Man, going off on your own is hard.....
Went off on my own about a year and a half ago, and man is it hard. I had always thought that having the right deal i'll have investors clamoring at my feet, but the bar is extremely high right now (unrealistically). Lots of up's and downs, wasted money on lawyers fees, seeing your savings plummet. I have great experience and some good LP relationships but as a sole operator its extremely challenging. You need some very thick skin.
I feel like I see a lot of posts that justify getting lower pay at junior/mid stages because some day you'll go off on your own and make the big bucks.
Let me tell you, it's not easy.
Always impressed by people who take the leap. A few questions:
1. what was the criteria to quit your day job, I.e., was it once your savings was 2x,3x your salary, or pursuit budget, etc.?
2. what is the high-level deal, I.e, deal size, property type?
3. What is your long-term strategy?
4.Finally would love any advice/ what you would do differently? Thanks!
I wouldn't say there is much I would do wildly differently. It would be amazing to have a partner with a different skill set that I could bounce ideas off of and share costs with, but I have seen partnerships fall apart every which way so I have no problem going at it solo for now.
The most important is having a huge investor network that you really trust is very important and really will give you the time of day that you don't have to continually follow up with for feedback. Also I am looking at a lot of special situation type of stuff which most funds don't have the mandate to do, and family offices don't have the time to dig into the nuances of. I think if you do more cookie cutter deals it's much easier to raise money.
"Also I am looking at a lot of special situation type of stuff which most funds don't have the mandate to do, and family offices don't have the time to dig into the nuances of. I think if you do more cookie cutter deals it's much easier to raise money."
Could you pursue more "cookie cutter" deals to get a track record under your belt and start a relationship with your LP's?
"Also the deal size varies, but most are too small for funds ($5-$20M of equity)"
Would you be able to pursue deals at smaller check sizes? I know most people on here who work for Tishman will think that $5mm-$20mm is peanuts, but in reality, especially when you're first starting, that's a lot of fucking money and a pretty sizable project. I live in a HCOL market and even then a $20mm equity deal could probably finance ~100 unit deal, which is very large for someone going out on their own for the first time with no support...I can't imagine how large the debt would be. If I were you, I would start smaller. Maybe $5mm or less equity size. It'll be easier to raise and since the loan size is smaller, it might be more palatable for investors who are investing in you for the first time since I'm assuming you need them to put up some guarantees. But I also understand that you need deal sizes of a certain size to even make it worth it.
How are you planning on building/renovating the structure? Are you just going to look for 3 bids from GC's? If you can find a solid construction manager who won't price gouge your eyes out, it can save you a lot on construction. In other words, if you start smaller, you may need to pick up more responsibilities and become more vertically integrated so that there is still some meat on the bone for you. This requires more work on your end, but hopefully will allow you to get your first couple deals going and slowly scale up. But obviously, idk your situation, experience, nor deals.
Yes.
It is best to run two business models at the same time. One that has a more recurring income stream to keep the lights on like a small apartment fix and flip model with ideally a sale between 12 month and 18 months to benefit from long term capital gains rates this can help cover living expenses and create capital you can use as GP equity. The other business model would be longer term with a longer sale cycle like 3 to 5 years with a much higher payoff.
Think John gray said something similar. Some part of real estate is like annual flowers, generate and come back every year.
It’s all hard man. Keep at it. Godspeed!
I think entrepreneurship is easiest during high market liquidity periods (obviously) and first timers usually work on older product, turnarounds, smaller deals, and/or areas that are lower cost. This is where you cut your teeth and go 0 to 1 (start up).
However, if you get in at high prices and the market downturns, that can be devastating. Traditional real estate is a largely a commodity. I think the WSO community overlooks that.
So, market timing is critical. Hope for enough bull market runway to solidify your early wins.
Going solo is tough. A partner can help compensate for your shortcomings. Usually that’s the grey hair factor (perception of experience and good judgment by having an older partner) or someone who brings the money (this business takes lots of money).
What the new entrepreneurs find out is the wealthy partners want to double down if the business is successful early. So, you’re constantly chasing trying to have a financially sustainable work, while your partners press their liquidity to their advantage, and you get diluted - and / or pushed out of the drivers seat.
Becoming dead weight in closely held companies can be a really bad experience, despite creating profitable businesses.
This is a tale as old as time in various industries. But because each property is its own legal entity, real estate sectors are more prone to being cut out from the harvest period. Lenders don’t care if you have personal recourse but you’re not making any money or the partnership goes sour.
You can spend millions of dollars in legal fees fighting over a “successful” business.
So, going solo is tough. Partnerships are helpful to go 0 to 1 (start up) but reveals problems in the growth stages (still can be a great experience).
What I want to say is everyone focuses on how well your business is doing, but don’t talk about the internal and external partnership relationships - that you need those to be in harmony to actualize real wealth. You’re likely to be screwed a few times.
