How to start an International RE family office

Hi everyone, am currently finishing up my first year of being at a BB industry group. I have an interest in Real Estate and am certified in ARGUS and REFM courses. I will be coming into some money soon and combined with my personal savings I will have around 2 Mill USD. I have always wanted to invest in RE and the math/logic makes more sense to me than finance does.

With this in mind, I have been trying to lateral to REPE to no avail and now that I will be coming into this money, I decided why work at an REPE firm when I can do something on my own for myself. I know I do not have experience but how should I approach accomplishing my goal? Try to get into REPE, learn as much as I can and then start off on my own?

I have the capital, but do not know the means if that makes sense.

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Comments (48)

Jun 24, 2020 - 10:56pm

$2M is technically enough to buy $13.33M of properties (85% LTV lol), but there's no way any bank is gonna lend 85% LTV to a young adult with no experience. OP you should jsut start small, maybe like a fourplex or duplex and work your way up.

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Jun 24, 2020 - 4:41pm

$2MM won't get you anywhere if you're interested in CRE. It's enough to partner up with somebody and get some extra cash flow from buying a few small resi properties.

Your best bet is get into REPE or into an investments/development role at a GP, get 5-10 years under your belt and move up the ladder at least to a manager/VP position where you can show that you've run deals before, then go out and start on your own.

The $2MM will be a good contribution if you wanted to do development as the GP for your equity portion if you start out doing one project at a time. But yeah, if you're thinking starting a family office to purely be a capital partner, you're not even close.

You also need to understand if you want to be a high level capital allocator (REPE) and just put money into projects/deals you think are going to generate the type of return you want and let the GP/Sponsor handle it from there, or if you want to be involved at the property level (development, asset/property management, basically getting into the nitty gritty to figure out what levers you can pull to increase the value of an asset).

Jun 24, 2020 - 8:55pm

Buy some small multifamily properties and manage them yourself. Find a partner. Forget about math/logic it's not going to be that complicated.

Most Helpful
Jun 24, 2020 - 9:11pm

So some real advice here...

$2mm is not a lot of money, but it seems like a lot at from your perspective. My advice is to save/invest it and do so fairly conservatively. Pursue your career, if you want to pay for a super expensive MBA do it. Want to travel, sure do it.

But seriously, don't go out like some big investor, you will be wide open to scams and crazy stuff. Don't tell anyone, especially people you may date, just let it be your thing.

As your career is more established and you are secure in your own right, then you may want to join in some deals as an LP, or better co-GP. But earn your right to invest in those, don't try and buy your way in (you don't have enough chips anyway). That's why I suggest investing conservatively now, you may want to deploy it in 5 to 10 years, that is the horizon I would personally go with. At one year into the industry, you are at no place to make the plays you will want to. Thus, hold that dry powder, let it get a safe, shitty rate of return, in 5 to 10 years, start making some place bets. Where will be obvious then.

  • Prospect in IB-M&A
Jun 24, 2020 - 10:56pm

Sure this is great conservative advice. But let me give a counter point. Don't be so career minded. You need to take real risk to be highly successful. So many people would kill to have 2 million at a young age to deploy into starting their OWN business. In 5-10 years you'll probably have a family and be risk averse working a boring job for someone else. There will never be a better opportunity in your lifetime to start out on your own than today.. I'm not saying quit your job immediately, but if you have carefully thought out a plan that you are passionate about, send it.

Jun 24, 2020 - 11:30pm

Fair point, but without some experience and battle testing, do you think starting in your early 20s is the time? If you the idea for the next Facebook or something truly novel and time sensitive, don't let having the 2 million be the maker or breaker. Clearly, not the nature of the post.

If the OP or anyone really has the skills and ability to do their own thing, the fact that they have the capital or not really shouldn't change it. My point, is that they will likely get much better, smarter, and capable in 5 to 10 yrs longer. Then, they can actually use their wealth strategically.

To do so now makes no sense and 2mm is absolutely way too little to 'retire' on, thus I don't see to many legit options. The real value of any savings/retirement plans/investments is optionality. The option to withdraw and use when opportunity presents. No offense to the OP, or anyone young, but what value would you have at this stage of the game. Get experience then start. I mean who would add investment dollars to someone starting a firm who happened to come into money??? That makes no difference, remove the money, and it falls apart.

