Mobile Home Park Syndications for non accredited investors
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Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
8y@Tony Xu As it relates to mobile home park investing, that is all I do, and can certainly share some guidance. However, the investments you are interested do not allow for public solicitation, so syndicators like myself are not allowed to solicit for investors through any public forum. With that said, I can share some general guidance for the benefit of everyone in general, and if you want to reach out directly I can share further detail in private.
The private investment space for non-accredited investors is traditionally governed through Regulation D as Ryan suggested, more specifically a 506b(b) private placement offering. In general, the "b" allows for up to 35 non-accredited investors, per offering. A syndicator (or sponsor) of an offering should still take the necessary steps to ensure non-accredited investors are qualified through an investor questionnaire to avoid allowing the wrong kind of investors into their offering.
There are a few things anyone seeking an investment through a private placement memorandum (PPM) should be aware of. I can post some further guidance with detail at a future date, but I will identify the areas where investors should focus.
- Character - When you invest through a PPM, you are a passive investor and the syndicator is in the active management role, so if they are dishonest everything below will not matter. Make sure to do proper due diligence on the syndicator and acquire testimonials from current/prior investors.
- The strategy - Does the overall real estate strategy make sense? Strong returns are nice, but you will want to also make sure you understand the risks. Has the syndicator worked through all the potential risks, related to the current and future market, economy, interest rates, etc? Have they worked through all the property specific challenges, both current and future? Make sure the overall strategy has been well considered and stress tested. Even if you have a syndicator with great character, the project can still be a bad one if the strategy is poor. This step will help you avoid jumping into an investment just because you know a good guy who "has a great deal".
- The model - The relationship between an investor and a syndicator as it relates to how income and profits are split is extremely important. Most investment models include a host of fees, splits, inversions, waterfalls, lockups, tails, etc. which can be complicated and confusing for investors. Most of those models are designed to weigh heavily in favor of the syndicator, so make sure you understand the model completely before you invest. Consider the most important question to be: with this model, will every decision that is made be in the best interest of all parties?
- The business - Most real estate syndicators are good at real estate. Rarely are they also good at everything else a business requires. Some of the areas where that will cause investors to become frustrated are regular reporting, timely delivery of payments, accurate and transparent financials, timely delivery of tax documents, and the ability to meet target projections related to timing and returns. To be candid, this may be the most important and most overlooked component of choosing a syndicated investment.
I cannot stress the importance of getting comfortable with those items before you invest.
20 Replies
- Specialist · Cleveland, OH · Member since 2016 · 186 posts · 173 votes8y
there some raising money laws out there...REG D maybe....and it does allow for you to raise money from a few non accredited investors...but i would stay away from doing this as you can get into some issues if the property goes south and it could be an issue as non accredited investors are not seen as sophisticated by IRS standards.
what you could do is find a good deal, network other investors, and JV/partner with them and do it that way. it still could be determined as a security but your not necessarily syndicating deals.
as always, check with an attorney, which i am not
- Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes8y
@Tony Xu As it relates to mobile home park investing, that is all I do, and can certainly share some guidance. However, the investments you are interested do not allow for public solicitation, so syndicators like myself are not allowed to solicit for investors through any public forum. With that said, I can share some general guidance for the benefit of everyone in general, and if you want to reach out directly I can share further detail in private.
The private investment space for non-accredited investors is traditionally governed through Regulation D as Ryan suggested, more specifically a 506b(b) private placement offering. In general, the "b" allows for up to 35 non-accredited investors, per offering. A syndicator (or sponsor) of an offering should still take the necessary steps to ensure non-accredited investors are qualified through an investor questionnaire to avoid allowing the wrong kind of investors into their offering.
There are a few things anyone seeking an investment through a private placement memorandum (PPM) should be aware of. I can post some further guidance with detail at a future date, but I will identify the areas where investors should focus.
- Character - When you invest through a PPM, you are a passive investor and the syndicator is in the active management role, so if they are dishonest everything below will not matter. Make sure to do proper due diligence on the syndicator and acquire testimonials from current/prior investors.
- The strategy - Does the overall real estate strategy make sense? Strong returns are nice, but you will want to also make sure you understand the risks. Has the syndicator worked through all the potential risks, related to the current and future market, economy, interest rates, etc? Have they worked through all the property specific challenges, both current and future? Make sure the overall strategy has been well considered and stress tested. Even if you have a syndicator with great character, the project can still be a bad one if the strategy is poor. This step will help you avoid jumping into an investment just because you know a good guy who "has a great deal".
