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May 31, 2024
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You need to take risks. Investing in the LP of a real estate deal is great when you’re old and rich. But not when you’re in your 20s
Expand?
The returns are not high enough for you to justify the illiquidity. As an LP you’ll make 1.8x over 5-6 years and you won’t be able to touch the money. You can do better in the stock market using similar amounts of leverage
when you’re young, you can afford to take big risks and lose your money (eg go for greater than 2x over 6 years). When you’re old, you’re thinking more about protecting your principal. 1.5x over 5 years is amazing if you already have wealth
About a 20% irr
Think this depends if he is expected to pay fees and promote as an employee. Most firms I've heard of with co-invest charge no fees to employees so you're getting deal level returns.If that's the case and we're talking a development project, I think it's a great opportunity as a young investor assuming 20%+ IRR. Yes, you might do better in the stock market, but I'd argue you're far more likely to actually achieve those returns through the co-invest than throwing darts at a dartboard.
Particularly if they offer internal leverage.
Not to say you should invest all your money but as a part of your portfolio why not?
I agree with this. You should be buying your first house, not trying to get a 15% IRR on what I am assuming is a relatively small investment.That being said, I have worked at companies where everyone did this and I did it too, solely to fit in.
Yeah about a 1.9-to 2.0
Can do as LP but can’t chip in for GP co-inv? Interesting
So you work for someone who, assumingly, will make you pay them a promote so they can pay you....?
Right? WTF? At least deal level
Nailed it! Your firm should potentially give you a tiny piece of the promote. You salary & bonus are based on developer, acquisition and/or asset management fees. Sounds like the founders are greedy wankers. If your $$$ invested also get crushed due to fees, you are in the red for a year or two, and then you are now even more screwed unless it's a a short term hold.
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