What we look for in our investors

You already know that not all investments are right for all investors. That also means that not all investors are right for a specific investment.

Given a syndication is a long-term business venture, where the GPs and LPs are going to be partners for many years, it is important to ensure that investment philosophies align.

In previous blog posts, I have talked about my current investment philosophy [1] and why MBC was formed [2]. In this post, I talk specifically about who we are looking to partner with.

Investing in MBC is not right for everyone. As part of our investor vetting process, we are looking to align on the following:

You must be a verified accredited investor. This is an SEC requirement and, because of the type of offerings we provide (506 c), there is no alternative to providing this verification. For legal compliance, we require third party verification that you meet the accredited investor requirements. You can either use the service we provide or you can have your own accountant or lawyer provide a letter verifying your status. If you are uncomfortable sharing sufficient financial information to demonstrate you meet this qualification with a third party, our deals are not for you.
The amount you are looking to invest is within our target range. Each of our deals has a minimum investment (usually $100,000) and a maximum investment amount. The maximum varies between deals, but is typically 20% of the total equity we are trying to raise for the deal. The reason that we have a maximum investment size is to ensure that you are not subject to either lender or SEC reporting requirements. These institutions require detailed information about any investor who owns a significant part of the company, and these additional reporting requirements are generally not worth the overhead for individual investors. As a result, we cap the amount of investment we will accept from any individual. While there is some flexibility in these constraints (e.g. if you are looking to provide all of the funding required for a deal), if you are looking to invest outside of our target range, that deal is likely not for you.
You are not going to be investing more than 20% of your portfolio on any one deal. We strongly believe that no-one should have more than 20% of their investment portfolio in any single investment. While we only invest in deals where we have high confidence we will be able to generate a profit for our investors, there is always the risk of an unexpected catastrophic event. As there are never any guarantees, to ensure some level of diversification, we require that your total investment portfolio be at least 5x the amount that you are investing in a single deal with us. If losing your investment would be not just undesirable, but catastrophic to your investing future, our investments are not for you.
You are a long-term investor. Our deals are expected to run at least 10 years, and in many cases, we are looking at a 20 year time horizon. While the duration of the investment will depend on market conditions, the expectation is that your original investment will be locked up during the entire hold period and you will not be able to liquidate it for any reason. If you expect to need your capital back in the next 5-10 years, our investments are not for you.
You are focused on after tax, cash flow from your investments. We look for opportunities where we are able to generate cash flow within the first year, and then grow that cash flow over time. We pass the depreciation on so this income will be tax deferred in most cases. The investments we focus on and the assumptions we make tend to be conservative, and thus we may have lower target returns than some of the deals that you see advertised. Many of these deals rely on selling the property in a relatively short period of time to generate the expected returns. While we will take advantage of opportunities to perform value-adds on our properties, quick flips and similar strategies are not our focus. If you are looking for a quick return of your money or a high return based on a heavy value-add, our investments are not for you.
You are looking for fully passive investments. You will be a limited partner in our deals, which means that you do not make any decisions once you invest. As the investment manager, MBC will make all of the tactical and strategic decisions, within the rules defined by the PPM and operating agreement. If you are looking to take an active role in managing a property, our investments are not for you.
You understand that you will be getting a K-1 and that this will complicate your income taxes. A side effect of being a partner in a business is that your personal income taxes become more complicated. In addition, while we strive to provide all of our tax documents by mid-March, there is always the chance that we are unable to do so based on delivery of information from our partners. If you are looking to file your taxes yourself, do not want to deal with the complexity coming from K-1s, and want to file your returns early in the year, our investments are not for you.

If you are aligned with our philosophy, we look forward to working with you on a future deal.

Whether or not you are a good fit for our investments, I hope you find the information we provide useful and that you are taking action to generate additional streams of income and get out of the rat race.

If you have any questions or comment about this post, please email them to me at blog@mbc-rei.com, I will reply to the questions that are straightforward and will turn the questions requiring more detailed answers into future blog posts.

For additional reading:

This article is my opinion only, it is not legal, tax, or financial advice. Always do your own research and due diligence. Always consult your lawyer for legal advice, CPA for tax advice, and financial advisor for financial advice.