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Demystifying Real Estate Syndications: Exploring the Significance of Minimum Investments | Ep 11

James and Jessi showing small sizes with their hands
In this episode, we discuss the concept of minimum investments and why they are set at certain amounts. We offer detailed explanations about the concept of accredited and non-accredited investors as defined by the Security and Exchange Commission (SEC), and discuss the qualifications that need to be met to become an accredited investor. The discussion also touches upon the importance of understanding one's personal financial status, the responsibility of an investor, and how it impacts the decision to invest..

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Show Notes

  • 00:00 Introduction and Personal Updates
  • 01:43 Exploring the Concept of Minimum Investments
  • 03:06 The Role of Accredited and Non-Accredited Investors
  • 05:11 The Importance of Investor Protection and Regulations
  • 07:07 Exploring Different Types of Syndications
  • 10:31 Defining an Accredited Investor

Key Points

  1. Overview of Syndications: Syndications involve pooling money from multiple investors to purchase a property, managed by a sponsor or general partner, while investors typically have a passive role.
  2. Minimum Investments: The general minimum investment for syndications is around $50,000, but it can vary based on the syndication structure and the amount needed to be raised.
  3. Accredited vs. Non-Accredited Investors: This podcast discusses the definitions and differences between accredited and non-accredited investors, highlighting regulatory requirements and how these affect investment opportunities.
  4. Investment Strategy and Considerations: The importance of understanding one's financial situation, investment goals, and liquidity needs before investing is emphasized, suggesting a cautious approach to investment.
  5. Legal and Regulatory Aspects: The discussion includes insights into the legal frameworks governing syndications, such as the 503B and 503C regulations, and the significance of these for investors and sponsors.
  6. Personalized Investor Updates: The value of maintaining a manageable investor pool to provide personalized updates and attention is also highlighted.

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Read the Transcript

James: You ready for this? I'm ready. All right. Welcome to the Furlo Capital Real Estate Podcast, where we dive into, Oh man, welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of real estate investing. And our mission is to equip people to invest wisely, not only in both properties, but also in people so that together we can build our wealth and improve communities.

I'm James, and this is my wife, Jessi. Hi. How you doing today?

Jessi: You know, I feel like I'm on a rollercoaster. We haven't really shared much personal stuff going on, but I'm taking some medication, there's some health issues. Yeah. Makes me like a crazy person. Right now I feel a little jittery and hopped up.

James: Alright, well, that should be good. There you go. We'll take advantage of this. That's why we're recording. I'm on and up. You're on and up. I shared on our email list some information. Which, by the way, if you would like to get our emails, it's where do you go? It's furlow. com slash join Subscribe. That wouldn't make sense.

It's somewhere on there. You'll see it. Furlough. com. I feel like join is the, is the magic word there. I think you can find it if you go to furlough. com. I try to make it as easy as possible to sign up to get all sorts of updates. Including stories about what's going on with the lives, what activities are up to you.

And so far it's, it's about a once a monthly thing unless there's an active investment going on. Then I send a little bit more. I try not to spam because I personally hate it. And so I try to do minimum number of emails. So today. I don't want to talk about emails. I want to talk about money, specifically minimum investments.

This is a question that I often get when it comes to syndications, which kind of makes sense. What is the minimum investment? So a syndication, again, just in case you might've forgotten, is where you are pulling a bunch of people's money together, essentially. So you have someone like myself, a sponsor, sometimes known as an operator, sometimes known as the general partner, they go after lots of names.

They go out and they find a property and they go, Hey, this one's awesome. It's got some good upside. It's going to have some good return potential, blah, blah, blah. It looks amazing, of course, obviously. And then what they do is they pool a bunch of money together in addition to getting a loan, typically.

Not always, but typically. And then they go off and they invest. And it's actually bought with an LLC. And then you have a bunch of owners to that LLC. And there's a bunch of legal paperwork that goes on with it. And so And then you're

Jessi: that same person who kind of deals with all the Oh. paperwork and yes, deal together.

Yes. Following through managing. Yep. Yep. Yep. You're the

James: go to for all the things. I'm the go to slash my team. Yeah, exactly. And so when you have that other group of people, they are passive investors or sometimes called limited partners or LPs if you're cool. And part of their whole thing is they're not allowed to actually be involved in the operations.

That's how makes. That is what makes their liability limited. Makes sense. Yeah. So that's just a quick primer on what it is that we're talking about. And oftentimes, what you'll hear if you look at all at like syndications, there'll be some sort of minimum investment, or they will also say accredited investors only.

Non accredited need not apply. No, they're not quite that mean about it. But they'll say accredited investors only. And so I kind of want to look at those two together because they are related.

Jessi: So like, just to recap, what is an accredited investor, what's a non accredited investor, and then what's the minimum

James: people would have to put in?

