Who actually owns real estate?
This is a hot take but I have spoken to many VPs, Principals, a few MDs at Big 4 CRE firms and people at RE PE funds and I ask them if they own real estate. Almost instantly the tone of conversation and their demeanor changes. Literally none of them do! I’m just confused because as a professional in real estate no matter the asset class or size dont you want to own your own real estate and make money passively/generate wealth or have something tangible to pass down? Sure you can make a lot of money from carry but u never actually own anything.
If you are constantly crunching excel, argus, ppt, and not actually becoming an owner doesn’t that take the fun out of it?
I am new to industry so don't know, but I just asked a friend of mine who has been in the industry for 30+ years as a broker (on his own) and also has investments.
He also can't recall running into or hearing of anyone from the big brokerages, REPE, or development shops in our area who owns property individually (or even in a small partnership).
Definitely people from smaller brokerages and shops.
Very curious to hear other people's thoughts on this.
My guess would be if they're at these big shops and want to take the plunge into actually investing they would probably leave for a smaller shop or start their own to have more flexibility.
People who own real estate are 75+ and have flip phones.
In all seriousness, some people at these big shops own real estate. I think people are reluctant to talk about it because it can get sticky with their employment contract and companies have strict disclosure policies. its frowned upon, if not outright prohibited to act as your own broker, use firm resources (argus, costar, etc.) or get inside scoop on off market deals in most cases.
Also some people just like to diversify, if your commission, bonus, carry, fees etc. are already subject to real estate markets, people don't always want passive income to be subject to it as well.
A lot of people own real estate. Few of them own enough that people on these forums will be super impressed.
Owning a 10 unit rental building is possible while also having a full time job. Owning ten 10 unit rentals isn't. So people who own a "significant" amount of real estate are, almost by definition, not working for someone else. That being said, at the mid and senior levels of most shops you'll find people who own and manage investment properties, it isn't rare.
Also think about diversification. If your career is in real estate and your income is entirely concentrated in real estate, do you want to also invest your life savings in real estate? I'm a sponsor so I obviously own a significant amount of real estate but I purposely do not invest my retirement accounts and stock portfolio in anything real estate related. When I was a W2 employee and part of my comp was carried interest, I felt like my income and carried interest was enough exposure to real estate as well.
Good point, and of course it's basic diversification/finance 101, but would just add "real estate" is very broad. You can both have a career/primary income in real estate and also own a chunk personally and not really be overexposed/all eggs in one basket. The risk profile of each asset class is completely different, and that's not even getting into different markets/submarkets. You can work professionally in national projects spanning various asset classes while investing in residential or small multifamily. It's hard to envision a scenario where all real estate would be impacted negatively on a lasting long term basis; practically impossible. It has fundamental intrinsic value with a floor - there is only so much land on earth.
The question really depends on your specific focus and strategy, and most commonly it's completely different between the professional and personal side of investing in real estate unless you are very high net worth.
I know a lot of brokers and lawyers who co-invest with sponsors. They don't own a 4-unit multifamily building, but they co-own 200,000 SF office buildings or 300 unit apartment towers.
This most people are just investors in much larger deals and won’t be the sponsor or key principal as then it get sticky when the deal goes to be securitized or the bank/lifeco lends. In MF space Freddie and Fannie make it really a pain in the ass honestly so people are passive investors usually through trusts in large holdings
I've also realized this. But it makes sense. Ultimately working for a real estate company (REPE, development, IS, etc...) is very different from owning real estate. Working at an REPE/Dev shop is basically just working at a corporate role. Yes you understand real estate finance etc..but ultimately, esp at the smaller scales, the finance side of owning real estate is really easy and simple. You're not syndicating deals with a bunch of investors with complicated waterfall structures etc...you literally save up your own money or maybe friends and family and call up your local bank to get a mortgage and that's basically it. The hardest part about owning real estate on your own is anything dealing with property management or construction. Those are major headaches. If a tenant doesn't pay rent or the roof leaks...no amount of real estate finance knowledge will help you. Tbh owning/operating real estate is very entrepreneurial, working for a real estate company with a guaranteed salary is literally the opposite
Also when you work for an institutional shop, the things you learn that "make a good investment" are very different when you are looking for a duplex/triplex investment. At my previous job at an institutional developer, my dev managers and VP's were very good at their corporate roles i.e. modeling, managing projects, office politics, "managing up", managing 3rd party consultants, etc...but if you asked any of them to come up with an investment/development strategy on their own, they would be helpless.
