Why a real estate career isn’t that risky

I began my career in investment banking helping entrepreneurs sell their media and tech companies to bigger, usually public companies.

I quit because I knew I wanted to do something entrepreneurial myself.

My first venture was a pretty stupid one. I invested a lot of time and money into an interesting tech concept, but one which served a tiny, highly competitive market. Because the idea was good, we were able to create a stable, marginally profitable business that endures to this day.

But that was still a failure, because there was no way I was going to make enough money running that business for the rest of my life.

By that time, I was in my late 20s and worried that I was going to be poor forever.

I started doing real estate deals by accident, but I quickly realized something about it that was fundamentally different from doing start-ups: In real estate, there is no business model risk and no market risk.

What do I mean by this?

Well, with a start-up, you’re taking a risk that your specific product will be attractive to the people to whom you are marketing it. For example: When Mark Zuckerberg started Facebook, there was no guarantee that people were going to like the product enough to attract a large enough audience to sell to advertisers. He took a gamble and it paid off.

In start-ups, you’re also often taking market size risks. When Brian Chesky launched AirBnB, he thought he was creating a marketplace for couch-surfing. That was a small, crappy market. He got lucky, in that his target market was immediately adjacent to two GIGANTIC markets in need of innovation (vacation and corporate rentals). But this wasn’t guaranteed.

In real estate, you know two things for sure:

  1. People need places to live, work, make things and shop… in other words, multifamily, office, industrial and retail.
  2. The market is enormous… any given block in LA, even the poorest one, represents millions and millions of dollars of equity value, so being able to skim even a small piece of the over-all market nets you an enormous business

This doesn’t mean going into real estate guarantees success. It just means that your risk is somewhat mitigated.