After 37 years as a learner, trainer, mortgage banker/broker, broker, analyst, developer and mentor in the great profession of income producing real estate, I have met thousands of people and been involved in hundreds of transactions. The evolution of a real estate career can germinate and follow almost infinite different paths. The industry is populated with a complex array of professions who work either in concert or competition with each other to create and serve its products…land and buildings that house human living, working and playing. Many skills and strengths are needed to be successful in this industry; however, fundamentally three categories of skills are required in some form:
- Financial- the ability to evaluate a property’s investment potential
- Communication- to be able to assess and analyze a situation and deliver a persuasive message either in writing or orally
- Spatial- able to understand how a property configures to its users’ needs
Taking them one at a time, the financial skills include the time value of money and the relationships between leverage and risk. Beyond the basic understanding of a static property income statement and all of the components of an operating property, the more thorough understanding of the dynamics of each component over time and how it interrelates with the property’s performance is critical to understanding investment value. Income property valuation includes three approaches:
- Cost- the replacement cost of the improvements plus the current market value of the land;
- Market Data- the comparable value of the property among other similar properties based on recent sales and their comparable nature to the property; and
- Income- the relationship between the net income generated from the property’s operations and the rate of return expected by an investor both on a static basis (a capitalization rate) and on a dynamic basis (a discounted cash flow analysis). These skills are the crux of income property investment.
Both written and oral communication skills are also critical in a real estate career. Translating the financial data together with the market information and physical data into a written investment memorandum in a concise and well presented format is a learned skill that requires distilling the salient issues investors are seeking to learn about a property to understand and make a decision. Additionally, practitioners need to present the investment merits of a property and its strategy orally on the phone and in person. Of course, to develop these skills requires research and practice. In addition to the specifics of property and market knowledge, practitioners need to understand their clients’ and customers’ needs depending on their role. Examples include:
- A commercial real estate sales broker must understand his client who is selling a property. While the highest price is often the first objective, sometimes due to the client’s situation, it may be terms or certainty of closing that is more important than price. Evaluating and prioritizing client’s needs is perhaps the most important aspect of brokerage success.
- A commercial mortgage banker is engaged by a property owner or purchaser to secure mortgage financing for his property or proposed purchase and needs to understand the business plan for the property in order to secure the appropriate financing. If it is a stable asset, then lower cost fixed rate debt may be appropriate. If in transition, then a bridge floating rate facility with higher leverage makes sense assuming the business plan warrants a rapid turnaround.
- A real estate developer is in constant communication to acquire land, entitle it with government entities, raise capital to finance its purchase, research the market to understand the need, and work with a team of architects, engineers and contractors to plan and build the project. Each of these interfaces require excellent communication skills in persuasion and presentation.
Finally, the ability to visualize how the real estate will conform to its intended use incorporates the spatial skills. Developers can hire architects, space planners, engineers and landscape designers to assist them in this process; however, it is the developer’s role to assimilate these advisers’ input together and prepare a development budget and overall plan with a timeline to implement the property’s development. A real estate practitioner, regardless of his or her role in the industry, should understand the functional utility of buildings as they impact value to users and investors. Even a financial analyst in the real estate industry, who devotes most of his or her time on preparing spreadsheets and investment valuation, would benefit from understanding why costs might vary depending on the physical impact of improvements to the property. The economic value increase relative to increased rents and/or occupancy should be marginally higher than the cost of the improvements. Seeing those improvements and why they increase value requires better understanding of the spatial and functional aspects of a property.
Ideally, a powerful combination of all three dimensions–financial, communication and spatial skills, will provide the tools necessary for a successful career. Nevertheless, with two of the three aspects mastered, the third can often be “hired” or outsourced. The industry offers a large number of specialties addressing niches that support the needs of a team. The natural abilities of most people could apply to the real estate industry, depending on one’s passion and desire. There are niches for many types of people in the business including quiet analytical people, aggressive persuasive people, idealistic artsy people and hard factually oriented people in the business. The team can include all types but the assembly must have all three categories of skills.