A great movie to watch on Netflix is “Founder” the story of Ray Kroc and the McDonald’s brothers. Also, Glass Onion.
Going off on your own is hard, but you learn a lot more about people, and can better guide you in life and business. You learn to appreciate a steady paycheck and peace. You learn that you can create/build organizations/platforms. It’s worth trying at least once in your life. Market timing and “long term” people are important, particularly for CRE. A commodity asset class and business.
No, you justify the lower pay because you can go off on your own and have a chance at the big bucks. It really feels like no one on this site understands the concept of "risk."
I'm sorry you're having difficulties, but it really sounds like you didn't understand the challenges of entrepreneurship. Why should anyone be clamoring to do a deal with you? There is no such thing as the "right deal." There are deals that are executed well, and deals that are executed poorly. What your Excel model shows is absolutely meaningless unless you can realize it, and experienced investors understand that.
The bar is not unrealistically high right now - your expectations were just unrealistic in the first place. This isn't an industry where you put your ten years in at the brand name developer and then people fight to give you money, nothing gets handed on a silver platter unless you've really done the ground work.
You had experience working for someone else. You had zero experience as a sole operator, and it's easy to confuse those two. You spent a long time working for, say, Hines. You did a good job. Now you go out and form NewCo LLC. All the people you met through your previous job, you want them to give you money to build something. But why in the world are they giving you a dime when they can give it to Hines again, like they've always done? Who is to say you're any good at your job, that your success wasn't simply because of the highly structured and supported organization you were a part of? Real estate is extremely risky, this isn't a place where simply charging less of a promote or fee will win you business, like in finance. An investment has a real chance of going to zero, so any intelligent LP is going to prioritize avoiding the wipeout versus scraping an extra point or two of returns if the deal does well. That means investing in proven firms with solid track records, not some random newcomer who almost certainly can't do the deal as well as the big guys (no knock on you, it's just the reality of being a one man shop versus a 100 man shop).
I’m drunk overseas having drank and ate dinner at the incredible Wanda shopping mall in West Beijing (they created spontaneity in a mega mall project which is hard to do), so I’ll give a different perspective to Ozy’s wisdoms because I think Ozy oversells somewhat what we do. I think real estate is a commodity business that makes its money on control. Understand that and be in the right place at the right time (the buy), and it’s easy to not screw up. The skills of an operator are important, but not a prerequisite to making money. You can always hire the smartest people in the room, once your cash flow allows. The RE big shots see project managers as widgets.
The people (investors, co-founders) the OP attracts are people who never created anything meaningful of their own in life, and they have the grey hair, money and/or desire to partner with OP. Once they achieve their goal, they don’t need OP or anyone else - but we’re talking about the 0 to 1 and OP can get them there on a hope certificate. OP take: income risk for upside and these people I describe, actually take more of the financial risk (OP’s PFS - personal financial statement - is sh*t), but lender will insists they are on the loan. I’ve encountered this multiple times.
Real estate, including SFR rental investing and syndication by affinity and social media, is why I’ve become more and more turned off with the CRE industry by and large. The barriers to entry have fallen. The entry level properties cost millions, and you always need a partner. And the fact that even top tier operators can’t even get projects financed, is another reason why this is a commodity business, where timing is almost everything. The industry needs a reset. 10 years of rent inflation, positive population growth, positive employment, above the growth of
Having taken incredible risks, I don’t think it’s worth leveraging my net worth for the next thing. And that’s what it would take to move up in this biz.
I believe to make it worth it (the underpay as a W2), you need to be in the industry for some non monetary reasons. There needs to be some weeding out. I was a different breed than my colleagues, but I also was a non conformist which eventually limited my career progression in corporate, but was good in start ups. Turned out everyone got F’d by the market. This happens every 10-15 years. The best thing you can do, is do what you want and get good at it. And don’t take yourself too seriously.
OP’s biggest problem is timing and the fact that RE is screwed up.
Very interesting perspective. For what it's worth, I was neither overselling or underselling what real estate operators/developers do. I was pointing out that if you want to go out on your own, you need to have realistic expectations around who will want to partner with you and a clear-eyed view of what differentiates you from everyone else.
I say this all the time, but from a 30,000 ft view there isn't anything different about real estate today than there was 50 years ago. Some of the individual challenges and obstacles have changed, but I strongly believe that anyone who complains that they can't make money in this industry is really saying that they can't make money doing what everyone else is doing. And of course that'll be the case!
This ties into the above point. OP seems to not understand that he's not an attractive bet for anyone looking to invest in whatever submarket he's in. Why would you give money to the totally new, completely understaffed and undercapitalized business when you can give it to his former employer, who have money and institutional knowledge and a reputation? OP wants to make it big by doing what he did for his entire career (totally understandable) without realizing that he doesn't actually present as an attractive landing spot for capital, specifically because there are others who have done exactly what he's trying to do and therefore made it extremely difficult for him to do it better.
