How to Raise Money for Real Estate Syndication

Real estate syndications involve taking down larger deals, using other people's money, and bringing in partners for deals. Be careful because the last thing you want to do is break the law, or you’ll be wearing an orange jumpsuit. There are no second chances when it comes to joint ventures with other people if it borders on syndication.  

Today, Clint Coons of Anderson Business Advisors talks to Kim Lisa Taylor from Syndication Attorneys, PLLC, about creating syndications.

Kim is the author of How to Legally Raise Private Money, hosts the “Raise Private Money Legally” podcast, and teaches at real estate trading events. She started Syndication Attorneys, PLLC, to help entrepreneurs create sustainable, successful real estate investment companies.

Highlights/Topics:

• Joint Venture vs. Syndication: What's the difference? Whether or not you're selling securities. In a joint venture, all members play an active role in generating their own profits. In a syndicate, passive investors rely on the promoter to generate profits.When passive investors rely on you to generate profits, you're selling an investment contract.
• What is an investment contract? Investment contracts are securities. The Securities Act of 1933 created a definition of what constitutes securities.
• What is the friends and family exemption? It's called Regulation D Rule 506(b). It's the federal exemption, but each state has its own securities agency. Most people follow the federal rule because it preempts all these individual state laws.
• How are investors sophisticated? If they are interested in being in the deal that you are proposing, whether or not this is a good fit for them, you have to document that conversation before you even tell them about a deal.
• When should you get a syndication, operating agreement going? Kim recommends three things: A deal under contract, review of the financials, and physically visit the site. By the time you've done those three things, you're 90–95% likely to close.
• How long does it take to generate legal documents? About 140–180 pages of legal documents are generated and you have to review them until 100% correct. Then, you're ready to start raising money. The whole process takes two to three weeks.
• What's the appropriate structure and what's going to pass with the lender? Draft the securities compliance documents (a private placement memorandum that describes all the risks of the investment), and a subscription agreement, where investors certify to you that they read the private placement memorandum, understand the risks, can afford to take the risks, and how much they're going to invest.
• With a non-recourse loan, how could they still be a guarantor? There are things called carve-outs for anything illegal that happens at the property that causes the loss.
• What are some common mistakes that people make? Drafted documents are inconsistent and incorrect. Sometimes, starting over costs less and is necessary.

Resources

Syndication Attorneys, PLLC

https://syndicationattorneys.com/

Free Ebook: How to Legally Raise Private Money.

https://syndicationattorneys.com/how-to-legally-raise-private-money/

Raise Private Money Legally Podcast

https://podcasts.apple.com/us/podcast/raise-private-money-legally-for-real-estate/id1553530036

Securities Act of 1933

https://www.investopedia.com/terms/s/securitiesact1933.asp

U.S. Securities and Exchange Commission (SEC)

https://www.sec.gov/

Regulation D Rule 506(b)

https://www.sec.gov/smallbusiness/exemptofferings/rule506b

Form D

https://www.sec.gov/about/forms/formd.pdf

Banking Secrecy Act

https://www.irs.gov/businesses/small-businesses-self-employed/bank-secrecy-act

Clint Coons

https://andersonadvisors.com/clint-coons/

Anderson Advisors

https://andersonadvisors.com/