I plan on building a decent portfolio of investment properties in the next 10 years. Would it be worth it to switch into a real estate career to become more familiar and comfortable with the buying process, access better information, and build better connections?
Currently, I work in Equity Research. It is completely different but allowed me to develop a skill set with stocks and equity investments. As I continue to build out my real estate portfolio, I will likely have less time to spend on my job (that's the ultimate goal anyways) and working ridiculous hours during earnings season doesn't align with more time finding deals.
Yes it makes sense to spend time doing real estate if that’s what you want to do
That’s exactly what I’m doing and so far I think it’s been beneficial. Feel free to DM me if you want to chat further.
Which part of RE did you enter and how have you found the switch beneficial so far?
Yes and no - it really depends on what type of real estate do you want to buy.
If you are looking to buy dozens of SFHs and just hold them as rentals, I would argue that switching to Commercial Real Estate doesn't matter as much. There is sufficient information available online to help you achieve those goals. I would argue that if you plan on just buying one SFH every couple of years, that you are better off making as much money as possible and just "dollar cost averaging" into SFHs on deals that paper.
If you are looking to invest into other assets (retail strip, industrial, senior housing / hotels / alternative) then I would switch to CRE. Reason being is that for you to save up enough capital to buy even one asset, it would take forever. Having the experience would allow you to bring on partners (albeit easier said than done), which would allow you to achieve those goals quicker.
I see your point and I was gonna follow up with a related question.
The plan is to essentially buy and hold single and multi family residents. As of now, I don’t anticipate on doing more complex investments.
It seems like there are commercial real estate companies with retail investment strategies. I would guess this is likely the best opportunity if I were to make the switch.
You’re absolutely right that there is a ton of information online already. I guess the value-add, beyond getting additional reps and know-how in what to look out for when actually closing, would be forming connections / recommendations for good agents, property managers, contractors, etc. Even if the company wouldn’t be a good fit for that, I’m willing to bet that there’s a higher concentration of real estate investors in the real estate industry than almost anywhere else who might have some recommendations.
Also, I may be wrong but I have to assume that these companies are operating with better software, technology, and information that would be especially handy in identifying strong markets/neighborhoods, better deal analysis, etc.
“connections / recommendations for good agents, property managers, contractors, etc. ” —> you will make better connections here by going to local RE investment meetings (of which there are many) and building personal relationships. You are less likely to make these connections through a CRE gig although if it’s an RE firm that works on multi families that may be different.
To be honest your experience in RE investing will skyrocket with your first buy especially if you put in some sweat equity or at least closely manage any renovation & ongoing repair/maintenance - this is probably more valuable than what you get in a CRE role if you are only going to focus on SFH and multi.
The biggest benefit of being in IB / PE / CRE for someone who wants to personally do RE investing is the discretionary income you have to funnel to RE. TBH The guys working in the trades who are motivated to do RE on the side are absolutely lapping you in terms of real world experience that can drive higher returns via property knowledge, ability to do the work themselves, and connections within the industry.
Imo you are better off served making the most money you can. That will allow you to do more investments on your own which will teach you more than a CRE job would imo.
So if pay was equal it would be beneficial, but not if you’re sacrificing significant money (ie. sacrifice enough pay over 2-3 years that you lose opportunity cost of buying an additional home)
Do you currently own any real estate? Are you doing well with it? If you don't, do you have the slightest idea of what it takes to run a real estate portfolio in a cost-effective manner?
I find it a little crazy that you're willing to throw over what is probably a lucrative job that you get satisfaction out of, in order to switch into an entirely new career so you can gain skills for a hypothetical investment strategy you haven't begun to execute on yet.
It is unclear in your post if you already own assets or not, but for the sake of argument I'll assume you do. How well are said assets doing? How much free cash flow do they throw off? It sounds like your investing is being funded by the money you make in your day job (perfectly normal!), so how do you intend on continuing to buy assets even a lot of your excess cash flow disappears? Presumably you'll have to take a large pay cut to come into RE, since you have no experience. It's impossible to give you any kind of advice based on the information given - under the circumstances, if the question is "should I quit my job to go into a new field and work on my side hustle" my answer would be a categorical "no". If you've got other sources of income or are already doing this, it might be a different answer
Appreciate the thoughts here!
I do not currently own any assets yet but plan to purchase my first within 1 year. I am using this time to continue to educate myself on my preferred markets by baselining and running comps to find good deals as well as learning about the execution process. I’ve previously spent some time running some models and accounting for realistic expenses to get a better idea of the actual numbers in a few markets to your point.
I agree it would be reckless to switch to a RE position before even buying my first or first few properties. I posed the question here to gauge it anyone else had made this transition and if it seemed to benefit like I think it can. A potential switch into RE would be years down the line after I have some investing experience under my belt.
I am funding at least the first property through some savings and my day job. I’m working through the plans to finance the nth property now but it seems like a 1031 exchange path could be a viable one to move to bigger, higher cash flowing properties. I’m considering other paths as well.
I’m a believer in time in the market is better than timing the market, so I figured the first one or two assets will be learnings for me and then I can make the necessary changes to become more efficient over time.
Stop underwriting and start actually getting real numbers. Talk to property managers, roofers, HVAC repairmen, whoever is willing to give you a quote for anything, whether you've made it up or not. In fact, make it up! Pretend to have an issue and ask for quotes from contractors.
Running a model, even the most sophisticated one on the planet, gets you at best about 5% of where you need to be. There is no "accounting" for realistic expenses, and certainly not based on comps - you figure this shit out the hard way. Who is giving you these numbers anyway? Brokers? Sellers? People with a vested interest in downplaying what they spend?
