Syndications for "Non-Accredited" Investors?
Real Estate Agent · Dallas, TX · Member since 2020 · 92 posts · 46 votes
I was wondering if there is a syndication out there where you don't have to be an accredited investor? If so, what's the minimum, are those funds pretty good? I've always loved the idea of syndication and wondering if I can join one early on. If you know one, any info or link would be great, thank you!
@Jacob Maes There are many syndications that allow non-accredited investors to participate. Each 506(b) offering allows up to 35 non-accredited investors to participate. The non-accredited investors must still qualify as sophisticated investors, loosely meaning that they need to have prior business and/or investing experience that qualifies them as competent to understand all of the risks associated with investing in a syndication.
@Jacob Maes There are many syndications that allow non-accredited investors to participate. Each 506(b) offering allows up to 35 non-accredited investors to participate. The non-accredited investors must still qualify as sophisticated investors, loosely meaning that they need to have prior business and/or investing experience that qualifies them as competent to understand all of the risks associated with investing in a syndication.
As @Charles Seaman noted, there are 506 b offerings open to non-accredited investors.
The only item I would add is that for 506 b offerings an investor must have a prior substantive relationship with a syndication sponsor.
So network and find those operators that offer 506 b. Once a relationship is established, then you can be provided 506 b opportunities.
@Jacob Maes I have been investing with one particular syndicator for some 6 years now. Initially I was doing so as an unaccredited investor, as nearly all of their investments were opened to up to 35 non-accredited investors under 506b previously mentioned. I have tracked my investments with this syndicator on a quarterly update basis in a 4 part member blog series starting with
Have I Found the Holy Grail of Passive Real Estate Investing?
It's quite a read & quite a journey.
@Jacob Maes I have been investing with one particular syndicator for some 6 years now. Initially I was doing so as an unaccredited investor, as nearly all of their investments were opened to up to 35 non-accredited investors under 506b previously mentioned. I have tracked my investments with this syndicator on a quarterly update basis in a 4 part member blog series starting with
Have I Found the Holy Grail of Passive Real Estate Investing?
It's quite a read & quite a journey.
Would you be open to sharing who this syndicator is?
Do yourself a favor and buy a REIT. Unless you know how to vet a sponsor and their project you're at their mercy once they get your money.
@Account Closed
How does one "vet" a REIT?
Or is that not necessary?
Many syndicators take on non-accredited investors. I would reach out to a few and get to know them. Build a relationship with 4 or 5 and start looking at their deals.
@Account Closed
How does one "vet" a REIT?
Or is that not necessary?
About as well as you would any other publicly traded security, which for most people means not really at all.
But the difference is with a REIT, you own shares in a company holding many assets, and they are liquid. You can dump them at any point of any day the markets are open for any reason you choose.
With syndications, you are usually investing money not for a basket of assets, but for one project, and if that one project starts to not go to your liking, you're not getting your money back. Your money is with them till the end or unless you can get someone to buy you out.
@Account Closed
There’s no correct answer to this, just having a discussion.
There are pros and cons points and counter-points to every perspective.
It appears your preference for REITs is more about liquidity issues than vetting issues, which I understand.
I would suggest illiquidity can be an advantage as it prevents investors from making sudden moves when times get bad.
For a recent example, let’s pick Covid. Stock investors who sold after the initial collapse of the market (Spring 2020) now regret that decision. Those who just sat tight, held their stocks have been handsomely rewarded as the market went to all-time highs. Same with real estate - those that panic sold Spring 2020 would also now regret that decision.
Having illiquid investments prevents investors from making emotional (short term knee jerk) decisions.
The one property v multiple property issue cuts both ways. Many investors want to invest in a specific property in a specific location - they prefer to know what they are buying as opposed to not knowing what specific properties they will own thru a REIT.
At the end of the day, each investor needs to sort thru those issues for themselves. It’s not a black and white thing, it’s not an either or thing, it can be a both and thing.
@Jacob Maes You will find that there are many syndication deals out there that accepts non-accredited investors and typically the minimum investment amount varies on the deal and the sponsor. But the most important component of any real estate syndication is inarguably vetting the sponsor and understanding the business plan and how your money will be used during the plan.
@Jacob Maes, as noted 506(b) offerings are allowed to accept up to 35 sophisticated investors. They are also not allowed to advertise offerings, so I would at people sharing knowledge pieces, frequenting the podcast circuit, and generally sharing knowledge. This is the typical marketing hook used by 506(b) operators to get their name out, which then leads to websites where you can sign up to get more information.