I own 1/3 of ~$1M of single family homes and under contract to buy an 11 bedroom ~$700k student rental. Plan is to buy at least 1 rental per year with my partners. Neither of them work in real estate.
Buy and hold is only one strategy.
I would do my own SFR/townhouses but only if it was very obviously a home run deal, easy to manage, etc and walked into my life. I more just think about buying a home and renting it out when it’s time to move.
Either way, I don’t think it makes sense to be hellbent on it if you work in CRE. Diversification is a great reason brought up above. Liquidity is another for me. Management intensity and stress as well. There are certainly pros but it’s not passive income.
I own 20 SFRs
I bought a house an hour outside our city in 2020 to live in but after our kid was ready for preschool, decided to move into city as exurb options sucked.
So I rent out my prior house and then rent myself in the city.
Yield is like 4% but cash on cash is like 13% because I had very low interest rate and high leverage.
I own the place I live in and then have one for investment.
only the sons of 3rd generation owners
What
I own hotels and bought a medical center last year.
I own retail , net lease, and small office properties, as well as co-investments in these product types.
One problem we have as real estate professionals is when we’re flush, that’s when asset prices are the highest. When the market is down, that’s when we are hurting. Generally speaking.
I remember Facebook went public around 2012, and some other Web 2.0 companies did from 2009-2012. San Mateo County became one of the highest income counties in the country. This was when the overall economy was starting to recover. Basically, if you can be prosperous when the market is down, you have better entry points.
55 year old men with "some college" who own 2-6 used car dealerships in second ring suburbs in the tri-state area. They lever their income stream into commercial real estate.
If your earning activity is tied to real estate, you'd want your investment activity to be as uncorrelated to real estate as possible so that if you lose your job or economic conditions in real estate get hit, your personal investment returns can be a source of funds to smooth out the ride.
How would a person benefit from the big tax deductions if they are putting as little as possible into real estate as an investment?
What big tax deduction?
(own real estate)
For those working at firms this mostly has to do with conflict of interest isues. It looks pretty shitty if you are buying deals on your own that compete with your employer. This is why these firms offer coinvest.
Real estate is made for high W-2 income earners.
Lots of people, if we are talking single family residential it’s mostly your usual suspects, doctors, lawyers, bankers, professionals. A friend is a college professor in flyover country he started buying college rentals about twenty years ago and has a decent portfolio now.
In terms of commercial real estate I’ve seen a lot of ownership that is business related. A few cases in point are physicians owning office condos in medical office buildings, part owners of ambulatory surgical centers and the like. Others are lawyers who own the building their law firm practices in, a friend’s family is in hospitality and started with one motel, they kept doubling down and now own a bunch of flagged select service hotels. Some people have family money or had a liquidity event and started either buying or building.
Most of these have already been mentioned but:
If you work in REPE (or related):
If you work as in intermediary:
At the end of the day, plenty of people on both sides of the "RE finance" world own a duplex or are a silent partner in a commercial building or own REIT shares. But for the most part, why would they? For the same reasons a butcher is not also cattle rancher.
I'll also add that if you're just randomly asking more senior people in the business if they own real estate, they are probably sandbagging you to some extent. If I asked the President at my last shop if he "owned real estate", he probably wouldn't say "yea I own a house in Aspen, West Palm, a ranch in NM, 400 ac of undeveloped land outside Naperville, and 4 dollar generals", he would probably say "ahhh yea I'm a proud homeowner!" If a client asked a broker I know if he owned real estate, he would probably say "Ah you know what man I'm more of a sales guy, I'll stick to brining you deals!" and not disclose his 5 or 6 duplexes.
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