To Those Who's Had A Successful Career In CRE, What Advice Do You Have For Younger Generations?
I figured it would be helpful to ask these questions as well apart from the general advices for younger people:
-
How did you invest your money? Did you put a decent amount of your capital in public equities or just majorly real estate? If real estate, was is co-investments or did you do your own deals? If you did your own deals, how big were the deal sizes and what asset class were they in? Did you invest in REITs or crowdfunding platform and how have your experience been so far with your investments?
-
If you could go back and start over with your career what would you have done differently this time?
-
What advice would you give someone who wants to start their own shop vs someone who's dead set on climbing the ladder?
-
When first starting out, if one's objective is to invest as much as possible into real estate, would it make sense to take a job that's outside of the RE space but pays more so that you have more to invest? How likely is it that someone outside of RE let's say maybe in IB/PE can do their own 20 units and under multifamily deals? Is it more beneficial to start in RE if your end goal is to own commercial real estate or would it not matter if you're not planning to do large commercial deals?
-
What makes you still stick to RE after all this time? What do you love most about it? What keeps you from being bored?
-
What shops would you recommend for the best training at earlier levels so that one can start doing their own deals maybe 10 years into their career?
-
What is one common trait that you see in all successful RE people and what's the one trait you have that you think helped you tremendously along the way?
-
What are the mistakes that you made along the way that's deal-related? What are the mistakes you'd recommend young people to avoid in their careers?
I know it's a bit long but I think this can really benefit people. Thank you in advance!
Massive bump
Following
CRE?
Yo thanks for the ping. I feel like I'm still a bit young to answer this, but I suppose mid 30's is older than most here so I'll go ahead.
1. My money first went to paying off student loans and credit cards from grad school. I probably put 90% of every sale check or bonus toward getting rid of that. After that, it then went to paying for a wedding. Pro tip - get married at like 28. Any younger and you're probably making a dumb decision, but any older and you and your partner start having expensive tastes. I also max out my 401(k) and throw money at Vanguard every month without thinking about it. Beyond that, I invest in my own deals and invest in a fund here locally that invests in real estate outside of my sector. That pretty much does it. I'm not at the point yet where I have millions to my name, and if I get to that point, I'm sure a lot of that will go toward my own deals at that time.
2. If I could go back, I wouldn't change anything so to say, but I would have started researching the various roles earlier so I could get to where I ultimately did faster. I was a broker for a bit, a weird asset manager/property manager for a bit, in rehab work for a bit, a GC for a summer, and then spent two years at grad school before finally getting into development, where I have remained. I draw on those experiences regularly, but none of them were in any way essential to getting to development. I'm "behind" some people my age simply because they have 5 more years of deal work than I do. It's not a big deal or anything, but having that certainty earlier during one of the best real estate markets of all time would certainly have increased my net worth.
3. You have to both know who you are and understand that who you are changes over time. People change their perspectives on life, their political believes, their religious beliefs, who their friends are, who they love, etc. throughout their life so you need to stay open to that possibility of change but also self aware enough to know who you are. Not everyone is meant to be an entrepreneur. Not everyone is meant to climb the corporate ladder. There is nothing wrong with either of those realities and real estate blends the two in a ton of ways on top of that, so it's also not a black or white decision. A corporate ladder climber in real estate still has to be self motivated, is often paid on performance, needs to secure new sites and new funding, etc. I would never say a MD at Hines who controls his or her fate and is compensated accordingly isn't "entrepreneurial" just because they traded some upside for a brand name, same with a big swinging dick broker at CBRE. There are shades of grey everywhere and the key is to find the shade you are most comfortable with. Be honest with who you are, what your strengths are, and don't try to fake it. Lying to yourself is about as dumb as it gets.
4. 99.9999% of the time, no. If you're a pro athlete making a few million a year, or maybe a tech bro pulling in $350k at 23 or something, then sure, maybe secure the bag first, but if you're making $150k in IB vs. $85k in real estate and want to be in real estate, the difference in entry level comp will not make up for the experience gained in-industry.
5. Specific to development, but I love that it is a creative pursuit with flexible hours and ultimately comes down to leading a team and personnel management, which I think I am good at. I guarantee other people are better at mental math, or faster at modeling something in excel, but when it comes to getting a self-important architect, a good ole boy GC, an artsy interior designer, a boring banker, a bubbly property manager, and an idealistic city manager, all with different goals and drivers and motivations, to all work together and push toward the same vision, I'd put myself up against anyone. (For what it's worth, the related adjective for developers is "egotistical") Boredom can't exist when your entire job is problem solving too. Things will always go wrong - how you respond to them defines the success of the project.
6. Doing deals for someone else and networking. Outside of your first or maybe your second job, your experience and your network is your resume. No one cares what grades you got in college.
7. Man, development is too interdisciplinary to pick just one. The ability to solve problems effectively and efficiently is absolutely essential. If something absurd goes wrong in your life, are you the type of person who immediately gets focused and finds solutions or do you melt into a puddle? In development, something absurd goes wrong at least once a week and you better be able to rationally think of solutions that fit the budget and don't degrade the product in a timely manner. Communication and soft skills are absolutely essential. See my answer to question 5 - as the developer you are the quarterback calling the plays, the conductor leading the orchestra, or whatever other metaphor you want. You aren't the best at playing the trumpet or catching the pass, but you better damn well know the notes that the overall song needs and/or trust that the wide receiver is going to haul in the pass you toss up. A sense of urgency and ownership are essential as well. You need to go into every situation with the mentality that if you don't drive it to conclusion, no one else will.
