What is a fair amount to get started as a syndication sponsor?

Question

I think sponsor is the term for someone who invests in syndications of commercial properties. I assume my $20,000 won't be sufficient. What is a fair amount to start with then? Does one need to be accredited to see the majority of options or are there a fair amount of options for those non-accredited as well?

Amy Wan · Answer

I'll just add here that if you're not accredited, you cannot invest in 506(c) deals--but that's okay because most private capital is actually raised under 506(b). 506(b) raises allow sponsors to take on up to 35 non-accredited investors--but that's their choice. They CAN take some one if they want, but many dont (but some do!). For my clients, I see investment amounts start as low as 25K, though 50K is more standard.

Ben Leybovich · Answer

Well, we just went under contract. Here's what we've got:

$400,000 EMD

$50,000 loan app

$15,000 PPM

There are a few other costs which have to be paid upfront. But you can do the math.

Now, the last one only required $200,000 EMD, but all of the other costs were similar.

Spencer Gray · Answer

It sounds like you are interested in investing in a larger deal for all the economies of scale etc and to pool money with others. Makes a lot of sense.

Do you want to run the deal as the sponsor (finding the deal, raising money, personal guarantee for debt, running the deal  providing investor reports, K1s, audits, etc) or invest passively as a Limited Partner? By participating as an LP you give up some economics to the sponsor (usually about 30% of cashflow after you get a preferred return / your capital back at a sale) but the sponsor should be bringing enough value to the project where you're still making a good return.

I would keep reading up on the differences and see what role makes sense with your goals and lifestyle.

Just keep in mind running syndications is a full time job and you'll need a team.

Scott Mac · Answer

Hi Gary,

It's a little unclear if your asking how to Syndicate or how to Invest in a Syndication.

If your asking how much it costs to Syndicate a deal Ben has covered it very well.

But if your asking about how to participate in a Syndication here it is.

To invest in most Syndication you will probably have to be what's defined by the SEC as an Accredited Investor or a Sophisticated Investor.

The determination of who is Accredited is easy for the Syndicators.

The determination of who is Sophisticate is more of a judgement call, and some deals will be Accredited Investors only.

Different Syndicators will have different minimum buy in amounts to participate in the investment.

Common amounts seem to be $50,000 and $100,000. Can you get in an a Syndication for $20,000? That would be up to the Syndicator, commonly called the Deal Sponsor. Some deals may have more than one Sponsor.

This is not investment advice, I'm just telling you how things tend to work for Syndications.

The decision on if you should invest in a Syndication is up to you and your financial advisers.

Good Luck!

Alina Trigub · Answer

@Gary Clisele

Based on what you wrote, it sounds like you're looking to be passive investor (aka limited partner, aka equity partner) in a syndication. You've received some great feedback already here. I think you need to keep educating yourself on the process, various asset classes, markets to help you determine whether this is the right strategy for you and then who to reach out to find your investment. In terms of your question about the opportunities for non-accredited investors, there's definitely a fewer number than for accredited. Nevertheless they are out there. However in order for non-accredited investor to have access to such opportunities one must have pre-existing relationships with a syndicator. So you have to work on that while in parallel continuing to educate yourself about it.

Here're a few articles to give you further clarification:

https://www.biggerpockets.com/member-blogs/10850/84064-what-type-of-investor-to-be-when-i-grow-up-active-or-passiv

https://www.biggerpockets.com/member-blogs/10850/84504-step-by-step-process-on-how-to-invest-in-a-real-estate-syndication

https://www.biggerpockets.com/member-blogs/10850/74478-a-little-known-secret-called-self-directed-ira

https://www.biggerpockets.com/member-blogs/10850/76728-questions-to-ask-a-syndicator

Good luck!

Chris Tracy · Answer

Hi Gary... You will hear the term Sponsor used interchangeably with Key Principal or Syndicator... but basically think of the Sponsor as the quarterback of a football team that calls plays and is in charge of scoring points on the field (ie. getting returns for investors), performing active duties and not necessarily an investor per se.  For syndications, a $50K minimum is typical.  You don't need to be accredited... You just need to find someone who is doing a 506 (b) offering.

John Fortes · Answer

Lots of content here that provided you the correct answers to your question. Sounded like you were speaking as a limited partner (LP) but crossed it up.

To invest passively @Theo Hicks hammers out the investments more common for each offering.

@Amy Wan lays down the law (literally). That's her expertise and what she see's as she's preparing docs.

and Like @Ben Leybovich he provided an example of what the sponsor does to once the deal is under contract.

To use Ben's model our last deal we went:

41 units

$50,000 EMD

$9,000 loan app

$15,000 PPM

Theo Hicks · Answer

The limited partner/passive investor is someone who invests in syndications. Sponsors are the ones who are involved on the general partnership side.

Most syndications have a minimum investment amount. The lowest I've seen is $25k, but $50k to $100k is more common.

Some syndicators accept non-accredited investors, but will still have a minimum investment amount.

Mustafa Mo · Answer

@Amy Wan very useful tips you posted last. Thanks a lot.

Charley C. · Answer

I think you are describing an "investor" and not a sponsor. Usually the word "sponsor" means the opposite.

What you need is a sponsor.  "Sponsor" as it is well described above me. I do the larger complexes  (like over 100 but phase them in at 40 units at a time). The minimum is about $300,00 liquid with me (that's just me).  My perspective is from building new so you can get a different answer going in to smaller older properties.

Lets say I even found a deal where I could buy it at $180,000 and needed 20,00 in repairs =$200,000 so we need a loan with $40,000 down. The problem with $20,000 is who would want to split their ownership if all they had to do was come up with is another $20,000 to own it all. You got to make yourself relevant to the deal.

I wouldn't give up.. lets say if YOU get the rehab deal under contract with clauses where you can extend it out to 90 days (make the first 45 days have a refundable escrow) Now you got something to bring to a good sponsor doing smaller deals.

You still have the $20,000 to put in to it, basically to show you got skin in the game. Find a partner/sponsor with experience, lots of loyal subcontractors and not lot of pissed off partners in the passed, look up his or her public record.

Good luck

What is a fair amount to get started as a syndication sponsor?

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