Wholesaling VS Syndication

10 Replies

I am running a wholesaling operation right now generating about 20-30k a month. However, with three partners, we're doing all the work ourselves besides one VA. I'm making the jump to multifamily and want to go all in and put the blinders on. I have some people agreeing with me, however, others say keep the wholesaling biz going and just split time between the two so you have more capital.

Thoughts?

$20K-$30K top line or bottom line?  Split among 4 people or that is your split?

The reason I ask is while some syndicators make insane amounts of money, if I were making $20-$30K net profit per month I'd say you have an excellent business model that has proven highly successful and I'd at least try to automate/outsource your secret sauce and keep that income as a baseline for the months (or years) it may take to grow your syndication biz. On the other hand, if 4 other people plus a VA are dividing up those profits, then that may not be sufficient to justify splitting your attention among two projects.

Either way, you've got to figure out how to pay the bills while you get your new venture running.  I recommend having at least 6 full months of living expenses (preferably a year) set back before jumping off the dock.

@Erik W. 20-30k gross right now. We definitely have momentum, expenses are low (4k-5k) per month. Everything does get split between us.

I budgeted for one year of no income from syndication. We should have around 75k to walk away with (my partner and I) and more in the pipeline, just not gonna generate new leads.

I just feel like going 50/50 on two things isn’t really 50/50... it’s more like 20/20. If that makes sense.

Originally posted by @Erik W. :

$20K-$30K top line or bottom line?  Split among 4 people or that is your split?

The reason I ask is while some syndicators make insane amounts of money, if I were making $20-$30K net profit per month I'd say you have an excellent business model that has proven highly successful and I'd at least try to automate/outsource your secret sauce and keep that income as a baseline for the months (or years) it may take to grow your syndication biz. On the other hand, if 4 other people plus a VA are dividing up those profits, then that may not be sufficient to justify splitting your attention among two projects.

Either way, you've got to figure out how to pay the bills while you get your new venture running.  I recommend having at least 6 full months of living expenses (preferably a year) set back before jumping off the dock.

 I completely agree. Find a way to automate and remove yourself from the equation to increase passivity. Get it to the point where you only have to dedicate maybe 1% to the business just to make sure things are running smoothly. This will provide cash generation for you and a security while you focus 99% on syndication lol

@Ethan Neumann In my experience in syndication, having partnered and partnering with others working with with on foot in and one foot out, it rarely works. As mentioned, if you can systematize your efforts and outsource those wholesaling pieces so you can focus on another business, that would be best. 

A syndication business has many roles and some require less involvement year-round. So you could fill a role in a team that say only need involvement for the two months of closing a deal. However, the most common reason it doesn't work is simply that your image needs to be credible as a syndication group and when you have one foot in or advertise about other real estate ventures(ie in this case wholesaling), you lose credibility with partners/investors.

Again, my experience. Hope that helps!

I agree with @Chris C. If you can maintain income coming in from wholesaling while building your syndication business on the side, then that would be a good option. However, if you are still in the early stages of building your wholesaling business, and are looking to transition, I think it comes down to re-evaluating what your real estate goals are. Make sure that what you are doing day-to-day is leading you to where you want to be in, say, one year/five years/ten years, etc.

Regardless of what you and your partners decide do, you should start allocating some of your profits into cash flowing assets, either directly or passively. I don't see a problem to continue wholesaling and if a good multifamily deal comes across your radar to take it down via syndication. That being said, syndication is a full time business: raising capital, sourcing deals, managing assets, managing investors, etc. Syndication is a more scalable and evergreen business model compared to wholesaling. 

If you stopped wholesaling tomorrow, your income would drop to zero, assuming you aren't already investing in income producing properties. If you decided to stop syndicating new projects and investing in deals one day, you would still have multiple streams of income that would come in for years to come. 

@Ethan Neumann

As many have mentioned, Apartment Syndication is a full time business.  I was in your shoes at the beginning of the year.  I had a another company I ran full time for the last 15 years.  I started passively investing in syndications a few years back and I set myself up finically this year to walk away from my old business and start a apartment syndication business.  There are so many moving parts to the business that I couldn’t imagine trying to do it part time.  Also as Chris mentioned, your investors are going to want to see that you are 100% committed.  It builds more credibility when they know your primary focus is on the business and protecting and growing their investment.  Also one of the best things I did was hire a mentor/coach at the start. Leveraging his experience and knowledge has expedited the process of getting started.  Having a experienced strategic partner as a part of your team is invaluable and helps build credibility with investors, brokers and lenders.  I see you are from Raleigh, we are not to far apart.  I would be happy to chat if you have any questions.  Good Luck.

Ethan, I think your best bet is to do both. Sounds like you have a nice operation going on the wholesale side and it takes time to ramp up the fee stream from syndications. Your wholesale business is a great way to fund and grow your syndication business till it is self sufficient.

Also, I'll shoot you a DM to connect. I have some partners who are looking to buy SF properties as scale from wholesalers. 

@Ethan Neumann , while I agree that syndication is a full time business, it is also a very lean business on your first few deals.  

You will have quite a few fixed expenses, but more so, earnest deposits, co-investment in the deals, loan requirements, etc that need paid out of your pocket.  Therefore, I would make every effort to stay with your partners and keep money rolling in, until you have some deals coming in and a strong pipeline of deals.