8. My only real advice is don't expect to never make mistakes and don't make the same mistake twice. I didn't pay property taxes on one deal because they erroneously weren't sent to me and I, not being a homeowner nor having any experience with property taxes, never thought that they were due at a different time from income taxes. That was a fun one to clean up. I worked under a guy who I realized was a complete dipshit in a few months and after a couple of major errors on his part, told the owner of the company that he was messing up X, Y, and Z. Turns out the owner and this guy were literal best friends. That was also fun. If you make a mistake, fix it and move on. Don't dwell on dumb shit that doesn't matter.
Appreciate this man! Thank you!
Let's blow this up boys
I'll take a crack that this (ahem) long list of questions (jk, they are all good ones)....
1. Mostly traditional ETFs/mutual funds (almost exclusively now). Did have some rental properties (SFHs), sold them off years ago. My current strategy is to maximize liquidity (both cash and equities) for safety and optionality. Since my income is derived from real estate industry, I purposely want to limit my exposure in my investment portfolio (did reallocate to some REIT ETFs at 'rona low points, felt too compelled not to). Will say more on my investment and risk philosophy in question 4.
2. Not sure, the 'path' I traveled seems so 'lucky' when viewed retrospectively I'm not sure I'd know where to go back and intervene to make anything better. I have some "what ifs" like, what if I went to a more "target" type school vs. a flagship style mega state school. This would have required more debt (well infinitely more since I had zero due to scholarships) but maybe would have had an "institutional" job right out.... either way... can't really replay it, ask me again in like 10 or 20 years, still too soon for me to judge.
3. I actually don't think my advice would change that much.... do what you are mega best at doing, and if that thing aligns with high market demand and profit potential, you will probably end up pretty highly paid as a result. Whether at "one's own shop" or for some large institution, those differences seem smaller to me the longer I've been in this business. I would say this.... if you are "starting out" (i.e. new to CRE from UG or whatever), being "deadset" on either path (entrepreneurial or corporate) is probably not a good idea. I think letting opportunities develop and come to you is far better/tactical way to do it. The best/successful people who went "entrepreneurial" (I'm gauging on money made for come clarity) did so based on very opportunistic moves, not just "I want to be on my own" vibes. And not to spoil any dreams.... they more or less founded firms with strong capital backing and more or less created "jobs with ownership". So, path really wasn't so different but potential and realized returns (and risk) much more. BUT, until you have strong skills, ideas, and capabilities.... worrying about this is pointless (but its good to dream, especially if motivational). Gotta learn it first, before you will get a big payoff on anything!
4. So, in the "Real Estate Investment Management Industry" (for this purpose, consider that inclusive of all buyside activities with equity, debt, and development), there are "managers" and "investors". Being a manager is a business (and one in which one can have a career). Investing in/with one is an allocation decision. Don't confuse these two points, they are separate. As stated in question 1, I chose to work in the "management" space (at a large int'l developer) and invest outside real estate (beyond some REIT ETFs and my personal residence) at this time. IF I decide to "invest" and go "entrepreneurial" it will be in a Manager type business (i.e equity fund advisor, development co, etc.... i.e. a platform), thus until and IF I see such an opportune moment, I want max liquidity. This liquidity (cash and equities) is both a safety factor from layoff (not an trivial risk at any firm in this space) and an effective store of "dry powder" as we say in the business. 20 unit and under type deals would be horrible investments from this perspective, as they are very illiquid on a relative business and their value/performance is probably going to be fairly correlated with my current industry health (i.e. lose job and value/ability to sell investments at same time). Worse, CRE assets have limited upside with big cash downsides (i.e. like a pandemic causes the government to place an eviction moratorium for over a year on all rental housing). Large institutional investors (what we call the LPs in the business) have the type of needs for which CRE investments are perfect, thus making a business of being the "Manager" is a pretty good one, and it scales. So, once one actually understands the mechanics and profitability of the "Manager" space, those small deals will look very unattractive tbh. WHEN I am rich enough to want/need the return profile offered by CRE investments, I'll invest either directly or via managers I know (prob taking co-GP positions), but that is not where I am today. I.e when I am as old and rich as those who invest like LPs, I'll invest like LPs.... but I am on the Manager track, and that is the strategy I'm following.
5. Good question... I think my first exposure to anything like real estate was playing Sim City when I was in elementary school (I'm old enough to admit this was the legit original, later got Sim City 2000, vastly better). I like buildings, architecture, cities, and money/finance... real estate development is the best mashup of that I can think of. Been times I almost veered to more "pure finance" world, but found it really boring as I would start the interview process. I've been 100% committed for about 14 years now. So with closing in on 20 yrs experience.... doing something else would be silly as I would not deliver anywhere near the value and thus be able to make the same money. I like it, generally always have, and boring has never been a way to describe it ones personally.
