by | 26, Feb 2022

GP vs LP

This week we are discussing something a student had asked me on a recent call.

How can you get into a GP role as a syndicator on a multifamily syndication?

Dan and I break down our thoughts and opinions on how to get into GP, LP, and even a KP role.

We will talk about these things…and more in another episode of Multifamily Investing Made Simple, In Under Ten Minutes.

Tweetable Quotes:

“Having been an LP on deals, I do not know what I would learn. I do not know what I would really have learned from being an LP other than just having jumped into managing my own property.”  – Anthony Vicino

“Do all the things on a small scale. And then after you’ve done a couple of deals, go out and raise some capital from investors and syndication and be that GP” – Dan Krueger

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five rules of investing

The Five Rules of Investing

** Transcripts

Anthony Vicino: [00:00:13] Hello and welcome to multifamily investing made simple, the podcast that’s all about taking the complexity out of real estate investing. I’m your host, Anthony, the CEO of Invictus Capital, joined by the one, the only Dan.

Dan Krueger: [00:00:27] Monotone Kruger, yes, so you can start today, forgot that part. Why do we take the complexity out?

Anthony Vicino: [00:00:33] Oh, so that you can get started today? Oh man, I had an I had a feeling, so I came into the intro high. I came with a lot of chutzpah, a lot of fire. And then I realized, OK, we’ve got to tone it back and I toned it back. I pulled back too far. I overcorrected. And here we are.

Dan Krueger: [00:00:51] I’m sorry, everybody. Now the whole episode, we’re just going to have to stop.

Anthony Vicino: [00:00:54] Well, no, we’re going to keep rolling through because we fail our way to success. That is one of my core mantras in my life. I never fail as long as I don’t give up.

Dan Krueger: [00:01:03] So a string of failures.

Anthony Vicino: [00:01:05] You sound like my dad.

Dan Krueger: [00:01:06] Anyhoo, today that’s next up.

Anthony Vicino: [00:01:09] Next up is Anthony unpacking his daddy issues. Ok, so this episode comes to us courtesy of a call that I had recently with a student. And they were. They were. They were asking me a question on what I thought about how they can get into a GP role as a syndicator on multifamily syndication, and they were running back and forth on this piece of advice that you hear. I hear a lot of people give this advice and I don’t necessarily agree with it, and I’m going to where I think we should unpack why. But the theory is if you want to get as a GP and you’re just starting, you don’t have any experience. The best way to do that is to start as an LPI to passively invest in somebody else’s syndication so that you can peek under the hood, learn the systems a little bit, get ingratiated with those operators, and then maybe go on to become a KPI in the future, which is a key principle means that you’re lending your balance sheet and your financial strength to the GP. And then hopefully someday you can, you know, leverage that to become like a bona fide member of the general partnership. So what do you think, Dan? We actually didn’t talk about this before the show, so I have no idea. Where are you going to land on this?

Dan Krueger: [00:02:16] I mean, it sounds good, right? It’s a good sound, but I can see why people say it and could see why people listen to it. Make sense. I can tell you from personal experience, I did not do that. I was not an LP on a deal until it was our deal that we were syndicating and I had some LP shares, but I was also the GP. My approach to this, and I think, is this is one that’s probably more in line with what would make sense for a lot of people who are asking this question is start with a small property in your own money? Do all the things on a small scale. And then after you’ve done a couple of deals, go out and raise some capital from investors and syndication and be that GP, you could certainly start in the LP seat. I just don’t know if it’s really going to accomplish what needs to be accomplished, which is just a massive amount of learning as quickly as possible. No, if you’re in there with the right operator and they literally just kind of take you under their wing and show you under the hood and teach you everything, that’s great. But by and large, my gut instinct is that anyone who’s looking for that level of education isn’t going to find it from like a really big established operator because they probably don’t have the time to do that.

