Tips on starting own RE Investment firm?

yankss101's picture
Rank: Orangutan | 366

Been something on my mind. I am not looking to start it tomorrow but wanted to hear out from others. Capital right now is not very high. Would obviously have to get financing for a first property to start portfolio. Been doing my research but does anyone have any tips? i like the idea of residential first. maybe comemrcial down the road. single family flipping vs. multi family rental is also a big difference, but i think i'd go with the multi family route to start out. ive seen firms however do both.

Comments (26)

Jan 24, 2016

Get a lot of OPM and buy below replacement cost... and generate positive returns

Jan 25, 2016

Have a lot of rich friends that would trust you with their money

Best Response
Jan 25, 2016

If you're asking on a forum how to start your own real estate investment firm...don't start one.

To entertain your question:
1. Learn the business
2. Learn to structure deals and partnerships
3. Learn to manage assets
4. Learn to read, write and negotiate legal documents (this does not replace the need for an attorney)
5. Build relationships to source deals
6. Build relationships to source capital
7. Execute

Many have 1-6 but execute poorly. My opinion would be to chase after under served assets to buy right. Don't be hero aka don't be first in and last out. Be honest, do the right thing and execute with integrity. Make sure you surround yourself and partner with people who fit the aforementioned script.

Seriously, though. Terrible question.

    • 4
Jan 25, 2016

Like others have said, terrible question/idea. If you want to buy some single families or quads or whatever as investments with some light cashflow, have at it. But to "start my own RE investment firm" you need a LOT(like 20 years) more experience and contacts and all of those things that @capratecompression said. If you're looking for a career blueprint, what he wrote is a decent one. But if you have to ask this question, it really shouldn't even be a consideration at this point, but we all need dreams =)

Jan 25, 2016

This is a very rational response, but how do you feel about guys like a Manny Khoshbin, Grant Cardone, John Dewberry for example? Guy started with one building at 28 and hasn't looked back since. Is it absolutely necessary to do 20 years before you consider striking out on your own, politically correct answer is yes, but there are other paths out there.

But to your point if you're asking strangers about doing something of this magnitude the other paths may not be for you.

Jan 25, 2016
TinMan1:

This is a very rational response, but how do you feel about guys like a Manny Khoshbin, Grant Cardone, John Dewberry for example? Guy started with one building at 28 and hasn't looked back since. Is it absolutely necessary to do 20 years before you consider striking out on your own, politically correct answer is yes, but there are other paths out there.

But to your point if you're asking strangers about doing something of this magnitude the other paths may not be for you.

I've never seen anybody whiff as hard on a cycle as John Dewberry has, dude owns more land in midtown Atlanta than just about anyone. Result? He just sat on it. Not saying he isn't smart or impressive, but it is hard for me to process how he is just waiting around. He has a bunch of buildings that cash flow so he isn't going broke, but damn... just damn. Also, fuck him for being a Tech QB,

Feb 9, 2016
  1. Beg
  2. Borrow
  3. Steal
Feb 9, 2016

At what point would one want to start own firm? Let's say someone successfully is at 5-10 properties. Can one just technically do all that by themselves with maybe just hiring a property management firm?

Feb 9, 2016

I'm in that range of investor, personally, and I have a couple of partners where together we have a "full service" retail shop. My personal investments are just that, personal(I own most of them 100%, on two I have a 50/50 with some family members). Because of the possible issues, I have them all handled by another firm, plus they're all multifamily units so that's not really in my "professional" wheelhouse.

The short version is, it's relatively painless. I basically do nothing, and get a check from my management firm every month for the balance of income. All I really did was provide the capital for the initial down payments, and the money just shows up. Easy. Obviously I'm simplifying somewhat the tax issues and capex and all of that, but it's not much more complicated. I make a solid living off of my investments though, enough that I probably don't actually "have" to do my day job. But I'm not happy with enough, as I'm sure most of the other monkeys here would agree. I like doing deals, and I'd like more money for all of the things it means for my family and heirs so I don't plan on quitting just yet.

As I think about this though, I guess I have gone out and started my own firm, but in a different field than my investments. So, no you don't need a "firm" behind you to have 5 or 10 properties(unless those properties are like billion dollar deals or something). I just had enough balls and a couple of good friends who happen to be great in areas of real estate that I'm not as great in, and we do OK. I'll never be Sam Zell, but that's ok I don't need a G5 and a billion dollars. It'd be nice though.