Conversely, breakaway with a track record, reputation, and a network... then boom, you have a shot at real traction in your own RE ventures. Oh and if you can actually capitalize part of the deal, start-up costs, operating costs etc. from savings, then you are way better off. That is the path I'm suggesting.

Jun 26, 2020 - 10:31am

With no experience whatsoever in real estate trying to convince other people to give you their money to invest and lenders to give you obscenely high leverage... right...

I'm all for setting out on your own early for entrepreneurial endeavours, but its only feasible in certain industries. In RE, you'd have to start out flipping houses with your own money and work your way up. Nobody is giving you financing to buy a significant property out the gate.

Jun 25, 2020 - 11:47am

The @Redever post nailed it. To add to that, be looking for opportunitoes to work for or meet mid-level (ie not institutional) shops in the market where you want to live. If you work for one, you'll learn the business and about transactions, investment strategies and leasing & management, and get an idea how, when, and where to deploy your own capital. If you can't get on with a RE principal right away, one idea is with a mortgage brokerage team. With the right team, you'll meet tons of principals, underwrite different product types and strategies, and be able to network. Potentially you'd be meeting people you would kick in equity with.

Anyway, the idea is to listen to Redever, don't be in a hurry to deploy your money, learn, and network.

Jun 25, 2020 - 12:17pm

I agree with the sentiment above. Let your money grow for a decade, get some experience, and re-evaluate.

I would like to counter the points above the $2MM isn't enough to get started investing in real estate or enough to open your own firm. Assuming you have a track record and the right connections, you could certainly start a company with that amount. I'll share a couple of examples of things I've seen people do.

1) You could do 90% LP / 10% GP deals at ~65% LTV and buy ~$60M in property. Use your fees to keep the lights on and then realize a 3x+ on your money at exit.
2) Same as the above but you could do a programmatic JV at a lower GP % than the 10%. To keep it simple, lets assume you were able to drop your GP% to 5% which would essentially double your purchasing power to $120M. This allows you to buy more property (and get more fees), but crosses your promote. It also cuts down on your time negotiating JV docs as you do so up front.
3) You could raise a GP "fund". Using the same assumptions as the above, you could contribute 10% to the GP fund and raise the remaining 90% for a total of $20M. You could then do 90 LP/10 GP deals with the $20M GP fund at ~65% LTV to buy ~$600M in property. You've effectively levered your money 300x and if you hit the top tier of your promote in a good amount of these deals, congrats you'll never have to work again.

Jun 25, 2020 - 9:39pm

Who is going to give this guy money when he has never done deals before? Serious question. Seems like it would be a better idea to buy some small apartment buildings. $2 MM equity can't he buy like 50-100 units spread out across a number of properties and manage them himself.

Jun 26, 2020 - 9:24am

Sorry if my post was unclear. No one will give him money with no experience. I was just trying to counter the point that $2M wasn't enough money to start your own real estate company as I've seen multiple people do so (sometimes with much less) in the situations I've described above. These are all people with 10+ years in the business (sometimes 30+ years).

Depending on what the OP's goals are, the plan you suggested of investing in cash-flowing multifamily could be the right strategy. If his goals are to invest / develop more institutional product, I think he'd be better off banking the $2M until he has the necessary experience to start the type of firm I described above.

Jun 25, 2020 - 1:21pm

why dont you partner with someone you trust and knows what they're doing. 2mm is not enough to open an office by yourself, but it is more than enough to start placing into small deals controlled by you. If you have a background in finance you know how to play banks and use leverage.

open an international family office lmao

Jun 25, 2020 - 1:26pm

I forget the developers name (he has multiple ULI videos on YouTube and he is a retail developer in California), but I would consider doing his thought exercise: "Do I want to own 1% of a $100m building or 100% of a $1m building."

If you are truly interested in investing to the point that you are willing to risk what I would imagine is/will be basically all of your net worth, then you need to start thinking like an investor. Why do you value the things you do? Is it because you're surrounded by people in your office, and reading these forums filled with people of a certain mentality, who all think the same? I'm certainly not knocking anyone as I am in no position to do so, I would just question how original/true/natural your intentions are when evaluating what you want to do with fucking $2m.

You have the money do start doing your own small deals (no reason you can't risk renovating a duplex/quadplex which would not be much equity relative to $2m depending on the market) and you also seem to have the skills to go work for someone else. I would consider where you want to be in 10 or 15 years and then work backwards.

