Becoming a "sophisticated investor"

6 Replies

I am new to REI, and I am wondering if starting out in multi-family is for me. My net worth is not close a million dollars, but if I don't spend (waste?) money on someone's educational program, I have several thousand dollars more to put towards this potential first investment. Are local REI clubs the best place to meet MF investors, and how do I know when I'm educated enough not to get taken advantage of? Also, is there some regulation requiring me to be a "sophisticated investor" before I can passively invest in a multi-family deal? Is there some way I can meet this requirement without paying thousands of dollars up front for this education? Can anyone shed some light on this and/or provide some personal experience. I feel like MF would be the best potential return on my investment but I'm not looking to be naïve or get in over my head either.

@Chris Jones  you don't have to be a millionaire to be a sophisticated investor. But, the annual income requirement is high. See this Wikipedia article for details. You don't need to be a sophisticated investor or an accredited one to get into multifamily real estate.

From 1-4 units its not really different than buying any other kind of house. Anything in excess of four units is generally considered commercial real estate.

To invest in someone else's "real" multi-family (5+ units - but probably much bigger) deal with a syndication (multiple investors), you generally need to be known to the managing member/partner (family or friend), an accredited investor (the $1M stuff), or a "sophisticated" investor. 

For me, it's worth spending $15k up front to join an education and mentoring group where that education is not only valuable in itself so that I know the business model and have help all long the way, but also provides sufficient evidence of being a sophisticated investor by virtue of the documented training received and the ongoing mentoring from experienced active investors. 

And in TX you have a group that has produced the National Apartment Association's Independent Owner of the Year for 8 years running (with 8 different members).  Nice track record to have in your corner. 

Biggerpockets is a "free" education with people who believe in paying it forward!

Keep an open mind! We thought we wanted to do multi-family and I am really enjoying the single family houses life style

I am an "accredited" investor and all that means is you have a certain income OR liquid net worth. It is also mostly self declared and I have never once have anyone ask for any documentation. The idea of paying thousands of dollars to get this title is the most ludicrous thing I have ever heard and only the hucksters selling these courses would ever claim such nonsense.

I also thought Multi Family was the way to go for me but I was turned back onto Single Family as well. I was looking at 2-3 units with not much more return then a Single Family and a lot more work.

Originally posted by @Jeff G. :

@Chris Jones  is Jones is Jones you don't have to be a millionaire to be a sophisticated investor. But, the annual income requirement is high. See this Wikipedia article for details. You don't need to be a sophisticated investor or an accredited one to get into multifamily real estate.

From 1-4 units its not really different than buying any other kind of house. Anything in excess of four units is generally considered commercial real estate.

 You don't even need a certain income level to be a sophisticated investor, just a certain amount of sophistication to be able to analyze prospective investments and understand the risks.    Accredited investor is the title w/ all the objective hurdles.    Syndications can have up to 35 sophisticated investors.    @Chris Jones, if you want to meet some MF leads outside of LS, Brad Sumrok's event this weekend is probably your best bet.

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