Ownership survey: 5% vs 100%?

Question

Quick survey:

Would you rather own 5% of 80 units OR 75-100% of 10 units?

And why?

Percy N. · Answer

As usual, it depends.

Does the 80 unit deal have better economics due to scale and ability to potentially support an in-house leasing and maintenance person?

Which deal has the better depreciation? How important is that to you? Are you passive vs active? Recourse vs Non-recourse loan, etc, etc.

Guy Gimenez · Answer

100% of 10 units....more ownership, more control on future income. It's cool to tell people you "own 80 doors" when if fact you don't...you own a small percentage of 80 doors and the 95%'ers control you future.

Nick B. · Answer

100% of 10 units is more than 5% of 80 (only 4). So, all other things being equal, I'd own 10 units

Dave Rav · Answer

thank you for your insight.  This is one reason why I posed the question.  It does depend on the investor's goals.  However, with larger syndications, the equity (and directly profitability and control to the REI) is definitely diluted.  Some models I've seen have things so far diluted (not to mention complex) that once the smoke clears, the returns pale.  Though I like your altruistic description of how larger business "serve", I question if this is truly the case.  So many businesses are in the business of making money first; they give no cares about "serving."  They may tell you they care, though their actions show something else altogether.

Shalini Kadaveru · Answer

@Dave Rav, it boils down to the individual's goals. The analogy that comes to mind is the founder of a startup. If you have 100% ownership of the company, the company will not be able to grow as fast in most cases. Some founders have lifestyle businesses and want to keep their businesses small. There is no problem with that approach. However, if your desire to grow the business and serve more customers, you have to dilute the equity to hire the best talent and build the right team. You have to share the pie with others so that the size of the overall pie increases.

Dave Rav · Answer

Percy, great questions.  I could see how the vast majority of larger deals definitely scale better.  However, typically the number of investors usually goes up as well.  In some cases, WAY up, as in the cases of some syndication deals.

Otherwise, the profits get reduced and watered down due to "spreadage"  (that a word?!).  You share with too many REIs.  This also reduces your power and control of the deal.  I think it works better if you have a small number of partners, and your ownership remains substantial.

By the way, I am speaking from an active investor standpoint.  And one seeking the very best returns (ROI and ROR), as well as exceptional cashflow.  By truly passive investors, I assume you mean private lenders who aren't GPs/LPs.

Ownership survey: 5% vs 100%?

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