Requirements for investing in multi-family syndications

22 Replies

Hi all and thanks in advance for your insights. 

I'm new to REI and after spending some time examining the many investment options , I found myself back at multi-family. I'm interested in making my first investment but without much experience I think investing in a syndication seems to be the better way to start. I have a sense of how to find the sponsors that do the deals, but wanted to ask if there any general requirements for investing in a syndication? For example, do I have to be an accredited investor?

What else should I be considering? How much should I invest in my first deal (ie, what are the minimums)?

-Gavin

Different types of syndications have different requirements. The most common one (Reg D 506b) has the requirement that you know the sponsor and that you are either accredited or sophisticated. Reg D 506c syndications do not require that you know the sponsor but you have to be accredited. Generally the minimums are set by the sponsor and they are commonly $50k but can be lower and much higher.

There are also crowfunding platforms out there that allow you to invest with none of those requirements (I think). And they do allow lower investment amounts.

How much you should invest will depend on how much liquidity you have. I would say you probably shouldn't put more than 10% of your liquidity into any one deal.

@Gavin Tam you should reach out to BP all-star syndicators like @Jeff Greenberg or @Brian Burke .

How much do you have to invest? Investing with a syndication or an online crowdfunding platform gives you the luxury of diversifying your investments, even within multi-family. Location, Class type, size, etc.

Hi @Gavin Tam , besides the good insights that @Michael Le shared, there are several other types of syndications. With some of them, you don't have to be Accredited or Sophisticated. These requirements are outlined by the Sponsor and written into the Offering Memorandum and/or Operating Agreement. Make sure you read everything thoroughly.

If you have questions about the documents the Sponsor provides, I suggest you contact your attorney and/or CPA to review the docs and give you their opinion. You could certainly ask the sponsor for their opinion or clarification, but, to use a cliche, they have a dog in the hunt, and therefore, some will tell you what you want to hear, not what you need to hear. Make sure you get several references from the sponsor too. At least 5. If they are local to you, ask to meet with them face to face. Anyone can be anything online or over a phone. Meeting with them face to face allows you to look them in the eye when they answer your questions.


Good luck Gavin!!! You can reach out to @Jillian Sidoti as well. She's a very good SEC attorney.

@Gavin Tam I think you're getting great advice from everybody.  I think, however, if I were in your shoes I'd start in the opposite direction.  Namely, I'd find some quality syndicators (read: investment philosophy, track record, etc.) that align with you and then query about accreditation, investment minimums, etc.  The *last* thing that I would do is filter investments by sorting by the minimums, etc.  I'm not saying that you'd do that and some people looking for diversification (i.e. invest in a few deals on crowdfunding platforms) but a "great track record w/ a $50K minimum" would beat (in my estimation) "no track record with a $10K minimum".  

Not sure if this helps but if you can't find a syndication/sponsor/etc. that you believe in, I'd keep my pennies in my pocket.

@Gavin Tam most of us require you be accredited. Crowdfunding may offer a platform or two where this isn't required but beware as with any deal. Want to get educated quickly? Look at 100 offerings before investing.

@Gavin Tam ,  crowdfunding is basically syndication done online, so I consider syndication and crowdfunding to be basically the same thing. 

 It is definitely much easier to find a deal if you are accredited. Based on your question, I’m guessing that you’re not. If that’s true, there still are some deals that are available, but you have to work harder to find them. Also, you may end up paying more in fees, etc.

 RealtyMogul., Fundrise,  Impact Housing REIT etc  All have multi family investments available.  I’ve done an extensive review of the options, so if  you’d like more information, p.m. me 

Originally posted by @Gavin Tam :

Hi all and thanks in advance for your insights. 

I'm new to REI and after spending some time examining the many investment options , I found myself back at multi-family. I'm interested in making my first investment but without much experience I think investing in a syndication seems to be the better way to start. I have a sense of how to find the sponsors that do the deals, but wanted to ask if there any general requirements for investing in a syndication? For example, do I have to be an accredited investor?

What else should I be considering? How much should I invest in my first deal (ie, what are the minimums)?

-Gavin

 I’m like you Gavin but am not an accredited investor. Made it happen though. Check out the blog I wrote about it and PM me with questions: https://www.biggerpockets.com/blogs/8160/67620-purchasing-our-first-apartment-complex

@Gavin Tam   Yep, you don't have to be accredited, but that will depend on the company. You should at the very least become very educated prior to investing. Read everything you can on syndication. Also, I would suggest reaching out to many of the syndication companies on this site and any others that you know. Ask them questions so you can educate yourself and make the best informed decision possible. 

Crowdfunding can be a great option, but be sure that you do your due diligence on those as well and vet those sponsors. 

Best of Luck!

@Yonah Weiss Thanks for the shoot out. @Michael Le the 506B does not limit the offering to only Accredited and sophisticated, but most cautious sponsors require that limitation.  Letting someone in your deals that are not high net worth, nor have knowledge of business or finance, should not be making the decision if the deal is appropriate for them.  The sponsor just took all of that responsibility on themselves.  They could consult a buyers representative that can yay or nay the deal for them, and be considered a sophisticated investor.

How much should you invest?  I try to keep my investors below 10% of their net worth on any one deal.  

@Jeff Greenberg Maybe we're saying the same thing in different ways. To me the requirement of the sophisticated investor is definitely there. Whether they gain that sophistication from their own knowledge or via a purchaser representative, the result is that they are making a sophisticated buying decision.

@Michael Le You are correct.

  • The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchasers. All non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.

