"Sophisticated Investor" to participate in MF syndication

21 Replies

I do not qualify as an "accredited investor", so I heard I might be able to participate as a "sophisticated investor" in a syndication as long as it is not soliciting (I am invited to invest privately).

I would like to join one of those, in a way I can learn from the principals (i.e. review reports, ask questions on how things are done, etc.)

Can you guys comment on how easy/difficult are those to find? I don't have any contacts in the Multifamily space ...

@Martin Rubio In order to be brought on the GP side of the deal, you would need to bring some sort of value. You need to ask yourself what you can do to help the GP/sponsor?

1) Do you have a high net worth?

2) Do you have high liquidity?

3) Do you have experience with the type of asset that is being purchased?

4) Are you able to perform solid underwriting?

These are just a few examples of how you can help with the GP so they will want you on the deal.

NOTE: Have you started to get education on these types of transactions?

I don't think it will be hard for you to find these people if you get out and start networking. This is a relationship business and you must build relationships.

@Martin Rubio you can invest in a private offering if you are not an accredited investor if:

  • You are sophisticated enough to evaluate the deal and make an educated decision
  • You can afford to lose your investment without compromising your financial well-being
  • You find a sponsor that has an offering that is not advertised
  • The sponsor is allowing non-accredited investors into the offering (they are limited to 35 or fewer non-accredited investors in any given offering)
  • You have a pre-existing personal or business relationship with the sponsor

The challenge here is that you cannot invest in any offering that is using the 506(c) exemption, which allows them to advertise. So anything that is advertised is typically a non-starter (there are exceptions to this but I’ll leave that for the lawyers on BP to explain those—that’s not my area of expertise—I’m a syndicator not a lawyer).

This means that you have to find these syndications through word-of-mouth.  Even then, you’d need to establish a relationship before investing, so if you learned about the sponsor because someone told you about their offering, you’d probably have to wait until the next offering to invest.

It will be more difficult to find a company to invest with if you are not accredited. You will need to build a relationship with them first. There are companies that syndicate here on BP and others you can find in your market as well as through crowdfunding portals. You said you don't have contacts in the MF space, so now it's time to reach out, network and create contacts in the MF space. 

Crowdfunding portals is another way to get involved. There are offerings available to non-accredited investors on some of those sites as well. We are looking at doing SCORE offerings, which allows us to publicly advertise to accredited and non-accredited investors, however, if we don't know them, they need to live in Minnesota. There are, however, other types of offerings that are able to be advertised that you could get into. 

I heard a podcast where the Big Kahuna  Syndicator welcomes chit chat with the plebes. 

Highly unusual. 

Do you think Cardone is going to have tea and crumpets to show you what's up. 

We use the SEC 506B exemption and allow sophisticated investors into our deals once we have developed a substantive preexisting relationship.

This is a must before anyone can syndicate with us. We must deeply understand their qualifications, knowledge level, and ability to make investment decisions.

This can be accomplished through our investor qualification questionnaire & getting to know them.

Before sharing investment opportunities (Deal Flow) they must complete our investor questionnaire and meet me. They must meet either of the following to Participate: income, net-worth, or sophisticated investor requirements.

I sincerely hope this was helpful.

Dino

Originally posted by @Dino Pierce :

We use the SEC 506B exemption and allow sophisticated investors into our deals once we have developed a substantive preexisting relationship.

This is a must before anyone can syndicate with us. We must deeply understand their qualifications, knowledge level, and ability to make investment decisions.

This can be accomplished through our investor qualification questionnaire & getting to know them.

Before sharing investment opportunities (Deal Flow) they must complete our investor questionnaire and meet me. They must meet either of the following to Participate: income, net-worth, or sophisticated investor requirements.

I sincerely hope this was helpful.

Dino

 What would it take for OP to be able to see the inner workings. I think he wants to see the sausage being made. 

@Martin Rubio , I'm in Houston too and there are a few Meetups around town focused on multifamily. You can search on meetup.com or feel free to reach out to me for more information.

@Abdul Shishi We are very transparent and allow Equity Investors to ask all of their questions. We want them to feel as comfortable, confident, and excited about the partnership opportunity as we are. They can request the T12, we meet 1:1, we provide webinars, PDF Investor Deal Pkts, Hop on the Phone 1:1, etc...

