In short, its just another strange rule that governs 506B offerings. You can read Rule 501(a) of Regulation D promulgated under the Securities Act of 1933 (the “Securities Act”). Here is my best attempt at explaining this… An accredited investor is defined by the United States Securities & Exchange Commission as someone who makes a minimum of $200,000 ($300,000 if filing jointly) or has a net worth of 1 million dollars excluding personal residence. The significance of being an accredited investor is that you can invest in things that those with less money cannot. You can also be something called "a sophisticated investor" which has a much more nebulous definition but essentially says you know what you are doing even if you don't have that much money. A 506b offering allows 35 non-accredited investors who must be "sophisticated investors." These laws were put in place long ago to "protect" the average person from predatory activity. The irony of this all is that there is no protection for the average Joe, or pension funds for that matter, against investing in a wildly bloated stock market at record valuations. Every major trader out there knows we are in a bubble but there is no protection for individuals dumping money into their retirement accounts to buy mutual funds. It's an archaic system which makes little sense. Certainly, there has been some recognition of this fact. The 2012 JOBS act made it easier for Main Street America to participate in "alternative" investments via crowdfunding and made it easier for sponsors to advertise previously unknown opportunities. However, we have a long way to go. I would advise you that you need to know the lead syndicator personally. None of this "we met at a local REIA and he pitched me his deal". If a guy does not have a list of solid investors, they must lack the track record. 

It all depends on what the syndicator does to market the deal which determines if the deal is a 506B or 506C.

506C allows for open marketing and general solicitation, but the SEC wants to protect average Joe from doing something dumb so only Accredited are allowed. Thus the 3rd party check.

506B is not openly marketed, and thus there is a little less scrutiny from SEC. But as the syndicator, I have to act responsibly because if I make the wrong call, you could get all your money back. Of course this is all predicated on the deal going south and as in sports... winning (a good investment) covers up a lot of things.

Typically, I see $50,000 as the minimal investment in 90% of deals I take a look at. Sometimes you can find $25,000 deals, but those are typically done by newer syndicators. Asking to get a lower minimum just to get a "good deal" is annoying and can be poor form.

The GP wants to minimize the number of investors and keep it to 40-100 investors per deal. The more investors mean more headaches, filing costs, etc.

Institutional operators with higher acquisition fees and worse LP splits usually are around $100k-250k+ minimums. Sometimes a sponsor will have flexibility to lower the minimums, but it can be bad form to always be that LP who is asking to get in for less. It is the equivalent to that guy who is always asking for a discount and the first guy left off the roster when the deal fills up. Remember that this is a relationship business.

This is a guide, not a rule. Think about it - $100k will be gone in a couple deals at $50K per investment. If you don’t have adequate cashflow coming in annually (~$30K a year), you are a sitting duck for a year or two. I would think of this as using SFHs to get you from gear 1-2 or 0-35mph in a car. People who have excess money after expenses (Cashflow) via their day job or investments (Gear 5-7 or over 55 MPH) should transition to syndications at some point for diversification and scalability if they are NOT a good operator. If they are, they should syndicate and lead deals. This transition is tricky. Yes, it’s a little uncomfortable.

It is recommended that you understand the business. Starting small with at least one SFH is recommended as a prerequisite to getting started with bigger investments. Although finding and working with good operators is great, unfortunately good operators do go into bad deals. Also, you want to be able to have a surface level idea of what is in these executive summaries of these offerings. For more ideas, check out how I manage my liquidity here.

Most deals that are NOT public (506B) but most people who don't have a network can only see the mass-marketed 506C deals for accredited investors only (via Crowdfunding websites). If you are a non-accredited investor, you will need to put yourself out there and start shaking hands or picking up the phone (or post-pandemic get on a Zoom call). Real estate, especially syndications, are a people-based investment. 

Usually you plug in 10% for a regular market and 8% for an Atlanta/Dallas (hotter market). After that, you deduct a few percent points to account for deadbeats (economic vacancy). In the end, this moves the needle very slightly. The Cap rate is the biggest factor on proformas - i.e., what you use for the reversion cap rate.

• The current property manager who has managed for last 2 years has cited that crime is not bad on the property, there has just been a notable incident which were not residents, but outside instigators.
• Residents are thoroughly screened with appropriate background checks, etc.
• We've also called the local police department to corroborate.
• We will be installing security cameras. We've also been on-site; you don't need a bullet proof vest walking around.
• I’ve driven there at night, there’s plenty of lighting thanks to recent LEDs installed and no issues.