Look at all these crappy, borderline-fraudulent syndicators. These guys are incompetent or crooks or both. But they managed to raise a ton of money, to do exactly what OP wants to do, and why? Because they positioned themselves differently then everyone else. They went after smaller investors, aggregated small piles of capital, and turned around and bought assets. Whatever else one thinks, they're innovators (in the sleaziest way imaginable, but still!).
When Joe Shmo from Related goes out and hangs his own shingle and wants to build 9 figure condo towers in Miami, I'm sure he thinks "hey, I've done this a dozen times, no sweat" but at the end of the day all his best contacts for capital are Related's contacts, and they're gonna stick with the big brand name firm and not the complete unknown.
(1) The "right deal experience" part is correct. If you have the right deal experience, you can raise money for a first-time fund. This is still true in real estate, and I am speaking from people I personally know who have done exactly that.
The problem is, the "right deal experience" is very specific. When raising money from investors, the "right deal experience" is much narrower than what the "right deal experience" means for recruiting/lateraling/etc. What I expect is the case is that your concept of the "right deal experience" is off.
(2) Raising money is like recruiting for analyst roles in IB at BBs or EBs. There is a lot of leg work you need to put in even if you have all the right credentials.
You’re right. This shit isn’t easy and it is incredibly stressful. I also started my own shop 1.5yrs ago.
I am fortunate to have a network of relatively new re shop founders that I talk to, so I have people to commiserate with (if you want to chat dm me). It’d be nice to have a partner though. At this point it’s just me and it’s a bit lonely. I’m constantly thinking about work and doing things on my phone or on site, but it feels like I’m just fucking around.
Become a broker on the side
Pitch us the deal and we can tell you if it sounds as good as you seem to think it is?
I'd love if we did this. Of course you would need to remove the details to the point of it being nearly useless but it would be interesting if we could make it work.
Eh. It probably wouldn't be that exciting.
"What's the IRR and yield?"
I think the hard part in my head of going out on your own is selling. Even if are a capable operator with great experience, raising money is freaking hard. And the same skills that make you a good operator/execution guy don’t necessarily make you a great salesperson and vice versa. Even at the institutional level where sophisticated investors shouldn’t be swayed by a great showman, I see it happen all the time.
I know a guy who has raised multiple 9 figure corporate PE funds with no college degree and couldn’t build an LBO model if his life depended on it but the guy can sell you your own shoes. He generally hires your typical Harvard/Wharton MBAs with traditional finance backgrounds to execute on deals but the reason his name is on the door and not theirs is because he is possibly one of the greatest salesmen I’ve seen in my life.
Prior to PE, he was a serial entrepreneur with a couple very impressive exits.
Edit: Funny side note. He once destroyed a white board during a meeting and berated all his MDs because he didn’t understand what WACC was and the model wasn’t spitting out the number he wanted.
Let me tell you, its ALL sales. Every deal has a story and if you can't sell the story on why it's special, nobody is going to listen to you. Even in a corporate role when you get higher up it's all about bringing in business at every level.
This
It gets worse. Entrepreneurship isn't worth it unless you have your eyes set on becoming a billionaire. Anyday would rather make a couple mill a year in PE/Banking without the risk of running a business.
The underestimation of the challenge/risks of 'breaking out on your own' - especially here on WSO - is largely driven by survivorship bias IMO. For all the success stories your read/hear about, there's ten failures you don't read/hear about because they're not at all interesting/notable and tend to die slow, quiet deaths.
Also, as others have said, don't mistake your firm's success for your own. That key lender/LP/GC/attorney is working with your firm because it's established and has a track record and can pay their bills without being a massive headache. That all goes away when you're on your own. In my experience, these 'personal/professional relationships' tend to evaporate because the relationship is predicated on each person's firm executing - which makes them not at all personal or proprietary relationships.
I'd also suggest becoming intimately familiar with what everyone at your firm does and how they do it, because you're going to need to do it yourself.
Agreed, I also think a lot of users on WSO think they are too good or prestigious to start off small. Many think that because they worked at tishman/blackstone that home runs will fall into their lap and investors will flock to them. I think most people should honestly start off on their own with their own property i.e. buy a duplex/triplex, renovate it, hold it for a year or two and then sell it and slowly scale up in terms of size and scope of work. By starting small and with your own primary residence, you significantly mitigate your risk since you had to live somewhere anyways and you can get your feet wet in construction. Most users don't understand just how important risk mitigation is especially when you are doing something new for the first time and especially in a time like this where there is a lot of uncertainty. Markets can turn on you in the blink of an eye as we are seeing. Starting off with a 100 unit development, a $50mm construction loan, and 3 different LP's is the opposite of risk mitigation unless you were already an MD for Tishman/Blackstone previously.