Anthony Vicino: [00:03:20] Mm hmm. Yeah. And that’s my big takeaway on this one is because I’ve seen a lot of people go this route and then I’ve been in the game long enough where I can see them going in at the beginning and then I can touch base with them, you know, multiple months or years afterward and say, like, how’d that work out for you? And overall, like the feedback that I consistently get is, yeah, I didn’t really get as much out of it as I thought I would. And there’s a couple of reasons for that. And sometimes it even breeds resentment. Like I’ve had it, I’ve seen it where, like, the LP was like, you know, I kind of went into this deal thinking the GP said that they were going to open the door doors show us how the systems work and all this stuff and that it was going to be that there was going to be more involved in. Ultimately, I didn’t really feel like I got that out of it. I hear that all the time and honestly, as like GP’s like, yeah, I can see how that would happen.

Anthony Vicino: [00:04:07] Like, I don’t really encourage anybody to invest into our deals and LP to then we’re going to we’re very transparent and we love teaching on this stuff. So honestly, if you want to just learn how to do it, like watch our videos and like all the content we put out like we’re pretty much opening our system to you, you don’t need to be an LP to figure out how we do it. I just feel really bad for people who they’re being told, Hey, come as an LP into the deal, I’ll show you how my system works and it goes back to something we talked about before, which is always understanding what’s in it for the other person. Like, how is the other person incentivized in this equation? And largely what I find the people giving the advice, Hey, come into a deal as an LP and I’ll show you the systems. They’re just trying to get you into a deal as an LP. They’re just trying to get your money.

Dan Krueger: [00:04:53] Yeah, and it might not be. That black and white, but by and large, I think that that’s pretty accurate. The goal for that individual is to get an investor and if they have to tell you that they’re going to train you in to do that, there’s a handful of people out there that would go ahead and do that and not actually train you it. Not that great. I don’t know if that’s exactly the thought process they’re following, but I’d have to agree with the logic they had, Anthony, that I think that is playing into it quite a bit. Their goal is to get investors and this is part of their sales processes saying what they think that person wants to hear. So and I don’t think being an LP is going to inhibit you from being a GP. I don’t think it’s going to hurt the story. It’s just really it’s not the most efficient way to get the outcome that I think a lot of the people who are asking that question are trying to get. Exactly which is how can I learn the ropes?

Anthony Vicino: [00:05:42] You want to be a GP,

Dan Krueger: [00:05:43] You’ve got to do the work. And the best way to do that, I think, is to go out and get a little property with your own money. Don’t raise money from other people. Just do all the things all yourself. It’s a lot of work. You’re probably not going to make that much money. It’s going to be really stressful. But after a year or two, you’re going to know a lot, and there’s really a no better way to learn that much that quickly than actually doing the thing.

Anthony Vicino: [00:06:04] Yeah, you’re trying to accelerate the learning process to get to that end, state that GP, like your competitors, you know what you’re doing as an operator, state the LP. I mean, having been in LP on deals, I do not know what I would learn. I do not know what I would really really have learned from being an LP other than just having jumped into managing my own property.

Dan Krueger: [00:06:27] I will say this if you have the intent of being a syndicator and being a general partner, there is a ton of value in being an LP in that you get to experience what the LP experience the experience is so that you can then provide what it is that they want. Because if you like this happened to us, we do this. We started syndicating deals prior to investing as LPs, and so we were trying to infer what it is that everyone wants to hear and the cadence they want, and the communication style they want. And it would have been extremely valuable if we had just done a quick Little Market study. You beat an LP and someone else’s deal to figure out, OK, what are they doing that we like and what are they doing that we don’t like? That would have been hugely valuable. So for that little piece of market research, I’d say definitely, but it’s pretty much it.

