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Updated over 4 years ago, 07/07/2020
Joint Venture (More Units) vs Solo (Less Units) advice
Hi all!
I was initially thinking of buying upto 20 Multifamily units with financing for long term retirement buy and hold goal. Now I am wondering if the better idea would be to buy 100 Multifamily units with 3-4 joint venture partners for buy and hold. Can someone give me advice on the pros and cons of each and which one you would recommend I pursue? Plan is not to sell. Buy and hold.
Also anyone have recommendations for experienced Joint Venture partners?
@Account Closed, hi and welcome to BP!
First, how many units do you own today? If you say 0, I'm going to ask you to step back and take a deep breath first. We're not even sure you like being a land lord yet, and you're talking about getting involved in 100 people's lives providing them housing.
Second, are you going to self manage or hire it out?
Third, do you have any partners with enough available capital to purchase?
Just a few things to think about. How about giving us a quick biography listing your experience, aptitudes, and specific goals, etc and maybe we can come up with a better answer for you. The Pros and Cons make a vast list, but depending on your personality, skills, and goals, sometimes the items can flip from one side of the list to the other. For example, multifamily DIY owners who are willing to get involved in day to day problem solving with tenants see DIY management as a Pro, but multifamily owners who prefer to hire out management usually want nothing to do with the day to day.
Thanks for your response Erik!
To answer your first question - Currently my portfolio includes:
1 SFH turnkey in Memphis TN
1 SFH turnkey in Dallas TX
2 Opportunity Zone New Construction Duplexes in Fort Worth, TX
Regarding your second question - I am a Neurosurgeon in NJ with very little time to manage properties myself and have always gone down the property management route. I always look to hire it out but I keep myself educated to exactly what is going on at all times.
Third - I am surrounded my many people with capital but my goal if I was going down the JV route is to partner with someone far more knowledgeable and experienced than me/my friends. I would need my partners to be more hands on and I would be learning from them.
Hope that gives some clarity! Looking forward to advice.
Originally posted by @Account Closed:
Thanks for your response Erik!
To answer your first question - Currently my portfolio includes:
1 SFH turnkey in Memphis TN
1 SFH turnkey in Dallas TX
2 Opportunity Zone New Construction Duplexes in Fort Worth, TX
Regarding your second question - I am a Neurosurgeon in NJ with very little time to manage properties myself and have always gone down the property management route. I always look to hire it out but I keep myself educated to exactly what is going on at all times.
Third - I am surrounded my many people with capital but my goal if I was going down the JV route is to partner with someone far more knowledgeable and experienced than me/my friends. I would need my partners to be more hands on and I would be learning from them.
Hope that gives some clarity! Looking forward to advice.
If I were in your shoes, I would seek out and build relationships with syndicators and find ones with experience, who you like, and who invest in areas you are interested in.
Then you provide risk capital for their syndications. Typically that can include upfront costs like Earnest Money Deposits, legal costs, due diligence costs, and other expenses they can incur. In return, you get a piece of the deal because you're taking on a risk. You do not manage the properties or the property manager, and you can earn a bigger return than a typical Limited Partner because you're taking on a more involved role and additional risk.
Options to mitigate some of the risk in this strategy are only partnering with experienced operators and learning to underwrite and review deals yourself (or hiring an underwriter).
#2 Land & New Construction Contributor
- Developer
- Charlottesville, VA
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#2 Land & New Construction Contributor
- Developer
- Charlottesville, VA
Originally posted by @Account Closed:
Hi all!
I was initially thinking of buying upto 20 Multifamily units with financing for long term retirement buy and hold goal. Now I am wondering if the better idea would be to buy 100 Multifamily units with 3-4 joint venture partners for buy and hold. Can someone give me advice on the pros and cons of each and which one you would recommend I pursue? Plan is not to sell. Buy and hold.
Also anyone have recommendations for experienced Joint Venture partners?
I would not recommend doing a JV as that takes active participation from all the partners. Managemnet by committee is very inefficient and difficult. The best path for you would be to syndicate a larger deal with maybe one operating partner only especially if you have people willing to invest. This way you control the deal and make all the decisions. No need to bring on more partners than necessary.
@Mohammed F. I would second the other responses that advocate for more of a passive route if time is your issue.
Syndications or buying smaller deals and having a property management company do all end to end operations. Buy turnkey style buildings, so the headache of CapEX and maintenance issues are not burdensome.
Are most people syndicating deals ultimately selling the property for the profit immediately after stabilization or are groups of investors on here holding these assets for the long term?
I ask because my goal is the latter and I wonder if most people on here are in it for the former and would be looking to keep their money rolling from deal to deal.
Long term buy and hold must have a lot of challenges if multiple investors are involved in a big property
For syndication, some people hold longer time. It all depend on their business plan. Beside that at syndication, there are 2 parties: General Partner and Limited Partner. General partner is the ones who source the deal, underwrite the deal, do due intelligence, manage the asset. They don't manage themselves. They hire the third part property manager. Depend on the size of the deal, they may put full time on site management or not. GP do all the works and manage the whole operation. They make sure they execute their business plan. Normally, GP team has a few people based on their roles and responsibilities. Limited partner is the capital provider. They invest money to pay for down payment, rehab, closing cost and acquisition fees, etc. So, LP are considered as passive investors and they do not involve in day to day operation. They receive periodical update from GP team, typically monthly about the property such as rent collection, rehab progress, etc. Then, LP receives quarterly distribution based on the return they agreed or projection. When the property get sold in future, LP get their equity split (60%, 70% or 80%). So, GP is the one who manage the deals and make decision. LP are passive investors. Good GP always look after their investors because their reputation and future business depend on the successful execution of their business plan and the profit or cash flow that they can bring for their investors. The main difference between JV and syndication is active role and passive role.
