Ep 90: What people fail to understand about Real Estate

You probably understand my philosophy by now, and some of you even listen to my Sweaty Startup podcast. Starting with a sweaty service-based business provided a great background for me once I moved into real estate, and there are a lot of comparisons between the two in terms of my approach.

Too many brilliant entrepreneurs fail because they don’t account for risk-adjusted returns. They shoot for the moon and try to over-innovate. The truth is that most successful entrepreneurs start out doing something that isn’t fun, isn’t sexy, and isn’t new. They start small in an existing market without taking on a lot of risk, and they look towards a 10-year horizon.

It’s very hard for a W-2 employee to save up the money they need to get into commercial real estate, which is often $500K upfront for the first deal when all is said and done. This is why a sweaty startup is a great opportunity to get both the cash and experience necessary to open the door for you.

Service-based companies and real estate are both geographically constrained, where you can build your moat. Too many entrepreneurs try to start internet businesses and compete with the entire world when you could just choose to compete with the guys in your area. When you constrict yourself geographically, a great operator in California isn’t a threat to you. And you won’t be competing against big data, Stanford grads, or venture capitalists–you’re competing with the wealthy, old operators in your area that use outdated technology but still make a ton of money.

My sweaty startup experience is the ace up my sleeve. I learned how to hire, fire, scale, and operate. At the time we thought the money was the best thing ever, but in reality, the operational knowledge was the biggest benefit. You don’t need to be a genius to make money in real estate, many operators get by on tailwinds and make money over time.

In real estate, it really only takes one building to change your life. Our first facility cost $2.9M all-in and is now worth $8M. That’s life-changing money. It doesn’t take scale, or a ton of employees, or a revolutionary idea to make life-changing money.

There are different levels of risk you may take in real estate. Our first deal was very high-risk, high-reward. We were over our heads on a new building but managed to benefit from huge industry tailwinds. Now, we buy primarily cash-flowing assets, spending less money on speculative investments and instead on existing properties with customers in the building. The returns can be lower, but we can still double their value and make 20% per year. That’s massive.

Sweaty startups and real estate are natural relatives. In both of them, you can carve out your piece of the pie, adjust for risk in a way that works for you, and take up less than 1% of the total market in order to make a huge impact.

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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.