What is a realistic goal in real estate development

REDev225's picture
Rank: Baboon | 120

I have been interested in real estate development for the past 6 years and have been reading/studying the business on nights and weekends while working full time in the construction industry as a project estimator and now a project controls manager for a heavy industrial contractor. I want to separate myself from those that only have construction experience and have had the urge at several points in my career to switch careers and go work in real estate development as an analyst but have realized that while I feel confident in my ability to build real estate models, I would get smoked by guys my age with a strong finance background or someone with a MSRE.

So, at 28 years I am trying to be realistic and it is starting to feel like nothing will happen unless I start buying properties that have room for me to add value and build a track record at a small scale. I have around 90K saved up and have around 40k in my 401K that i would have no problem pulling from to fund my first deal. I feel confident that I could raise another 150k using immediate friends and family but the property would need to be a "home run" before some of them would trust the deal. The fear I have is with that being literally the only money I have, how will I eat for the next 5 years? Would I be better off taking a pay cut and working for a large developer? Then I would be 35 with a little more experience and more industry contacts?

Has anyone been in a similar position? If so, what did you do?

Comments (34)

Feb 20, 2019

Commenting to elaborate later but...do you want a full career in development and real estate or are you only trying to do some side investing to create some personal cash flow and future retirement insurance?

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Feb 20, 2019

As of right now, my plan is to start on the side until it can replace my salary and if that happens I will do it full time. "it" being real estate investing and development.

Feb 20, 2019

I am an analyst at a developer with a finance background and I invest on the side. The finance stuff is not hard to learn. Our project managers who are on site have construction management experience and an MBA, a combination of your experience with an MBA is deadly and significant, an MBA for me would be only for networking and stamping my resume, the coursework would be redundant. You could learn a lot investing on the side. Dont sweat the finance stuff, you can pick it u quick.

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Feb 20, 2019

Agreed that the finance stuff is easy. Having a construction background could be extraordinarily helpful in terms of keeping down costs. If you can self-manage your first few properties, and know enough to take care of routine plumbing/electrical/carpentry issues, you'll save your margins and allow yourself to plow the additional NOI into future purchases.

Are you in NYC? If so, it's tough to do this in the city. If not, find duplex style units, or less than 4 unit properties - there is extremely competitive financing available from the feds and agencies for this kind of thing, and its small enough to manage on your own. Yeah, it's terrifying to think about losing friends & family capital, but you gotta take a risk somewhere.

And do it yourself. You don't need an MSRED to do this on a small scale, and after owning and managing a building for a few years you'll know more than most grads do about the important stuff.

Feb 20, 2019

Just to piggy back off this, I bought my first duplex/first house 8 months ago, my housing cost when you look at principle paydown, tax benefits, etc. is $500/month, meaning if I rented my unit out for $1400, I would be cashflowing $900 a month while having a significant hedge against inflation (because I have 80% debt on this duplex that will be growing with, if not more than inflation because I bought in a good area (risk, expectation, i get it). but the bottom line is, I am trying to figure out why everyone is not aware of this. by self managing your properties, the risk adjusted returns are pretty unbelievable, it is not far fetched to be making 20% on your money with limited risk if you are self managing. The tax benefits are a whole other story if you can find investors with large passive income. look at 4 units and below to get non commercial financing for your first deal. Everyone I talked to who got into side investing always says the same thing: "I wish I got into this sooner"

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Feb 20, 2019

Thank you sir!

Feb 20, 2019

Can confirm. Wish I had gotten in sooner. I've watched a buddy of mine amass a significant amount of wealth in about 7 years off a modest salary.

Feb 20, 2019

Are you referring to 20% CoC or 20% IRR? And what kind of cap rate (assuming you pay yourself market rent) are you looking at to achieve those returns? I feel like nothing like that exists anywhere near NYC. I feel better about maxing out my 401k and Roth than I do about doing side deals in this environment.

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Feb 21, 2019

I'm curious on the timesink/reward on work. I've done this in the past with my parents, however they were "unskilled" in the sense that they didn't have college degrees/traditional careers, allowing them to make this a full time gig. I always do the napkin math that labor cost is gonna be 2-3x on what your plumber/electrician/painter's gonna make hourly, and that money for non-college grads is really good.