- The model - The relationship between an investor and a syndicator as it relates to how income and profits are split is extremely important. Most investment models include a host of fees, splits, inversions, waterfalls, lockups, tails, etc. which can be complicated and confusing for investors. Most of those models are designed to weigh heavily in favor of the syndicator, so make sure you understand the model completely before you invest. Consider the most important question to be: with this model, will every decision that is made be in the best interest of all parties?
- The business - Most real estate syndicators are good at real estate. Rarely are they also good at everything else a business requires. Some of the areas where that will cause investors to become frustrated are regular reporting, timely delivery of payments, accurate and transparent financials, timely delivery of tax documents, and the ability to meet target projections related to timing and returns. To be candid, this may be the most important and most overlooked component of choosing a syndicated investment.
I cannot stress the importance of getting comfortable with those items before you invest.
- Property Manager · Orlando, FL · Member since 2016 · 479 posts · 277 votes8y
@Tony Xu in simplified terms, a syndicator regardless of what they are doing, can use non-accredited investors for a 506(B), 506(C) doesn't allow for non-accredited. When under a 506(B) you are supposed to be able to show prior relationship for those that are not accredited and a level of sophistication on there part that they understand what they are investing in, and also need a PPM. But I'm not an expert, so that's just very high level.
We've been exploring going into Mobile Home parks ourselves as we've only done syndications for multifamily in the past. We've spoken extensively with experienced mobile home investors and gone to several seminars and conferences for it and actually just got one under contract. I don't know if we're going to raise money or just do it privately though. The issue you run into with mobile home parks is the dollar amount isn't necessarily worth a sponsor's time because most are at most a couple of million dollars, whereas multifamily easily scales into ten of millions and hundreds of millions (not that we are there yet lol). Also, most sponsor's make their money in their hurdles/waterfall structures upon sale so that also gets eliminated with mobile home parks because they tend to be 7+ year investments and primarily cash flow driven. The attractive part of mobile home parks is the high cash flow, but if sponsor's start to split that with investors, then their attractiveness starts to diminish.
- 8yTony XuInvestor · NY · Member since 2017 · 59 posts · 21 votesOP
And thanks everyone for the responses! @Chris Grenzig I guess I hadn't thought of the fact that because its a lower priced asset, its less worth it for syndicators to do these types of syndication deals.
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes8yTony Xu you can’t really refer people on this forum. What I would do is network with investors that are really doing it and start to find investors investing as Lps and then navigate the network.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes8y
@Tony Xu I've thought about this too and another option that isn't syndication, but gets you in the space quickly, is creating your own index of MHP REITs. There are only three, Sun, ELS, and UMH.
You could by all three in proportion and call it a day or weight the portfolio to what you feel has the best growth ie Lifestyle vs All ages and tenant owned vs rental.
I've batted the idea around but haven't decided between buying all three or doing a deep dive and buying one.
- Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes8y
Tony,
More than happy to share ideas on this w/you on that. Why I like this niche below...
- Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes8y
Originally posted by @Tony Xu:
And thanks everyone for the responses! @Chris Grenzig I guess I hadn't thought of the fact that because its a lower priced asset, its less worth it for syndicators to do these types of syndication deals.
First, there has been some very solid advice given here on syndications. It actually surprised me because often this forum doesn't always get that quality of advice.
Second, there are other ways to attract investors for this space other than syndication that may be better suited to this type of investment. The caution here is the investors themselves are also different, and have different goals.
Third, have you thought of investing with existing operators as a partner? There is a considerable amount of that going on right now because it can be less risky.
- 8yKim Lisa TaylorPro MemberAttorney · Saint Augustine, FL · Member since 2016 · 242 posts · 234 votes
Unfortunately, the cost of a syndication is sometimes hard to justify for the small raise needed to buy a typical MHP by itself. Many syndicators in the MHP space will do a multi-property syndicate that allows them to acquire multiple MHPs with the same investor pool, thus spreading the syndication legal costs over more than one property acquisition.
Alternatively, you could do a MHP blind pool offering based solely on your business plan (without having any properties under contract). In this model, your business plan might be to raise say, $2M to $5M dollars and go out and buy as many MHPs as you can with that much cash; but you will generally need significant MHP experience to successfully raise money in a blind pool structure.
Unfortunately, for the single MHP property model, your options for containing legal costs are to: 1) joint venture [all investors in active control of their own money], 2) only allow accredited investors (so you aren't required to have a PPM), or 3) figure out a way to scale up your business model and buy bigger deals or multiple deals at a single shot.