We're gonna do that in reverse order, but yeah, we'll start off with what's the minimum, and then accredited, what Why do we care about that? Okay, cool. Credited piece. Yeah, I know. Exactly. So in the minimum, do you have a guess? I think, I feel like I've told you

Jessi: in the past. I feel like you've told me and for some reason like 50, 000 is rattling around in my brain.

James: Yeah, that's good. Yeah. Yeah. I know exactly. It technically can change and it's not always that But as a general rule, that's what it is. There are other ones where they have a minimum like of a hundred thousand Some have a minimum of 200, 250. Those are

Jessi: like the, the big kahuna

James: deal people. Yeah, they're going after what they call like family offices, really big guys.

Yeah, that's not me, which is fine. It doesn't have to be. Sure. But yeah, but you typically, there's a minimum of 50. It kind of depends. There's some calculations that have to happen in order to determine what the real number is. So, okay, we got to back up just a little bit more here. There are different types of syndications.

There's what they call a 503C and a 503B. Okay. I know. It's super exciting. No 503A? There is. Oh. But it's a totally different type of thing. It's not relevant to this. Okay. So the B, so originally there was just, well, originally it was just the A, which meant like, like those are the big guys, big companies.

Those kind of like, like, like, uh, yeah, big stuff. And then they came out with a 503B, which meant if you're a small enough thing, okay, so oh my gosh, I'm all over the place here and I just wrote my paper. You can grab that while I talk this all matters for securities and exchange stuff. When you are handling other people's monies, there are certain rules that you need to follow to keep investors safe.

Sure. And so one way they got around that was they said, well, just, you always have to have someone who is quote accredited, which we'll get to, but there were certain exceptions that they would allow. So for like me, if I want to pull money together, they're like, yes, you can do it, but not everybody has to be accredited.

As long as they, as long as you know them, as long as you have a prior substantive relationship with them ahead of time, essentially, if you know, family, friends, that kind of stuff, they're like, yeah, sure. Pull their money together because there's this, there is this implied trust in between them. And so they created the B in order to do that.

And they capped it. They said, you can have 35 non accredited people to go in with you. And so that's why the math. It might change a little bit on

Jessi: what that, depending on how much you need to pool to do a

James: particular investment. Like if you've got, I don't know, it's an easy answer, right? If you've got, if you're doing a 35 million, let's say you 35 million hypothetically, each

Jessi: person would have to give

James: you a million dollars.

Yeah. So that's the minimum, right? If you're doing a 3. 5 million deal or You're raising 3. 5 million. Then your minimum is now a hundred thousand. That makes sense. Mostly. And there's a caveat there. But if it's, if you're raising it all from non accredited people. Accredited people don't count towards that number.

So if you think like, well, I need to raise 3. 5 million, but I think half of them will be accredited. Like half the funds I get will be accredited. Then your minimum drops. To 50, 000. Yep. Okay. There you go. Make sense. I just got a thought. Got it. Eventually, they came out with a 503c, which said so the problem with the B, right, is it's only for people you already know.

Right. In other words, zero advertising

Jessi: is allowed. Yeah, you can't market to anybody, which your pool

James: is pretty small. Right. Outside of doing things like this podcast, hence why it exists, so that you can create general information. Yeah. People can get to know you. You can create that relationship. Like, when you're on the email list, then you can find out about a deal.

But you won't hear about a deal like me blasting it on Facebook.

Jessi: Is someone, like, who's on your email list then in that pool of non accredited

James: people? This is a gray area that we have stepped into. It depends on how long they've been on the list. Have there been any interactions between myself and them?

And most importantly, do I know what their relatively speaking financial status is? Yes. So there's like before the internet, this is all super straightforward. Right. So, yeah, it was really straightforward because either you knew him or you didn't, and you had like a physical, I talked to him somehow conversation.

Now the internet arrived and email happened. And. Like, you've had it, where you've been on a part of an email list, and even though you've never met the person, Or like, someone you follow on YouTube. Yeah. You've never met them, but you feel like you know them. Yeah. Right? You're like, oh, I, maybe, obviously

Jessi: I don't know some people, yeah, I mean, I don't, don't know them personally, but I might

James: know.

I'd argue you know some people on YouTube more than you know who go to our church. Perhaps even though you see them in person,

Jessi: perhaps. Yeah, because I have heard more of their philosophy and heard. Yeah. Yeah, it's one way Right, you know, but

James: I know them right and so the question is okay What if I were to send out a survey saying hey, how are things going in your financial life?

What if you were thinking about investing how much would you or if you're considering investing? How much would you consider investing? Did I say that right? Mm hmm. Okay Now, I know something about you. I knew about it before the offering. Does that count as a substantial relationship? It's a very, very, very, VERY gray area.