6. Really, the best job is the one you get offered. I'd guess if you really want the ability to do deals, then a transactional role is probably somewhat better (marginally). So brokerage (IS/DE in particular), I-banking, acquisitions (equity), and originations (debt) would probably be "tops". Paradoxically, it's easier (much) to do "own" deals in the "mom and pop" space and somewhat in "middle market" (or sub-institutional as I sometimes call it) than in big "institutional" world... so a "lesser" (by WSO standards LOL) type firm may actually set you up wayyy better than "big names" in terms of doing own deals. That said, jobs in asset management, leasing (brokerage), and appraisal all teach valuable skills in real estate, so really so long as its "legit" exposure, you are probably good to go.
7. Hmm.... being really good with people, solid leadership skills, communications/sales ability, being able/willing to challenge conventional wisdom and thus difficult circumstances. Those are all strong traits (none of them are shocking of course). I think my communication/presentation skills have made the most difference relative to others with similar technical backgrounds as me, that has let me personally "stand out". Worth noting... your excel or powerpoint skills (critical at analyst/associate stage) will be pretty worthless very fast, yet it's kinda like an entry ticket. Will note, many of the top super senior people I've worked with (including legit founder/CEO types) can and do make financial models from scratch and do so to model out business plans and deals, this is a financial industry, and you almost come to find yourself "thinking" in excel, that never changes (at least not for me).
8. I honestly can't think of a "deal-related" mistake that is even meaningful or worthwhile to tell, but I can assure you, I've made them! You will make mistakes... correct them and/or apologize and move on, it's human, don't worry. As to mistakes young people make.... I'll drop one but frame more as advice....
- final point in the spirit of this post....
- Don't be afraid to follow niches, develop 'specialties', or otherwise follow career paths that are deemed "non-standard" (least from a WSO pov LOL). The "mistake" I see people make is going all-in on a path like "acquisitions at mega fund" or "REIB desk at BB" or "analyst for Eastdil" and seeing anything less as a failure of sorts. I went the "research/strategy" route after leaving the D/E placement route out of school (directly due to the 08-GFC), this "niche" or "non-standard" path has led me pretty well and I can legit say I've made progress ahead of my "age" (not the best metric tbh, but one nonetheless). I've seen friends use appraisal to greatly accelerate their "buyside" careers. I've got many friends doing great in "niche" asset classes like student housing, senior housing, self-storage, etc. and are probably ahead of their age/cohort peers doing "traditional" asset classes. Same can be said for many people I know who started, stayed, or even moved to "secondary" cites vs. those who fought ahead in big markets like NYC/LA/SF/etc. So follow your own path, evaluate opportunities as they fit YOU, and don't worry about "prestige" (this ain't finance/IB....).
- extra final point on "mistakes", but I am only so-so sure on this one, and frankly can't tell if it is a mistake or not for an individual... that is.... leaving a firm for a "lateral" especially in first three years of career (like direct from UG), these moves often result in "resets" to the career and thus push back time to promotion. The better alternative is leaving for a promotion/upgrade. That said, for some, sometime the "lateral" is a good move, but for others its a long-term loser. Sadly, hard to know, but I think jumping too soon (especially if just chasing prestige and a few extra $$), is sub-optimal for many, but optimal for some/some of the time. So take that final throw away point for what it's worth!
The legend back at it again. Thank you for this, really appreciate it man! Definitely agree with a lot of the things you said, especially the prestige part.
On number 4, in terms of investment strategy and liquidity, what’s your opinion on real estate as a stable income-producing asset that can also be depreciated for tax advantages? Let’s say if one takes on the GP role instead of funding the deal themselves and maybe do a syndication on 20 unit deal, do you think that it’s worth it to pursue this opportunity versus putting money into ETFs? Would it be different if one just funds all the deals with his own capital and do only 10 units and under? Do you think a smaller deal such as this one is do-able for people who doesn’t work in CRE themselves?
I know that’s a bunch of questions so I really appreciate your help. Just trying to figure things out right now so I can invest as early as possible, I have some money in ETFs and some degenerate levered ones at the moment but would love to discover the CRE route as an alternative to public equities.
So, first.... gotta acknowledge/ask... you are investing money in "degenerate levered ones"? WTF are those? I assume you mean some for of levered ETFs and maybe I'm just not familiar with the term (i.e. like inverse leveraged ETFs? Like go up when market does down?). Anyway....
Not a tax accountant or even close to pretending to be one... so take this as very very prelim and maybe personal to me...... to your questions..
- Unless you can qualify for "real estate professional" status from the IRS (which is nearly impossible if you have a W2 job most of the time), all passive losses are suspended once your AGI crosses $150k (and I think that is $150k married or single). So those depreciation advantages are gone, beyond wiping income of the asset and other passive assets until you sell the property. This is big part of why I sold my last rental, had a large accumulated suspended loss, and wanted to claim it. Unless you are like a "full time investor", hard to see much tax advantage, if you mix with w2 income, becomes really difficult (unless you make like under $100k where the phase-out begins I think).
- Doing a GP/syndicated deal vs. ETFs... sure, I mean could be a good idea. Depends on overall portfolio, liquidity, etc. When I refer to building liquid assets to act as "dry powder", that could be a use if so inclined (not a personal interest for me, but people can/do make money from such activities).