When done correctly, you will have to have a call with the group and then can see their offerings 30 days after that relationship has been established. Note: I am not a compliance attorney, and there are more details to this process, but ultimately, you should not be able to invest "tomorrow" with a group you just learned about as a non-accredited investor.
As many have stated, syndications that run a 506(b) deal can include non-accredited investors as long as there is an established personal relationship. These types of deals aren't allowed to advertise or solicit.
This is why you don't see them advertising or soliciting ;)
@Account Closed
There’s no correct answer to this, just having a discussion.
There are pros and cons points and counter-points to every perspective.
It appears your preference for REITs is more about liquidity issues than vetting issues, which I understand.
I would suggest illiquidity can be an advantage as it prevents investors from making sudden moves when times get bad.
For a recent example, let’s pick Covid. Stock investors who sold after the initial collapse of the market (Spring 2020) now regret that decision. Those who just sat tight, held their stocks have been handsomely rewarded as the market went to all-time highs. Same with real estate - those that panic sold Spring 2020 would also now regret that decision.
Having illiquid investments prevents investors from making emotional (short term knee jerk) decisions.
The one property v multiple property issue cuts both ways. Many investors want to invest in a specific property in a specific location - they prefer to know what they are buying as opposed to not knowing what specific properties they will own thru a REIT.
At the end of the day, each investor needs to sort thru those issues for themselves. It’s not a black and white thing, it’s not an either or thing, it can be a both and thing.
"I would suggest illiquidity can be an advantage as it prevents investors from making sudden moves when times get bad.
For a recent example, let’s pick Covid. Stock investors who sold after the initial collapse of the market (Spring 2020) now regret that decision. Those who just sat tight, held their stocks have been handsomely rewarded as the market went to all-time highs. Same with real estate - those that panic sold Spring 2020 would also now regret that decision."
But this is exactly one of the benefits of liquidity I love. The Covid crash in 3rd week of march 2020 was bonanza for me. I loaded up on things I had on my shopping list and got them for historic discounts. I hadn't had a buy opportunity like that in years. The panic sellers are a blessing for me.
What I missed though, was loading up on some REITs I wanted in 2020.
As others have mentioned - yes, a 506b structure allows for non-accredited investors.
A 506b structure will require you to have an established relationship with the sponsor. So you will want to start building those relationships sooner rather than later to start seeing deals. Once you are ready to look for a syndication deal, make sure to vet the sponsors.
"I would suggest illiquidity can be an advantage as it prevents investors from making sudden moves when times get bad.
For a recent example, let’s pick Covid. Stock investors who sold after the initial collapse of the market (Spring 2020) now regret that decision. Those who just sat tight, held their stocks have been handsomely rewarded as the market went to all-time highs. Same with real estate - those that panic sold Spring 2020 would also now regret that decision."
But this is exactly one of the benefits of liquidity I love. The Covid crash in 3rd week of march 2020 was bonanza for me. I loaded up on things I had on my shopping list and got them for historic discounts. I hadn't had a buy opportunity like that in years. The panic sellers are a blessing for me.
What I missed though, was loading up on some REITs I wanted in 2020.
Regarding loading up when prices dive - most investors don't do that. That's exactly why prices dive. Heck, even Warren Buffet failed at that in the early days of Covid, and he got flack for it at the following Berkshire shareholders meeting.
That's why the saying "Time in the market beats timing the market" is so popular. The plan to time the market loses to psychology and fear of loss.
To your point, though, I would agree that for some people the liquidity of REITs is a good thing. Primarily because either they or their portfolio are not prepared for the illiquidity of syndications. Syndications aren't right for everybody, and those of us who bring passive investors into deals have a responsibility to make sure our investors understand and can handle the illiquid nature of syndications.
@Account Closed
There’s no correct answer to this, just having a discussion.
There are pros and cons points and counter-points to every perspective.
It appears your preference for REITs is more about liquidity issues than vetting issues, which I understand.
I would suggest illiquidity can be an advantage as it prevents investors from making sudden moves when times get bad.
For a recent example, let’s pick Covid. Stock investors who sold after the initial collapse of the market (Spring 2020) now regret that decision. Those who just sat tight, held their stocks have been handsomely rewarded as the market went to all-time highs. Same with real estate - those that panic sold Spring 2020 would also now regret that decision.
