Real Estate is an Unsexy Business

Feb 18, 2015 | Asset Management, Career

For the young people out there who read headlines in the WSJ, NY Times or other publications regarding massive property purchases, recapitalizations of shiny towers and so forth and find it very appealing/sexy, I’m going to let you in on a little secret.

I work for an owner/operator, which means we run the entire deal process including identifying investment opportunities, capitalizing the acquisition, operating the deal (overseeing 3rd party property management), managing investor relations, and executing our business plan. At a high-level, buying property is an attractive career, but what few understand is that it requires deep expertise and is filled with a lot of “dirty work”.  In short, it’s an unsexy business.

Real estate is an unsexy busines

I referenced it in my ‘a day in the life’ post and my buddy Vadim hit the nail on the head in his guest post on the reality of doing deals on the side; think insurance claims, property tax appeals, lender compliance, disgruntled tenants, legal battles, construction issues, banking issues, admin work and the list goes on.

Here’s insights into a few issues we’ve been dealing with in our portfolio over the past few weeks:

  • Theft – We own a retail asset in an emerging neighborhood that has a minor crime issue. The HVAC units on the roof of the building were recently stolen. The insurance claim and increased security has been a significant expense which has a major impact on smaller deals.
  • Mold – We own a multifamily property that has unvented attics (a construction flaw) and we recently noticed mold problem in one unit. A full property audit exposed issues in other units and while we’re remediating the problem, it’s extremely costly.
  • Dealing with Public Utilities – We’re repositioning an apartment community, and while the units are move-in ready (with leases signed), tenants can’t move in since the public utility company can’t get their act together. We’ve been working with over a dozen different employees in various divisions, who rarely communicate with each other!
  • Contractors – We used a local roof contractor on a small deal we owned in a tertiary market. While we had worked with him in the past and he does good work, his company fell apart and left the job half-complete!

While this has been a challenging few weeks, dealing with these sorts of issues is common amongst owner/operators, especially on smaller deals, and the unexpected expenses can crush investor returns. While you can’t fully avoid these issues, proper due diligence can help to identify potential issues, and owner/operators who can find creative solutions to avoid or minimize these issues, will be successful.

All that said, I love the real estate business. So you still want to get into real estate?