You are ready!
Just sending this out there for anyone who is on the fence..
If you have spent > 2yrs doing acquisitions, asset management, property management, brokerage, or any other closely related field, you are ready to buy your own deal.
This is not to say you HAVE to. Some people do not want to do it, and that is ok. But, if you are wavering on whether or not you have the experience you need to do your own thing, I am telling you that you do. At the end of the day, there are plenty of profitable strategies at a sub institutional scale that can feed you and your family for as long as you want to hustle. Go get em!!
yesssssir
I bought my first couple deals in a tertiary market at age 25. 9 units – gave me experience and was cheap aka downside risk was low.
just gotta do it at some point.
Bingo! Small markets are the best for your first deal. More inefficiency.
OP, not disagreeing with you that people should take action and learn as they go, but let's be abundantly clear that after two years you are "ready" to go buy a 10 unit multifamily property. You are in no way ready to go buy anything more than a 1-2 tenant commercial property. The operational expertise and leasing relationships needed is a far bigger barrier there.
But yes, young go getters, go out and start buying, just be smart.
For sure, Certainly not advocating for anyone to buy a 200 unit building. If getting started for you is simply buying a single family home and fixing it up, I think it is worth the step.
Monday motivation! 25 year old who just raised 6mm from a HNW investor for my first deal- looking for 30-40 units.
Rockview Capital is a joke
I am a perpetually negative person. I hate being tied to corporate employment - feels fragile as hell, in Talebian terms. However I always see reasons NOT to buy my own stuff on the side...high rates, high prices, "what if my tenants suck?", "what if unseen R&M takes my monthly free cash flow and I end up throwing my savings after boilers/carpets/sinks/toilets every God-damned month?", "what if code enforcement people show up and tell me I now lost my CO because of some shit they failed to notice before?".
Irrational? Yes, probably. But the way we get nickeled and dimed in the corporate AM world - and the prices we pay for unforeseen shit that happens at value-add deals - makes me wary. Maybe I'm just a headcase though.
The OP is an idiot and should be roundly ignored - the idea that 2 years is enough time to know anything is absurd. It's possible, and learning by doing is the best method... but you'll make way more mistakes than with 12 years of experience.
That being said, the reasons you list here aren't great excuses not to take the plunge. I mean, most of it is basically just a recitation of the risks and costs of owning real estate, but there is always a reason not to buy. In fact, I'd argue that if your deal pencils in a high interest rate environment you're much better off than doing so in a low interest rate environment, for example - you're far less likely to get caught out by rapidly rising rates.
Your tenants will always suck. There will always be conditions in your asset you failed to notice. This is why real estate pays well; you take actual risk! Folks in the corporate world don't always appreciate this, because their day to day is divorced from that risk, but it's the truth. If you want a nice living without having to risk anything for it, spend a couple decades in IB. Real estate gives you the opportunity to risk your own capital and time and reputation to do a better job than your neighbor, and get paid well for it. That isn't for everyone, but it's the underlying financial appeal of the whole business.
Good comments - I do not disagree. There is no return without risk as we all know.
For me, I'd prefer to buy something on my own without any LPs (i.e., save up a couple of bonuses and put them down on a two-family). I imagine that a real, flesh and blood person would take far more interest as LP in the day-to-day than a faceless pension fund does in a corporate RE investment setting.
I feel like rents are softening, too. My own personal underwriting of local, small RE assets is pretty conservative as a result - I generally assume a very low starting rent. Seems like it would be tough to get NCF in excess of a couple hundred bucks a month at this time given rates. Again, I could just be overly cautious.
Of course you are going to make mistakes, I have made them on EVERY deal. My whole point is that you have enough core real estate knowledge to be able to track a market and find an amazing deal with 2 years of work experience. Will you find 10 amazing deals over the course of 6months? No. Will you find that amazing deal in your specific market after you have been tracking every transaction and listing over the last year? 100%.
The best part of all of this? Most people hitting the 2yrs of experience mark are young, without dependents, and thus can afford to live cheaply AND the cost of a failure is miniscule relative to 10yrs down the road.
What is your background Principal? What makes you post this today?