- If using all "own" capital, than you are not "leveraging" your skills or services as "Manager"... nothing wrong with this (clearly simpler/easier, and far less headaches as having "investors" on a 20 unit deal seems like a nightmare IMHO). My preference would be to have little to no money in the deal and earn the fee/promotes as Manager. I kinda like the whole "heads I win, tails you lose" payoff diagram. Side note.... that is generally the format of employment arrangements in the US, actually a golden form of leverage. Clearly, you don't get much beyond salary and basic bonus at junior levels, but once you get senior enough to merit Long-Term Incentive Compensation (LTIP, i.e. promotes, carries, stock grants/options, deferred cash incentives, etc.) it can change quite substantially. Doing 10 or 20 unit deals takes time, has risks, etc.... so it's really a matter of where does one get the best "bang for the buck" per se (IMHO.... for some, maxing out by "climbing the ladder" in the high-end of CRE world, is going to be better than doing 10/20 unit deals.. but for others... the small deals is the way to go... it's very personal tbh).
- Can people outside of CRE do small, or even large deals? Of course! Whole lots of brokerages, prop. mngt firms, and other service providers exist to service the "mom and pop" (aka HNWI) market, aka "private client" (that is what CBRE calls it I think as an example). Lots of doctors, small biz. owners, corp. executives, etc. own commercial real estate directly and/or via partnerships. There is also the whole entrepreneurial world of real estate that does deals as "side hustles" (think of the Bigger Pockets type world). So, no one does not need to work in CRE to invest or participate, this is fairly common.
I guess the overall point I'd make, given your questions and follow-up...... See the difference between "investing" in real estate vs. "managing investments in real estate", the latter is a business (and thus a career for those who work in it). There are many "professions" in the buyside and sellside of this industry..... and working in it does not require investing in it nor vice versa. TBH, the profile of the people that invest in large CRE funds (like some Ultra HNWIs do), will be vastly different than those who run/manage those RE funds. Just like how you can be a doctor who specializes in cancer, without ever actually having had cancer..... So, as for you.... I'd recommend keeping the career and investing plans/thoughts separate. if they both land on CRE, that's fine... but they really don't need to be linked.
How did you invest your money? My only regret is not investing more sooner. I invested in equities early on (18) and then sold a lot of them when I was in a financial pinch (21). Don’t do it. I don’t care how painful it gets, don’t touch the money. It’s hard to invest in real estate when you’re starting out because it’s capital intensive, but these days there are crowdfunding sources where you can invest with $5k-$10k which I would do looking back. After a few years as an analyst/associate, I had saved enough bonuses to start contributing to the deals my firm was doing. So it went like this: (1) Equities since the age of 18 and (2) real estate investments as an LP in other sponsor’s deals. All multifamily - ground up and existing value-add. I also now buy REITs of all kinds - Mortgage, Housing, NNN REITS. It’s hard to shy away from those dividends!
If you could go back and start over with your career what would you have done differently this time? This is always a tough question because our paths and journeys are unique and in retrospect are exactly what we needed to end up where we are. For those that are less spiritual, I can answer this from the perspective of “Knowing what you now know, what is the best way to ensure success.” In my opinion, I would have done exactly what I did which was network like a mad man - I was on phone calls and coffee chats 2-3x/week with industry participants (lenders, brokers, owners, analysts, associates, vendors, capital providers, etc.) The sooner you can figure out which aspect of CRE you enjoy most, the easier it will be. I would also intern (even if unpaid) at a company that was larger from the get-go. I went a more private, smaller company router versus institutional route and I think the institutional experience would have/could have been valuable in some ways. In summary, network like crazy and intern at an institutional type shop. I might even pursue those rotational internship programs so you can touch different facets - acquisitions, asset management, operations, corporate, etc. And then you can really see what tickles your fancy.
What advice would you give someone who wants to start their own shop vs someone who's dead set on climbing the ladder? Do whatever makes you happy. At the end of the day, no one but you has to live with your decisions. To the first group of folks, I would encourage them to get as much deal experience as possible and network with Capital providers over a period of time. It’s hard to start a new co. Without a track record so having deals to show success in and knowing where to find money are the key components. For the second group of folks, I would encourage you to work your tail off, always go above and beyond, triple-check your work, and when you’re done with Projects 1-3 go ask your manager for the next projects, and the next projects, and the next projects. A mentor once told me - your job is to make your boss’s life easier and take all of the work off their plate. This was a guy who was high up at one of the agency lenders. High, high up. So basically absorb all the work your boss would typically do and you will eventually absorb the role too ;).
When first starting out, if one's objective is to invest as much as possible into real estate, would it make sense to take a job that's outside of the RE space but pays more so that you have more to invest? How likely is it that someone outside of RE let's say maybe in IB/PE can do their own 20 units and under multifamily deals? Is it more beneficial to start in RE if your end goal is to own commercial real estate or would it not matter if you're not planning to do large commercial deals? This depends on how you see yourself investing in real estate. If you can have a low ego and are willing to learn things on your own and spend extra time on investing, then take a job where you get the most income. Capital is crucial to buying real estate so you need lots of cash and good credit. This will help you buy real estate at a level that may take longer as a RE professional. The flip side is by working in RE, you can basically get paid to learn what you know you want to do and you have front line access to deals. You learn the ins/outs/secrets/strategies and will make investing much easier. Harder, though, to get to 20 units when starting as an analyst making $100k or less. If you’re in IB/PE you can certainly do your own deals, but do you have the time? Most of the folks I know in IB/PE end up investing passively as LPs with sponsors of investments. If you’re planning to do larger deals, then working in RE makes sense but may take longer. If you can find a high paying job and keep costs low, then you can save more cash quicker and start buying faster but you now have to basically have a second job.
What makes you still stick to RE after all this time? What do you love most about it? What keeps you from being bored? I love meeting new people, learning new markets, completing research, and honestly just negotiating and doing deals. I’m a deal junkie and I learn something new on each deal. I love the feeling of getting a new deal under contract and I love the feeling of selling a deal for 2-3x for our investors. The money is also excellent LOL…
What shops would you recommend for the best training at earlier levels so that one can start doing their own deals maybe 10 years into their career? I would actually recommend reputable mid-market shops or a private shop to start doing deals sooner. Institutional groups obviously have amazing training and experience but you typically see people stick around longer because they are siloed and need to spend several years in each part of the ladder to truly understand the business. If you’re at a smaller shop, you can wear all the same hats as the principals from day one and learn everything a lot faster. I would work at a shop that does lots of JV deals so you can meet the JV investors and learn what they look for in deals. I would focus on working on the acquisitions side or the capital markets side (debt/equity) - control money or deals and you can learn how to get them done faster. I also don’t think it will take 10 years. Maybe 3-5 if you work your tail off…7-10 if you go with the flow and take it slower.
What is one common trait that you see in all successful RE people and what's the one trait you have that you think helped you tremendously along the way? They are hungry and looking to get deals done. If you’re not motivated by the hunt, to track down deals and negotiate them, and get them closed up, then it’s not for you. It’s rare that people who have a 9-5 mentality succeed in real estate. You must be willing to make the calls, analyze the deals, travel, get creative, and do what it takes to win deals and your can only do that with persistence, hard work, and grit. The best traits are extroversion, communication, and follow-up. That’s how you get things done in real estate - communication is critical in any business but even more so in RE.
What are the mistakes that you made along the way that's deal-related? What are the mistakes you'd recommend young people to avoid in their careers? Deal-related: getting too into a deal and not realizing that as DD progressed it wouldn’t be a home run anymore, and buying it anyway. As Steven Schwartzman says in his book - W/E it Takes - deals tend to take on a life of their own. It’s important that you don’t let that happen and that you always have dozens of deals in the pipeline so you can walk away from average deals. Average deals may not lose money but they still cause headaches. So basically remain objective, don’t massage the numbers, and stick to your guns. Mistakes young people make - jumping ship from good companies for a $10k-$20k raise. In the grand scheme of things, that money, post-tax, is nearly nothing. Work to learn, not to earn and eventually the hard work will pay off one way or another.
I know it's a bit long but I think this can really benefit people. Thank you in advance! I rambled but hope I helped.
Thank you man, you did not ramble at all, really appreciate your insights on the topic! If you wouldn't mind me asking, if potentially one work in IB for about 2 years (let's say M&A and not REIB) then transition to an RE role do you think the person would be behind in terms of knowledge? How likely is that someone from M&A will be able to transfer their skill set to CRE? If instead of doing 20 unit deals, do you think that it's more sustainable for one to take on 2-4 units (actively and not in LP roles) considering the time it would take? Thank you!!
I think the skill set is very transferable. The only thing that changes is the industry vocabulary. I always describe CRE as LBO for properties...
As an example,
For M&A, people use LTM EBITDA and in CRE we use TTM NOI
For M&A, people use Multiples and in CRE we use Cap Rates
Etc. etc.
The skill set of reviewing and forecast financials is transferable and then you'll simply have to learn about demand drivers, completing research on supply, demographics, rents, population growth, job growth, and other factors relevant to CRE. There's tons of overlap...
I think doing 2-4 units is worse than 20...rationale is that you can't hire a good property manager and still make decent cash with a 2-4-unit deal. More units = more revenue = less drain on cash flow from managers, vacancy, repairs, etc.
In the grand scheme of things, it's not impossible and doesn't take as much time as people think. Nowadays there are online software programs to streamline tenant screening, handyman booking and invoicing, leasing, and rent collections. In short, I think you can do either with a couple extra hours per week but you must invest the time in the technology. Don't be afraid to lean on leasing agents or realtors to help leasing (which I think is the most time-consuming aspect) and find a deal that pencils even with a manager (in case you don't want to coordinate repairs, move-ins, etc.).
Absolutely incredible advice, can really tell you love the industry. Mind if I DM you with a couple more questions? (23 y/o still finding his way in RE)
I don't mind at all. Shoot me a DM. Chat soon!
On the younger side (like the rest of this forum), with only about a decade of experience. My net worth will be about $4.5M by the end of this year based on carried interest in deals, though, coming from a negative NW at the beginning of my career and no family connections.
At a high level, my advice on your questions would be:
- If you're getting into real estate just for the money, you probably have better options. I love deal making and development, so I don't have another option that I'd enjoy as much. Just got lucky in life that this is what is exciting to me.
