Those of you who want to start your own Real Estate Development shop.. what are you waiting for? What's stopping you from starting tomorrow? Is it a lack of financial security? Feel like you need more experience at your current job to feel comfortable going out on your own? Curious to hear what's keeping ambitious people from going out on there own.
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How is that possible?
1) Need an impressive track record or access to capital (equity and debt), it's hard to raise money and promote your investors if you just start off 2) Need strong existing relationships and network in the community (brokers, lenders, 3) Very hard to manage the non deal related tasks while trying to bring in deals 4) This is a big one...a lot of people underestimate how hard it is to be a developer and the risks that comes with it. You need to personally guanratee and sign a reocurse loan which is very scary. Building shiny things don't guarantee returns, it's different if it's on your firm's balance sheet and bigger companies usually have less leverage..therefore smaller returns 5) To add on to the point above, there are so many moving parts and risks, all it takes it's one thing to not go right and you'll lose everything you have/net worth
This is only somewhat true. In a hot market, if you have a good deal, you can find money. It's a hustle but it's possible. Or Co-GP with an established firm. Lots of options if you've got a deal that pencils under contract.
Have to disagree on this. No one needs relationships with brokers, they're parasites and there isn't a ton of value there. To the extent you need to know that Broker A is absolutely, 100% lying to you and Broker B is only hiding the truth most of the time, that's important. But if you're assuming that every word out of a broker's mouth is a lie, you won't be burned.
Networking with lenders is nice but not necessary. Any pre-existing relationship you built will be set aside when you hang your own shingle; risk and credit committees won't care that you delivered on a dozen projects for them while you were at Related, they'll care that REPE_Guy Developer LLC has no track record and no history and lend accordingly.
This is very true. Which is why it behooves most potential developers to have a site tied up, so they can focus on that and not on hustling for all the other parts of setting up a business. Have an income stream to hire help, too.
I think most people I've spoken to who are considering going on their own, or who have in the recent past, confuse the relative difficulties. A ton of folks still have the mindset that networking is of all consuming importance, that those local relationships are make or break. And it isn't to say that those bonds aren't important, but I think people who focus on that have the wrong mindset. If you are good at your job and (importantly) have a project your working on, those people will come to you.
By contrast, folks seem WAY to confident about their ability to run a business as well as a development deal. Just the accounting and legal and office management shit is incredibly time consuming and requires a bunch of specialized skill sets that your average developer just doesn't have
Ozy you add so much to this site, but I gotta know…who hurt you? Was there one specific time a broker so misguided you that you were tangled up in litigation for years? Not asking sarcastically, genuinely curious. You're obviously very experienced so I'd imagine you have some good stories to tell.
Would make us all better brokers if you could elucidate the grievances beyond "they're not necessary to the ecosystem."
Because I don't have 18 months of my salary plus the minimal $250k I will need for predevelopment expenses lying around in cash.
EDIT: This should go without saying but my lack of cash will make my guaranty capacity minimal as well.
I'm not starting my own shop because the crash is imminent.
Started a new small shop last year and can provide some insight on the biggest challenges looking backwards in time:
I'll start a thread to answer some of these, sounds like there is interest. We source through a combination of local broker relationships and off-market through industry relationships. There are two of us at our shop; my partner spends 80%+ of his time talking to folks in the market and digging up leads with 20% on execution work...I quarterback execution in an 80/20 opposite split. You really need a guy very dialed in on the happenings in the local market to dig up off-market leads. Advice on sourcing:
Why not take a different approach and act as an independent sponsor and look for value add opportunities to hold instead of wild developments?
Basically act as an acquisitions agent and manage the properties. As your fees increase and you get more equity in the deals along the way, you can slowly tip toe down the risk curve of development.
Very curious to hear this forums thoughts on this approach.
Ozymandia
Because I'm a developer, not a value add person.
I'm sure I could figure it out, but I lack knowledge of the nuances, and would be giving up what I do, and want to do, with my career.
Edit: I'm not sure why someone would give me monkey shit for this either (unless it's just one of the trolls who follows me around because they don't like my politics). Knowing what you know, what value you bring, and perhaps most importantly, what you don't know, is incredibly important. It makes zero sense for me to spend my life on ground up development, only to open my own shop doing value add rehabs.
I started the following way: 1. Find a rich dude with a big ego. (I found him by writing letters) 2. Convince him that development is a good way to flex his ego and make more money 3. Negotiate fair terms to pay you for your time based on performance 4. Use this deal to create your track record 5. Rinse and repeat (this is the stage I'm in now)
I officially formed a development company with a new partner and it is based on this track record. I wouldn't have it any other way. Just do it. What's the worst that could happen? You have to go back to your j.o.b.?? Or maybe, like me, the stress will make your hair fall out? Worth it. You only live once.