$120k between flips and a five year lockup

Closed a flip three weeks ago, $118k net after everything. My next acquisition is probably 8 to 14 months out because the wholesalers I use have gone quiet and I'm not paying retail for a project.

So I've got money sitting in a savings account and a friend keeps sending me syndication decks. One of them looks decent, 8% pref, quarterly distributions, 1.9x projected over five years, $50k minimum. I'd put in $50k and keep the rest liquid.

My problem is I don't understand the exit. Everything I do is 4 to 7 months from purchase to closing table. I'm being told my money is in this thing for five years, maybe seven, and there's no way out. Is that literally true? Can I sell my LP position to someone else? My friend said there's a secondary market for these and also said the sponsor has to approve any transfer, which sounds like the second thing cancels the first.

Also, if a deal I want shows up in month 10 and my $50k is stuck, I've made a worse version of the mistake I made in 2023 when I tied up cash in a rehab that ran long.

I'm accredited, the $50k isn't rent money, I just have no experience owning something I can't sell. Talk me out of it or tell me what I'm missing about the timeline.

3 replies

1mikeoconnell7SP2APRO6

Your friend gave you both halves of the answer and they do mostly cancel. Transfer restrictions in these agreements are usually tight, and the practical result is that you can't sell when you want at a price you'd like.

The thing I'd sit with is that you already told us your next deal is 8 to 14 months out. You've written the argument against it in your own post.

-1Rena Expert

Illiquidity in an LP position is a design feature, and the two things your friend said fit together like this. Secondary platforms for private real estate interests do exist, and transfers almost always require manager consent under the operating agreement, plus compliance with securities restrictions on resale. That combination means any sale is slow, discretionary, and typically at a discount to the sponsor's reported value. Treat the ability to exit early as unavailable when you plan, and confirm the specific transfer provisions in the agreement before assuming otherwise.

The projected hold is a projection. Look for the term of the fund or entity, the manager's right to extend it, and whether extensions need LP consent. A five year business plan with two one-year manager extensions is a seven year commitment on the manager's option.

The timing question you're describing has a name in your own business. Capital committed to a five year vehicle is not capital available for a deal in month 10, and there is no partial withdrawal. Suspended distributions also happen, so the quarterly cash is not something to plan around either.

One mechanical note on the 1.9x. That figure depends on assumptions about the exit price and the debt, and it is the sponsor's model rather than a result. The variables that decide whether an LP investment works out are the sponsor's execution and how the underlying asset class performs over the hold, and neither is something you can influence after funding.

What matters here is whether you have capital that genuinely does not need to exist for five to seven years. From your post, this pile does.

$120k between flips and a five year lockup

3 replies