- Three keys to success are a) betting on yourself, b) taking any bet where the risk/reward ratio is disproportionately favorable and the downside won't end you, and c) work hard at it and be patient. I bet on myself early on by spending a lot of time and money on education (CCIM, master's in real estate, miscellaneous courses and studying). Then I bet on myself by taking on real estate consulting projects while I was working a FT job (that could've gone sideways and got me fired). Leveraged those consulting projects into carried interest in deals and quit my job to bet on myself working FT on those projects. If it all goes sideways tomorrow I still have a great resume and could go get a great job in real estate. Patience is key, too. My net worth about three years ago was under $100k, but I laid the groundwork for hockey stick growth.
- Being actively involved in real estate is never going to be boring. Being on the service side (debt/equity brokerage, investment sales, etc) can be boring, but it's the price of admission and the people involved are typically still pretty interesting.
Thank you for your insight! This was definitely very helpful. Would you mind expanding on your involvement in the real estate consulting projects, for example, how do you balance that with full time work, what responsibilities that you took on and how did you negotiate these projects into carried interest? Hopefully that's not too much of a bother, thank you again!
Sure thing, happy to! I'm in a niche real estate product type, so I was able to establish a little credibility in it after 2-3 years working for a developer/broker of it and doing consulting for their clients with their oversight. When I left that job for another one in a different asset class, I was able to get referrals for that initial asset class and take on consulting clients that way. The great thing about doing a feasibility study or financial model for a client is that it is like a paid interview - they get to see the quality of work you produce and pay you well for your time. One of those consulting relationships developed over time and ended up with me taking a job with that client as a development director - after two years of one paid interview after another, they were comfortable offering me a job that I wouldn't have landed if I was competing just based on my resume.
Balancing consulting with full-time work was really hard. For awhile I was working in a sweatshop debt/equity placement group, which was 65-70 hour weeks, while also working 10 hours or so on my master's degree, and taking on consulting contracts. I just grinded it out - not really sure how, in retrospect. My work/life balance is a lot better these days with around 50 hour work weeks. I love what I do, though, so working on a model for one of my deals or talking with brokers doesn't really feel like work, typically.
As far as negotiating carried interest, it basically just comes down to the fact that I bring a lot of value to the table with each deal in terms of my experience, industry connections, and an acquisition I've sourced. Sure, my partners could (and do) find plenty of deals without me, but if I bring them a deal with an outstanding return and ask for a relatively modest share of it (like 10%), it still makes them more than they would doing a sub-par deal without me.
1) how I invested? What moved the needle are beneficial interests as a partner. Purchasing a home. Carried interests from work is flattering but can be an illusion.
2) would I do anything different? no, I’m doing what I’m authentically good at and interested in. I believe you should pay your dues and learn first.
3) advice for the aspiring entrepreneurs? Start small, find niches, don’t just follow the crowd, partner with people either with more money or experience but lack what you have. Best way to get paid is work for the money. Best way to build a relationship with wealthy people is to help them when they are in trouble.
4) investing in real estate advice? It’s largely become a wealthy persons game where you need to think about working capital reserves, personal guaranties and net worth, and all that other stuff that will shut you out or relegate you to only a small sliver of the ownership. You kind of need to take those terms until you bring more value.
5) am I bored of real estate? Yes, I’ve become bored, so I diversified. As LL Cool J once rapped, conventional ways of making love kinda bore me.
6) PGIM is great (Pru trains the Street). Greystar before it became a mega brand was a special place. Try to work at a LP/investor and then work in operations (development, for example). It’s more of a mindset you’re getting. Big picture to small. Learn how other people think everywhere you go. I believe that making the Brand is more fun than just falling in-line with an established brand.
7) successful trait in real estate? Perseverance, ability to pivot, methodical, thinking outside the box, resourcefulness, a super power/ability or two, knows when to slam the gas petal to the floor to grab advantage, good at relationships, not afraid to tell the universe what you want to do (vs keeping your idea safe in your mind), ability to stay calm, working spouse for when you’re not making any money (and/or wealthy family). I’ve seen parents tee up their child for success in the real estate game - then back to the family business, it helps provide an end goal in sight. For those without that tangible end goal, you need to imagine one for yourself - not something materialistic bc you have to want it when things get tough. Be open to mentor others. It’s been a great way to network without trying to network. Anticipate what the money wants. Learn OPM.
8) mistakes? Need all three to be set for life 1) good business, 2) good external partners, 3) good internal partners. Real estate is often a long game and people battle in their minds short term and long term thinking. Real estate also requires a lot of money, hence forcing you to tie your fate to others. You really will live a few lives - more than your friends who never ventured out. Hope your spouse can handle. My first private investment was with a con artist, and I was young and wanted to make big moves. Character matters more than hype, prestige, image.
Amazing insights man! I was just curious, is there one niched asset class that you would invest in right now for real estate & what do you think about crowdfunding platforms like Fundrise as an investment?
Not really anything that I am interested in (real estate wise). I see some niche real estate opportunities but due to more localized demand drivers that a few people know about.
Crowd funding, syndicator platforms - to me are just signs that the asset class is getting too crowded (and easy to get in and priced to perfection) and frankly that turns me off listening to people brag about growth in a boom market or chasing yield far far away from where they live in a city they couldn’t give two shits about. Happy for them, but it pushes me away - I can range from being a contrarian to a momentum pusher. I dislike chasing yield to the end of the Earth. I’ve managed in multiple states but rather not do that too much unless for a select group. I think the main advantage of real estate is local knowledge and relationships or having capital when others don’t have it. I like investing where sophisticated investors are investing. I like working with Main Street people and making them successful.
That’s the main reason I’m focusing elsewhere, other than some localized stuff that I care about (impact my hometown, economic development stuff). I’m tired of personal guarantees (risking everything) to buy things which as the GP - that’s one of the things you do. That was ok in 2016, but 2022 with cap rates loosening, now I just would rather do things that have high upside and manageable downside that I can unwind easily, with less partner risk. Everyone wants to be an owner, but nobody like feeding a hemorrhaging investment indefinitely with personal guarantees as a minority owner. Consider me jaded, still an optimist, but rather not be limited to the asset class I spent most of my career with. You have this freedom when you consider yourself a business person with a real estate skillset. I believe you need to be flexible. That said, this isn’t investment advice (syndicators/crowdfunders will probably earn fees; long term value in real estate is a good bet), but my thoughts on how I want to spend the second half of my career.
There are some valuable responses already present here so will try to keep it concise. ~10 years in on the dev side currently so take it fwiw:
Thank you so much man, I really appreciate your insights. Do you have any tips to break into great development firms like Tishman, Brookfield, Hines, Related, T Crow, etc.? Do you think that it's necessary to go from a big LP shop before going into these developers/operator roles? Thank you!
I don’t know where you’re at in your career but I would say if you’re in college then summer internships. Any real estate related experience you can get to show you have a passion for the industry. LinkedIn can be helpful too if you see people from your alma mater at any of the shops you listed. Send them a message and see if they have a few minutes to connect. If you’re out of college and looking to break into development, I know people who started on the management side and eventually pivoted to dev. Less barriers to entry with property management and still get exposure/experience. Know people who didn’t go to prestigious schools but grinded their way up - eg: work as a leasing associate at a multifamily property, perform and gain corporate’s trust. Inquire about roles at said corporate office, eventually climb the ladder there and pivot to dev when possible. That’s not ideal but have seen people with limited connections and resume pull it off. I don’t think you need to be an LP before owner/operator but would still be relevant experience.
I'll respond to just one of these for now.
8. Network like crazy and learn to hunt with a big rifle. In this context I am talking about deals. Learn how to source career making projects and know who needs them. This skill alone will accelerate your career and net worth faster than anything else. I am working on a deal right now that has the potential to net me more than 5M with zero capital risk on my part. I know a deal when I see one, I know people, and most importantly I know what those people need. I hunt career game with a big rifle.
Wow man, congratulations, that's huge! Aside from networking, how do you hunt for deals and know what deal is a home-run?
How do you find the deals? You keep your ear to the ground. How do you know it is a homerun? You find the group that believes it is so.
Sloot
Sloot
Bump
My advice to those just starting out is that personal finance is that it is its own field to be studied and understand independently and just because you are in an investment oriented field, that far from guarantees success in building material wealth. The most important tool you have building your own portfolio is discipline. Building and sticking to a budget often require you to keep your ego in check and to make sure lifestyle creep don’t eat up all of the new compensation you earn through your promotions.
The quick hitting advice is to first pay off all credit card debt and to build six months salary emergency savings as quickly as possible. Always invest to hit your employer’s match (if they offer 3%, make sure you contribute that much yourself - this is free money to you). From here analyze interest cost of any existing debts versus earnings potential in the public equities market (historically 6% return per year) and methodologically pay down debts as you go.
When possible invest money as early as you can in a Roth IRA - this is a type of 401K that lets you pay based on your tax rate today which is much lower than when you’re at the midpoint of your career. Contribute as much as you can once you’ve handled debt -time in the market matters way more than timing the market so I would recommend picking a set amount you want to invest monthly and sticking to that. As a young person you have decades of hold period so most financial advisors would recommend a portfolio of 95%+ public equities.
I personally don’t get too cute with mine and hold most of my portfolio in the S&P500 indexes (80% of assets) with a small, select group of individual companies (10% of assets) and some select crypto (5% of assets).
At this stage I don’t think I would have done anything differently. I worked really hard over the years and took risks to earn my dream role and the reality is every step along the way of my career contributed meaningful skills towards how I produce today.
This is one of the big advantages of how multi-disciplinary development (and real estate in general) is that you can take lessons from any other phase/experience (ie property management, valuation, banking, brokerage) and apply them to build your own unique perspective/skill set versus your peers.
Let’s address the most important thing first - production and your results are really what drive success in either approach. If you can reliably produce exceptional outcomes and returns, almost every other factor is not as meaningful.
There are nuances however if you choose to climb versus go out on your own. If your goal is to climb the ladder, recognize there will be a much greater importance on how likable you are, ability to play internal politics and willingness to thoughtfully be the “squeaky wheel” to advocate for yourself to move up positions. Traditionally there will also be more emphasis on pedigree and “checking boxes” like an MBA degree, etc. so use that knowledge to plan out your career path a bit.