Anthony Vicino: [00:07:11] And interestingly, we do that actually still where we’re constantly looking at other players. Yeah, other players and like getting under their newsletters and seeing their deal decks and and looking at like other investment opportunities like masterworks or Venus vests like these things that have they’re invested in different alternative assets, right? But understanding how do they do? How do they handle the limited partner relationship communications and experience all that stuff? Yeah, and that’s super valuable. But that’s not why people are generally going into the LP initially. That’s not what you’re doing. You’re doing it to try to leverage it into the Jeep, where it’s I look at it more as like market research. Yeah, I’m finding the system.

Dan Krueger: [00:07:51] Yeah, I think a lot of people are thinking that they’re going to just, you know, walk in and almost kind of be like a trainee and shadow. These operations is never going to happen.

Anthony Vicino: [00:07:59] Not going to happen. No, no. And honestly, like, you probably be better off just going to them and saying, Can I just pay you guys $5000 for, you know, like in for like train me, teach me. I don’t know what that would look like. Maybe an hour of coaching among some

Dan Krueger: [00:08:12] Groups out there that sell educational resources for how to do this. I mean, that’s probably a more efficient route. If you want to just pay somebody for an education and you don’t want to actually go and do all the things by yourself, just find a good education program.

Anthony Vicino: [00:08:26] Jake and Gino are great. One of the yeah, Jake and Gino were not invested with them at all. Well, we wrote a book with them and I coach for them.

Dan Krueger: [00:08:33] Yeah, they provide a good educational reform.

Anthony Vicino: [00:08:35] One one other thing I’m going to throw out there really quickly because this also came up, which is we’ve got two minutes to hit this one is that the student was being encouraged to come into somebody else’s deal as a CP, bringing their balance sheet, their liquidity to lend strength to the general partnership. And they were like, That’s a way for you to get into the GP2. And what I’ll say on that is like when you’re new and you’re getting into deals with other operators who if they need you as a KPI, it implies their financial liquidity situation isn’t super strong, so they need you for a reason. And my big concern with being a KPI on a deal like that is that your butt is on the hot seat if anything goes wrong, right? And the bank is going to come after you. So I don’t know if that’s like you’re getting all the risk and some upside, but you’re really getting all the risk. So I don’t know if that’s the best way to jump into a deal either, personally.

Dan Krueger: [00:09:24] Yeah, it really depends on the situation. If the person doing it understands the risk they’re taking and it’s appropriate for what they’re trying to do. Great, but that is an interesting first step for somebody who’s just starting to get into things coming in as a KPI that implies that they could probably do more on their own without this other.

Anthony Vicino: [00:09:42] Exactly, exactly. I would probably go back to what we said before. Just do your own property or find a joint venture partner to go in and do it together and just do it that way. Joint venture before syndicate, I think, is the message here

Dan Krueger: [00:09:55] That you don’t have to be a. Alone, you’ve got a partner, someone to kind of lean on, hopefully, somebody who’s got a little bit of experience or bring something else to the table, something that you think that you’re lacking most, whether it’s property management or accountability. A life, I don’t know. Yeah. And those are great. I forgot about the whole JB thing, but

Anthony Vicino: [00:10:15] God, I love a good job.

Dan Krueger: [00:10:16] I do too. All right. They just seem so simple compared to syndications.

Anthony Vicino: [00:10:19] They are way simpler. They can be also really complicated, too, but they’re generally just another episode. Yep. All right, guys and gals. Thank you again for joining us. We appreciate the time out of your day because we know how valuable it is. And some making this next request, I know it’s a big ask because your time is your most precious resource. If you could just please, please, please spend a little bit more of it on us. It would make us feel very special. Do me a favor, go over to iTunes and just leave a review. Our marketing guy Reed. He really wants you to leave a review. He needs this. So please go leave a review and then say you’re welcome.

Dan Krueger: [00:10:52] Read He’s going to take it personally.

Anthony Vicino: [00:10:54] He’s going to take it personally. If you don’t do, if you don’t do it. So come on, guys, do it for free. Not for us, but it’s also for us. All right, we’ll see in the next episode.

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