Investing path for a Sophisticated Investor NOT Accredited

[BOB CRANEY]

Experienced in SF and small multifamily 1-4 units. Currently have 13 units across 8 buildings that i have had for 7-10 years in C areas. Appreciation since the crash has been really slow to come back and many of my properties are just under the sales prices that were around in 2007-08. I will walk with some equity if i liquidate several of the ones running at break even cash flow. 

All in, i will have about $400k to work with. I have done a lot of study and due to my income and net worth I dont technically qualify as an Accredited investor and as such i cant participate in a high % of most syndications. 

With the cash i have and experience in rehabbing, managing my own properties, I am tempted to make a play for a 20 -30 unit building, 1-1.5 million, with a heavy value add component. I have a few monied friends who have expressed an interest in participating in the financing of the right deal either as JV partners or just straight private lenders. I am hesitant to proceed with this path only because all i read/hear about being is that no mans land in between 20-75 unit count and how its so much better to be at 75 units minimum to make scale work with 3rd party management. I have found it really easy to manage up to 16 units only part time 5-10 hrs a week so i cant even imagine 30 units being more that 15-20 hrs a week at most.

It seems like the 2 camps are either stay small and accumulate small multis 5-20 units each or figure out how to be able to go big and participate in a larger syndication as a LP and eventually as a Key Principal. 

Who can lay out a path here that makes sense for someone in my position. Working a pretty safe low 6 figure sales job, but need a stronger plan to Job replace current job income. 

[Brian Burke]

@BOB CRANEY if you bought property at the last market cycle peak and managed to survive, and still own them, you've accomplished something that many others couldn't.  The experience you received along the way has most likely taught you a lot of lessons, enough that you've collected an awareness of the risks of investing in real estate and an understanding of how it all works.  If that's enough to earn you the title of a "sophisticated investor" (and it probably is, but since that term isn't specifically defined I suppose it could be argued either way) you can qualify to invest in many syndications.

Syndications are most often created under one of two exemptions to the registration requirements as a public securities offering.  One of these is rule 506(c) which allows sponsors to market their offerings publicly, as long as they only accept accredited investors (and they have to take steps to verify that the investors they admit are accredited).

The other common exemption is rule 506(b).  This rule allows the syndicator to raise an unlimited amount of money from an unlimited number of accredited investors as long as the syndicator does not advertise for those investors with a general solicitation.  Investments can also be accepted from up to 35 non-accredited investors as long as they have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.  Perhaps you qualify to invest under this provision.

If you want to invest in syndications, you need to find sponsors that use the 506(b) exemption, and you can't find them through advertising or any general solicitation.  The best way is to form a relationship with them, which is one of the ways that sponsors demonstrate that investors weren't introduced through a general solicitation.

Aside from investing in syndications, if your goal is to own real estate directly, and you want to move up to larger properties, there is no "rule" to prevent you from doing so.  Don't listen to those of us who say that we'd never own 20 to 75 unit properties because of this or that.  We say that because we have been there, done that, and got the T-shirt.  It's part of the right of passage of growing from doing 4-plexes to doing 200+ units.  If you can survive a 50-unit property, you can survive most of anything.  Just like you survived buying in 2007 and holding to 2019.  It's part of the growth process.  You wouldn't want to do it again, but it prepared you for the next stage of your growth.  If I didn't buy a 60-unit property way back when, doors wouldn't have opened for me that have led to thousands of units since.