I mean, this is a lot better thought out than it seemed above, so kudos. I do have to question, though... if your plan is to be an active real estate investor and then switch into CRE, why bother? Generally speaking (and maybe assuming too much!), people want to do the opposite, and take the job in order to move towards a more entrepreneurial role. And 1031s are great, but they're great at protecting you from a huge tax hit - it should be gravy, not the actual meal. If your business plan relies on that kind of tax avoidance to be viable, it's probably not viable without the tax protection and thus not worth doing. Just my 2 cents, as a pretty conservative investor.
100% agree with this. The best experience is doing, and if you aren't flipping, then it really won't matter when you buy.
Solid advice from Ozymandia and a few others on here. Really the only way to learn how things operate is to be in it and prepare yourself the best way possible.
As someone who is going to purchase a duplex in the near future as my first real estate investment, numbers are just the basics. I built up connections with contractors/repair people over the years, and learned how to do some of the jobs myself. There are some that you will need the contractor for - others not so much. Tenants can be slobs, as I have helped owners managed a unit in my previous rental (15 in total). A lot of the times, it will be the minor things - lights, holes in walls, etc. Plumbing will be one of the heavier investments you'd run into.
I would want to stay in the apartment game, as it is always something people will need. This is a long game plan though, as I know I wouldn't see a return for awhile.
There is very little crossover between commercial real estate and residential real estate. Beyond the general idea of reviewing legal docs and mortgages, commercial real estate is different in most respects: construction type, brokers, contractor pool, financing, property management, etc.
I work for a large developer, sure I know how to read construction drawings which I guess can be useful when looking at the floor plan of a SFH, but none of the contractors I know would do anything for a SFH, none of the bankers I work with underwrite home mortgages, none of the brokers are resy agents, etc. etc. Using Axios or other multifamily rental software could help in terms of understanding local rent levels, but honestly a deep dive into what's listed on Apartments.com would be good enough, plus it's a single asset so you're not exactly a price setter, you're going to price high and lower until you find a renter or else you'll just eat up all your capital in holding costs.
The best experience is to just go out and do it, definitely don't need to switch careers. Plus, as Ozy said, you're going to want as much FCF from your day job to get you started, so stick with whatever pays the most and gives you the time to manage this outside of work.
Very true, though I'd argue just knowing how to level bids, how to read contracts, understanding how to manage risk... all of that stuff is reasonably applicable. OP is better off having done it than not done it, I guess is what I mean - probably won't take away the wrong lessons if he's applying them on the fly, unlike some folks on here who work for huge asset managers or equity shops and suddenly think they're experts on what it takes to manage a small rental portfolio.
Sure, there definitely is some crossover, but it's not close to what most people assume it is.
keep us updated, this is something I plan on doing and want to see if it worked for you
Which market are you thinking to invest in, which location?
I was planning to do the same a couple of years ago, but now changed my mind 180.
As an example, let's take a $500k apartment in Chicago. You can rent it out for like $2k/month or $24k/year, which is slightly below 5% return.
Rough calculations for expenses, simplified: your interest will be around 6%; HOA is like $600/month or $7,200/year, which is ~1.5%; property taxes 2%; insurance, maintenance, and repair 2%. So, in total, 11.5%.
So you're losing 6.5%.
And you also need to pay the agent to find tenants and show your place, need to pay the property manager (or bake in your cost of labor if you wanna do it yourself). And bake in some time when apartment is not rented (looking for tenants).
And the main turn off for me is that tenants nowadays are atrocious, especially in big cities. Everybody is entitled and wants everything to be free for them. They'll despise you for making money off of them. And the government is on their side - it's difficult to evict people in big cities. So, if they decide not to pay you, you'll be evicting them for many months, and at the end they'll trash your place, so you'll have to spend a lot of money to repair it.
I moved in an apartment like that last year. The owner is an old lady. Her previous tenants refused to pay her during covid. She was evicting them for like a year. Didn't get any money for that year. And they trashed the place when they finally moved out: broke floors with hammers, carved on the walls, etc. So this lady had to repair it for multiple months and spent a lot of money to make it look ok again.
And as an alternative, you can just invest in SPY which will pay you 2% dividends and will grow at like 10% per year on average. You can also use it as a collateral to sell puts and make another 10% or much more if the market is growing. It's all liquid, you can sell any time you want. You can trade from anywhere any time (can be banging chicks in Thailand instead of looking at broken toilets in Chicago). So, fuck real estate, and fuck dealing with new generation of entitled tenants in big cities.
This is low.
Yes, it is extremely difficult to make money as a landlord if you can't or won't self-perform some of the work yourself.
This isn't much different now than it's ever been - people have always hated their landlords, some people have always been awful tenants, and the eviction moratoriums imposed by COVID notwithstanding, it's hard to see that this is much worse than it was five years ago.
That is part of being a landlord. Does it suck that tenants don't treat their apartment as if it's their home? Sure. She's also welcome to pursue legal recourse for this (which I'm guessing she didn't).
The idea that a landlord just sits around and collects checks and faces no risk and does nothing is better suited to a Reddit thread than a serious discussion.
Yeah, tell me you know nothing about real estate without telling me you know nothing about real estate. You've glossed over pretty much every advantage a real estate investor gets and all their upside to focus on some absurd downsides. "Don't invest in real estate so you can bang chicks in Thailand" says the obvious student in undergrad. If the point you're trying to make is "people who don't know how to manage real estate assets would be well advised to invest elsewhere" then sure, you're a genius for thinking of that one. Otherwise, exceptionally bad advice all around.
Managed intelligently, real estate should throw off more cash on a year over year than any other investment open to the average person. It's subject to extremely favorable financing, comes with extremely favorable tax treatment, tends to be naturally hedged against inflation, and is probably conceptually easier for the average person to wrap their head around than investing in the stock market.
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