@Account Closed makes the critical point of too many cooks and the division of responsibility. The advantage of JV'ing over doing it yourself is diversifying your risk and getting into non-recourse debt. The solution may be to syndicate, but you would have to have an aggressive value add plan, acquiring the asset with bridge debt where you could refi after 2 to 3 years into long term agency debt. You could then return a good percentage of the investor capital, thereby appeasing them, and hold the asset for long term cashflow. You could also go the passive route and build a syndication ladder, where you hope to pull your initial investment out every 3-5 years and multiply that into other syndications (not always possible). You would eventually find yourself in many deals, with multiple income streams, with the equity building.
@Rick Martin the passive route sounds most fitting for @@Mohammed F.
Another thing to consider, if your goal is passive and minimal oversight/management, investing in others deals can present a steady set of passive income streams, but you are limited in your potential for massive returns. It sounds like this is acceptable to for your goals for retirement.
Economies of scale
Originally posted by @Account Closed:
Are most people syndicating deals ultimately selling the property for the profit immediately after stabilization or are groups of investors on here holding these assets for the long term?
I ask because my goal is the latter and I wonder if most people on here are in it for the former and would be looking to keep their money rolling from deal to deal.
Long term buy and hold must have a lot of challenges if multiple investors are involved in a big property
The typical hold plan in today's multifamily syndication market is 3-5 years or 5-7 years. The returns in commercial multifamily mostly come from forced appreciation value add strategies. In essence, that process looks like
- Buy the property
- Raise the NOI by increasing income and/or cutting expenses
- Stabilize
- Sell
- Repeat
Commercial real estate is valued based on NOI and market capitalization rate (cap rate). The calculation is Value = NOI/ Cap rate.
For example, in a market with a 6% cap rate, a $10 rent premium translates to $2000 in additional property value. ($10 per month * 12 months)/0.06. That is an enormous opportunity to make a return! Do the math on how long it'll take you to make that same $2,000 through cash flow on that $10. It's a while!
The good news about syndications is you don't have to do everything yourself. Particularly if you take something of a more active role by providing earnest money. You get a very early look at deals (You must be extremely responsive!!) and the syndicators you work with will want to keep rolling and doing deals, too.
#4 Off Topic Contributor
- Investor
- Round Rock, TX
What is your motivation for buying more units? Is it ego? If so reassess your strategy and your reason why you're doing what you do. The goal is NOT the optimize the number of units. Your goal is to optimize the after-tax profits net of risk AND net of time you have to impute into your so-called "return" metrics. If you invest 100 hours in pursuit costs and 10 hours a month managing something actively in semi-perpetuity that's not the same thing as investing passively, collecting checks, and doing something else of value with your time.
You first need to get clear on your goals and then you can figure out the optimal path. There are literally thousands of tradeoffs between something "large" and something small that you can more actively control without undue influence from outside partners. The more investors you involve the more complexity you'll have and the more likely it will be for you to have conflict with them in some fashion when life unfolds in a manner different than what you expected when you signed the LLC docs. This need not be intentional either....life has a way of deviated from plans.
Originally posted by @Bryan Hancock:
What is your motivation for buying more units? Is it ego? If so reassess your strategy and your reason why you're doing what you do. The goal is NOT the optimize the number of units. Your goal is to optimize the after-tax profits net of risk AND net of time you have to impute into your so-called "return" metrics. If you invest 100 hours in pursuit costs and 10 hours a month managing something actively in semi-perpetuity that's not the same thing as investing passively, collecting checks, and doing something else of value with your time.
You first need to get clear on your goals and then you can figure out the optimal path. There are literally thousands of tradeoffs between something "large" and something small that you can more actively control without undue influence from outside partners. The more investors you involve the more complexity you'll have and the more likely it will be for you to have conflict with them in some fashion when life unfolds in a manner different than what you expected when you signed the LLC docs. This need not be intentional either....life has a way of deviated from plans.
Hi Bryan,
Goal is to build a large portfolio to create ancillary income at retirement when they are all paid off in 25-30 years. Additionally to shelter current income from taxes.
#4 Off Topic Contributor
- Investor
- Round Rock, TX
The safest way to create what you're seeking is generally to own fewer units, manage them very well, and de-lever them. The riskier way is to leverage more and spread your limited time for managing the investment across more units. A lot depends on your goals and what time you have available to learn to skillfully add value and/or to manage projects after you've acquired them. A lot also depends on your starting conditions, how much money you have to invest, how much income you have relative to your expenses, your risk tolerance, and a number of other factors.
Sheltering income is drastically overrated. You should read through some of the threads on BP from experts in this subject. You're far better off working on maximizing yield net of risk than you are investing much effort trying to minimize taxes. The former should be 99 parts out of 100 of your thought process and the latter is really more of an afterthought.
Would you give your user name and password to your bank accounts to this person or persons? Who is the general partner how will you motivate them and keep them from stealing? Joint Venture with whom I ask?