How much work outside of your full-time gig do you put into this? Especially as someone who is "young" aka under 30, do you think it's worth it to manage rental properties or just focus on your career/Higher Ed? Establishing a rental in a location also forces you into a location for a while, do you think it's worth it from that perspective? I understand that everyone's got their preferences, but i'm curious to hindsight after getting into it.

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Most Helpful
Feb 21, 2019

A very intuitive question :) because the points you bring up, some are current situations in my life. I have a finance degree from a good school, I am working for a "prestigious" developer so I could fall into the idea of focusing on the career, I just really dont like working for people so I am always trying to learn and tinker. I also have estimated my net worth progression for my wife and I at our current savings rate (which is significant), and it is nowhere near the goals I had for even 5 years down the road. something has got to give, and it is the 9-5 slog, at some point the opportunity cost will become too high and I need to be ready to jump. As far as the time sink, it has been higher than expected, we have had to sound proof the home (for our comfort and the comfort of the rental unit), we did some updates to the rental per the request of the tenant, and I do some maintenance from time to time, we also take care of the landscaping, etc. To me, the ability to learn the small stuff in preparation to scale is important. Especially if I can cash flow, hedge inflation, and have opportunity for appreciation. The issue: my wife and I are in the process of moving across the country to a better location for our interests. We will either hold the property or do for sale by owner and we will basically wind up in the same financial position we would have been in if we had continued to rent, some will look at this and think, what an idiot, I look at it and say you miss every chance you dont take.

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Feb 20, 2019

Thank you! I am in Dallas at the moment but I will be looking to invest in Baton Rouge, Louisiana once I move back in a few months. My plan has been to apply the BRRR method to smaller multi-fam properties.. 2-4 unit properties sound like a good starting point. Any other creative strategies?

Feb 20, 2019

From a side investing standpoint with smaller properties, a construction background is probably the best background you can have for being successful IMO. For say a 2-4 unit property, I rather have the guy with an expert level of knowledge in construction costs and knowledge than an acquisitions guy from BX.

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Feb 20, 2019

Thank you. At what point, in terms of units, do you feel would require a more sophisticated skill set? Could those skills be acquired by managing the smaller properties?

Feb 20, 2019

Not an expert in multi family but I'd say things start to get more dicey once you get to the 10+units.

Feb 20, 2019

If you intend on self-managing, there is never a time when you'll need a more sophisticated skillset. "Acquisitions guys" don't really have much of a skill set at all. Not to say they aren't smart, but they're just diligence people for the folks putting up the LP money.

If you're building a portfolio of 2-4 unit properties (and that can grow very large, very fast) then you never need more than the skills to buy that 4 unit property, because in a lot of ways that is the only thing you own - multiple small properties. Yeah, at some point you'll need help with the property management and asset management, but the former should grow organically and the latter you'll be able to hire for easily, because you'll have been an asset manager and you'll understand the evolving needs and challenges of a portfolio as it grows from 5 units to 50 to 100 and so on.

Feb 20, 2019

If you want to be entrepreneurial, and start buying and do deals yourself, how intense should the modeling be?

Are you putting to work the excel skills you learned from your analyst job? Or is it more about knowing construction?

Feb 20, 2019

The models for properties I am looking at are not intense at all.. I have used some skills picked up from my job but most of my real estate financial modeling skills have are from books, GETREFM courses and some ULI courses.

Feb 20, 2019

Its all about the DSCR on these type of deals. cash flow enough to cover your mortgage and then some and you should be in pretty good shape (generally speaking, of course)

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Feb 21, 2019

Thanks!

Feb 21, 2019

Alright, so two things here

1) Using your life savings to buy a house, with heavy leverage, just to break into the industry is literally the least cost-effective and most ridiculous method ever pitched on these forums.

2) You should still totally do it anyway. At our office, my favorite drinking buddy and the most successful RE entrepreneur on his own time is the head of construction. He has way more practical knowledge for smaller projects than anyone else - as I'm sure you do. Get in the game man!

As for trying to break into Development, a lot of RE shops and developers hire PMs. Wouldn't be a bad way to get your foot in the door. Hell, sounds like you aren't a bad fit for this gig https://jobs.lever.co/cimgroup/f753f331-a442-4ae4-...

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Feb 21, 2019
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