I started looking at multifamilies when I had some capital. Had a couple of SFR's, recapitalized into a quad. Took the extra cash I had left, bought another one. Bought a 3rd on an FHA loan and "lived" in a unit for 6 months or something like that. The cash flow from those allowed me to buy another one after a bit without having to use any more of my own capital. So at that point it was a self sustaining enterprise. It's pretty easy to do, on weekends, on your own, if you're in the right market and can find deals. Don't make it harder and more expensive than it needs to be, you don't need a "shop" and a secretary and office space for a million or two in personal AUM. If you owned a shopping center or something, that's a different story. I know plenty of guys that own multiple small retail centers or office buildings that dont have an office anywhere but their bedroom. Less than that's required if they have a management company handle it. I was AMAZED at how easy it was when I first started investing. Assuming of course you can find good investments, dont just go blow your load on some shithole that has 20% of its value in deferred maintenance just because "it's a 12cap bro!" because there's probably a reason it's a 12 cap, and that much deferred maintenance TANKS the value.

But now I'm starting to preach. Read. Learn. Study. Practice deals. Build spreadsheets. Build more spreadsheets. UNDERSTAND EVERYTHING in your models. When you hear something you don't know, look it up. Read more. Re read the good books. It's iterative. The more you see, the more you learn. The more you practice, the better you get. Eventually one day you'll realize that you actually understand what you're doing. And then maybe you'll have already built your own shop around you. By doing deals and working in the industry and practicing you'll find yourself in a relatively short amount of time with a network of the right people around you. You'll get there. Have patience.

Feb 9, 2016

What a post! Did you work in RE prior or do you still if so in your day job?

Appreciate it man. I don't need to be some billionaire investor yeah it would be nice but my goal is multi family homes and possibly own some retail/office areas. I don't need to be developing skyscrapers. I'm in corp RE so working full time and saving up currently to invest in a property with a friend of mine who works in corporate finance. I'm reading tons and plan to continue before putting money into my first. RE has really become a passion of mine. I just love it and plan to my full 110% towards successfully investing in it.

Feb 9, 2016

I'm in RE right now, it's in the previous post. I got lucky, relatively quickly, and had enough of my own capital to make things work for myself. Leveraged that and some connections and luck into where I am. I haven't always been in RE, but I had a lot of connections in the local area and sort of found my way in.

Honestly man, the most and quickest I ever learned was when I bought my first house. I could barely afford it, had two idiot roomates who didnt take care of shit, and I had no idea what I had gotten myself into. I figured it out, quickly. Moved out, rented it through a property manager, and haven't looked back. But I learned a lot by doing. You have to read and educate yourself, but it helps to DO as much as you are able, even at a very low level, even at the 1 single family home level. Experience is crucial, especially in RE.

Feb 9, 2016

Good stuff.

Do you have any recommendations on books? Been also watching tons of videos on modeling and just RE finance in general for multi family units.

Feb 10, 2016

I'm a broker, but I read a lot of everything just because I'm interested in the industry on the whole. So I've read the Linneman book, the ULI Development book, etc. But I've also just read a ton of investing books in general, both real estate and otherwise. There are plenty of lists out there for you to look at. This is a good place to start:
http://astudentoftherealestategame.com/read Basically just read his whole website, and then all of his recommended books and courses. It's a phenomenal resource.

Feb 10, 2016
thexaspect:

I'm a broker, but I read a lot of everything just because I'm interested in the industry on the whole. So I've read the Linneman book, the ULI Development book, etc. But I've also just read a ton of investing books in general, both real estate and otherwise. There are plenty of lists out there for you to look at. This is a good place to start:http://astudentoftherealestategame.com/read

Basically just read his whole website, and then all of his recommended books and courses. It's a phenomenal resource.

Can't agree more. Joe is a sometimes commenter on this site as well.

Feb 15, 2016

Great content in this thread. Thexaspect you've been getting it done. Shows there isn't one path/blueprint to get to the finish line in this game.

