To the new investor who is looking to place an investment in a multifamily syndication, it can seem that the industry favors accredited investors. Offerings under 506c are easily found all across the web and one could begin to wonder how a non-accredited investor can participate in this amazing investment vehicle. Today we will look at a few points of how the non-accredited investor can find and vet multifamily syndications.
506c vs 506c
The Securities Exchange Commission (SEC) is the organization that governs the sale of securities in the Unites States. Normally, an individual cannot sell securities unless they have a special type of license however the SEC allows for two exceptions under Reg D know as 506c and 506b. A 506c opportunity is open only to accredited investors and therefore the SEC allows the sponsor to feely advertise their offerings. This is why as a new investor is is much easier to find 506c offerings. However, the SEC does allow sponsors to designate their offering as 506b and make it available to non-accredited investors but they then restrict the sponsor by not allowing them to advertise their offering and also limiting their investors to people with whom they have substantive relationship.
How to find 506b opportunities
As mentioned above, sponsors who are offering 506b investment opportunities are not allowed to advertise those investments. The reasoning behind this is that since non-accredited investors are allowed to participate offering the investment publicly could entice investors who might not have an understanding of how the investment works or the risks involved and therefore make a poor investment decision. Because of this rule, it becomes crucial for the non-accredited investor to network with sponsors who offer these opportunities in order to develop a substantive relationship with them as required by law. Places to find these sponsors include references from other investors, the internet, local meetups and podcasts.
How to know if a 506b opportunity is a good investment
The short answer to this question is that as an investor you should become familiar with how multifamily investments work in order to understand the right questions to ask and properly vet the assumptions that are in the sponsors analysis. Additionally though, it's a good idea to ask the sponsor for references. People who have investment with the sponsors one or more times and can attest to their track record.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please set up a meeting with us through our Calendly link and subscribe to our weekly blog here.