Should I start out by doing a non-accredited syndication?

23 Replies

I attended a real estate investing meetup and was presented a deal for a syndication on an apartment. The minimum is $50,000 share.

Here is a brief summary of the deal:

-646 Unit Class B Multifamily in Georgia 

-$63.5M purchase price

-3 year hold

-8% perf, 16% projected IRR

-1.53x investment multiple

Currently I am a non-accredited investor and have the $50k available, however that represents over 60% of my liquid cash reserve. For someone starting out, would a commercial syndication be a good way to begin investing?

Thanks

That's a great way to get started and learn. However, I suggest if you're serious about being an LP investor in Mfam; underwrite 100 offerings (maybe 50 if you're an experienced investor as you seem to be). Do that and you'll gain "fingertip feel" of what a good deal looks like. 

Agreed with @Andrew Hogan. Evaluating a larger number of deals will help you a lot in the long run.

I also recommend you thoroughly evaluate the sponsors. I can send you a few resources on that.

Jing,

Some questions I might have is: How much money is the sponsor putting into the deal (aka skin in the game)? Do they have an excellent track record? 

Are you getting cash distributions?  How often?

Mike 

I have seen better numbers on crowdfunding sites with much less investment.  Do you think you can get to accredited?  

Most are showing 9% return with 1.9x on equity now

@Jing Chai

My main question is: were you presented a syndication deal by someone you already know? If you're non-accredited investor, then you can only be presented deals if:

1) the "presenter" has pre-existing relationships with you

AND

2) can identify you as sophisticated via SEC definition. 

@Jing Chai

I would look at it very very critically. In that size range right now good deals are very hard to come by and I can think of very very few that will take a non-acred because it increases the risk by a lot in terms of compliance etc. unless they really do know you well.

The metrics given really don't mean much I can make any old thing go to 16% IRR, the important thing are the items behind it. Also, careful of classes. I see a lot of stuff "class b" that is really C.

@Alina Trigub , the sponsor of the meetup is a syndicator that had a table at the meetup event. During the break I walked up to learn more about what they did and they shared some of their projects and new projects they were accepting investors. The group's syndications are compliant with Rule 506 of Regulation D of the SEC Act.

Jing,
As long as they have pre-existing relationship with you before, it's all good. 

Originally posted by @Jing Chai :

@Alina Trigub, the sponsor of the meetup is a syndicator that had a table at the meetup event. During the break I walked up to learn more about what they did and they shared some of their projects and new projects they were accepting investors. The group's syndications are compliant with Rule 506 of Regulation D of the SEC Act.

Originally posted by @Jing Chai :

@Alina Trigub , the sponsor of the meetup is a syndicator that had a table at the meetup event. During the break I walked up to learn more about what they did and they shared some of their projects and new projects they were accepting investors. The group's syndications are compliant with Rule 506 of Regulation D of the SEC Act.

It sounds like there was no pre-existing relationship. Is that correct? 

@Alina Trigub @John Corey are both trying to warn you about the implications of investing in a deal where there is not a pre existing relationship. I would also suggest if someone’s hope to raise money for a 650 unit apartment building involves setting up a table at a meetup and hope then that should give you all the investment guidance you need on this investment. If you are looking to invest in a syndication start identifying who are the players doing them and introduce yourself so you can understand what their investment criteria and their philosophy and how that relates to your investment objectives.

Investing in a syndication is a great way to get started, however, investing 60% of your liquid capital, especially with someone you don't know is not a great idea. 

This person presented a deal at a meetup and if they are taking non-accredited investors they are likely breaking SEC rules. That is a red flag to me for a few reasons. First, it screams novice. An experienced sponsor should know that it is not legal to publicly advertise. Second, taking non-accredited investors, or even accredited investors that you just met is not legal. There are some nice sized fines that this sponsor could be hit with if they get caught. That's not who I would do business with.

@Kevin Manz You basically have to make a boatload of money or have a huge amount lying around. If you lose a huge amount, it wont be the end of the world for you. I think 200k a year or a mil in assets not including ur house.

@Jing Chai   How about adding your spouse's income, maybe that will get over the cliff?  I say this because EM has an apartment now with a 5 year min hold., much higher numbers than what you are looking at.  You can start with $10K instead of $50K.  Heck, they even have a 2-4 year building lease that is expected to carry nearly 12% in return, but no equity though.

@Jing Chai

In regards to the question you stated in the thread title: I think it's a great way to get started.

This particular deal appears to have some legal concerns that others have raised. Additionally, a 3 year turnaround seems very quick for this kind of return. Usually, stabilization can take up to a year depending what kind of issues the building is experiencing. If the building is not experiencing issues, then I question the return numbers. 

Granted, I don't know the specifics. But, for a variety of reasons mentioned, I would continue shopping.

Hi Jing,

It depends on your level of risk tolerance and how much time you have to spend on your business. There is most upside by using that $50k to buy your own deals. However, there is more risk and more of a time commitment associated with doing your own deals. Whereas syndications are completely passive and less risky since you are plugging into a well oiled machine.

Remember some of the commercial deal it is actually a running business, so there could be more upside (and risk).  What's not to say a hotel will suddenly have more occupancy due to some new things going on in town for the next couple of years.  Rent is good, but it is usually stable and don't fluctuate too much.

646 units in one place presents its own challenges. Many operators won't go after these larger deals b/c of too many units in one place.

Keep liquid and underwrite more deals before doing one.