearly won't value as much as their own.
This just isn't true. Are you getting a loan? Whose signing guarantees? Who's putting down the deposit? Who's paying escrow costs? Who's paying your JV and legal fees before you close? Nobody is paying for everything, period. I don't care how good a deal you have. You need money.
While I’m sure this has happened, it’s far more likely for a “hey I found a random retail building to buy and my dad’s friends all threw me a few hundred grand after he twisted their arm” scenario than one applicable for most people here. It is beyond unrealistic to do a deal for $0, let alone start a firm in anything but name. Shit, even creating the LLC will cost you a few bucks.
The reality has always been that in real estate, 5 years in you have the experience needed to run your own deals but no one will give you money to do so until you have 15-25 years in. I can’t tell you the amount of friends and co workers I’ve seen run into this scenario.
Everything the two people above me stated is also applicable. Banks and equity investors don’t want to see you with zero skin in the game and pursuit costs are incredibly expensive.
If you have a site and a track record of RE development experience, you can find $. Your upside will be small say $2M on a $80M deal. The challenge is it takes 5 years to get from A to Z on one deal and $2M minus taxes isn't much for 5 years of work. So you do more projects along the way with incrementally better upside and 10 years later you have $20M minus taxes but a full pipeline of deals and have hired employees as you had to scale up. You have now built a development company that puts enormous pressure on you to keep going...Best case you have $100M-50M after 20 years but have never truly been free to do what you want...
In short, your kids get to inherit the freedom you earned. (don't be jealous of them, it's our parents who failed us...)
Thank you for the insight. Super helpful. I wanted to ask how a developer with the deal flow and everything already set up would exit and start enjoying. Is it feasible for them to hire someone that runs the business day to day while they work part time? What about them looking for institutional capital to platform invest in their development shop?
Tbh...if you don't enjoy development and the work, you're not going to get there. People who run their own successful business usually love what they do or at the very least aren't counting down the days to retirement. They are thinking about their business day and night
Genuinely confused by the premise of this thread. You can save money in all sorts of real estate roles.
You also don’t need to have $X amount saved by 35 or whatever. You can not even do your own deals until you’re 50 and still retire with tens millions at 60. Stop putting weird limits and artificial deadlines on your career and just go do shit.
This is fair, I have friends at 28 years old that decided to just raise capital for industrial deals in the southeast, they have closed on 3 deals totaling about $6M in total capitalization so far. It was challenging and they had to give up some upside, but that's often the cost of "getting started". You don't have to take down the $75M-$100M monsters to get started, it literally just takes grind and hard work. The sooner you build a track record outside of your shop, the sooner you can "do your own deals".
Totally agree. If anything, I'd say specifically to stay away from them.
I'm watching someone try to do a $150M beast their second deal right now and it is painful to witness. They currently owe $2M in pursuit dollars they don't have because the deal keeps getting delayed and they were counting on dev fee to pay the invoices. Massive ooooof.
Who cares if you have $1mm saved by 35? I mean, that would be great, but you've inserted this arbitrary goal into the discussion without even bothering to try and validate or defend why it is important.
Why is that the goal you/we should shoot for? What meaning does it have, beyond the symbolic? After all, this is a meaningfully easier goal to achieve now than it was 5 years ago due to inflation!
This is just fundamentally a weak premise for an argument, and a flawed assumption to begin with. I can't stress this enough, but leave that shit in the IB Forum, where a great way of comparing yourself to other people is by how much wealth you've amassed in how little time, because the differentiating factor between any banker in their 20s in the bonuses their getting. That just doesn't really matter as much in real estate.
There aren't really IB "startups" - if you're an analyst, chances are you're at a major bank or financial institution, and thus your pay, your responsibilities, your opportunities for advancement, are all going to be standardized. It is absolutely possible in real estate to join a new firm as a 27 year old and take a small piece of equity instead of a large cash salary. But that person isn't comparable to someone working for a major national developer, whose experience is going to more resemble the structured world of banking.
Quite simply, you don't need a lot of money to start your own shop, and seeing as you haven't explained why $1mm is a number worth caring about (or whether that's enough to start a company, which is where you were presumably trying to go), that basically means your entire post said nothing of importance or relevance aside from some obviously false assertions about career paths in real estate.
Care to try again?
Yo chill why are you so mad hahaha. Remember everyone always started somewhere and not everyone has the knowledge or understanding of real estate as you do. That is a big reason why this forum exists. Instead of writing a long condescending reply, why don’t you write a long helpful and informative reply.
Care to try again?
Facilis qui corporis similique cum dolores ipsam et veritatis. Quia nobis maxime quisquam ut. Laudantium et tenetur cumque esse excepturi non ipsam.
Ex deleniti omnis optio quidem voluptatem consequatur qui. Qui repellat soluta dolore dolores voluptas qui. Quis animi nesciunt dicta. Fugiat repellat sunt sit repellat.
Saepe qui alias laborum sit. Nobis odio vel ut ullam. Quis perferendis quam neque. Placeat doloribus quasi ullam deserunt.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Officia voluptatibus ut omnis dolores amet ducimus cumque. Possimus et officia rerum qui molestiae. Rerum omnis et consequatur sint repudiandae eius. Nihil velit non aut recusandae placeat aperiam quia animi.