If your desire is to strike out on your own, some critical advice is to get as much hands on experience/responsibility in your future niche as early as possible and to always “think like an owner” through your early career. Usually this means finding a small to medium size shop (versus a large, institutional, established one) as you will have to wear many more hats (essential when you are staring your own shop) and you can make a much greater relative impact —> more visible results to leadership —> more responsibility, rinse and repeat. You need broad exposure, hands on experience driving processes and (most importantly!) results you can point back to when you go to find equity partners on your own deals.
Real estate is a heavily operational business where an understanding of the operations and respective processes are essential to driving above average returns. If the goal and dream for you is to invest as much as possible to own/run as large an apartment portfolio as possible then why wait? Learn the ropes using someone else’s money before you put yours to work.
A key factor early in a career is trying a lot of different things so you can quickly understand what truly fits you. For most, their dream/person/location/lifestyle is idealized so it’s important for you to see what a role is day to day because there often are downsides you are not considering. For the example you cited above, most think an apartment portfolio is “plug and play” where third party management handles all the problems - I can assure you that they require constant oversight unless you want to get taken advantage of long term so what is often perceived as the key selling point (passive income with minimal effort) is actually the opposite, especially initially.
For me it’s the amount of learning that is available given the constant state of change and multidisciplinary nature of the industry. If you are intellectually curious, real estate (development, in particular) has so much to offer in varying fields - you can’t be a finance, marketing, design, construction, etc expert so there is always an opportunity to stretch your skills. A lot of these areas have secondary benefit in that they are relevant outside your professional life so wholistic dedication to real estate actually can help enhance your worldly wisdom (a bit lofty, but true).
If you’re bored, pay attention to what areas excite you - what tasks do you lose track of time when you’re doing them? You’ve just found your competitive advantage- spend more supplemental time reading, talking to experts in that niche or doing those activities as this is an area that undoubtedly others would/do not want to spend time on that you are uncommonly interested in.
This is a controversial question and the reality is there is no right answer as it depends on the environment the individual performs best in. Some will argue (myself included, see above for my case on why if you want to do your own deals) search out small to medium size companies where you can stand out, learn things beyond your role and gain a more well rounded skill sets while others would argue the benefit of a large name brand early in your career on your resume and the opportunity to see a well oiled machine with heavy deal flow.
Key factors to consider are timing (who is on the team), size of company (small versus large), structured versus unstructured and your immediate leadership.
Generally a shop is going to be what you make of it - you as the worker have a lot of say in analyzing what the opportunity is at your company and taking advantage of it. Keep in mind your immediate leadership/boss and team will have a much bigger day by day impact on your experience and development than the shop itself will.
It sounds a bit flowery but the most important and universally common trait for the superstars throughout the real estate industry is passion for the asset class and a genuine desire to learn more and contribute meaningfully. The reality is there are plenty of extremely smart and hard working people in all areas of real estate but what makes the best are those that genuinely enjoy it.
This creates a virtuous cycle of: this area of real estate is interesting, I’m going to read/talk to an expert/expand my knowledge in it —> learn more about the process —> do more of this activity to try incorporate new knowledge —> better results than last time —> personal satisfaction/fulfillment as you’ve improved —> explore more to see where you can get better. Anyone who consistently does this will outperform the smartest/most talented individual who isn’t engaged at this level.
I’ll answer the second question first - the mistakes I’d avoid are making the same one, twice. Everything else is a learning lesson, the only failure is repeating previous mistakes.
As far as deal oriented mistakes, from an LP/investor perspective it would be that your choice of partner is the most important decision you make in a deal.
From an operator’s standpoint, there are typically three key factors/major things to get right/that matter in a deal so your job is to figure out what those are and how you can get your arms around the risk associated with them. If you’ve got these well understood, communicated and contained then you’ve done your best and at that point execution of the business plan is the most important thing you can get right.
Just beautiful. Thank you.
Sunt eum temporibus quasi molestiae recusandae mollitia aspernatur. Aspernatur consectetur maiores adipisci voluptas. Et saepe officiis placeat commodi repellendus reprehenderit optio.
In omnis qui rerum accusamus est sequi. Iure a ut vero in praesentium dolore quam. Quidem omnis quis consequatur animi et et consequatur. Sint iusto quis et et ullam sint maxime.
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...
Id incidunt dolore tempora iusto deleniti asperiores laboriosam. Quos quia molestiae ab sit.
Exercitationem tempore non consectetur at iusto aut. Eos quisquam adipisci nemo minus sint sapiente. Omnis fuga voluptas occaecati dolorem. Magnam sint maxime alias error saepe ducimus blanditiis. Est rerum quam vel sapiente quos placeat commodi similique.
Et consequatur neque esse enim impedit temporibus eos. Porro numquam repellat deleniti maxime odit quia. Vitae iusto est sit iste expedita explicabo excepturi. Quia incidunt illo deserunt soluta eveniet odit. Fugiat consequuntur et vero excepturi inventore.
Qui omnis ut porro illo aut tenetur. Repellendus est molestiae maxime voluptas tempore voluptates aliquid. Voluptatem doloribus quis odio eaque deleniti quia quia qui. Ducimus sapiente maiores dolores. Nobis praesentium est et aut magnam autem. Odio cum recusandae et omnis eos sed cum.