Multi-member accredited LLC for Syndication/Fund Investments

[Michael Dole]

I invest about 1-2x/year in syndications but have noted that the minimums have risen steadily over the past couple of years, resulting in being priced out of many funds and lacking in diversification of syndicated deals.  Several friends/colleagues and I have started a general investment interest group and through this others have expressed interest in starting investing in syndications.  We are all physicians but in a field that is considered "lower compensated" in medicine (Pediatrics) so it is hard to come up with some of these larger minimums, and some are not as interested in having such a higher portion of their investments dedicated to real estate, but still want the diversification.  My idea would be if 5 people wanted to put in 20k each, we could invest 100k in a fund, or possibly reach a higher level on a syndication which may result in a better distribution pay-out.

What would be some of the true business/tax challenges others foresee in creating a multi-member LLC with other accredited investors so that we can pool have multiple members pool money together to invest in these 6-figure syndications and funds? I foresee this as potentially developing into a side-business over time and possibly creating an investment company focused. One challenge I suspect would be the state tax implications we would each encounter if investing in multiple deals per year in multiple states. The "smaller" investments would have a larger chunk of the yields eaten up in costs associated with tax filings. However, if we focused on specific states or funds, it may be less of an impact. There is the obvious personality difficulties which with the current group, I am not concerned but if this were to grow could become an issue. I would hire the appropriate CPA/lawyers to make sure all the legal documents for the LLC, distribution of funds, etc. were accounted for and had appropriate oversight, which again would eat into yields.

I am happy to consult the appropriate professionals but wanted some general thoughts. as I haven't seen discussion on this when searching except for smaller LLC with just 2-3 partners. I am not sure if I am missing something obvious to why this wouldn't work, or if there is some other better way to create an accredited investment group.

[Jim Pfeifer]

I use Tribevest for exactly this purpose! Tribevest is a platform that makes it easy to form groups to invest together. They call their investing groups tribes - I am in six different tribes. I already know how to form an LLC, get a business bank account and many of the things Tribevest helps you with, but I still use the platform for a number of reasons. First, it is easy - they file for your EIN and your LLC for you, they make communication with your group easy, you can store all of your documents in one place for everyone to see and they make banking really easy. When I started my first Tribe, the banking wasn't set up yet so I had to track down all of the members and remind them and cajole them to send in money. It was a hassle. One of the members was a neighbor and he wrote a check to me personally for our investment and gave the check to his eight year old kid who delivered it to my house. Of course, my wife answered and was shocked to see such a large check made out to me from a neighbor - I think she thought I was the neighborhood dealer until I explained the situation! Now, all I do is tell the group to fund a deal and they go to Tribevest and with two mouse clicks it's done. So a big reason I use Tribevest is that it's easy and convenient.

The main reason I use Tribevest goes beyond convenience.  It makes me a better investor, increases my diversification and lowers my minimums - from your post above, you already understand that!  When investing with a group, we all discuss and evaluate the deal so you are leveraging your network to make better decisions.  You lower your minimum because you have multiple people sharing the investment and this allows you get into more deals allowing you to diversify by asset class, market, sponsor and any other way you want to diversify.

One thing I really like is the voting - this allows and requires everyone to equally participate in all of the decisions. That means each LLC member is equally active in the operations of the LLC.

I invest on my own and I invest in groups.  I will continue to do both, but when I invest in a group, I use Tribevest for all of the reasons I stated but mostly because it's easy and efficient.