Yeah... no. You don't, and the vast vast majority of people won't. When you make a mistake working for Big Real Estate Fund LLC you've got dozens of people who are sitting there to catch and correct said mistake. You've got enough money to fix problems if they get out of hand. When you own that asset yourself, you've got no one checking your work, no deep pool of reserves to tap to make things better - those mistakes hit your own pocket.
You give me the impression of someone who has never actually bought or managed real estate. What the hell does "tracking every transaction and listing" even mean? You have no idea what is going on in those assets, no idea what the financing looks like, what the equity terms look like, what the budgets are. Without all of that knowledge, knowing what the ppsf a building sells for is worse than useless; worse, because it gives neophytes like you the idea that looking at the list of numbers somehow makes you competent to manage a real asset.
Tell me you're in a college Real Estate Club without telling me you're in one! Every single thing you've said is just awful, awful advice, underpinned by the most egregious lack of basic knowledge and common sense I've seen in a while.
Where are all these young people getting the funds to buy a real estate asset? Where are they getting the liquidity to satisfy a lender? And for what it's worth, losing $100,000 is a lot more painful when you've only got 150,000 than it is when you're worth $1,500,000. Like many people on these boards, you've completely confused risk and opportunity cost. When you give advice to a young person to take a leap and go pursue a passion project because they're young and don't have dependents, you're talking about opportunity cost. I agree, the time to work on that start up or get that degree is when you're young and have few responsibilities. Putting your own equity, reputation, and potentially guarantees into a deal is risk. The fact that you can't differentiate the two speaks quite eloquently to the fact that the only "Principal" in your life is your high school principal. Risking real assets at a young age, or at least having the blase attitude you do about it, is stupid. I mean, first and foremost, you're foregoing a ton of compounding. Second, you're explicitly telling people to risk a relatively huge sum of money when they have little experience, versus risking relatively less money with more experience.
Unless you buy NPLs from banks who lend to dumb, inexperienced investors and are thus trying to drum up business, it's hard to imagine how you can have such a bass-ackwards view
Completely disagree! Considering your argumentative nature I will leave you with this:
How much experience/money/etc is enough to start?
I think you make some good points here but anecdotally I've worked for people that started in there 20s without any formal training, who just learned the business and started with houses/small sub 10 unit properties, and eventually made it to operating almost 1b in assets. You rightfully point out risk here which I think your spot in about, but I think what OP is advocating for is buying things like duplex's/triplex's - things you can buy, occupy and lease and still get leverage on. Small deals with low risk just to get your feet wet and learn.
Look, there will be people who start out young and do well. But the guys who buy the duplexes and triplexes... when they do well, they start to think they're Sam Zell, and expand rapidly, and then get in trouble. And if you want to buy a six unit walkup and learn the ropes of asset management with little risk but some real upside, that's a way different story than what I was inferring from OPs post, which seemed very obviously to be talking about buying real, sizeable assets, and not just the real estate equivalent of a training bicycle. Hell, if you own your own home then you're theoretically "doing it yourself."
A big part of this, which I also think goes unremarked on this forum, is that being a good real estate investor and being a good business owner are not at all the same thing, or the same skills. Similarly, as much as every teenager and hotshot 23 year old analyst at Blackstone likes to shit on back office staff, they serve unbelievably essential functions, functions which said analyst probably doesn't even think about and certainly wouldn't want to perform. Being able to buy a couple small properties and manage the hell out of them and make some money is great, and if you're talking about a half dozen duplexes, you can do that on your own and with some fairly rudimentary accounting. But if you do well, and then you want to buy a half dozen 30 unit apartment complexes, all of a sudden you've got a whole different animal. Your probably raising money, which means you need reporting. You need professional bookkeeping and accounting, because all of a sudden you've got thousands of dollars going out to contractors and consultants instead of hundreds. You need a professional management company who needs monitoring, because you're collecting checks from 150 people instead of 15. You need employees to do some of this, which means you need HR, you need healthcare, you need IT.
No one thinks about that, not really. It's easy to get caught up in the excitement of owning deals, of negotiating docs and raising money and having brokers call you and suck up to you instead of the other way around. As someone whose been at a small firm from near-inception and seen it grow to a fairly large size, there comes a point when you realize "shit, a lot of my overhead is tied up in non-revenue producing personnel" because you simply cannot self-perform any of this. Everyone hates HR... but that's a full time job at a company of 20+ people. If that's what you're doing as a founder, then you're not driving value.
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