- 8yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
@Jack Martin, Since you specialize in investing in mobile home parks, I was wondering if there are any syndications that you recommend for accredited investors right now. The trend (at least from the deals that I'm seeing ) are the sponsors charging higher and higher fees (from just a few years ago), having less experience and sometimes even less desirable geographic locations (that may not have held up as well in the last recession). I was curious if there are any solid, experienced sponsors with an open fund that you like right now.
The Real Estate Crowdfunding Review - Specialist · Cleveland, OH · Member since 2016 · 186 posts · 173 votes8y
@kevinbupp and @charlesdehart have a second fund coming available very soon. Jefferson lilly has one as well. And so does frank Rolfe and Dave Reynolds.
All great Park owners and great people to invest with. Regardless of whom you choose.
- Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes8y
@Ian Ippolito I wouldn't make recommendations for other syndications out there without vetting them properly, but as @Ryan Groene mentioned above, there are MHP guys across the country who have established a good name. Each investor should do their own due diligence on the sponsor, the strategy, the investment model, and make sure all those components those are aligned with their investment goals.
Two questions to consider, regarding fees inside the investment model:
1 - Does the fee structure and model cause the syndicator to make decisions in the best interest of all parties involved?
2 - Does the syndicator receive benefit, even if they don't perform?
Because we syndicate parks for both accredited and non-accredited investors, I cannot speak to any offerings on a public forum like this one, but as it relates to fees, I can speak to the model we like the best, which is a performance based model with NO ongoing fees of any kind. A model with those features allows for the highest degree of alignment and transparency between investors and the syndicator.
- Specialist · Cleveland, OH · Member since 2016 · 186 posts · 173 votes8y
@Jack Martin is correct that you should do your own diligence and make sure they meet your own goals before you invest. I have no affiliation from a promoting standpoint with any of the people that i mentioned before. There are plenty of other syndication's as well out their doing Mhp's as jack mentioned.
- 8yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
@Jack, I see. I got the impression from your previous response that you were an investor rather than a syndicator. But I understand now.
By the way, I disagree that an all-performance based fee model is the "highest degree of alignment" with an investor.
Paul Kaseburg has sat on both sides of the table on almost $2 billion worth of transactions and has written a fantastic book about investing in real estate syndications. He devotes a whole chapter to running the numbers on this and showing why this idea is one of the biggest myths of syndications. It sounds good, but in practice all-performance fees encourage excessive risk-taking because the promote structure disproportionately rewards the manager for each extra bit of return versus the investor. If an investor is conservative, then this is not a high degree of alignment.
Also, if a severe recession comes, a sponsor that doesn't have any income coming in at all because they are all performance-based, will come under the most financial pressure. My personal preference is to have a firm that is at least bringing in some income so they can keep the lights on.
The Real Estate Crowdfunding Review - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
@Ian Ippolito @Ryan Groene I am in the funds you mentioned along with Ryan and Jamie's combined MHP and SS storage fund with the Dahn corporation. I reached out to Jefferson Lilly's fund numerous times, with no reply.
- Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes8y
@Ian Ippolito great points, and further evidence of why it is important to understand all aspects of the investment, including the risks and the syndicator's approach to those risks. I think the message here is for investors seeking to join a syndication to understand what they are getting into before they invest. And to make sure the one they choose is aligned with their investment goals.
My goal in participating here on BP is to share some perspective so prospective investors can avoid getting burned. While everyone may not agree with my view, hopefully sharing my experience can be of value to the BP community.
- Mobile Home Park Investor / Licensed Indiana Real Estate Broker · Chicago Area, IL · Member since 2015 · 262 posts · 135 votes8y
@Tony Xu As stated before, lots of great info regarding syndications. My thinking is in line with @Ken Rishel. I think you may do well with a partnership vs a syndication. Of course, this cannot be a passive endeavor if it is to stay within the confines of the law. I do not currently know of anyone doing a (B) syndication on MHP's right now. I have spoken to a couple of SEWC attorneys regarding these and it seems that this type of syndication is quickly falling out of favor so I am not sure that they will be easy to find. Not to mention the whole prior relationship thing. Active involvement may not be as labor intensive as it sounds. There are lots of park investors looking for partners to close deals. How easy it is to find the right investor and the right deal will depend on the amount of capital you have to deploy amongst other things.
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
In deference to what the original poster was asking about which is MHP Syndication Investing for sophisticated investors……… I personally have not seen any yet.
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