It's NOT a coaching or mentoring program so to speak BUT definitely a place to learn our thought process about the opportunity at hand.

I Hope this was Helpful.

Dino

Understanding how they make the sausage takes time and effort.  As others have iterated, attend local meetups to connect and build relationships with people.  Truly understand the Reg D offerings and differences.  

@Todd Dexheimer has a great "Apartment Series" set of podcasts on his show named Pillars Of Wealth Creation.

Plus, reach out directly to BP members.  I find many here are very open to help others.

@Martin Rubio You have already received a lot of valuable feedback from @Todd Dexheimer , @Brian Burke , @Dino Pierce . My suggestion in addition to reaching out to syndicators and learning about potential opportunities for sophisticated investors, you can also look into becoming a lender. There's no pre-requisite to be an accredited investor. You can make some decent return that way as well. Happy to refer you if interested. 

The important part is to educate yourself first prior to making an investment no matter what you do! If you need more help feel free to PM me.

Good luck!

@Martin Rubio you've received some great feedback. Is your goal to ultimately be a syndicator yourself or simply understand more about sponsors and the inner workings?

To find operators that use 506b and accept sophisticated investors, ask around and ask to see closed offerings and use that to ask questions. At a minimum this will allow you to get to know the operators and understand the underwriting. Ask them to demonstrate how they are being conservative with their assumptions. If they have offerings that have gone full cycle, ask about those results. Just remember the more experienced the operator, the more likely it is that they only accept accredited investors so there is a bit of a trade off. If they don't have deep experience, you'll want to understand how they're compensating that experience through their team and other partners. 

Assuming you meet the requirements to be an "accredited investor"....what is the next step? Is this something you "prove" to each group you work with or is this some sort of official protocol/filing you do that then gives you some form of official document that you provide as needed?

Originally posted by @Ned J. :

Assuming you meet the requirements to be an "accredited investor"....what is the next step? Is this something you "prove" to each group you work with or is this some sort of official protocol/filing you do that then gives you some form of official document that you provide as needed?

It's a bit weird but for 506(b) offerings the accreditation is self-certified by the investor. The sponsor does not do any particular checks. The pre-existing relationship requirement is still there of course. For 506(c) offerings there is a requirement for reasonable verification. There are companies out there that will go through the process for the syndicator but basically document from the bank or CPA, tax return, etc, should work.

It's also weird that accreditation is based on wealth alone (assets or income). People who can slip through the cracks know very little about money management and investment risk, but just won the lottery, received a large inheritance, or signed a major-league sports contract. The wise operator (in my opinion) uses wealth as the starting point to comply with the law and then screens their accredited investors to make sure they are also sophisticated.

One way to enter this space with very little capital (accreditation is not a factor) is the Reg CF offering. I've done one for as little as $25 and one for a max of $1,000. The average is around $100 or $200. One is real estate related and the rest are business startups. Reg CF offerings are available only on a funding portal that has been approved by FINRA (http://www.finra.org/about/funding-portals-we-regulate). There is no secondary market for these securities and I'm prepared to pay my tuition to the College of Hard Knocks in the form of losing my investment.

@Martin Rubio as a non accredited investor I would caution not to be a pain to work with. Syndicators have little need for non accredited investors. It’s takes so much effort to education and you don’t have much money to invest. Plus you have to be careful per sec rules.

Originally posted by @Ned J. :

Assuming you meet the requirements to be an "accredited investor"....what is the next step? Is this something you "prove" to each group you work with or is this some sort of official protocol/filing you do that then gives you some form of official document that you provide as needed?

It's good to have a net worth statement or tax returns to show. In a 506c or other offerings that are advertised you will need a 3rd party or CPA to verify your status. With a 506b you will not need it.  

That is an excellent publication, Omar-read it a couple of days ago.

Thank you very much to everyone who commented. I was able to get a lot of insight and great information, and I am sure others will benefit from this discussion in the future. I did also find several great contacts that I will try to keep in touch with.

Special thanks to @Brian Burke , @Todd Dexheimer , @Dino Pierce, and @Michael Dang . Special mention to @Omar Khan 's blog post, which I found very useful.

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