Where from here if not syndication?

Question

So quick back story, I started investing in 2016 (or was it 2015?) and things have gone well as it has for most people. I was able to quit my job in 2020. I should also mention that I have a partner for most of the property I own.

Typically purchases were made through buying value add properties and refinancing the cash out and recycling the money. That should continue to work fine, but I'd like to throw a little gas on the fire.

Problem is, I don't want to syndicate. It doesn't really fit in with my goals. Mainly my partner and I don't really want to sell. Also taking on too many partners could get messy.

So with that in mind, any real way to accelerate growth? Or do I just keep doing what I'm doing? I've considered taking on "investors" as debt partners for down payments so long as the bank agrees and the dscr still works at full financing. Not sure how feasible that would be for all parties involved. Any thoughts are appreciated.

Thanks!

Chris Seveney · Answer

@Dustin Beam

Work backwards - if you want to scale, what do you need to scale? Most people need funding.

Where can you get that funding? Either you bring it in, borrow it or give up equity.

It’s the “pick your poison”, each had their strengths and weaknesses.

We started an equity fund where we provide a preferred return. It works for us, it’s a lot of work, but it has allowed us to scale quickly from a seven figure to eight figure company.

Greg Scott · Answer

I syndicate deals but have several big-time investor friends that don't.

One has over 100 single family houses, and he is not a buy & hold forever type guy.  He has built up a team and is constantly buying homes, renting them for a few years, then selling them.

Another started in single family homes but long ago also started buying small apartments.  He has probably 15 single family homes and about 10 apartments of around 20 units in size.

Neither raise money from outside investors and neither have partners, but they have built a team around them to execute their plan

David Lilley · Answer

@Dustin Beam are you doing MF? It depends what you see as growth. If you don't want to deal with other people, find more debt. Preferred equity isn't cheap these days, but could help as well.

Dustin Beam · Answer

Thanks Gino. Gaining a 3rd partner with a strong balance sheet like you describe may be the best option. I currently have a partner, which I am not trying to separate from, so I'm ok with partnerships. I just don't too many chefs in the kitchen.

A some point, selling properties may start to make sense. We have refinanced all our money out of the smaller deals, so we will need to wait a bit for some equity gain.

Also, thanks for doing your podcast. I've listened to many of them and they have helped me along the way.

Jason Thompson · Answer

@Dustin Beam Hey Dustin, scaling and syndication are synonymous. Regarding "taking on too many partners," most investors would be passive and not have operational control. I hope you reach your investment goals this year, wherever they may take you. All the best, Dustin.

Kristi K. · Answer

@Dustin Beam Keep doing what you are doing. This a a long term game. Look at local tax sale and foreclosure sales.

Justin Moy · Answer

It sounds like cash is the main obstacle preventing you from scaling as quickly as you'd like? If that's the case then it's not impossible to look for some bridge private capital investors to help with downpayments, it could get pricey though since they'd be in second position so I'd be ready for those terms to be much more aggressive at least until you do a few successful transactions with them.

Gino Barbaro · Answer

@Dustin Beam

Tough decision. I read the book Small Giants and it helped with what we were trying to accomplish. I would look for a partner with a strong balance sheet, and consider working with that person, assuming your values and goals align.

I would also consider selling any smaller assets and trying to roll into larger deals. If you're not going to take outside capital, and not going to partner with others, it will limit your ability to grow.

We have gotten to a point where we can fund our own deals without syndicating. Although, if an amazing deal comes by that we don't have the capital, we will syndicate.

Gino

Brock Mogensen · Answer

The great part about real estate is there are many ways to create wealth.

I'm an advocate for the syndication model because I believe it allows the GP's to grow quicker and create a legitimate business with systems, processes, and employees.  And it provides LP's the opportunity to invest in real estate as a passive experience.

That being said, it certainly is not for everyone. Taking on other people's money provides an additional level of stress and responsibility.

Where from here if not syndication?

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