Minimums for Syndication?

Real Estate Agent · Hamilton, NJ · Member since 2013 · 464 posts · 311 votes

I'm curious to hear from the people who syndicate what their minimum required investments are from investors? I understand that every deal is probably different so there's not a 1 size fits all kind of answer but is there some sort of minimum you personally require for it to be worthwhile to you? I assume that you're not going to take $5,000 from someone here and $10,000 from someone there if you're attempting to raise a couple of million dollars because it just doesn't make sense.

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Brian BurkePro Member

Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes

Almost 20 years ago I started my first fund. I raised $500K from my friends and co-workers to buy foreclosed houses. I took as little as $5,000. I guess that's what you do when you don't have a lot of options!

My next few deals I took as little as $25,000. By around year 5 I had increased my minimum to $50,000. And a couple of years after that I went to $100K and have held there since. I think I've raised somewhere in the ballpark of $80 million now and with a broad base of hundreds of investors (and growing) our minimum will likely stay where it is.

That said, we have discretion to accept investments below the minimum amount and we do so on a case-by-case basis--most often with a new investor making a first-time investment with us. Oftentimes people want to dip their toe in the water before they dive in and having flexibility on the minimums allows them to do that.

Minimums aside, most repeat investors are placing $200K to $400K per deal, and some put in seven figures. And there are those that just put $100K into every deal just like clockwork.

Once you get going you'll see quite a variation in investment size and frequency, but at the beginning you do what you have to do to build a track record and the trust of your investors. Even if that means taking smaller placements than you'd like.

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Brian Adams
Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
8y
@Christopher Giannino my minimum now is $100k and I have done 8 syndicates buying and selling over 2,500 units.
When I first started, my minimum was $50k.
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
8y
Almost 20 years ago I started my first fund. I raised $500K from my friends and co-workers to buy foreclosed houses. I took as little as $5,000. I guess that's what you do when you don't have a lot of options!
My next few deals I took as little as $25,000. By around year 5 I had increased my minimum to $50,000. And a couple of years after that I went to $100K and have held there since. I think I've raised somewhere in the ballpark of $80 million now and with a broad base of hundreds of investors (and growing) our minimum will likely stay where it is.
That said, we have discretion to accept investments below the minimum amount and we do so on a case-by-case basis--most often with a new investor making a first-time investment with us. Oftentimes people want to dip their toe in the water before they dive in and having flexibility on the minimums allows them to do that.
Minimums aside, most repeat investors are placing $200K to $400K per deal, and some put in seven figures. And there are those that just put $100K into every deal just like clockwork.
Once you get going you'll see quite a variation in investment size and frequency, but at the beginning you do what you have to do to build a track record and the trust of your investors. Even if that means taking smaller placements than you'd like.
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Robert Borr
Attorney / Broker · Member since 2018 · 29 posts · 30 votes
8y
I would highlight what Brian Burke mentioned - make sure your documents are written in order to allow you to accept less than the minimum investment amount. I typically see 10k, 25k, and 50k as minimums for newer syndicators, but it should be reflective to your total raise and probably the exemption/structure you intend to utilize.
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Christopher Giannino
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Real Estate Agent · Hamilton, NJ · Member since 2013 · 464 posts · 311 votes
8y
@Brian Adams @Brian Burke @Robert Borr
Thank you guys for your insight. Like you all mentioned, it makes sense that in the beginning you will typically require less and than as you and your track record grow, so does the minimums you require.
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Salvatore Lentini
Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes
8y
When asking for 50-100K fee, what kind of equity % are you getting? And does anyone do a % on a value add play that then increases once you refi and investors get their money back? ie: 20% for syndicator at purchase and then 50% for syndicator after refi?
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Bruce Petersen
Rental Property Investor · Austin, TX · Member since 2017 · 254 posts · 265 votes
8y
@Christopher Giannino, it also has to do with type of filing and total raise.
If you do a 506b you can have non-accredited (pre-existing relationship people, get with you attorney) but only 35 of them so it can come down to math in a way. If you are trying to raise 500k then 10-25k minimum should be fine but when you start raising 5-10mm or more you will want a higher minimum to help keep the total number of investors more manageable.
The higher your minimum the fewer investors you should have which makes your job as the sponsor much easier.
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Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
I think the biggest issue with small dollar requirements is the communication with investors. If you learn how to properly communicate, then everything else can be automated. Walmart is a fairly large company and they will sell you a share for much less than $5,000. I know it's not quite the same, but still applicable. Crowdfunding is typically $5000 and sometimes even less.
There are advantages and disadvantages to different minimums. Those that have $100k+ minimums are excluding a lot of potential investors, they may not care, because they have a lot of money coming in. If you allow $5000 you will have a lot more potential investors available and be offering your fantastic investment vehicle to a lot more people that really could benefit from the opportunity. The downside (other that having more investors) is that you will likely get investors that would have put in $50,000 if that was your minimum, but now they put in much less.
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Christopher Giannino
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Real Estate Agent · Hamilton, NJ · Member since 2013 · 464 posts · 311 votes
8y
@Todd Dexheimer
Thanks for your response.. I definitely see your point of view as well. My initial premise of the post was to get more of an understanding of what type of minimums a syndicator might look for from a potential investor and to see if I would meet that criteria. It sounds like it is all dependent upon the person putting together the deal, the actual deal itself and the type of structure the deal is.
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
8y
Originally posted by @Salvatore Lentini:

