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Updated almost 5 years ago, 01/31/2020
Partnering to Invest in Syndications
Two of my colleagues and I (all accredited) are interested in combining our funds to gain greater diversity across more syndications than we could individually. Could anyone advise on the proper way to structure this based on their experience?
@Christopher Nemlich
Hi Chris,
I’m not sure I can properly answer. But I think it would help to clarify more what you’re asking. Are you looking to pool your money together and do your own deal, are you looking to invest in syndications, where you all put money in and decide on different syndicated deals that you get an equal share in?
Originally posted by @Christopher Nemlich:
Two of my colleagues and I (all accredited) are interested in combining our funds to gain greater diversity across more syndications than we could individually. Could anyone advise on the proper way to structure this based on their experience?
Will it be a closed group of the three of you or will you be doing offerings to other accredited individuals? It makes a difference in what entity you choose and the methods you use.
@Barri Griffiths Pool to invest in syndications. I.e. rather than me taking $100k and investing $50k in only 2 deals, pool $300k and hit 6 per person.
@Account Closed Closed group. Equal split every time.
Originally posted by @Christopher Nemlich:
@Barri Griffiths Pool to invest in syndications. I.e. rather than me taking $100k and investing $50k in only 2 deals, pool $300k and hit 6 per person.
@Account Closed Closed group. Equal split every time.
I'd create an LLC or a Joint Venture for the three of you. Make sure you have an exit strategy for when one or more of you want to do something different. Keep in mind, when everything goes well, one of you may want to 1031, another may want cash out and another may want to reinvest. I wouldn't do a Partnership, it puts you and your partners at risk to each other's deeds.
Hi @Christopher Nemlich is there a particular reason you would like to structure it this way? I understand increasing your diversification but I would argue that it may be more headache than its worth. As I'm sure you know, one of the main benefits as a passive investor in syndications is diversification. This obviously, would take it up another level but as @Account Closed said you and your partners may (and likely will) have different opinions on what to do with the funds. As a passive investor myself I would never want to make this sort of arrangement. That said, I'm sure its possible. Just make sure to speak with a good attorney to set everything up.
You could also talk with the syndicators you are working with and explain what you want to do, they would probably make an exception to their minimum individualy ($50k typically) if the aggregate exceeds the minimum. Especially if you are working with say 3 different operators and you commit to $100k each over two deals.
This way there are no co-mingled funds and it achieves your objectives of diversification.
If this doesn't work then you could, as suggested, form a simple partnership LLC. You'll just need to decide how to make decisions, who has the final word, what if there are disagreements, etc.
IMHO, a simple LLC (maybe TIC) would do the trick. However since these are long term investments, you would want to spell out various clauses in your agreement as to "...what happens if..." FYI... This is only my opinion and hence, I recommend leveraging a business attorney who could help. Can recommend one.
I also know several groups that do what you're ind=tending to do. So feel free to PM if you'd like me to connect you with them.
@Christopher Nemlich we've had group of investors form an LLC and invest as one LLC in our deals so that we're not dealing with numerous individuals and just one entity. And within that entity, they figure out how distributions are made to their group. We've also had just one person represent a group of people and invest that way.
Feel free to contact me with whatever questions you have. Good luck!
As a syndicator, I would advise what @Spencer Gray said. My deal minimums are $50k, but there are exeptions. I think if you put $100k into 3 different syndications ($33k each) that would be plenty of diversification. You could even try for $25k x 4. It's reasonable... (I have a few $25k investors in multiple deals).
ESPECIALLY since you're all accredited, then you're not 'taking one of the precious 35 non-accredited slots' so the minimum investment amount is even more flexible in your case.
As long as the sponsors have a good back end, its really not that much more work to bring on someone at a lower minimum.
Hope that perspective helps!
Q: @Christopher Nemlich what markets are you looking to invest in?
Originally posted by @Chris Collins:
As a syndicator, I would advise what @Spencer Gray said. My deal minimums are $50k, but there are exeptions. I think if you put $100k into 3 different syndications ($33k each) that would be plenty of diversification. You could even try for $25k x 4. It's reasonable... (I have a few $25k investors in multiple deals).
ESPECIALLY since you're all accredited, then you're not 'taking one of the precious 35 non-accredited slots' so the minimum investment amount is even more flexible in your case.
As long as the sponsors have a good back end, its really not that much more work to bring on someone at a lower minimum.
Hope that perspective helps!
Q: @Christopher Nemlich what markets are you looking to invest in?
That's good to know, and potentially a much simpler approach, thanks. I've spoken to probably 8 different syndicators or middle men so far and none have suggested that approach as a possibility.
As far as market goes I suppose it might be frowned upon to say this, but I'm not sure I care too much as long as I get diversity over time. I want solid, proven operators above all, specific market or deal is a bit secondary.
@Christopher Nemlich no problem. I say simpler is better. And cleaner/less messy should things go wrong or life circumstances change. An LLC and partnership with friends can be tricky as you can imagine.
As for the markets, that's fair, and good job being honest.
However, it can't hurt to at least begin checking out markets and having some idea of what you like and don't like. If someone presents you a property in a market that you have researched and believe in, it will shortcut your investment timeline. However, if they pitch you a deal, and you have no idea, and are 'sold on it,' it might not be a worthy investment and you may be buying into the hype of a syndicator...
The more researched you can be, the better. But as you said, a good sponsor should be reliable anyways, but you can still do your best to safeguard your investment, and that includes the market.
Great job saving up your hard-earned money, and for making a decision to invest in real estate. I don't know your background, but saving up that amount of money is no easy task for anyone. So, KUDOS to you!
@Christopher Nemlich you can do a joint venture who is more straight forward. Someone puts in the work and someone puts in money and profits are split. Another way is through syndication. I've only done syndications before and here's how I structure it. 8% annual preferred rate of returns for LP's (passive investors who provide capital). Once satisfied it will be 70(LP)/30 (GP) cash flow split. There is a small acquisition fee upon closing as well for jobs done prior to acquisition.