Feb 15, 2016

Thank you. Unlike a lot of the other, more "prestigious" career paths on this site, I love that nobody in RE really cares necessarily what your background is. Hell I have a new associate that does just fine and never finished college, let alone went to an Ivy or wherever. If you can talk to people and know how to hustle, RE is cake. At least at the brokerage level. If you have the educational background/numbers ability/whatever, skies the limit if you want it. And once you get started on your own as a buyer, assuming you have solid investments and aren't totally retarded, you're on your way. The biggest challenge is not inflating your living expenses with your increased rental income. Once you get to a certain point sure ok go ahead, but especially for the first few properties(and as long as you're less than, say, 150k in rental income) it should be treated as investment capital and used only to help purchase more investments. Once you reach the point that you're using only your rental income to purchase more properties, ie not investing your own outside capital that you've saved from your regular job, you're in the money. It's relatively easy at that point to ramp it up to bigger and better things, it just takes time. For instance I make a comfortable living on the properties I have, but I'm using it to pay them off completely. Should I? From a finance perspective of course not. From a it helps my wife sleep at night plus then I can put them into a trust for my kids perspective, absolutely. Just depends on what you want out of it. I mean, obviously money. Obviously. But how much and for what.

Feb 15, 2016

What type of mortgages do you have on your properties?

Feb 15, 2016

Standard 25/75 30 yrs on most of them. For investment properties you need 25% down, and a quad can still be considered a conforming loan and not commercial, so you can do a regular 30 year mortgage. I may have misused a term there, don't remember.

This stuff is easier to do if you're single. If you're married, you have to take into consideration how difficult it can be to explain to someone who has no fucking clue what you're talking about how finance/accounting/tax principles work. My wife is brilliant. She's a cancer doc with an MD/PhD in biochemistry. She literally cures cancer for a living. Her intellect makes me look like a retard, and I'm reasonably high on the old IQ meter. I start talking to her about interest rates and the economy and she glazes over and asks me where I want to go for dinner. Not interested, doesn't care, but still wants to know where our money is going. My point with this is that I have chosen my specific investment profile because it's easy to explain to my significant other who has a vested interest here since it's her money too. Once I have my current properties paid off and she's seen, if not fully understood, that 1) I actually know what the fuck I'm talking about and 2) that I'm not making things up(she doesnt understand spreadsheets and doesnt like "projections") and 3) we have solid rental income such that we no longer have to work should we so choose even if I fuck up any future investments then I can start using some of the more high level investment strategies with my personal investments. My firm does that shit all the time, but I've tried explaining to her how capital markets work and how investments can be structured to maximize returns and etc etc etc and it just flies over her head. A lot of you guys are single and none of this matters to you. Every married guy, especially with kids, is probably nodding vigorously at his screen right now.

Feb 15, 2016
thexaspect:

Standard 25/75 30 yrs on most of them. For investment properties you need 25% down, and a quad can still be considered a conforming loan and not commercial, so you can do a regular 30 year mortgage. I may have misused a term there, don't remember.

This stuff is easier to do if you're single. If you're married, you have to take into consideration how difficult it can be to explain to someone who has no fucking clue what you're talking about how finance/accounting/tax principles work. My wife is brilliant. She's a cancer doc with an MD/PhD in biochemistry. She literally cures cancer for a living. Her intellect makes me look like a retard, and I'm reasonably high on the old IQ meter. I start talking to her about interest rates and the economy and she glazes over and asks me where I want to go for dinner. Not interested, doesn't care, but still wants to know where our money is going. My point with this is that I have chosen my specific investment profile because it's easy to explain to my significant other who has a vested interest here since it's her money too. Once I have my current properties paid off and she's seen, if not fully understood, that 1) I actually know what the fuck I'm talking about and 2) that I'm not making things up(she doesnt understand spreadsheets and doesnt like "projections") and 3) we have solid rental income such that we no longer have to work should we so choose even if I fuck up any future investments then I can start using some of the more high level investment strategies with my personal investments. My firm does that shit all the time, but I've tried explaining to her how capital markets work and how investments can be structured to maximize returns and etc etc etc and it just flies over her head. A lot of you guys are single and none of this matters to you. Every married guy, especially with kids, is probably nodding vigorously at his screen right now.

This is spot on dude, spouse management 101.

Feb 15, 2016

I'm 23 not married thankfully lol looking to save up for two years or so then get a property with friend of mine.

Feb 16, 2016

The issue isn't starting the firm -- it's getting the money. In the end as a real estate investment fund the real differentiators come down to AUM and geographic/asset type expertise. Unfortunately I have seen a ton of guys with the latter not have any of the former. And guess what, someone bigger will just take their deals.

Feb 19, 2016

Start buying properties, then country club it and once you've got a few million under management find a PE shop to recap, then once you get scale raise your own fund.

Feb 19, 2016
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