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Spoke with my mentor today. He's incredibly successful in REPE (runs a one man shop with $150MM+ AUM)
He's very good at what he does, but so is everyone at the high levels of REPE. So why is his networth so much higher than his peers?
First you have to understand how REPE works https://twitter.com/callicrates_/status/1316187842884886529
He's very good at what he does, but so is everyone at the high levels of REPE. So why is his networth so much higher than his peers?
First you have to understand how REPE works https://twitter.com/callicrates_/status/1316187842884886529
This thread will be split into two distinct sections. The first describing his initial rise and the second detailing his current issues
As you'll see, the both his rise and his current issues are completely unrelated to the technical aspects of real estate
As you'll see, the both his rise and his current issues are completely unrelated to the technical aspects of real estate
SECTION 1 - HIS RISE:
99% of real estate private equity firms operate under a fix and flip model
That means they buy a deal, renovate it, then flip it for a higher price within 3-5 years
The advantage of this strategy is that you get quick cash. But it's also very competitive
99% of real estate private equity firms operate under a fix and flip model
That means they buy a deal, renovate it, then flip it for a higher price within 3-5 years
The advantage of this strategy is that you get quick cash. But it's also very competitive
since thousands of firms are competing in each major market with the same strategy
It's the glamorous road to take as the payouts can be massive (tens of millions) and you'll get your name written in the paper
The strategy also has a very serious flaw...
It's the glamorous road to take as the payouts can be massive (tens of millions) and you'll get your name written in the paper
The strategy also has a very serious flaw...
Since you're flipping properties so quickly, you don't build any long term equity
Also, your past deals mean nothing - you have to keep finding even better deals each year to appease investors and keep your business afloat, even though each year the market gets more competitive
Also, your past deals mean nothing - you have to keep finding even better deals each year to appease investors and keep your business afloat, even though each year the market gets more competitive
Because of these two drawbacks, it's incredibly difficult to start a REPE fix and flip fund, which means most end up staying with their corporate employer
The average networth of a MD at age 40 in that space is likely below $5MM. Which isn't horrible, but isn't great either
The average networth of a MD at age 40 in that space is likely below $5MM. Which isn't horrible, but isn't great either
So, what did my mentor do?
He structured his business entirely differently. He struck out on his own in his early 30s and instead of organizing his business around short term flips, he organized it around long term holds
He structured his business entirely differently. He struck out on his own in his early 30s and instead of organizing his business around short term flips, he organized it around long term holds
The advantage of this is that the business is consistent and stable, the deals are typically safer, and he builds long-term ownership that his kids will inherit
His AUM is $150MM+ and he will eventually own 20% of all of that, making his eventual networth $30MM+ at minimum
His AUM is $150MM+ and he will eventually own 20% of all of that, making his eventual networth $30MM+ at minimum
So by simply going against the grain and having the confidence and the patience to strike out on his own, he was able to multiply the networth of his peers by 6x
Zero "excess" technical skills were involved with his rise. What this means is every single technical skill he has,
Zero "excess" technical skills were involved with his rise. What this means is every single technical skill he has,
his peers have as well. So technical skills are not accounting for the difference in networth
In fact, he'd even say that I'm a better modeler/ underwriter than he is (unfortunately I'm not worth $30MM...yet)
In fact, he'd even say that I'm a better modeler/ underwriter than he is (unfortunately I'm not worth $30MM...yet)
"Networking" isn't accounting for the difference in networth either
In fact, he barely even "networks" at all. He never "grabs drinks" or schedules "coffee chats"
He makes his network based on his reputation
In fact, he barely even "networks" at all. He never "grabs drinks" or schedules "coffee chats"
He makes his network based on his reputation
This is only possible because he doesn't work in a major market
While most REPE shops want and need the glamour and expensive deals of NYC or LA, he works in unknown markets that no ones ever heard of
Unknown markets --> less competition --> easier to stand out
While most REPE shops want and need the glamour and expensive deals of NYC or LA, he works in unknown markets that no ones ever heard of
Unknown markets --> less competition --> easier to stand out
RECAP:
Just to recap this section, zero of his success was due to "excess" technical knowledge - it's all due to intangibles
Willingness to go against the grain, ability to spot a better business structure, confidence to strike out on his own, patience to choose longer holds
Just to recap this section, zero of his success was due to "excess" technical knowledge - it's all due to intangibles
Willingness to go against the grain, ability to spot a better business structure, confidence to strike out on his own, patience to choose longer holds
SECTION 2: HIS CURRENT PROBLEMS
Currently, he's looking to expand - the main problem is he doesn't have a lot of time to raise capital and doesn't enjoy doing it either. So his biggest need in the near-term is a capital-raising guy who'll bring in ~$20MM/year of fresh equity
Currently, he's looking to expand - the main problem is he doesn't have a lot of time to raise capital and doesn't enjoy doing it either. So his biggest need in the near-term is a capital-raising guy who'll bring in ~$20MM/year of fresh equity
So the decamillionaire's biggest need is a sales guy (another intangible skillset)
Why is this?
