Flipping Syndication vs Fund?

Question

Hi everyone

Does anyone have experience with setting up & managing a fund or syndication focused on flipping homes?

Is a fund or syndication a better set up?

Frank Barletta · Answer

@Karim Wahba

Setting up a fund vs syndication for flipping homes comes down to scale and structure.

Syndication: Typically involves a single asset, which can be stupidly expensive in terms of cost/time for just one flip unless it's a high-value property. Not the best route for multiple flips due to setup costs eating into profits.

Fund: This is more suitable for raising capital for multiple flips. A fund (like a 506c) that @Chris Seveney and @Evan Polaski pointed out allows you to pool resources and spread risk across several projects.Def more attractive for investors.Pro tip: SEC exemption might be required so make sure you know your sh it and value prop here.

Evan Polaski · Answer

@Karim Wahba, as Chris noted, I would suggest a Fund structure.  As for you SEC exemption, I would talk with an attorney about pro's and cons of various structures.

At the end of the day, it all comes down to marketing.  506(c) and reg A let you directly market your fund, but the most successful syndication marketing I see is rarely a DEAL, but rather is more focused on your experience and value proposition.  And depending on how conservative your compliance attorney is, you are generally allowed to market a company under 506(b) rules.

Chris Seveney · Answer

A fund. Most likely a 506c

Karim Wahba · Answer

@Evan Polaski @Chris Seveney thank you both for the feedback.

So if I am looking to raise capital from investors to be deployed in multiple flips, what would be the best structure for that?

Evan Polaski · Answer

@Karim Wahba, to add a little color to Chris's comment: the typical syndication costs between 10 and 15k to setup.  So, looking at the flips I take on, with anticipated profits in the $70k+ range, the setup costs alone are eating nearly 20% of your potential profits, and that is before any real splits with your investors, leaving both your investors and you with not a lot of money left to spread around.

A fund could work, but typically, for the economics of a syndication/fund structure to work, you are looking at several million of equity, leveraged up to high single millions, if not into $10+ million range for their to be enough money to make it worth everyone's efforts.

Chris Seveney · Answer

@Karim Wahba

They are the same set up. A syndication is one asset and a fund is multiple assets.

You would lose your shirt doing a syndication for one flip unless it’s $3M flip