One $50k check or two $25k checks

Question

I've got $50k set aside that I'm willing to have locked up for five years, and I've been reading LP deals for about four months.

The minimum on most of what I see is $50k, so one check is the easy path. It also means I only have to vet one sponsor properly, and vetting seems to be most of the work. Half a job done well beats two jobs done badly.

But it's one property. If that property has a bad lease-up or a bad market, that's my whole $50k tied to it. There are sponsors with $25k minimums, usually smaller deals or newer sponsors, so splitting is possible. It doubles the due diligence and it puts me in two smaller shops instead of one bigger one.

I don't have a strong opinion yet, which is why I'm asking. What would you actually do with a first-and-only $50k?

jessreyes12 · Answer

I asked something close to this a while back and the answer that stuck with me was that two deals isn't diversification, it's two of the same bet. If both are value-add multifamily bought in the same 18 months with similar debt, they'll go wrong together for the same reason and you'll have done twice the reading for nothing. Splitting only buys you something if the two deals differ in a way that matters, different property type, different market, different hold length.

The part I can't resolve is the sponsor quality tradeoff. Lower minimums often mean a smaller shop with fewer full-cycle deals behind them, and if sponsor selection is the thing that decides the outcome, going down in minimum might be going down in sponsor. So the choice isn't really one deal versus two, it's one better-vetted sponsor versus two I know less about. I'm curious whether people here think that's true or whether there are good small sponsors with $25k minimums who just haven't scaled yet.

One $50k check or two $25k checks

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