When asking for 50-100K fee, what kind of equity % are you getting? And does anyone do a % on a value add play that then increases once you refi and investors get their money back? ie: 20% for syndicator at purchase and then 50% for syndicator after refi?
I look at this from the standpoint of what the investor gets, rather than what we get—we just get what’s left. Looking at it from that perspective here is what our typical structure looks like:
The investor gets 100% of the cash flow until reaching a cumulative return, in most cases 8%. After that, they receive 70% of the profits until reaching a cumulative 12% return. After that, they receive 60% of the profits until reaching a cumulative 14% return. After that, they receive 50% of the cash flow. We get whatever is left over. Ultimately that could range from 0% if the deal didn’t perform well, up to somewhere around 40% if it’s a grand slam.
The hurdle rates and split percentages can move around a bit depending on the deal, but once you set them (which is before you take any money) you don’t change them—even if the investors receive all of their money back. Well...I suppose you can (if your agreement defines what that change will be), but it will turn off most investors and make raising the capital a lot more difficult.
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Gino BarbaroPro Member
Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Christopher Giannino
Hi Christopher
I think it really depends upon where you are in your investing experience and your ability to attract accredited investors. Although Jake & I have yet to do a syndication, we are averse to trying to add sophisticated investors to the mix and raise in 25k or 50k increments. If we had less experience or a small following, then I think we would have to start the 506 B route and include sophisticated investors.
It depends upon your power base, your network and how much capital you can raise from them when you first start. I would try to begin with 50,000 increments because it will become very cumbersome to have a ton of investors all with small amounts of money. The investor with less capital tend to be more time consuming and needy, and you have to cater to them.
Hope that helps from a non syndicator looking to syndicate their first deal
Gino
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David Miller
Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
8y
@Brian Burke If you return your investors' initial capital to them in connection with a refinance, are you saying you maintain the same preferred return & promote structure after the initial capital contribution has been returned?
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
8y
@David Miller, yes, absolutely. We do not confiscate our investor’s upside. Their ownership percentage stays the same even if their capital is returned. But to clarify, the preferred return is calculated on unreturned capital contributions, so if their capital goes down, so does the preferred return.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Todd Dexheimer:

I think the biggest issue with small dollar requirements is the communication with investors. If you learn how to properly communicate, then everything else can be automated. Walmart is a fairly large company and they will sell you a share for much less than $5,000. I know it's not quite the same, but still applicable. Crowdfunding is typically $5000 and sometimes even less.
There are advantages and disadvantages to different minimums. Those that have $100k+ minimums are excluding a lot of potential investors, they may not care, because they have a lot of money coming in. If you allow $5000 you will have a lot more potential investors available and be offering your fantastic investment vehicle to a lot more people that really could benefit from the opportunity. The downside (other that having more investors) is that you will likely get investors that would have put in $50,000 if that was your minimum, but now they put in much less.
this is where i just cringed when i saw crowdfunders coming into the space accepting 1k to 5k in deals the client management would just get unweildy.. and its come to pass. you get someone on BP ragging about POL and they might have 5k in a deal or you have a 200k loan POL did and it have 30 investors in it.. OUCH
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David Miller
Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
8y
@Brian Burke Thanks for the quick reply. Your comment "But to clarify, the preferred return is calculated on unreturned capital contributions, so if their capital goes down, so does the preferred return" is where I was going.
If all your investors' initial capital is returned via a refinance (i.e. there is NO unreturned initial capital contribution), do you move straight into your promote splits on the cash flow going forward? In your example above, that would mean you skip the preferred return and go straight into the 70/30, 60/40, 50/50, etc. waterfall with the investors' portion of the split determined based on their ownership percentage.
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
8y
@David Miller that’s right, as long as all accumulated pref is caught up.
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Andrew S.
Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes
8y
Originally posted by @Jay Hinrichs:

