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?
Investor · Murfreesboro, TN · Member since 2013 · 430 posts · 178 votes
7y
@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.
Rental Property Investor · Indianapolis, IN · Member since 2016 · 560 posts · 463 votes
7y
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.
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.
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.
@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.
@Tom Makinen, best case scenario is I can get accredited by 2021 if I can make $200k this year and next year. If net worth took into primary residence it would really help as my primary house is easily worth $1.2M+.
@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?
Investor · Murfreesboro, TN · Member since 2013 · 430 posts · 178 votes
7y
@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.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
7y
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.
Rental Property Investor · Honolulu, HI · Member since 2018 · 335 posts · 251 votes
7y
@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.
Thank you for your advice, really appreciate the perspective you’re giving me! It’s great to have someone look out for someone like me that’s starting out.
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.
Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
7y
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.