What’s more important in the long-run: accumulating relevant experience or capital?
Hi,
I’m currently a biglaw attorney (2nd year) who works in the real estate space. I hate the law and am envious of my clients whose work seems significantly more interesting. The end goal (long-term) is to start my own shop, but I’m not sure whether I should stay in the legal profession or go into brokerage.
I like the idea of going into brokerage because I think brokerage or REPE is what I would most enjoy. Based on what I read, it seems like I can try brokerage and then transition into an acquisitions role if I don’t like it (please let me know if I’m misguided about this). The downside is that I would have to take a massive paycut and start off as an analyst (major shops don’t seem willing to start me off as an associate).
Staying in biglaw or going in-house to a client would be a good way of preserving my income while still learning more about real estate, but 1) I just dislike the law (don’t ask me why I went to law school) and 2) it seems like most ex-lawyers transition into development as opposed to acquisitions. While I’m not opposed to the idea of going into development, I don’t think it’s a very natural fit (not a good project manager, have no sense of style, and don’t care about the “tangibility” of real estate or “accomplishment” of building something).
To be honest, I’m a pretty frugal person and taking a pay cut would not affect my lifestyle. I do realize though that, in order to start my own shop / participate in deals, I’ll need personal capital. I’ll be able to accumulate a lot more staying in law. What’s more important, accumulating relevant experience or capital?
A few points:
- If you really want to start your own shop/participate then bottom line having capital is more important than just experience (unless you're really good at raising money). You can always throw money at something, not everyone is willing to give their money to someone, even if they're experienced.
- What do you even want to do when you open your own shop? Buy and hold? Value-add? Development? Having an idea for that will guide your career move.
- Acquisitions roles is heavily finance based, look at all the posts here about analysts and their excel models. If you aren't strong on real estate finance then you probably won't get many looks in an acquisition role for someone else.
- A lot of people go into development for the architecture, the "tangibility", and the feeling of accomplishment, but I can tell you there are more people who are in it just to make money. I've met so many developers who wouldn't know Brutalism from Bauhaus, see their project only when absolutely necessary, and just see the completed building as a sale/refi price. Being a good project manager is pretty important if you aren't at the top stage where you are just managing the project managers, but if you spend the time to build out the skillset it can pay serious dividends in the future (depending on what you want to do in RE, of course).
To sum, you should figure out what you want to do in real estate before determining what job you want to get and when to jump. If you want to run a $5b REPE fund, you probably aren't going to raise that yourself and would be better served getting experience and working your way up. If you want to operate 500 apartments for a steady, relatively passive cashflow, you can probably hack your way though it (start small, though) and would be better served saving up money for down payments.
Thank you, really helpful! Especially regarding the development perspective.
For me, it doesn’t really matter to me what I want do. I just want it to be mine. It’s kind of like tech people who know they want to do a start-up someday without knowing what the start-up is. I just know I’m not a tech-savvy person, nor am I interested in it. A more normal OpCo like in the industrials sector is a little unrealistic (scale is too large, more complex). So real estate seems like a good avenue for an entrepreneurship, plus you can do it gradually. Part of the reason I want to do brokerage is that I heard it’s not so difficult to start your own brokerage, and I’ve met people who have done just this and really admire their lives. If that doesn’t work out, I think tentatively a buy and hold strategy seems the most attractive.
No offense, but I think this mentality is pretty immature. Whether in real estate or not, it sounds like the typical college freshman saying "I'm going to own my business one day and be my own boss, but I have no idea in what field." The fact of the matter is it does really matter what you want to do. The difference between a tech-savy person starting a tech start up and a real estate company is the capital. Any SWE can spend their free time coding an app and hope its the unicorn...it doesn't really cost them anything if it fails. That is not the case in real estate. Real Estate is capital intensive...when things fail, you lose money...a lot of money. Let's talk about your "buy and hold strategy." I'm going to assume you are talking about spending your own money and investing in smaller assets (2-4 units, sub-$1mm). Your strategy will be either 1.) buy fixer uppers, renovate, and lease up or 2.) Buy renovated properties/decent condition, lease up and then collect rent.