And there are some people who swing one way or the other. Wow, I did not expect to go that deep into that. But anyways, that's, that's what, there's this cap. And you, and then they came up with a C, which meant, now I can advertise. If I find a specific property that I want to raise money for, I can. As long as everyone is accredited.

Verifiably by a third party company accredited. So now we need to

Jessi: know the difference. Yes, yes, yes. Because you're using all these terms

James: and people are like, what does that mean? So again, there was a minimum. And it really was, it's for this like, you have a cap. And by the way, there are different caps just in terms of What it is at a national level, what it is at an Oregon or Washington, Idaho, like there's different caps in there.

Don't have to worry about it. I do all the math. Figure it out. But there's another really good reason. So in these things, again, I want to give personalized investor updates, right? I want to make sure that I touch base with everyone. They understand what's going on. It's easier to do that with, say, 20 people than it is to do with 200 people.

Sure. And so by setting a higher minimum, it reduces the number of people who can invest, which increases the time and attention that I can give to each individual. So that's just another reason. So question, what is an accredited investor? You have a guess? What do you think it is?

Jessi: Someone who has a lot of money and can prove it?

I don't know. Okay.

James: Has a lot of money and can prove it. Yeah. See,

Jessi: it seems like, you know, it's not just like your cousin or your uncle or your brother who's like, oh yeah, I'm good

James: for it. Yeah, I appreciate the the SEC's definition of it. It says, it's a person who meets certain standards of wealth and sophistication.

Oh. Oh, so the idea. You defined sophistication. Yeah, so, so the idea behind Yeah, the idea behind it is if you have accumulated, if you have already accumulated enough wealth Or a certain level of wealth, then you must be sophisticated. You must be smart and therefore you can handle something that isn't as tightly regulated as a publicly traded company.

That's the idea. And you had to set the line somewhere. Now I'm going to give numbers. And from what I understand, those are all updating. They're all getting a little bit bigger thanks to inflation and things like that. So, do your own due diligence. All you gotta look up is like, SEC Accredited Investor.

It's gonna be one of the top results. It'll tell you all the numbers. But this will help you understand what it is that you're reading. Sure. So, as of this moment I think. So you have to have a net worth. It's like, it's one, it's a couple of a few things. But the first one is you have to have a net worth of over 1, 000, 000 excluding your primary residence.

So the house that we are currently in right now doesn't count. And it's either like as an individual, if you're investing as an individual or as a couple, if you're investing, if you know, if you're married or something like that, but it's 1, 000, 000 net worth. Yeah. That's the, yeah, if you have that, boom, you're accredited.

Congratulations. Like you are, you can get it verified through a third party company. You don't need to, but but yeah, you're an accredited investor. Cool. Go have fun. So anywhere, if you see like an ad for syndication and it says accredited investors only, and you know, you have a net worth of a million dollars excluding your primary home, boom, do it.

Number two. And I know that this move, this number has moved up. You have to have income over 200, 000 if you're an individual or 300, 000 with a spouse or partner. Each of the prior two years. And you reasonably expect the same in the current year. So you have to have, let's say we're married, because we are, we would have had to have earned 300, 000 in 2022, 2023, and we expect we'll earn at least 300, 000 in 2024.

Cool. That's, that's it. So if you do that. Who cares what your net worth is? Cause you just got a lot of money's coming in. So invest, have fun. So

Jessi: really they're just kind of verifying that you have money to play with and you're not going to like make yourself bankrupt if you invest

James: in things. Yeah, I guess that's fair.

Or, you fill one of those 35 slots as a non accredited investor, then it doesn't matter. You can have a friend who's like, this is my last 50, 000, here you go. I, I don't recommend doing that.

Jessi: Yeah. Side note, please don't do that.

James: Yeah. There, yeah, there are, I mean, don't get me wrong, obviously, like in some ways that's what we did when we got started.

We took the funds that we had and we invested directly into it and we kind of. That farm on it in some ways worked out, obviously, but we also had so we're in town and we come and I'll show you some other stuff. Yeah, yeah. So, so anyways that's it. Like that's, that's why we set a minimum and that's why it's around 50, 000.

So I have a follow up question. Yeah. Follow away.

Jessi: I know that like those things exist. By the SEC, whatever that

James: is. The Security and Exchange Commission. There you go. They're in charge of like publicly traded stock companies as well. Huh.

Jessi: And they just set these rules so that you do legit deals?

James: Well, it's to protect investors, but yeah.

That's the idea. So you don't take their money and

Jessi: run.

James: And do stuff. Yeah. Clearly that happens, but yeah.

