can i invest in apartment deal without being sophisticated investor?

7 Replies

ok, so i do the lifestyles 2 day class.  great class-very informative.

one thing they talk about is some people being passive investors with as little as 10k in an apartment deal, but they say you have to be a "sophisticated investor" for it to be legal.  of course you can pay $18 grand and become one, but i just cannot afford that at this time.

Is there another way?

i have 10k to get either my first rent house or get into an apartment deal.  

thanks!

Are you sure the term wasn't "accredited investor"?  That is a term used by the SEC and has an actual definition here

On the other hand, a "sophisticated investor" is a term that is a bit more ambiguous and could mean different things to different people.  And I'd have a hard time believing/understanding how paying $18k would suddenly make you one. 

As to your last question....$10k towards a house or apartment deal...personally I'd prefer to use it towards a house, especially if you're just starting out.  For one, you'd be the sole owner of the house and in complete control of its success.  However, investing only $10k towards an apartment deal would have to be a pretty small drop in the bucket I'd imagine, so you'd be heavily dependent on the decisions/actions of the syndicator of the deal and/or other larger investors for the success of your investment.  Since it doesn't sound like you know these other investors very well (or maybe not at all), I'd be a little leery of that - again, especially if you're just starting out.

Best of luck to you!

Per SEC rules, to participate in a private placement you must be either an accredited investor (>$1M net worth ex. value of your home) or a sophisticated investor, which I suspect is open to interpretation.  The PIG program provides the training and mentoring to become a sophisticated investor, though IMO many of them are not based on how little feedback some leads get re: material mistakes I've caught in the PPM's.  You cannot invest in a LIfestyles-sponsored deal w/o being a PIG.   FWIW, Lifestyles recommends starting w/ single family if you're limited on capital.    SF generally returns higher cash on cash yields in the DFW market at the expense of much smaller upside appreciation potential.    They're also more work vs. being a passive MF investor.

W/ just $10K to invest, you're probably better off starting w/ a house anyway, b/c you'll have control.   In a MF deal, you're not going to have liquidity for probably 2-5 years aside from distributions.

Also, most Lifestyles leads in the DFW area require a $50K minimum investment.     The SEC only allows 35 sophisticated investors per deal, so they need to make each one count if raising a significant amount of money.    Also, every additional investor means more administrative work and potentially more headaches down the line, so they favor investors who can commit bigger investments.

@Jeremy Able  

The 10K is not really enough (some of the comments above have covered it) to invest in these type of passive vehicles effectively.  Your best bet is probably investing it across several REITs (so you are diversified) and can still have exposure to real estate.

Under no circumstance should you pay 18K to "become" a sophisticated investor (especially if you're only looking to invest 10K).

@Jeremy Able

You are thinking of the Lifestyles "Preferred Investor" or the "PIG" that is their special investment group which you must pay belong to and to be part of certain deals. An "accredited investor" is entirely different and was perfectly explained above.

I equate this type of investment the same as those investors that put their money into mutual funds. If you lucky you get a decent return, but not the same as putting the money into specific stocks at specific times. I think of a guy like Warren Buffet and wonder where he would be now if he had just invested his extra cash into mutual funds. 

Sophisticated investors became that way by being active investors. Why buy say 1/10th of a 20 unit apartment building when you can buy the whole building. First thing your going to say is I don't have enough money. I didn't either the first time I did it. Study master leasing and options to buy. I don't want to invest where others are making the final decisions for me, that is my job.

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