In strategy #1, how will you have time to do this while working a full time job? Have you ever used a GC for anything before (don't even think about coordinating subcontractors yourself...you will not have time while working full-time), what happens if your GC bails mid job?, are you comfortable eating mortgage payments for months during renovation? Are you able to walk into a property and tell the GC exactly what to do? (And by exactly, I mean exactly -- ie what exact areas do you want to demolish? Do you want to just repaint the walls or redo the sheetrock entirely? Do you want to redo all the wiring and do recess lights? Do you want to redo all the plumbing? Do you want to keep the same baseboard/molding or replace them? Central air or keep the units on radiators? Replace the hardwood floors or just resand them? Do you enjoy going to Home Depot and picking out bathroom vanities/tiles? Kitchen cabinets? Appliances? What color do you want to paint the units? Your GC will execute what you tell them to execute...but do you even know what you want? Construction is an incredibly detail oriented job...I'm talking about big things such as what cabinets to install to the smallest minutia such as baseboard you want. Will you enjoy this? I know I don't and that's why I leave the construction decisions to my dad (a GC)..but if you're on your own, you will have to make these decisions.
In strategy #2, your main issue will be finding a cash flowing property that allows you to generate any positive cash flow. If you are in a Tier 1/HCOL market, first off good luck affording a renovated multifamily property as it will be $1mm+ and if you are able to afford it, you will be lucky to break even on the property. The more likely scenario is that you will have to pony up a couple hundred to thousands of dollars a month to cover mortgage payments, taxes, etc... If you are in a LCOL market, then vacancy may be a bigger issue.
And then for both strategies, a major headache you will face is property management. When your tenant calls about a pest problem, the kitchen faucet leaking, the garbage disposal not working, the toilet clogging, the hot water tank breaking, etc...will you be able to cure these problems? It is rare for a first time property investor to not have to get on their knees and get down and dirty. Can you do this? Can you go from a lawyer/acquisitions guy to unclogging toilets for your tenants? You can hire PM services, but that will cost you more money. If you buy a renovated property that is barely breaking even, a PM service will take you right into negative cash flow and this is just for them to monitor your property. They will charge you hourly each time they send a handyman to your property.
As for starting your own brokerage...you are way too optimistic (naive) in how easy you think making money is. Everything follows the rules of risk and reward and starting a brokerage is no different. In fact, you don't even really need to start your own brokerage. Real estate sales is commission based. Just be a real estate agent and see how easy it is before starting your own brokerage. If for some odd reason you are able to convince every homeowner/developer to give you their listing without spending years and year building up a network and reputation, then by all means open a brokerage. Why these developers/homeowners would give you their listing instead of going to the local Coldwell Banker? I have no idea. Brokerage is an incredibly competitive field for the exact reasons you want to open a brokerage...everyone thinks it's easy. But the truth is, an industry with low barriers to entry makes it incredibly competitive. Real estate agents are a commodity. There is 0 difference between you and the agent next to you and the 100 agents after that agent. The only real difference is my relationship and trust in you, which comes down to me knowing you for many years or you working at a brand name brokerage. Why would I give my listing to "Mom&Pop" brokerage that just opened last month when I can go to Coldwell?
Look, I know I may have come off pretty harsh in this post and I sort of wanted to because you clearly haven't put any thought into this other than "I want to own a business." . I'm not trying to put you down or discourage you as many people invest in real estate on the side..but if you can't even answer the question of "what do you want to do" then you really shouldn't be thinking about starting a business. In order to start a business, you need knowledge and resources. How do you acquire these? You work for a company, learn, and move up the ladder. Eventually when you get really good at what you do and have gained more resources (capital, capital partners, networks, etc..) then you can start thinking about breaking off and starting your own thing...but in order to get really good at something, you need to be passionate about it. There's a lot of tedious, bullshit, menial, monotonous work in every business and to be honest most of operating a business is 95% bullshit, monotonous work...do you know what gets you through that 95%? Passion. But when someone asks you what you want to do in real estate and your answer is essentially "I don't know. I just want to make a lot of money and own my own business," there isn't very much passion.
Anyways, to answer which is more important "capital or experience?" Realistically the answer is both, unless you have so much capital that you just hire other people with experience.
I was a broker and switched to development. If that is the route you want to go make sure you go to the best shop you can. Im assuming since you're a lawyer you're intellectual abd can grasp the finance side, you can definitely transition to a CBRE, JLL, Newmark, Eastdil on a top team. That should be your goal, I ended up at a shit brokerage with a lot of guys who have no clue what they're talking about and I didn't learn a lot from them because they had barely closed deals and didn't have many relationships. So it’s an uphill battle early on when you should be learning from your coworkers, for example many questions I had they had not seen that situation yet so it was just “I don’t know”. You’re looking for a a team with high deal flow (check publications like traded) and smart coworkers you can bounce scenarios off of with people that can ultimately answer them. On top teams you'll get very legitimate experience and good exit ops. Don't put yourself in a position where you're on a no name team and think investment sales anywhere will get you where you want to go, there's a drastic difference between the two.
You can transition right to owning property or an Acqusitions/Dev associate role. I'll assume you understand leases and contracts which is a big part of my current role as a dev associate at a smaller shop. I'm doing many different aspects but you'd definitely be an asset day 1 to a smaller boutique firm.
Look up people like Steve Witkoff, times are different but he started out in law and went out with a more senior partner. You can do any path you choose and are in a good spot, just make sure to continue networking and reaching out to people wherever you land.
Let me know if you have any questions
Thank you, really appreciate this! I’m definitely targeting the top brokerages and networking extensively with them.
One thing I noticed is that the real estate forum hates “ranking” brokerages because it really depends on the team and market. The problem is that it’s kind of hard to tell (1) which teams within a firm are good and (2) which team I would end up with if I got an offer. Obviously, networking mitigates these concerns to an extent, but it just makes it a much lengthier process. I figure that if I end up at an Eastdil, JLL, CBRE, etc. the team will at least be decent. Appreciate the insight about publications like traded though. That might help me identify some stronger teams at firms like Berkadia / Colliers, where I know there are some superstar teams but there’s a wider range.
The way to know is research the senior brokers names and see what size deals/frequency. Which market are you targeting?
If you go to co-star quarterly investment sales awards, you can get some sense of the deal flow that big brokers have.
Why not try to work for a debt shop or special sits group. Your law degree will be very helpful for credit focused investors.
In a general sense, I'd say that you'll quickly hit a decline in return on investment (so to speak) in experience. If you have the capital to do a deal yourself, then 5 or 6 years of experience isn't going to be a huge roadblock versus 10 or 12.
That being said, real estate is extremely capital intensive. Frugal or not, you should really think about what it is you are saving on an annual basis. If you save $500k over the next five years, that's a ton of money - but it's just scraping the bottom of the barrel in terms of what's needed to push a deal through to closing (unless you are buying duplexes in tertiary markets or something, but that wasn't the impression I got). So in that sense, the extra experience may be worth more, because at the end of the day if you're running your own CRE business, the name of the game is raising other people's money and promoting off the back of that. That's where the big dollars are. So an extra couple years of experience, of networking, of competence... that might actually be worth a lot more than an extra quarter of a million of savings
Experience.
As a lawyer you don't really know much about the strategy and operations of real estate companies (Brokerage, Developer, AM/PM, REPE, etc.), so you can't open up your own shop before understanding what these companies are actually about (day-to-day work, or "in the trenches" if you like corporate-speak). Even if you had money, you'd probably lose it on a deal/project that went sideways, and there goes your credibility.
I'd be interested in knowing why you want brokerage. Not that its good or bad, but my chimp-brain is trying to imagine a person that could be a good lawyer and a good broker. To me it seems like a pretty different personality skillset, but maybe you fit the bill?
Transitioning from brokerage to acquisitions is possible but what would be the motivation? I don't think its smart to start a new career path/job, and you're already looking for escape routes. When things get tough/shitty (which happens), you'll just give up on the brokerage stuff.
Have you considered the possibility that you join some real estate-related company...and you also dislike it?
I would guess that most lawyers transition to development because there are a lot of legal documents involved (bylaws, contracts, etc.), which is something that many have helped draft during their previous life as lawyers.
Sounds like you just want to do your own thing and make a boatload of money. Why not change the type of law you practice? Alternatively, if the goal is to start your own shop, is opening a law firm not an option?
Curious, what makes you think you want to "be an entrepreneur" (whatever that means)? Have you ever tried to start a business before?
Just random data point.... I work for a big national developer in many large markets, our chief investment officer used to the general counsel and I think they started career in big law before going to in-house counsel roles. So, it happens for sure!
Definitely, I'm at a national developer and the CEO is a former lawyer turned developer.
Both. If you have the capital, but no experience, you will be taken advantage of.
The least risky, most practical, with a solid chance of getting you to where you want to go but the least exciting and perhaps most existentially (albeit not materially) painful as you want to career-pivot tout de suit: become an in-house counsel at an RE company that mirrors the type you would like to create or be part of at an upper management level one day.
Most risky, least practical, with a greater chance of teaching you about the (many) business side(s) of the industry and with a greater chance of you spinning your wheels in some dimension of re career purgatory: go into commercial brokerage and then (finance/modeling chops willing) transition into acquisitions (more likely) or development (less likely).
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