Jessi: Sure. Okay, so here's my question. They set these rules and these parameters around, like, The minimums that you would have or like the net worth someone would have to have to be able to count as this accredited investor huh, you know, do you?

personally have other Rules or standards or thing, you know, like you you kind of offhandedly mentioned like don't give me your last 50, 000. Yeah, I don't want to put you in that spot. Yeah, like what are what's your Minimum or other areas that you're like,

James: oh, like non-financial screening requirements?

Jessi: Is that what you're asking?

Well, may maybe, I mean more financially related, just 'cause that's kind of what we're talking about. Like do you have any others that are like strict or more strict than the SEC or less strict than the SEC or, I don't know. No. Am I saying that right?

James: S-E-S-S-E-C. S-E-C-S-E-C. Security Exchange Commission.

Okay. Yeah. SEC, no, not really. I mean, outside of like asking your normal questions, right? I understand you might have this money. Are you spending less than you earn? Do you have credit card debt? Like kind of some basics. You have some big transitions coming in your life. Do you, this is considered an illiquid investment.

Do you have enough funds to survive slash thrive for like the next five to 10 years? Sure. Like, are you, do you need this money anytime now? That's probably the biggest. The biggest question that I'll ask. And so if you have someone where it's like Hey, I saved up 50, 000 to get married, but she said no.

So now I got extra, I know. Now I got an extra, I'm just thinking of a situation where you would have this pile of cash. And you're like, I don't know what to do with it. I'm gonna throw it into your thing. Saved up for college,

Jessi: decided

James: I'm not going. That's not worth it. It's a more positive spin. I like that.

So, now I've got all this cash. Yeah. It's like, yeah, yeah, exactly. So now what do I do? I could go on vacation, but let me just invest it and that'll be my revenge fund or something. I don't know. But Cheers. It's a different type of education. Anyways That would probably be like, I might be like in that situation now, you know what you should probably hold on to this cash, keep it keep it liquid or what I might suggest is they do some sort of tiered T bill system if they really want to keep it liquid of like, hey, go out and buy bonds, like treasury bonds and, but don't like Don't sink all 50K into one.

Why don't you break them up into like 5, 000 or 10, 000 dollar tranches and like do different tranche. Yeah, I know. It's a fancy term. Groups. Bundles of money. That's the definition of a tranche. And, thank you for that. And so then, like, that way you kind of have this constant revolving thing. You're earning.

Probably one of the most secure slash highest interest options, but you just kind of like, it's like a, it's a government backed CD is what it is. And I'd say, man, start there until, or I don't know, I don't, I don't love the stock market. So I usually don't recommend just plug it in there, but but yeah, that's my, I don't know.

But if I guess, I guess again, if it's that situation where like, yeah, I went to college, but I know what I'm doing. This is the path. I've got a good income. I genuinely don't need it. Like, yeah, sure. Let's go. So that's part of the, like having that relationship ahead of time and follow up

Jessi: question. Do all of, I know you can have like a mix of accredited investors and non accredited.

Do all of those non accredited investors have to give you the same amount, or can they give you different amounts? Oh, it's just a minimum. Yeah, no, it's a minimum. So as long as they hit the minimum, that's fine, but they give you more

James: than that. Yeah, yep. Yeah, I'll take 55, 000, 75, 000, 250, 000, you know, like, I'll take whole amounts yeah.

That makes sense. No, I'm not, yeah, yeah. Like, so for example, the one that we invested in, yeah, I, I think we did a minimum on that one. I can't remember. I think it was a weird, the minimum was like a weird, cause they did the math. It was like 92, 000. I was like, wait, what? Okay. And so we just rounded it up, but cause it just made sense.

But yeah, so that was kind of, it depends. Yeah. No, no, it's just a minimum. It's not the target. It's a minimum. Got it. Yep. Yep. So there you go. There you go. Yeah. And so you go, that's the minimum investment and what it means to be an accredited investor. Got it. And so thank you for listening. And if you enjoyed this episode, we would totally appreciate it if on whatever podcasting platform you listen to.

If you liked this episode, you can even leave a comment. That'd be totally awesome. And like we talked about the very beginning, if you want to get those fabulous emails that I send out that give even more insights and updates, just check out furlough. com. And that's where you can get that information.

Have a great day. Thanks for listening.

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Furlo Capital Podcast

Furlo Capital
Real Estate Podcast

A conversational podcast between James and Jessi Furlo that dives into the intricacies of passive real estate investing. Our mission is to equip people to invest wisely in both property and residents so that, together, we can build wealth and improve housing.

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Passive Income

Tenants pay monthly rent, which covers expenses and generates a profit for investors. Plus, multifamilies appreciate and usually sell for a significant profit.

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Real estate is less volatile and historically outperformed the S&P 500 by routinely generating average annual returns of at least 10% after fees, inflation, and taxes.

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Unlike stocks, lenders like to finance multifamilies and the loans are tied to the property, not the person. This accelerates wealth building.