Thread by @tsludwig

I spent about 6 years working in real estate before becoming an investor/owner of small companies. I've been asked which I liked more and, for me, the answer is small company ownership, but not because it is more lucrative or a better path to wealth.

Let's compare the two...

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Liquidity:
- both asset classes are illiquid, but the edge goes to RE
- I don't have data to support this, but I believe there are many more real estate transactions done every year than there are biz buyouts and the process in RE is more standardized and streamlined/easier

Leverage:
- Again, edge goes to RE
- RE loans are more available and leverage levels are typically higher (70-80% LTV vs 50% or less for senior debt, outside of SBA). Also more likely to get non-recourse financing in RE than in SMB buyouts and this downside protection is vital.

Ability to use other people's money/fundraising:
- RE wins again
- In my experience, RE fundraising is much easier than raising equity for a buyout. RE is familiar to more people, has more tax benefits, and often provides greater near-term yield

Value Creation Potential:
- Buyouts have the advantage
- Even compared to value-add RE projects, most SMBs offer more opportunities to create value (scope, svcs, etc). In RE, once the biz plan is executed (rehab, entitle, etc.), the asset is stabilized and further growth is hard

Complexity:
- RE, while not simple, is usually less complex from an owner perspective (they don't call it mailbox $ for nothing)
- The necessity of people in companies, as well as all of the other systems and functions necessary for success, outweigh the demands of most RE assets

So, for most people, if wealth creation is the goal, RE is a better asset class in which to invest time, effort, and capital.

For me, however, I just really like business and seeing teams come together & thrive and having the constant challenge of staying competitive.

/end