It's mainly because literally every single REPE firm is the same
Some return 15%/year, while others return 16%/year. Big whoop. No difference
Why is this?
It's mainly because literally every single REPE firm is the same
Some return 15%/year, while others return 16%/year. Big whoop. No difference
So what sets the more successful firms apart from the less successful firms?
Ability to raise more capital (also known as sales)
No one is raising money because they have the best models. They're raising money because they're better at selling their firm to investors
Ability to raise more capital (also known as sales)
No one is raising money because they have the best models. They're raising money because they're better at selling their firm to investors
RECAP:
Just to recap this section, the most important factor in growing a REPE business is sales skills (intangible skill)
This is because the technical skills are the same. No firm has any "excess" technical skills (technical skills are finite, intangible skills are infinite)
Just to recap this section, the most important factor in growing a REPE business is sales skills (intangible skill)
This is because the technical skills are the same. No firm has any "excess" technical skills (technical skills are finite, intangible skills are infinite)
THREAD SUMMARY:
Technical skills are a baseline. Once you've mastered the basics and the intermediate, your time is better spent elsewhere
Would my mentor have been wealthier if he had learned how to do more excel formulas or if he had trained himself to be more confident?
Technical skills are a baseline. Once you've mastered the basics and the intermediate, your time is better spent elsewhere
Would my mentor have been wealthier if he had learned how to do more excel formulas or if he had trained himself to be more confident?
I think we can all agree that his confidence to set off on his own was a far bigger factor in his success than knowing an extra excel formula would've been
Which is exactly why successful people stress the intangibles
Let's isolate the trait of confidence for a second
Which is exactly why successful people stress the intangibles
Let's isolate the trait of confidence for a second
My mentor knows that if he can get you to increase your confidence to the point where you break out on your own, that would be the single biggest component of your success
The same goes with all of his aforementioned intangible traits, most of which simply boil down to mindset
The same goes with all of his aforementioned intangible traits, most of which simply boil down to mindset
Think of it as a "hurdle" you need to break
Let's say the trait of confidence requires a hurdle to break out on your own (95%) and you're currently at 80%
He knows that if he can get you another 15%, you'll have an edge over everyone else and will be well on your way to wealth
Let's say the trait of confidence requires a hurdle to break out on your own (95%) and you're currently at 80%
He knows that if he can get you another 15%, you'll have an edge over everyone else and will be well on your way to wealth
Successful people stress the intangibles because they know once you break through the hurdle for each respective trait (confidence, patience, etc.) you have the potential to succeed
If all you do is learn the technical aspects, you never even have a fighting chance...
If all you do is learn the technical aspects, you never even have a fighting chance...
...since you'll always be below the hurdles for each trait, never able to breakout on your own and realize your potential
Technical skills become very low ROI because of this, since your success is essentially capped below those hurdles until you have a mentality breakthrough
Technical skills become very low ROI because of this, since your success is essentially capped below those hurdles until you have a mentality breakthrough
Think about it... if he can get you to breakthrough every hurdle he brokethrough, you can 6x your networth
But if he only stresses technical skills, you'd likely get promoted at your job, make a few hundred k more, but you'd still be trapped in the lower networth bracket (<$5MM)
But if he only stresses technical skills, you'd likely get promoted at your job, make a few hundred k more, but you'd still be trapped in the lower networth bracket (<$5MM)
So, copy and mimic the mindset of successful people and expand the intangibles that are necessary for your specific field, rather than spending your time on low ROI technical skills
Becoming wealthy becomes an inevitability
Becoming wealthy becomes an inevitability
Final thought:
The reason why it always sounds like BS when someone preaches mindset to you is because they never tell you the reason
If they told you "we need to get your confidence up 15% to get over the hurdle so you can start your business", it would make much more sense
The reason why it always sounds like BS when someone preaches mindset to you is because they never tell you the reason
If they told you "we need to get your confidence up 15% to get over the hurdle so you can start your business", it would make much more sense
