3 [Unexpected] Downsides of Commercial Real Estate Careers

I’ve built my career in commercial real estate, and while I definitely don’t regret going down this path, there are some downsides worth considering before getting into this industry.

These things just weren’t on my radar when I first chose real estate as a career, but these are all things I wish I knew when I was first getting started.

And in this article, I want to cover three of the biggest downsides of pursuing a career in commercial real estate, and some reasons you might want to think twice before entering the industry.

If video is more your thing, you can watch the video version of this article here:

Repetitive Business Travel

When I first got into commercial real estate, I loved the idea of exploring new markets, going to new cities, and being out of the office on a regular basis.

But fast forward a few years into my career and I quickly learned that this wasn’t going to be the kind of travel I had hoped for, with real estate travel mostly involving trips to the same markets over and over again, often visiting specific parts of town that you wouldn’t want to vacation in.

If you plan to work in acquisitions, once you move into a deal sourcing role, you’ll usually cover a small handful of markets that are generally going to be located within a one to three hour plane ride. This means that, even if you’re headquartered in a city like Los Angeles, you might be spending 2-4 days per week in the suburbs of markets like Phoenix, Las Vegas, and Sacramento, staying in very average hotels on the outskirts of town and eating at the same chain restaurants every time you visit.

When I initially pictured traveling to tour big commercial properties, I thought of fancy dinners in the heart of major cities and top-floor views from brand new buildings. However, most real estate is not brand new and most commercial properties are located outside of major city centers.

Many companies look to make investments in areas that are up and coming, and also look to buy older product that they can add value to through a renovation. And as a result, a lot of the submarkets you’ll end up visiting and properties you’ll end up touring aren’t places you’d personally choose to work, live, or shop.

As you gain experience over time, many of the properties you’ll tour will also be deals you’ve already walked multiple times throughout your career, since commercial properties often trade frequently.

Asset management travel tends to be even more repetitive than acquisitions, since you’ll usually be visiting the same properties in the same locations at least monthly, meaning that you won’t be going anywhere new unless a property is added to your portfolio.

I personally love to travel and enjoy being on the road, but if you’re thinking that business travel for real estate involves regular trips to markets like New York, Los Angeles, or Miami and staying in hotels in the heart of the city, in most situations, this won’t be the case.

Real Estate is Cyclical

In real estate, salaries, bonuses, and commissions can all be heavily dependent on transaction volume.

When the market slows and deal activity drops, bonuses are very quick to be cut, commissions can drop to zero, and layoffs often start happening throughout many parts of the industry.

Even though commercial real estate careers do generally offer an extremely high income potential, if the thought of losing your job unexpectedly or seeing your income drop by 30%-50% (or more) during down years isn’t something you can stomach, there are many real estate career paths you’ll want to avoid.

I’ve talked with real estate entrepreneurs who have made over $1 million in one year, and less than $100,000 in the next. I’ve also talked with rainmakers brokers at the top of the industry who qualified for food stamps during the Great Financial Crisis, and people who chose to leave the industry altogether due to extremely low earnings over a multi-year period.

With that said, not all real estate career paths are this “feast or famine”, and positions in lending, asset management, and portfolio management usually won’t see income swings at this level of magnitude. However, if you’re looking for a steady, predictable salary regardless of market conditions, you need to be very selective about the real estate industry disciplines you choose to pursue.

Real Estate is “Slow Money”

Unlike the technology industry, where you can bootstrap an app or software product and exit in 12-24 months for a life changing amount of money, real estate is a capital intensive business that often requires a significant time commitment to generate material wealth.

Building a track record to the point where investors will trust you with millions of dollars on what should be a relatively low-risk investment can often take years, and once you do have your capital sources lined up, finding and closing on your first deal can often take 6-12 months (or more) from the time you strike out on your own.

And while you might earn an acquisition fee when you close on that transaction, this is often either rolled into the deal directly as an equity contribution or used to cover operating costs for the next 6-9 months in the business, and it often takes 3-5 years or more before promoted interest starts to come into play in any significant way.

Big capital gains are also often rolled into a 1031 exchange, meaning that even once you’ve earned a 7-figure promote check, your investors very likely won’t want you to take that as a lump sum, and you might only see 4%-6% of that each year as cash flow distributions from the next deal you acquire.

If you’re an employee trying to climb the ladder within an established company, career progression in commercial real estate also tends to be slow. Long-term financial incentives often keep senior professionals at the same company (in the same position) for a very long time, making it more difficult for young professionals to move up the ranks early in their careers.

How To Break Into Commercial Real Estate

If you’re getting into this industry because you know real estate is where you want to be long-term, the financial incentives of being in this business can be huge. However, if you’re looking for fast money or a huge exit in your twenties, real estate probably isn’t the best fit for you.

And if you’re set on real estate as a career path and want to make sure you’re ready for interviews and an Excel modeling exam that might be given to you during the process, make sure to check out our all-in-one membership training platform, Break Into CRE Academy.

A membership to the Academy will give you instant access to over 120 hours of video training on real estate financial modeling and analysis, you’ll get access to hundreds of practice Excel interview exam questions, sample acquisition case studies, and you’ll also get access to the Break Into CRE Analyst Certification Exam. This exam covers topics like real estate pro forma and development modeling, commercial real estate lease modeling, equity waterfall modeling, and many other real estate financial analysis concepts that will help you prove to employers that you have what it takes to tackle the responsibilities of an analyst or associate at a top real estate firm.

As always, thanks so much for reading, and make sure to check out the Break Into CRE YouTube channel for more content that can help you take the next step in your real estate career.