Thanks everyone for the quick and informative responses. I will process the info and reach out. I am accredited and have over 15 years of experience in the financial industry. I've been educating myself (books/podcasts/meetups) for the past year. My goal for 2018 is to make 1-2 investments. 

It sounds like I need to reach out to syndicators and do more homework on the syndication process.

@Gavin Tam , the most critical component of investing in syndications is your due diligence on the sponsor(s) you invest with.  There was a fairly recent forum thread on vetting syndication sponsors, if you read through the whole thing you'll pick up a lot of ideas and information.  Here's a link: 

https://www.biggerpockets.com/forums/432/topics/503289-how-to-vet-syndicators?page=1

Many have probably answered already but you don't have to be accredited though some will require it.  Most of the requirements rest with the syndicator and depends on how they register with the SEC.

Main thing for you is to do your due diligence on the prospective syndicator; 

-talk to others who have invested with them in the past for their experience and whether they would invest with them again

- ask them directly about other deals they have done and I would like to see their bio

- get to know them as best you can, does the hair on the back of you neck stand up when you are around them; are they able to answer your reasonable questions; do they seem and feel competent and confident without be arrogant?  If you don't like these answers find another syndicator.

@Gavin Tam   I think that you are on the right track in reviewing investment options and then selecting a strategy that you want to become an expert.

Here are the things that I would ask/consider when vetting a deal and/or sponsor.

1.  Determine whether the property you are reviewing (development, stabilized, value-add) is the right fit for you.

2.  Assess the experience level of the manager/sponsor

3.  Is there a preferred return?  Why?  Why not?

4.  What are the profit splits?

5.  What are the assumptions/projections?  Are they conservative or aggressive?

6.  Assess the manager/sponsor's overall plan and strategy

7. Assess the location and surrounding area's demographics

8. Review all the legal documents.

This general guideline will help you evaluate sponsors and the deals that they are working on to make sure the sponsor and deal are a fit for you and your investment/real estate goals.

All the best, RC



@Gavin Tam you have received some great insights from the others who have posted and I will not re-hash whats been said, but try to give you some value-add... When investing in MF RE with a syndicator the due diligence on the property is usually the easy part. Due diligence on the syndicator is a bit more cumbersome. With the track record of commercial MF RE over the past few years (Freddie Mac has not had a single MF loan upside down in the past 3 years) you need to remember the riskiest part of the deal is the sydicator.

Investing with a syndicator is like playing team sports.   You need to not only feel comfortable with the syndicator but his game plan and his team as well. Game plan: are they looking for momentum plays, value add, stabilized, unstabilized, etc... What class properties (A, B, C, or D) do they specialize in?  What is their hold timeline 3yr, 5yr, 7-10 years?  Do investors get 100% of the cash flow?  Is there a pref? What type of hurdle does the syndicator have to meet before they can share in proceeds? What asset management fees do they charge?  Do they use segregated cost studies to take advantage of accelerated depreciation schedules?

Secondly you need to ask about their team members....who is their preferred Property Manager, SEC attorney, entity attorney, tax strategist, corporate insurer, etc...If a value-add play who is their project manager?  

And finally, what is their exit strategy? 

-Buy and Hold long term with periodic refi distributed back to investors

-Systematic refi or infuse syndicator equity to buy out investors

-Sell in specific time period...with or without the option of 1031 tax deferred exchange into a new asset.

-Automatically return your proceeds or give the option to cascade up to larger assets at the time of liquidity events.

Most of all I echo all the other.....Do your own research!

I have a couple chapters in my book (DONE! The professionals guide to double digit returns, multi-generational wealth, and a worry free retirement)  which is on Amazon about choosing a syndicator/sponsor and how to avoid the bad ones.  If you colleague request me I will send you a complimentary digital copy.  

Forgive the newbie question....can you guy spell out what it means and takes to be accredited and/or sophisticated?

@Gavin Tam Some syndicators require that their investors be accredited while others don't. Now, this might make you, the investor, fall in the friends' bucket, which is not ideal in case something goes terribly wrong with the deal. 

An investor's character goes a long way in the real estate investing realm whether you are a sponsor on a large multifamily deal or you are a flipper looking to deploy private capital to execute their projects. Typically, most syndicators would ask for 50k as a minimum to invest.

Few things to consider:

  • Do they have a strong team (or at least a mentor who has successfully closed on multiple deals)? As a young investor, I cringe every time I see the TEN-decade sponsors scream track record and/or experience, but let's not fool each other here, every investor started with ONE property (no exceptions) just as all human beings started crawling before walking. 
    1. This reminds me of when you finish university and employers are asking for 5 years experience for an entry-level position and then you manage to get that one job and you smash all the records of all the folks who have been working there for decades and your manager start throwing bonuses at you. 
    2. The first investor in Alibaba, Masayoshi Son invested in Alibaba because he saw a dream in the eyes of Alibaba's founder. Imagine if he asked Jack Ma for a track record in building a successful online business. This sounds absurd now doesn't it?
  • Have they been successful in the last endeavour they have been engaged in the last 5 years? (now if that is building 100M buildings in NYC, then that is splendid)
  • Are they competent in the syndicating deals and can they walk you through a deal from start to finish? 

Undoubtedly, there are a ton of syndicators out there (good and bad - just like people in the world). The idea is to find someone who can accommodate your financial situation and goals. 

Hope this helps give you a different perspective. Good luck. Thanks! - Ola 

Can anyone recommend syndicators who would raise money for my multifamily deal? I would handle the debt financing and the syndicator would raise the equity portion of the deal. And of course, I would invest equity as well. Thanks in advance.

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