Having illiquid investments prevents investors from making emotional (short term knee jerk) decisions.
The one property v multiple property issue cuts both ways. Many investors want to invest in a specific property in a specific location - they prefer to know what they are buying as opposed to not knowing what specific properties they will own thru a REIT.
At the end of the day, each investor needs to sort thru those issues for themselves. It’s not a black and white thing, it’s not an either or thing, it can be a both and thing.
"I would suggest illiquidity can be an advantage as it prevents investors from making sudden moves when times get bad.
For a recent example, let’s pick Covid. Stock investors who sold after the initial collapse of the market (Spring 2020) now regret that decision. Those who just sat tight, held their stocks have been handsomely rewarded as the market went to all-time highs. Same with real estate - those that panic sold Spring 2020 would also now regret that decision."
But this is exactly one of the benefits of liquidity I love. The Covid crash in 3rd week of march 2020 was bonanza for me. I loaded up on things I had on my shopping list and got them for historic discounts. I hadn't had a buy opportunity like that in years. The panic sellers are a blessing for me.
What I missed though, was loading up on some REITs I wanted in 2020.
Regarding loading up when prices dive - most investors don't do that. That's exactly why prices dive. Heck, even Warren Buffet failed at that in the early days of Covid, and he got flack for it at the following Berkshire shareholders meeting.
That's why the saying "Time in the market beats timing the market" is so popular. The plan to time the market loses to psychology and fear of loss.
To your point, though, I would agree that for some people the liquidity of REITs is a good thing. Primarily because either they or their portfolio are not prepared for the illiquidity of syndications. Syndications aren't right for everybody, and those of us who bring passive investors into deals have a responsibility to make sure our investors understand and can handle the illiquid nature of syndications.
That's why the saying "Time in the market beats timing the market" is so
popular. The plan to time the market loses to psychology and fear of
loss.
For the herd. I wait in the grass watching and waiting to pounce them.
Most deals 90% are for non accredited 506B. The problem is that you are not in the circles of the people who do them. Get connected and you will start seeing them as opposed to the ones that are generally solicited (506C) and have to only accept accredited only.
I think the best way to find sponsors - those who accept accredited and non-accredited - is to build a network and join a Community. As people have said, syndications are very illiquid. This can be good and bad depending on your situation, but with long-term investments like this, it is very difficult to determine which operator will be a good steward of your money. Looking at their track record is always a good idea, but in my opinion nothing can beat relying on the experience of other investors who you know, like and trust!
Search the forums and listen to podcasts. A large amount of syndicators go onto podcasts and these forums to talk about their business. Many of them will not take non-accredited investors, but some will. Accredited or non-accredited, make sure you build a relationship with the sponsor and do a deep dive due diligence into who they are.
What should you look for?
1. Experience: Have they gone full cycle on deals and how long have they been in the game?
2. Team: Who makes up the company and what are their roles and experience?
3. Overall business plan: Market, sub-market, strategy, building class, etc
4. Underwriting: Fully transparent and is it actually conservative?
5. Alignment: Is the sponsor investing a large sum of money into the deal. If the deal goes south how are they effected?
6. Sponsor profit: Look for sponsors that have lower fees and higher performance splits. Also, look for splits that make sponsors a nice profit. You want them to be motivated. If they have a 10% split and just take fees, then what is the incentive to perform when times are tough?
@Todd Dexheimer provides a solid checklist to follow.
I would also add the following:
Has the sponsor done other deals of similar vintage assets in this market.
So if the operator has done 5 class A deals in Charlotte and now has a 1970s value add Class C deal in Dallas, I would be careful.
You want operators with an established footprint in that market AND who specialize in that type asset.
Running a fancy Class A downtown luxury apartment is far different than a 50 year old building in a low income area.
Hope this helps.
@Jacob Maes I have been investing with one particular syndicator for some 6 years now. Initially I was doing so as an unaccredited investor, as nearly all of their investments were opened to up to 35 non-accredited investors under 506b previously mentioned. I have tracked my investments with this syndicator on a quarterly update basis in a 4 part member blog series starting with
Have I Found the Holy Grail of Passive Real Estate Investing?
It's quite a read & quite a journey.
Hey Larry, read your articles on the Holy Grail to RE investing. Any chance I can get a link to this company?