Syndication Experience for the little guy?

Question

I was recently invited to participate in a syndication deal for a very large commercial project. Numbers look great etc. Minimum buy in is $75k, which is a stretch for me, but I can get there. My experience so far is two SFR currently under my belt, and a third under contract. So this is a big leap for me, but the numbers check out, so I am very interested.

There are obviously people that will be investing much larger sums into this deal.  I have a business partner/friend that may jump in with me, but it would only push our investment to $100k which will still be at the bottom of the pile in this deal I’m sure.

My question is, are there any disadvantages of being the little guy with the just minimum buy in amount?  Or does it really matter?

Josh Walker · Answer

@Dave E. - @Jaysen Medhurst nailed it ... there is no such thing as a good deal with a bad sponsor.  Vet the heck out of them and get to know them personally.

There is no disadvantage to being at or near the minimum investment.  You could even view this as a potential advantage as you are aligning your $75k with others' larger investments.  That being said - people throw good money at bad deals every day.

I've personally invested in almost 40 separate deals and love discussing syndications with anyone wanting to learn more about them.  I would focus on defining your goals.  Cash flow? Long term wealth? (can be both) Higher risk with higher upside? Etc.

Certain asset types lend themselves to these in different ways.  You also want to take a hard look at the market and how stable it is.  After all of that ... dig into the deal.

If you want to discuss further shot me a PM.  I wish you luck!

Jaysen Medhurst · Answer

@Dave E., the most important aspect of a syndication, more important than the property, is the sponsor. What's their track record? How long have they been doing syndications? Have you spoken with investors who have worked with them in the past?

"The numbers check out." What does that mean? Have you researched rents, Cap Rates, demand, and market trends of the subject property? "Commercial" can mean a lot of different things, but I'm not sure I would be investing in office or retail right now. No one knows how COVID-19 is going to shake out in those markets, but the signs are not good.

Considering that you wrote, "$75k, which is a stretch for me..." I would be very cautious. Are you an accredited investor? Personally, I'd hold on to the $75k for my own future deals.

It doesn't matter if you're the "little guy" as far as your returns, etc. But rest assured, if a $2MM investor needs attention from the sponsor, they'll get it before you will.

Dave E. · Answer

@Josh Walker thanks for the input and the offer to help. I will reach out.

I have decided to pass on this deal. I think it is an excellent opportunity, but it would wipe out my reserves, and that is not a position I want to be in right now. Sometimes it’s hard to say no.

Andrew Hogan · Answer

If needed, there are other reputable sponsors you can test the waters with a lesser minimum but excited for you if you feel good about this deal and the operator. Best

Ronald Rohde · Answer

Don't feel bad, plenty of opportunities. Watch this deal, stay in touch with sponsors and track it over next 3 years...

Dave E. · Answer

@Jaysen Medhurst thanks for the input. The sponsor is solid with an excellent track record. I am in the process of vetting the info in the investor packet. So far everything checks out with regards to location, rents, taxes, etc, “the numbers”. I am far from done with my review. Haven’t passed it off to my attorney or account just yet, but will do so before I sign any documents or cough up any money.

I am just testing the waters here. It is a very exciting deal, just not sure it is the right deal for me right now.

Thanks again!

Syndication Experience for the little guy?

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