Best path to becoming an entrepreneur in real estate development

Hi all,

New to the forum, but from the reading I have completed, there is a wealth of knowledge and information to be gained from this forum.

I am currently working for a smaller development firm as a project manager. I have been with the company about 3 months, and have a few questions for this community regarding my future opportunities.

This firm specializes in ground up urban infill multifamily deals. The principals source, underwrite, and negotiate the deals, then hand off to the PM. The PM manages the entire design, construction, and close out process post acquisition. Obviously with the little amount of time I have been here, I haven't been exposed to too much as of yet,

My longterm goal is to start my own shop. I've been exposed to many asset types and opportunities, but still feel I am lacking direction. The questions I have for the community follow:

  1. Obviously going out on your own requires both personal and external capital. I have thought about potentially pursuing a GC license and starting my career my raising money and building smaller townhouse projects, as well luxury SF tear downs. Maybe as these projects progress, I can venture into larger townhouse deals and eventually MF. Is this even a step in the right direction.

  2. While learning and growing within this shop, what should I be doing to best position myself to go off on my own? Should I source MF deals? Do the above and pursue a GC license? Obviously I am not in the position to leave my job and go work for a luxury SF homebuilder. I have no aspirations to really build for clients, more so just spec build and eventually transition into other larger asset types.

  3. How important is what I'm doing right now in regard to actually becoming a developer? I process change orders, submittals, and manage the GC, architect, and other parties. Is the construction side even important in going out on my own.

As you guys can see, I am lacking a sense of direction, and due to my entrepreneurial background I feel as if I need to figure it out now. Obviously thats not very realistic. Any insight, suggestions, and stories are welcome. I am really just asking for suggestions on what I should be doing if I want to go out on my own. Whether that be through luxury SF, self storage, MF, ETC.

Thank you,

Greg

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Comments (18)

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Sep 29, 2018 - 3:28pm

Not really experienced so I can't answer those questions. I have watched this video that might be able to help out a bit.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
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Sep 29, 2018 - 5:18pm

Good share, thanks.

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Oct 10, 2018 - 1:13am

Thanks for sharing great video..

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Sep 29, 2018 - 8:39pm

You're in a good spot. Having PM/DM experience is a first job in the industry a lot of folks would kill for. You'll have a really good idea once going off on your own how long things will take/cost, like entitlement, the actual construction, permitting, etc. So really you're downstream, now you need to get experience upstream. Would be good if you could get exposure to the underwriting/acquisition process, as this will give you the ability to identify deals. Then you'll understand the how/why of site selection and execution. Then you need a network of capital sources and deal opportunities, but this just comes from networking in the brokerage and finance worlds.

"Who am I? I'm the guy that does his job. You must be the other guy."
  • 1
Sep 29, 2018 - 11:05pm

MonkeyWrench

Thanks for your response. I actually have a MSRE so am somewhat competent in terms of underwriting but obviously have no real world financial experience. Do you think if I wanted to have an arm of my company that focused on SF & Townhouse infill deals that it would make sense to go more the GC/Construction route? In this condition I could basically pay myself to build my own developments. For some reason I find this route interesting as I feel its a good way to get started on the entrepreneurial path with lower upfront capital costs.

Sep 30, 2018 - 10:24pm

I don't know much about the SF & Townhouse side of the biz from a development perspective, but I've heard it's different. Because of that, I'd suggest specializing in something then partnering with someone else if you want to 'branch out'. One specialization of development is quite difficult in and of itself, let alone multi-branch strategies.

"Who am I? I'm the guy that does his job. You must be the other guy."
Oct 1, 2018 - 7:07am
GregTiedRealEstate:
1. Obviously going out on your own requires both personal and external capital. I have thought about potentially pursuing a GC license and starting my career my raising money and building smaller townhouse projects, as well luxury SF tear downs. Maybe as these projects progress, I can venture into larger townhouse deals and eventually MF. Is this even a step in the right direction.

This isn't a question, but there is a massive amount of risk in being a first time developer AND self performing as the GC.

GregTiedRealEstate:
2. While learning and growing within this shop, what should I be doing to best position myself to go off on my own? Should I source MF deals? Do the above and pursue a GC license? Obviously I am not in the position to leave my job and go work for a luxury SF homebuilder. I have no aspirations to really build for clients, more so just spec build and eventually transition into other larger asset types.

You're three months in. You should be learning as much as you can as often as you can and meeting as many people as possible. You need to know how to crawl before you can run marathons.

GregTiedRealEstate:
3. How important is what I'm doing right now in regard to actually becoming a developer? I process change orders, submittals, and manage the GC, architect, and other parties. Is the construction side even important in going out on my own.