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Jul 15, 2020 - 5:19pm

1% of a $100MM building in which I get a promoted interest for performance and can charge fees (which is going to be market for any JV relationship).

More power to you if you do go the other route like McNellis, but good luck making any serious money owning 100% of a $1MM building. Can't charge yourself fees or receive a promoted interest. Your only gain is going to come for rent, refinancing, or sale, which after debt service, isn't gonna be a whole lot of money.

Jun 26, 2020 - 9:56am

Me neither. Their most recent episode has a guest who was an insurance salesman who started off buying houses and now owns almost 1,000 self storage units with like $60m in equity. The dude is probably like 45. And he is just now starting to do syndication. This guy was not an analyst who worked his way up and learned the "ins and outs" of the deal process for 10+ years to gain credibility. He even lost money on his first deal but he gained experience.

There are so many people (I mean no name people who will stay no name people) on that podcast who started out buying SFRs and are now buying 16+ unit deals only 5 years later and they are working for themselves they dgaf about being some analyst running spreadsheets on trophy assets. Where do you think each will be be in another 5 or 10 years?

There is nothing wrong with slogging it out under someone else's name for 10 or more years but it's not the only way to do it.

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Jun 30, 2020 - 7:12pm

Honestly, $2m is a decent of money for personal real estate investments.

I'd invest like $500-600k into a small apartment deal that you run with a partner. This way you learn the in's and outs of the business and the taxes.

Once you get some expertise under your belt, people will start to trust you more with their money. They just want to see you've done a deal yourself.

Perhaps you shouldn't say "I want to build an international real estate family office" as it sounds pompous from my perspective. But then again, I'm just some random guy on the internet.

Jul 9, 2020 - 3:47pm

As others have said $2M won't get you very far in direct real estate investments, assuming that was what you meant when you say "invest in RE". Also, success in direct RE/CRE ownership is really about the nuts and bolts of running the property efficiently (at least until you get to about 5 to 10 properties).

The ARGUS / REFM training is great, but that's really just the modelling/forecasting side of things. It doesn't really help you learn how to deal with crappy tenants, your lender calling you about some arbitrary covenant you are violating etc.

Personally, I find RE fun because there are many ways you can get exposure. For example, with $2M you could easily start your own diversified REIT portfolio and see how you do compared to benchmarks. If you outperform, you can use that to attract outside investors and start a small fund.

Another option is to lend your money out to CRE/RE equity investors directly or with a syndicated pool (there are companies that arrange for that, at least here in Canada) .

What I'm trying to say is there are many ways to "get your feet wet" with RE investing, I feel the illiquidity that comes with direct investing that Biggerpockets and those Youtube channels keep promoting is so one dimensional. I mean c'mon, we are in WSO, a finance-oriented forum. We all should know that there is more than one way to "skin a cat"

Rant over :)

Jul 12, 2020 - 7:33pm
  1. Start making contacts with mid-size bank asset managers.
  2. Try to virtually model and bottle them.
  3. Wait until 4th Q 2020 or 1st Q 2021.
  4. Leverage your contacts to buy some of their distressed RE.
  5. Stay away from California at all costs.
  6. If you can't execute steps 1-5, Zelle me your money and I do it for you.
pdc
Jul 17, 2020 - 12:57am
Analyst 1 in IB - Ind:

Hi everyone, am currently finishing up my first year of being at a BB industry group. I have an interest in Real Estate and am certified in ARGUS and REFM courses. I will be coming into some money soon and combined with my personal savings I will have around 2 Mill USD. I have always wanted to invest in RE and the math/logic makes more sense to me than finance does.

With this in mind, I have been trying to lateral to REPE to no avail and now that I will be coming into this money, I decided why work at an REPE firm when I can do something on my own for myself. I know I do not have experience but how should I approach accomplishing my goal? Try to get into REPE, learn as much as I can and then start off on my own?

I have the capital, but do not know the means if that makes sense.

Try Bigger Pockets podcast, they have small retail investors like you. Some build up hundreds of portfolios from nothing. 2M is more than enough to start. You can buy some Class C apartment or do JV with others. Don't listen to some assholes on this forum. You are better off than a lot other retail investors already.

Jul 23, 2020 - 9:06pm

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