What is the minimum investment in a multifamily syndication?
I wanted to record a quick video on this because this is a question I get sometimes. And the short answer is that it varies per sponsor. So different sponsors of multifamily syndications will have different investment minimums. I’ve seen as low as $25,000, as high as $100,000 or more. And there’s a couple of things I want to explain to you if you are considering investing in a multifamily syndication and why an investor’s minimum might be what it is.
So on the one hand, a lower investment minimum like $25,000 will allow more investors to participate potentially in the deal because it’s obviously a lower dollar amount. However, if the sponsor is doing a 506(b) offering, they’re going to have a limit on how many non-accredited investors they can have in that deal. So the SEC currently states that that limit is 35 non-accredited investors in the deal. So if a sponsor has a $25,000 investment minimum, they can fill up those 35 spots fairly quickly, and I’ve seen that happen, and then that locks other people out of the deal if they’re not accredited. So that’s one consideration a sponsor might have is how many spots they might have for non-accredited investors if they’re doing a 506(b) offering.
Another consideration is just administrative concerns that a sponsor might have. Our last syndication that we did was close to a $2.5 million equity raise and there’s 30 investors on that deal. Our minimum on that investment was $50,000, so you can imagine if we had a $25,000 or maybe a $10,000 minimum investment, we could have many, many more investors. And that’s okay to have a lot of investors, it just creates an administrative burden.
Another consideration for a sponsor is what percentage of the net worth is that investment? So if somebody’s putting their very last $25,000 into a deal and crossing their fingers and hoping for a home run, that’s probably not an investor that we want in one of our projects, and most sponsors would probably shy away from taking on that investor because you really want the investor’s capital to be a smaller portion of their overall net worth. Just part of a sound investment strategy. If you’re investing money into a deal, that should not be your last penny that you’re crossing your fingers and saying a prayer that this deal is going to knock it out of the park and change your life. You should be investing capital that’s investible capital, meaning that it’s not capital you need to live on etc. So that’s one consideration. It may be the case that investors that are putting in $100,000 into a deal that that represents a small portion of their net worth, they’ve got a larger net worth and they’re okay putting that amount of capital into your deal.
So those are some considerations for why the investment minimums are what they are. Of course, it’s going to vary depending on the sponsor and depending on the deal. There’s no hard and fast rule. Typically our firm does a $50,000 investment minimum. In the future as we grow we may look at moving that up to $100,000, just to reduce our administrative burden and to have fewer investors to deal with etc. However, at this point in time, we’re at that $50,000 mark. You might be evaluating deals that have different investment minimums, but I wanted to give you a little bit of education on why investment minimums are what they are.
Hope that helps. Take care.