Massively important. Managing the GC, architect, and other parties is a major part of what being a developer is.

Commercial Real Estate Developer

  • 3
Oct 1, 2018 - 7:59am

CRE What isn't a question? I apologize for the poorly typed question as it came from my iPhone. Thank you for your response. What do you see is the easiest way out to becoming a first time developer? I'm still relatively young and want to take a risk before I have kids.

Oct 1, 2018 - 1:46pm
GregTiedRealEstate:
What do you see is the easiest way out to becoming a first time developer? I'm still relatively young and want to take a risk before I have kids.

Hah, probably a way you're not going to want to hear. Development's an odd job - you become fully capable of running your own shop after 4-5 years, but it might be 15-20 until you have enough capital to guarantee debt or are capable of raising enough capital for equity.

There are people out there who open development shops very young - I don't have any real advice on how they do it, but I would assume it has something to do with being wealthy.

Commercial Real Estate Developer

  • 2
Oct 1, 2018 - 3:31pm

Find small multifamily properties in your market and work with those. Financing is much easier on small multifamily than other asset classes, relative to the equity required. Buy something and reposition it. If that's a refinance, or a small rehab and then raising rents, whatever - just formulate a modest business plan and execute on it well. Then do it again. Are you going to be owning thousands of units within a decade? No. But you can reasonably expect to go through 2-3 of these types of deals a year. More importantly, you get to know the process, the people, the subs, everything. If you spend five years and have a few hundred units under your belt, all of a sudden you look like a much more attractive proposition for an investor looking to JV with someone. Suddenly your balance sheet looks a lot more attractive to a lender considering making a construction loan for that 100+ unit development site.

As CRE mentioned, you aren't going to like the answers here. Most of them involve patience and gaining experience, or doing something very un-sexy and frustrating, like agency executions on small buildings where you can take a lot of leverage and maybe find a few folks to back you. Raising a few hundred thousand dollars through F&F is probably very doable for you, whereas convincing any kind of institution or family office to give you money is likely out of reach, to say nothing of lenders.

Oct 1, 2018 - 5:31pm
press107:

Ozy,

Regarding your first paragraph, are you suggesting op start out with less than or equal to 4 units so he can fha?

Not really. I was speaking generally. If you want to be a developer, doing any kind of development on your own is worthwhile, even if its a moderate rehab. Can transition into an FHA construction loan later on. For a young person just starting out, the asset class that is most doable from a perspective of raising equity, getting a loan, etc is small multifamily, at least in my experience (which is biased, since I do multifamily), That allows you to build up relationships and trust with lenders, investors, contractors, and other folks in the business on relatively low risk deals, and to build up a balance sheet and start getting some cash flow.

Since the OP is presumably pretty young, doing anything to show a track record is going to be worth the time. You don't need to be building supertalls by age 30; building a portfolio of small properties you've rehabbed or built new might be slow, but it's safe, and within a few years you're probably ready to start taking on bigger, sexier projects.

Oct 3, 2018 - 10:29am

ozy,

I see. The reason I mention fha is for the down payment requirements. With only having a 3.5% down-payment requirement I would think he would be able to leverage and get a better property or up to 4 units. However I have heard that doing any kind of rehab on a 203k is a major pain in the a**.

For those smaller multifamily properties lets say 6-10 units, what kind of down-payment requirement are you seeing? I have heard anywhere from 25-30% and have even heard of 35% in some cases.

Oct 1, 2018 - 12:21pm

You're getting experience that most people don't have and that is actually knowing construction.

I wonder how many developers know the ins and outs of construction.

Are you reporting to your boss? What is his involvement with the project in while it's getting built?
Do they come on site often and check up on the progress?

Basically what I'm asking is how do the developers have oversight on the General Contractors and know what they're doing is fine?

Oct 1, 2018 - 11:50pm

Your experience will be very useful in several senses:
1. You'll have a great understanding of the time it takes to complete various projects.
1. You'll understand the cost of building various types of projects.
1. There is a huge advantage in being able to identify differences between being able to constantly compare investment decisions between building it from the ground-up, doing massive renovations, and simply acquiring an asset.
1. Understanding construction is very important if you want to go into development, because there is a lot of risk in it. If you don't know what you're doing then you could easily be taken advantage of.

I would assume that where you need work is on financial analysis. Nobody will give you money unless you can tell them how much money you will make them. You can make up for this by partnering with someone who is an expert and learning the basics yourself (which isn't too complicated) or becoming an expert yourself.

Oct 2, 2018 - 8:30pm
Have compassion as well as ambition and you’ll go far in life
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