Agreed. However, on the self-started triplex fix-and-flip, a well-paid W-2 employee needs to ask himself, what exactly is my time worth? Getting a roofer to estimate/bid/execute on a 4k sf deal is much much harder than on a 400k sf deal.
If you're young and hungry and have spare time, go for it but remember life is a cruel teacher as the lesson comes after the test.
Definitely agree with this. I started institutionally but most recently was at a smaller shop so saw the different pieces needed to succeed and what has to be done. You don't just have departments that you pass the hat to, it was really an eye opener going down the ladder.
Agree on the consultants as well. Maybe at first they will, but nobody works for free, especially when you're a small shop.
It can be done. I would recommend at least 2 years of overhead set aside. I would also recommend starting up two businesses with one more fee generating in nature while you wait for the big deals to come along. Lastly, as early as possible, hire someone trusted and give them sweat equity in exchange for a low salary - especially a jack of all trades type that you know.It also helps to not rely on others to qualify for the debt- plan to come in with some type of balance sheet and do deals inside the scope of it. The. grow from there - incrementally. I have done all of the above and it’s worked out for me. Still a ways to go for me but finally feel like I have reached escape velocity - took me 6 years. Learned a ton along the way- lots of mistakes.
WTF? You're telling me that I can't quit my job at 25 and go out and make hundreds of millions of dollars within the space of a few years, with no risk? I guess it truly is impossible to go out on your own in real estate!
I’m considering making the jump to be that jack of all trades guy. Have 5 YOE within finance (FoF/LP investing and IB in an M&A/Capital raising type role). Currently 27 with no kids so figured now is as good a time as any to take a “risk” and leave the corporate world.
I’ll probably be in way over my head but frankly the idea of working to grow my equity / cut of promote sounds way more motivating than grinding away for an arbitrary bonus bucket. Plus far more freedom to dictate my daily schedule… albeit probably with far more stress to help get a business off the ground.
Curious what kind of questions you’d ask to vet the person/opportunity you’d be supporting? Should I ask for some references? Also, what is a reasonable cut of promote - expecting my cash comp to decrease +/- 50% compared to IB so ideally it’s a semi-decent share.
Have had multiple conversations at this point and am more or less sold but want to leave no rock unturned on my own DD.
Ive been on my own as a gp in $50+ million of deals for 6.5 years and it does suck right now. Might have to get a job next year. No shame in that. Give it a shot and don't stop til you're out of money. I've almost run out of cash more than once and each time something good happened and I was able to keep going, but I'm done stressing over it and beating myself up over it. Plenty of money to be made as a w2 if you change your mind, and many jobs will allow you to do deals on the side anyway. I know a guy who's been self employed, then employed as a senior dealmaker, then self employed again and he will tell you you gotta cover your nut at some point and the real money is made in your late 40s or later.
There’s where I am. Amusingly, the job market sucks too and people look at you strange for wanting to “downgrade.”
Yup. Have thrown out a couple applications just to see and have not gotten the looks I would have even before starting my own shop. I think it's actually much harder to get a job again
Respect the candor living alone in real estate may seem glamorous, but it's not always easy. It's a grind with deal sourcing, investor expectations, legal fees, and financial strain. Bravo for persevering resilience and long-term vision are crucial in this line of work.
It's a complete myth that if you have a good deal, equity will be easy. Equity only gets easier (it's never easy) once you have recurring transaction volume, continuous pipeline, and a rolodex of at least 10 active and interested potential JV partners. Don't be fooled by the partners that say they active yet haven't transacted on anything in 12 months. Almost no one will ever say they're on the sidelines, they communicate it by nixing every opportunity that comes across their desk.
Rerum dignissimos mollitia voluptas eos. Consequatur soluta tempore corporis sunt occaecati. Ab quo dignissimos et neque et sint.
At modi natus reprehenderit deserunt. Enim ex qui ipsa quaerat illum. Ratione rem deleniti adipisci consequatur porro itaque eum.
Alias maxime ut vero porro aut aut velit rerum. Aut eveniet numquam aut non sequi saepe. Commodi accusantium sunt quia aperiam harum. Ut excepturi accusamus amet ut molestias nobis numquam deserunt. Cupiditate blanditiis qui ad tempora repellat ut consequatur.
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...
Debitis aliquid et repudiandae qui facilis eligendi. Qui repellat saepe ab. Doloribus voluptas consectetur saepe minima doloribus. Atque minus placeat dolores distinctio repudiandae. Est repudiandae sint soluta ratione deserunt pariatur.
Fugit beatae pariatur provident dignissimos. Ad nam sint officiis commodi.