Can anyone do a syndication deal or does the sponsor have to be accredited as well?
I have been all over the internet looking up info on syndication. I know how it works. I know it is regulated by the SEC & so on, but can't find any info on what I have to do to sponsor the deal.
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
6y
@Micah Anderson there is a difference between what is legal, and what is practical. Yes, it is perfectly legal to sponsor a syndication even if you are not accredited. But is it practical?
Put yourself in the shoes of the investor. Would you part with six figures, potentially a large portion of your life savings, to invest in a real estate deal that is controlled by someone you don't know, or just met? Why? Or why not?
Well, the reason why is because you see that this person has had a long history of success. You have confidence, supported by evidence, that they won't lose your money and have a high likelihood of making you money. If that person hasn't earned $200K in the last two years, or hasn't accumulated $1MM in net worth for themselves, does that demonstrate to you that they possess the long history of success that you'd like to see to give you that confidence? Probably not...
The workaround is that most beginner sponsors start with friends and family as their investors. Why? Because their friends and family already trust that person for other reasons beyond real estate.
There is also one more practical obstacle. Lenders. If you are looking to sponsor a large multifamily syndication, the lender on that property is likely to require that you have substantial financial resources. It's not at all uncommon for the lender to require that the sponsor has a net worth equal to the loan amount, and liquid reserves of at least six months of payments. Some people work around this by bringing someone else in as a partner who does possess that financial strength.
Speaking of partners, this is probably your best shot at getting into the biz if you don't have friends and family with deep enough pockets. Partner with someone that has an extensive track record, and leverage that to build your own track record. Or, build your track record on your own by starting with small properties, such as single-family homes, and work your way up to larger properties over time. It's always easier to climb a ladder to the roof that to jump onto the roof from the ground.
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
6y
@Micah Anderson
To be the sponsor you have to have the limited partners believe that you can execute on your plan and be a good steward of their hard earned cash. It helps to have experience and cash in the deal. There is no requirement from the SEC as long as you’re legally exempt from securities laws. Make sure that you get actual legal advice before you put together a syndication. Also make sure you verify what I’m saying here.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y
The sponsor does not need to be accredited. Basically anyone can do a syndication. There are restrictions for those who have previously violated securities laws (Bad Actor Carveouts) but as long as you don't violate those, you're good to go.
Agreed with @Lee Ripma, getting proper advice directly from an attorney is a good idea.
Rental Property Investor · Washington, DC · Member since 2015 · 429 posts · 393 votes
6y
@Micah Anderson
You do not need to be an accredited investor, but you do need credibility. That is, you can source and identify a good deal, analyze and underwrite it, execute to make the plan work, and take care of your Investors.
If you have your own experience and track record as a real estate investor, then great. If not, then partner with someone who brings the experience. Not only for their knowledge and expertise, but also for the credibility they bring to your team.
This is true not just for credibility with passive Investors, but also for gaining credibility with Brokers, Lenders, Property Managers, and others whom you need to be successful.
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
6y
@Micah Anderson there is a difference between what is legal, and what is practical. Yes, it is perfectly legal to sponsor a syndication even if you are not accredited. But is it practical?
Put yourself in the shoes of the investor. Would you part with six figures, potentially a large portion of your life savings, to invest in a real estate deal that is controlled by someone you don't know, or just met? Why? Or why not?
Well, the reason why is because you see that this person has had a long history of success. You have confidence, supported by evidence, that they won't lose your money and have a high likelihood of making you money. If that person hasn't earned $200K in the last two years, or hasn't accumulated $1MM in net worth for themselves, does that demonstrate to you that they possess the long history of success that you'd like to see to give you that confidence? Probably not...
The workaround is that most beginner sponsors start with friends and family as their investors. Why? Because their friends and family already trust that person for other reasons beyond real estate.
There is also one more practical obstacle. Lenders. If you are looking to sponsor a large multifamily syndication, the lender on that property is likely to require that you have substantial financial resources. It's not at all uncommon for the lender to require that the sponsor has a net worth equal to the loan amount, and liquid reserves of at least six months of payments. Some people work around this by bringing someone else in as a partner who does possess that financial strength.
Speaking of partners, this is probably your best shot at getting into the biz if you don't have friends and family with deep enough pockets. Partner with someone that has an extensive track record, and leverage that to build your own track record. Or, build your track record on your own by starting with small properties, such as single-family homes, and work your way up to larger properties over time. It's always easier to climb a ladder to the roof that to jump onto the roof from the ground.
While you're received a phenomenal direct response to your question from @Brian Burke, I'll go with an indirect.
Prior to looking into syndication, you need to step back to review your own expertise and track record, investing in a specific asset class, long term goals, etc. This exercise will help you build up your long term and then shorter term real estate goals. Based on these you can plan your next steps. Since your profile doesn't have any information, I don't know where you're at today. But here're a few articles that will hopefully get you going in the right direction: