68 Challenges of Starting and Growing a Real Estate Investment Firm. And Counting.

Written by Joe Stampone

I’ve spent the past 4 years working for a start-up real estate investment firm. When I joined the company in early 2011, the partners had just closed their 2nd deal, had no website, and no office space. Now, 4 years later, the company has done 30 transactions, hired a team, built out our office space, and continuously refined our operations. Through that process, I’ve experienced first-hand the challenges of starting and growing a real estate investment firm.

I’ve been using a Google doc to track the challenges we’ve encountered. While this list is by no means exhaustive and many of the items are not unique to real estate investment, it’s a good taste for what you have in store when you chose to venture off on your own.

Over time I’m going to use this as a sort of guide to share some of the tools and processes that we’ve used to solve some of the endless challenges of building a company.

  1. Creating a name that is memorable and conveys the brand and doesn’t interfere with existing trademarks
  2. Finding a partner who compliments your strengths and shares a similar vision and integrity
  3. Writing deal memo’s that sufficiently pitch the upside of a deal and downside protection to the non-real estate professional
  4. Finding high-quality 3rd party property management for smaller assets in secondary and tertiary markets
  5. Cheaply building a website that conveys the brand and looks good, yet is also versatile/functional
  6. Sourcing debt for small, local deals
  7. Properly billing back deal-level expenses to the property
  8. Setting up new entities for each deal
  9. Setting up bank accounts for each deal
  10. Funding large deposits out of pocket prior to having debt or equity commitments
  11. Coming out of pocket for due diligence costs prior to being hard on a deal
  12. Providing high-quality investor reporting each quarter
  13. Ongoing lender compliance
  14. Timely providing K1’s to investors
  15. Updating investor banking info
  16. Working with a custodian when managing self-directed IRA money
  17. Approaching investors for a capital call
  18. Finding a quality attorney who protects your best interests, but is affordable
  19. Strategically building an investor base and cutting back investors on smaller deals
  20. Ongoing investor cultivation
  21. Determining when it’s worth hiring employees then managing them and building a culture that promotes creative thinking
  22. Staying on top of macro trends and market-level news
  23. Deal-level insurance; property, GL, umbrella etc. – tracking various renewal dates
  24. Company-level accounting
  25. Building a robust investor presentation with no track record
  26. Qualifying for your first few loans, signing recourse etc.
  27. Maintaining a strong work/life balance
  28. Scaling while remaining lean and entrepreneurial
  29. Sustaining your quality of life with unknown income
  30. Convincing sellers and brokers to award you the deal and that you’re capable of executing
  31. Tech Challenges; internal server, email set-up, security etc.
  32. Submitting and tracking lender reimbursement requests
  33. Tracking and completing property tax appeals
  34. Deciding if you want to have a partner or not
  35. Making sure the name you came up with has a URL which you like and is available
  36. Deciding on a niche you want to focus on
  37. Making sure you are in the right timing of the cycle so there are still opportunities left to pursue
  38. Getting the courage to leave a safe and steady job
  39. Dealing with rejection on multiple levels
  40. Finding and closing on your first opportunity
  41. Deciding on the type of equity you want to attract, private or institutional
  42. Finding and securing your first office space
  43. Negotiating revenue share for cable agreements
  44. Managing various participants remotely – equity partner, lender, property manager etc.
  45. Balancing endless calls, meetings, and emails with doing work that matters
  46. Managing the operating agreement and subscription agreement signing with many investors
  47. Finding mentors to help provide quality advice
  48. Accessing expensive data sources – CoStar, RCA, REIS, Reonomy etc.
  49. Effectively monitoring and documenting implementation of a value add program outside your hometown.
  50. Determining the best way to align third party’s interests (general contractors, vendors, property managers, etc.)
  51. Knowing when to step back and allow property managers to implement their dedicated portion of the business plan without interference
  52. Staying in the loop with the institutional world (capital markets) without the resources that come with institutional jobs
  53. Determining how to settle potential partnership disputes
  54. Designing a logo, business cards, deal memos, and your investor presentation
  55. Trademarking a name and mark
  56. Getting accurate DD materials in a timely fashion when dealing with unsophisticated sellers
  57. Monitoring 3rd parties when you’re not an expert; construction, architects, engineers etc.
  58. Determining if an investor is accredited without being overly invasive
  59. Uncovering investor needs by asking the right questions
  60. Articulating potential benefits of diversifying a portfolio with real estate to new real estate investors
  61. The art of a cold call/email to solicit new accredited investors
  62. Maintaining a robust deal pipeline
  63. How to procure off-market transactions
  64. Negotiating supplies and service contracts
  65. Knowing when to drop a deal/walk away by staying unattached/unemotional
  66. Determining when the time is right to develop a compliance manual or a policy and procedures handbook
  67. Finding, hiring, and managing interns
  68. Determining the best way to manage investor confidentiality when doing quarterly reporting

Post Publishing additions

69. Keeping track of all asset management activities including; tax protests, insurance/tax escrows, lender compliance, investor documents, 3rd party contracts etc
70. Determining year-end valued investor gifts
71. Creating interest-aligned bonus structures for property managers and regionals

Source A Student of the Real Estate Game