Going out solo as a GP - juice worth the squeeze?
Hey guys,
This forum has been immensely helpful through various stages of my career, and would appreciate your thoughts on what I hope will be my career trajectory.
I’m a VP at a multifamily GP, focused on a particular region (think southeast, northwest, etc.). My plan has always been to go out and start doing my own deals (similarly, multi deals in the region I am currently focusing).
Given where we are in the cycle, and my desire to get even more entrenched in my markets/in the broker networks, I’m thinking about making the leap in a couple years or so.
I’ve come to the realization (without stating the obvious) that I’m trying to optimize financial success and autonomy/lifestyle. But I’m not sure if: A) the juice is worth the squeeze, particularly if you’re starting small, and B) this is the path of least resistance in RE, or another industry given my background (I’m not wedded to RE, more so to the 2 objectives above).
Let’s assume I have a solid broker network and can raise $2mm-$5mm via friends and family (confident I can execute this today TBH). Even with a $10mm deal and the most favorable country club waterfall I’ve seen (50% over an 8), a 20% IRR on a 5yr hold gets you ~$1.8mm (plus fees and AM). Discounting that back and amortizing, it seems like a lot of legwork for not much (raising capital, negotiating all legal docs, sourcing debt without a balance sheet, AM, etc.).
I’m asking myself at what point does the risk/reward profile make sense to jump ship from a shop where you’re pushing $500k cash comp and getting meaningful carry. Of course the answer is scale, but it would be naive to think that my first deal would likely be a bomber. So I’ve come to the conclusion that it’s somewhat of a 1-step back to take 2-steps forward type thing.
All of this is to say - I’m looking for the path of least resistance in RE, and up until now I thought starting your own GP was the move. Thoughts? I still think it’s a great gig, but I suppose not as lucrative as I’d hoped on a smaller scale given all the legwork.
So I think if I stay in RE this would be my path. But at the end of the day I’m not wedded to my industry, and am looking at interesting ways/RE adjacent paths to achieve financial success. I’m a HSW grad and former management consultant, so I’d presume that there may be more non-RE opportunities I could target.
Sounds like I’m venting a bit, but really would appreciate your guys’ thoughts. Think I’m going to put my head down and grind, develop that network and then go out on my own. But I’m oblivious to other non-RE opportunities that would make my goals more achievable.
You're making $500k cash comp + promote as a VP at a multifamily GP?
I came to same conclusion as you that it's probably not worth taking the leap unless (1) You're trying to go big and thinking in terms of 10 years from now instead of the next few years, and/or (2) you just really have that burning desire to go out on your own
The acq fees on those HNW deals are pretty solid if you can pull off 2 - 4 deals a year, but as you already called out that promote could be worthless. You kinda have to be prepared to not see the light for 10+ years. Just the way RE cycles, any GP will eventually go through tough periods and see promote checks killed, but the reason you'd do it is to hopefully have many deals capitalized when the market hit it's stride and make a killing. You're taking a risk that your first few years are the bad part of the RE cycle and you don't see a meaningful check for a while (and probably having trouble raising more capital at the same time)
I personally decided I'd rather just work for an entrepreneurial shop, make a nice salary/bonus and get a meaningful piece of promote, and build up my own rental portfolio on the side. But I'm also not bothered that my chances of being worth $20+ million any time soon are slim to none.
I've seen a lot of guys try going on their own for 1-2 years and come back to work for someone else instead. I've also seen guys make a killing in less than 5 years. It's all a risk. I think even a lot of founder's of GP's that end up reasonably successful could've probably came to a better spot financially by just continuing to make 7 figures as an MD at an established shop + promote checks and invest it in their own portfolio versus spending a decade trying to build a GP up and worrying about paying salaries, office space, etc
Hah, that was my takeway too. I'm a VP at a multifamily GP and now I'm wondering what I'm doing wrong lmao
You & I are in exact same spot in career, asset class, goals. I’ve spent a decent amount of time on thinking about what a firm would need to look like, and here’s the three options I’ve landed on:
- If you are capital constrained with $2-$5mm in LP equity fundraising, you are going to buy smaller unit count deals obviously, will need to do a number of deals a year, and need some early wins (2-3 year holds) to make it worthwhile on the compensation side. The beauty of syndications is you get total control, better fees, and better waterfall economics. I’d think you’d need 4-5 deals a year to make this work, so be prepared to work 70-80+ hour weeks in years 1 & 2
- Alternatively, if you have a partner who can fundraise more money, or have institutional LP equity contacts, you can focus on doing a couple 100+ unit deals a year, which likely means more cash flow, larger whole dollar AM fees, smaller % on acq fee and larger GP position (so you may need to syndicate that), but probably more work/life flexibility. If deal goes well, your whole dollar profit could exceed doing several small syndications. The first deal will be exponentially harder to pull off than a syndication, particularly on the equity front. But you should be fine doing 2, maybe 3 deals a year, and then eventually could roll back to 1-2 year. Anytime you are starting a business you will be working hard, but I don’t see this path being as time intensive as a syndication platform
- Third option, and depends on where you work, but it’s to keep the job you have now and go buy something on the side. You don’t need to start a company, that’s a common misconception. You can just do a one off deal (with a partner or without), capitalize it, and see if you like it/if it can grow into a self sustaining business. I know a lot of people that have done this. Just don’t buy deals that your current firm would target, and don’t use their LPs. This isn’t an option for everyone, and could get you fired at many shops, but at others it’s a nonissue.
Personally I have all but ruled out #1 and happy to share why - there are certain types of people this would be a much better path for though