Investment clubs and Syndicated Deals

7 Replies

Anyone doing syndicated deals in their investment clubs? I want to start an investment club LLC (5-10 members) with some coworkers that would focus on syndicated deals. The goal would be to find 1-2 deals per year to invest in and build a diversified portfolio of deals. We’d all be accredited investors individually. The rationale is that we each would be putting in smaller capital for the syndicated deals (vs the usual $50K minimum) and we could diversify quicker into multiple deals as a group. Anybody have any advice or pitfalls they could share from their investment club experiences? Any thoughts on distributions or creating tax advantages? BTW, I have looked into the crowdfunding sites as an alternative for smaller investments, but just feel like you don’t get the same quality of investments and the contact with the sponsors.

@Andrew Maeda I know this is an old post but I'll add my 2 cents in case you are still listening.

I did something like this and it ended up very badly. I started an LLC with 6 of my best friends in order to buy out of state rentals. We didn't know nearly enough and didn't continue our education in RE like we should have. We underestimated expenses, overestimated income, and over leveraged.

I was in a position to financially back stop our company when things got a little bit tough. Big mistake. Once things go bad, you really see who your friends are. With the 5-10 people, you are talking about, there is bound to be large discrepancies in levels of motivation, risk taking, time, and financial ability. These discrepancies among so many people are very difficult to overcome and you will end up with people that do most of the work, take the most financial responsibility, and those that don't.  It's hard to make it fair.

Better structures are the common 506(b) private placement offering where you stay in control. You could also form an LLC by yourself or with 1 or 2 trusted and vetted partners and involve the others by having them lend to the LLC on a project by project basis.

Oh, and now I look for people who are into RE as much as I am first, then become friends with them. In general, starting out with a friend or work colleague is risky since you have to make sure they have the right mindset and many don't do that before they partner up.

To find and properly vet syndication opportunities and then only invest $5-10k per opportunity (and have to deal with 5-10 other partners) seems like way to much work and hassle for the limited absolute dollars in return.  I have heard of some investors doing this but usually with only one other partner to cut the investment in half (not in 5-10 pieces).  Syndication investing is supposed to make life easier.

@Andrew Maeda I second what @Mike Dymski and @Andy Mirza stated about starting out a club with friends. If you want to start on a smaller scale then invest via a crowdfunding platform. And join the distribution lists for the syndicator you may consider (& vetted already) down the road.  Once you have enough funds to invest in syndications directly, just the pick the ones you think would work best for you. 

Good luck!

Thanks @Andy Mirza , @Mike Dymski , and @Alina Trigub for the input. You're probably right, it could complicate otherwise perfectly good friendships when you bring money into the fold. It's probably much better to discuss any exciting investment opportunities we run into each other. Then we can expand our vetted syndicators lists based on each other's past experiences with them.

Originally posted by @Andrew Maeda :

Thanks @Andy Mirza , @Mike Dymski , and @Alina Trigub for the input. You're probably right, it could complicate otherwise perfectly good friendships when you bring money into the fold. It's probably much better to discuss any exciting investment opportunities we run into each other. Then we can expand our vetted syndicators lists based on each other's past experiences with them.

Drew, this is a much better idea. So essentially what you're saying, you form an REI club with your friends (without any financial obligations to each other) and just share opinions and research on various syndicators and investment offerings.

Let me know if you need any advice on how to run such thing as I have done it in the past. 

Best!

@Andrew Maeda I think you are talking about syndication deal as a passive investor where as  @Andy Mirza is talking more about an active investment. I have similar experience as Andy when it was a "friend" and not really a real estate investor and problem can soon arise because when people are only doing a deal or 2 over a 10 year period, their expectation is very different I would not do that. However if you are only talking about doing it as a passive investor, I don't see why not. It is a great way to reduce risk and no one actually need to make any decision until the asset is sold. Then you need to decide whether you want the money or you want to invest in something else (kind of like doing 1031). I agree with Mike D not to cut it too thin though. 

@Andrew Maeda I echo what others have said that 5-10 partners is too many. However, the concept is a good one. I've got some investors that do just that, but there are only two of them. Bigger share of each deal and they've now doubled the deals they're in which greatly spreads risk. You could explore doing something similar with a close friend or family member and also have the master-mind like group with your coworkers to share ideas and deals.

Happy to discuss how I've seen this strategy play out so feel free to PM me.