Starting own real estate development firm/business?
I know it's incredibly difficult, requires lots of capital, and risky. But for those who are currently in the industry, do you think you've built the skillset and experience needed to go out and start developing commercial or residential properties of your own.
Starting your own real estate development firm is indeed a challenging but potentially rewarding endeavor. Based on the most helpful WSO content, here are the key components and considerations for making this leap:
1. Skillset and Experience
2. Capital and Risk
3. Networking and Relationships
4. Soft Skills
5. Steps to Prepare
Final Thought
Starting your own firm is not for the faint of heart, but with the right preparation, network, and mindset, it’s achievable. As WSO threads often emphasize, the combination of experience, local expertise, and entrepreneurial drive is what sets successful developers apart. If you’re ready to take calculated risks and commit to the grind, it could be the most rewarding move of your career.
Sources: Path to Developer?, Breaking into commercial development, Thoughts on acquisitions vs. development, Most Valuable Skills in Development and Acquisition, Career Path in Commercial Real Estate
Yes and no. You can’t know everything about everything so you’ll never feel totally prepared — or when you do feel totally prepared, it will be too late, as you’ll be old and comfortable, and at the end of your career. You just need to have confidence in yourself and your resourcefulness to think creatively and constantly be learning, to genuinely love the challenge and the work. I don’t think there’s a magic number, but I feel like getting 10 years of experience under your belt will get you enough credibility to raise capital and feel confident that you know (mostly) what you’re doing. I think the sooner you start, the better. Deals beget deals. People do it successfully with a high school diploma so it’s not rocket science. It just takes balls; you either keep them protected behind the cold cup that is employment, or you let em hang loose and in the open, vulnerable to pain but open to prolificate — the choice is yours. Good luck.
You will realistically have the skillset and experience boxes checked far before you are able to go out on your own. Capital loves grey hair and banks appreciate a larger balance sheet.
Capital loves a good deal. Focus on finding/creating good deals and the money will come.
Don’t worry too much about the banks. You’ll probably have to give recourse for a while (so don’t fuck it up), but there are many banks, and many financing alternatives beyond banks.
It’s way easier to make excuses about why you can’t (it’s why most people never go off on their own). It takes real cojones.
I don't agree with this. Plenty of great deals get passed over in favor of crappy ones with "stronger" sponsors.
The most critical thing to remember is that people do not like taking risk. Almost everyone in this industry would prefer to lose money in the same way everyone else does, rather than make money by trying something new. This is why it is so consistently easy for the same people to come back to the well over and over, despite a long track record of poor performance, while untried new players struggle to get financing for good projects.
Having the relationships and networks with other players is by far the most important thing. The quality of the deal is secondary. Whether or not you're any good at your job is tertiary. Network first, then think about the deal. No point in tying scarce capital up in a home run deal you'll never get financed, versus waiting a few years and taking on a solid single that you know someone will back.
This is true. To the extent anyone wants to do do a deal with you, lenders will fight over it.
Unfortunately have to disagree there. I agree with Ozy. I see terrible deals get done all the time with good sponsors due to "safety" reasons, but have seen phenomenal deals sourced off-market that underwrote well get past over because sponsor was small or not a "name brand"
Who is making excuses or lacking testicular fortitude? I haven't had a W2 for a few years now.
I know plenty of people in their late 20s/early 30s who were fully capable of running development but couldn't get deals off the ground until they got a bit older, when suddenly the doors opened for them and they were taken seriously. It wasn't because they were cowards. It was because "capital loves grey hair and banks appreciate a larger balance sheet."
I have been on my own for ~4 years now, I started doing my own deals at 25 and it has been incredibly painful, but gets easier every year. The real risk is not taking action until its too late. What is riskier- not making much money in your 20's because you are hunting for deals, or signing huge recourse later in the game when your personal expenses have increased and you have a family relying on you?
If you have no balance sheet, but can source good deals, you can always find someone to co-GP with you, or at least give you a finders fee. You can roll finders fees into deals and familiarize yourself with the LP's that put up capital behind other GP's. Pretty soon you will have enough personal stake and 'track record' to raise a GP co-investment pool from some HNW guys, find a big transaction and take it straight to the LP's. None of this is that hard, it just takes an enormous amount of time and finesse to scale (especially when you dont have personal $ for GP stakes / deposits / pursuit costs & no balance sheet for guarantees). It sounds backwards, but it is much easier to raise 15m+ than it is to raise 3-8m. Focus on big deals and get some great partners..
1. Dont lose money
2. Do good deals
3. Dont quit
Do you mind shedding some light on your first deal or perhaps the deal that made you think "Yup, I can quit my job and do this for a living?" What was it? What was the game plan? How did you finance it? Where did it end up?
Also, as someone who does not take on investors, why is raising $15mm easier than $3mm?
Because raising $15M almost certainly means you are raising from an institution, which means you only need to find one fish out of a sea of many to get your deal done. $3M is small and rules out most institutions, so you are probably raising in $50-200K increments. Means you have to get 15-20 people to say "yes".
That's all in theory. In reality, institutions have a hard time backing somebody on their first deal or two unless they have a tremendous resume (which happens all the time). Someone that is 28? Much harder. So theoretically, you need a co-GP that can bring in the institution.
could you elaborate on your point regarding raising equity? Are you saying its easier to JV with a HNW or family office type partner than corralling several smaller investors?
I’d look less at “have I built enough skill” and more at “can this survive delays, financing changes and bad timing”. That seems to hit people harder than technical real estate knowledge.
In my case, when setting up a business structure for a real estate deal that involved cross border financing and institutional capital, the legal entity needed a reportable LEI for onboarding and transaction requirements. I ended up using LEI Register because I wanted the registration side done fast and not turn into its own mini project 😅
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