How to join the investment game with a lower initial cash investment
In many cases investment minimums and the requirement of being an accredited investor can prohibit many of us from entering into the investing game. Many investment opportunities require a minimum of $50,000. This often doesn’t work for the average working person who wants to start building their financial future through investing.
The most common options for the smaller investor are commonly referred to as “Crowdfunding”, like “Indiegogo”, “Kickstarter” or “GoFundMe”. Here investors get to choose a specific start-up or project to invest in with the hope that they will succeed and provide a decent return. These options are considerably riskier because the investment asset is unknown and truly can be a shot in the dark. Because investment amounts are small, those choosing to invest here are willing to take the risk of loss.
There is, however, another way to invest smaller amounts in larger projects having the potential for a greater return. A common investment model here is to join a larger group, typically a limited liability company, that is managed by someone who is accredited. The accreditation will span the group allowing for participation in greater risk and return investments. The accredited investor is experienced, knows the investment asset and its operation, and will often manage the investing entity.
At MIG, we have organized several investment options using this model. The investment vehicle is a limited liability company that holds the investment asset. Investors become members in the LLC through their investment capital and share in the return in proportion to their membership interest. The following is a simple example.
ABC INVESTMENT LLC
ABC owns the investment asset: Apple Mobile Home Park, 123 Apple Road, Tree Village, NH
The LLC Manager and Initial LLC Member is Johnny Appleseed, an investment professional who qualifies as an accredited investor. Appleseed has capitalized the LLC with initial capital of $20,000.
Membership interests are offered at $2,500 per membership interest.
Returns are based on each investor’s proportionate share
Investment % ownership Membership Interests
Appleseed $20,000 61.5% 8
Investor A $ 5,000 15.4% 2
Investor B $ 5,000 15.4% 2
Investor C $ 2,500 7.7% 1
Total $32,500 100% 13
If in the first quarter of year 1 there is profit or income of $10,000 available for a distribution, the returns would look like this:
Investor A $1,540
Investor B $1,540
Investor C $ 770
This is a somewhat aggressive example of returns but you get the picture. Organizing the investment using this model allows the smaller investor to participate in projects that may yield returns not otherwise available to them.
Looking to take the next step? We’ve been doing all the talking and want to hear from you. Reach out so we can find the right investment that fits your goals.