Originally posted by @Todd Dexheimer:
I think the biggest issue with small dollar requirements is the communication with investors. If you learn how to properly communicate, then everything else can be automated. Walmart is a fairly large company and they will sell you a share for much less than $5,000. I know it's not quite the same, but still applicable. Crowdfunding is typically $5000 and sometimes even less.
There are advantages and disadvantages to different minimums. Those that have $100k+ minimums are excluding a lot of potential investors, they may not care, because they have a lot of money coming in. If you allow $5000 you will have a lot more potential investors available and be offering your fantastic investment vehicle to a lot more people that really could benefit from the opportunity. The downside (other that having more investors) is that you will likely get investors that would have put in $50,000 if that was your minimum, but now they put in much less.
this is where i just cringed when i saw crowdfunders coming into the space accepting 1k to 5k in deals the client management would just get unweildy.. and its come to pass. you get someone on BP ragging about POL and they might have 5k in a deal or you have a 200k loan POL did and it have 30 investors in it.. OUCH
Right! But even the crowdfunders are slowly raising their minimum asks. Realty Mogul used to be just a few thousand minimum and now most of the offerings run 20-50k. Same with PoL - not quite as high yet, but going up too....
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Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
8y
@Brian Burke What comes first the chicken or the egg? When you're doing your deals do you have a property and then seek investors, or do you have investors lined up to put in X amount; and then find the deal? What's the difference between syndications and joint ventures, is one more restrictive than the other or ?
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
8y
@Karen Margrave we are always building our investor list. The money has to come first or else you don’t even know what price range you can shop in. I wrote an article or two about this very thing for the BP blog, you can link to it through my profile.
All of ours are syndications, but you can actually do both at the same time. For example, I’ve done a joint venture with a builder and syndicated the equity. I think of joint ventures like this: as a syndicator I add value for my investors. If someone else adds value to me it’s worth a joint venture—and everyone wins. Me, the partner, and the investors.
If you are simply partnering with a money partner, and the money partner is an active participant, you have less restrictive regulatory framework. If the money partner is passive, all of the securities laws apply.
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Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
8y
Christopher Giannino most are 50k. 1/8 is 25k minimum. It does not hurt to ask if you can get in less than the spoken minimum.
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Thomas FranklinPro Member
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
8y
Christopher Giannino There are two SEC Rules that you need to consider and which one would be applicable, to your REI Endeavors. I highlighted the primary differences below. Investor Definition: The current standard for an individual Accredited Investor is a net worth of more than $1 million excluding the value of their primary residence or an income of more than $200,000 annually (or $300,000 combined income with a spouse). A Non-Accredited Investor is anyone that does not meet the above standards. A Sophisticated Investor is a type of investor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity. SEC Rule 506(b) *Permitted Investors: Accredited Investors and up to 35 Non-Accredited Investors, as long as the Non-Accredited Investors are “Sophisticated Investors.” *Information Required: -If the offering includes on Accredited Investors, no Information is required by law, although it is recommended that information is provided, to inform Investors and avoid Rule 10b-5 liability. -If the offering includes even one Non-Accredited Investor, the law requires the issuer provide a lot of information. *Advertising: No advertising of actual deals is permitted. Sales may be made, to Investors, with whom the issuer has a pre-existing relationship. SEC Rule 506(c) *Permitted Investors: Accredited Investors only. *Information Required: -No Information is required by law, although it is recommended that information is provided, to inform Investors and avoid Rule 10b-5 liability. *Advertising: Advertising of of any kind is permitted such as TV, radio, leaflets, etc.
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David Miller
Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
8y
@Brian Burke Thanks. That lines up with the typical syndication waterfalls I see. That said, I have run across syndications that provide for a larger promote if/when all capital contributions have been returned and all accumulated prefs have been distributed...like jumping straight into higher promote splits or using lower accumulated return hurdles on the initial capital contributions for each waterfall (i.e. 70/30 up to 6% cumulative, 60/40 to 10% cumulative, etc.). Do you stick with your promote splits and cumulative hurdles no matter what?
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
8y
Originally posted by @David Miller:

@Brian BurkeDo you stick with your promote splits and cumulative hurdles no matter what?
Yes. We don't alter it.
There is no better marketing than returning some or all of our investor's capital, maintaining the promote splits and delivering a really great result to our investors. High returns with low downside risk leads to referrals and repeat investors. That's more important to us than trying to skim a few extra bucks from the deal.
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David Miller
Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
8y
Thanks @Brian Burke. I agree.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8y
I have seen it vary.
I know some funds eventually wanting to go public. They like crowdfunding and also non-accredited investors because the investor pool is so much larger.
I think the stat is something like only about 4% of the U.S. population are accredited investors.
The promote also can depend on the sponsor and the deal size. If a property is so large that 30% promote equals many millions then it might make sense. If a sponsor is working smaller deals where upside might be 1 million then 50% can make sense. At some point it is not worth it for a sponsor to do a deal.
Also there is institutional money that will give out cash all day long but of course the terms can be tougher. The sponsors I know like to deal with private investors as they can structure the deal more to their liking and as a last resort line up just a smaller slice of institutional debt for the project.
One of my friends takes a 50% promote on retail syndicates but has been doing it over 40 years and owns about 7 million sq ft.
I am focused on the smaller retail deals to syndicate as a sponsor. I like bite size deals that can turn around quicker with the markets.
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David Miller
Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
8y
@Joel Owens. Fair points on deal size and risk affecting promote splits. One of the things I like about syndications is the flexibility it offers to sponsors and investors to create a economic structure that aligns interests, allocates risk and rewards performance.
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