Property Manager · Greene County, NY · Member since 2018 · 28 posts · 14 votes
Good morning everyone,
For someone who'd like to capitalize on investing passively in multifamily businesses, where and how can he/she look for to invest in a smaller amount. Obviously for an operator to create a, for example, 506 B fund, they're not going to be able to advertise the investment per SEC regulation. So questions that come in mind, where to find a good operators and how to vent them to make sure your money doesn't end up in a scam?
In order to find 506b deals, you must have a prior relationship with the syndicator sponsor.
Most 506b deals still have a $50,000 minimum investments but you can find some that accept $25,000. I recently invested in and completed two 506b deals - one with a $25,000 minimum.
So you need to network quite a bit. Listen to podcasts, meet-ups, Google searches.
The general rule is you need to have several conversation or communications with the 506b sponsor before they can offer you a specific opportunity. 30 days is a general rule of thumb
@Ahmed Al-Absi Posting on here is a great way to start. You'll get operators, like myself, that will respond (we currently accept sophisticated investors in our deals) and you'll also get other passive investors that may chime in and advocate for operators that they've invested with and had good experiences with. Another way is to attend Meetup groups and speak with people to see who they're investing with.
In order to find 506b deals, you must have a prior relationship with the syndicator sponsor.
Most 506b deals still have a $50,000 minimum investments but you can find some that accept $25,000. I recently invested in and completed two 506b deals - one with a $25,000 minimum.
So you need to network quite a bit. Listen to podcasts, meet-ups, Google searches.
The general rule is you need to have several conversation or communications with the 506b sponsor before they can offer you a specific opportunity. 30 days is a general rule of thumb
As already mentioned, people on BP are always looking for investors on their deals. The minimum amount allowed varies based on the company you choose to work with. Another option would be investing in a crowdfunding- some allow you to invest as low as $1000. This allows you to diversify your investment within real estate by investing in multiple different deals (1k here and 1k there).
@Ahmed Al-Absi As a passive investor you will be exposed to both deal risk and sponsor risk. Deal risk can be mitigated by choosing a sponsor who has a track record of good deals, and can be further mitigated by investing in a fund. Sponsor risk can be mitigated by doing a good job of vetting and (IMHO) is the most important step in evaluating any passive investment.
As you connect with sponsors that resonate with you, take the time to develop a relationship with them. Trusting the sponsor will be paramount to you sleeping at night, and I can't stress that enough. It does no good to place capital with a sponsor who has an attractive offering to find out they can't be trusted. Making sense of the deal and understanding their track record is important, of course, but I believe you should develop TRUST before you invest. Developing that trust with someone you don't know may seem like a challenge, but if you approach it correctly, you should be able to achieve a pretty solid foundation before you invest.
One way to approach this is to look for investments with professional administration. In that environment, most of a passive investor’s concerns related to honesty, transparency, accuracy, and timeliness are managed by the administrator who is a neutral party. It’s like having a referee that is overseeing the investment to ensure that the sponsor continues to do what they promised.
If that is not available, another approach is to talk to investors who have had an experience with the sponsor already. If the sponsor is willing to connect you, there is nothing that replaces a conversation with someone who has already built that trust with the sponsor over time.
Also, be careful not to get blinded by just the projected returns. Your overall experience in a passive investment involves much more than the returns, so when you find a sponsor you like, do yourself a favor and get clear on what your experience will be like AFTER you have invested.
With existing investors, ask them how their overall experience has been? How accessible is the sponsor? If you have a concern, are you able to talk to them? Do they return your calls? Are they transparent? Even when they run into a problem? Does the sponsor have a communication plan? How often will you receive reporting? How are they delivered? What will the reports cover? How often will you see financials? When will you receive tax documents? How often will you receive distributions? In the sponsor's history, have the reporting and distributions been on time?
If the investment has professional administration, you will have access to the answers to those questions, but also much deeper vetting of the sponsor that will include personal background checks covering things like bankruptcy, judgements, litigation, criminal history, and other red flags related to a sponsor that you would want to avoid, plus other items that investors rarely consider like ensuring that the properties are actually titled correctly.
The purpose of investing passively is to leverage a sponsor's time, expertise, and ability to source great deals, but your overall experience will be driven by the answers to all the questions above, so make sure to cover that in your vetting process. Otherwise, any return you might make simply will not be worth it.
@Ahmed Al-Absi, just because 506b operators can't advertise deals, doesn't mean they can't advertise to get their name out there. Most will use some form of lead generating educational content. "10 tips for passive investors" "Proven path to grow rich through real estate"... I am just making up some things, but when you see these types of things, click through to the company putting it out there.
As noted, you will also see sponsors answering your posts here (full disclosure, I work for a 506(c) operator), but as you see people posting here, click into their websites from their signatures. You will likely see something like "join our exclusive investor club". "Sign up here to learn more". "Invest today"
Of course if you see ACTIVE deals on their website, they are a 506(c) operator and can only accept accredited investors. But if you see a portfolio of assets, but no active opportunities, they are likely a 506(b) operator, so get onto their list.
I had the very same thoughts (see my post) and came up some of the very same answers here. 506(b) is a relationship game and you have to get out there and start reaching out to all the syndicators out there. If they are 506(c) ask them for a referral to any operators that they know are 506(b). I have invested with @Joshua Ferrari and Ferrari Capital and really like how they operate and the very open communication style!
I think you are at the right place most syndicators and sponsors on this platform do both. Biggerpocket is a good resource, the vetting process is not that simple, every offering has significant risk built. It is simply that it doesn't go up and down in value like the stock market. The basic question is to ask for previous deals, investors who have worked with them, visit those properties if you can and it will give you a fair idea about the sponsor. Look at their deal structure and any previous PPM they can share with you will be helpful.
Everyone who has posted here has some good thoughts.
I would echo Jack Martin's post, especially. Good operators with integrity will do their best when problems come up to resolve them and do the best for their investors. Find referrals from anyone you can think might know the operator, from investors, lenders, property managers, contractors, to friends and acquaintances of theirs on other online platforms. Conduct background checks. Google search their names.
If they've had a deal with problems (who, with experience, hasn't?), how have they resolved the problems, did they keep their investors informed and were the investors pleased with how things were resolved?