What You Should Know Before Investing in a Syndication

Before accepting any investor funds, the sponsor of a syndication is required by securities laws to provide a set of offering documents that explains the terms and discloses the risks of the offering to prospective investors. Here are 10 things to research before investing in a syndication.

10 Things to Research Before Investing in a Syndication

Be sure that as a potential investor, you carefully review all of those offering documents and look for—or ask for more information about—the following:

  1. The sponsor’s background, education and experience with similar investments, if any.
  2. The team members involved in acquisition and operation of the property, including attorneys, CPAs, other members of the sponsor, property managers and affiliates that may receive fees, etc.
  3. Cash distributions to investors during acquisition, operation and disposition of the property, including the proposed timing and anticipated percentage returns.
  4. Sponsor fees and cash distributions.
  5. Anticipated duration of the investment.
  6. Property information, including its type and condition, the purchase price, financial history, proposed “value add” and exit strategies and pro forma financial projections.
  7. Dispute resolution provisions.
  8. Voting rights of investors.
  9. Provisions for removal of the sponsor.
  10. Information about the law firm that structured the offering and drafted the offering documents, and whether the firm is experienced with securities offerings.

Seek the Counsel of Your Own Advisers

In addition to satisfying yourself with respect to all of the items listed above, you should seek the advice of your own attorney, financial adviser or accountant regarding the investment.

Your attorney should determine whether the offering complies with applicable securities laws. A sponsor that disregards the applicable laws (or drafts its own documents) may expose itself and the entire investment to unnecessary civil or criminal liability, or it may be unaware of its fiduciary obligations to its investors.

Your CPA or financial adviser can evaluate the financial merits of the investment based on past financial statements for the property and pro forma projections provided by the sponsor, as well as its suitability for your investment portfolio.

The bottom line: Know what you are getting into. And take advantage of the expertise of those on your support team. Keeping your investment safe and in compliance with all laws and regulations is, as they say, priceless.

You can read more on this subject in my article titled “10 Things Investors Should Know Before Investing in a Real Estate Syndication” by clicking on this link or going to the “Articles” tab on this website.

NOTE: This information is of a general, educational nature and may not be construed as legal advice pertaining to your specific offering, exemption or situation. Any such advice must be sought from your own attorney pursuant to an attorney-client relationship, after consideration of your specific facts or questions. At Syndication Attorneys, PLLC, we will be happy to discuss your investing goals with you. You can schedule a free, 30-minute consultation by clicking this link.

print

Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

About Syndication Attorneys

We are NOT your stereotypical law firm. We don’t believe in simply taking your money, handing you a stack of technical, often-incomprehensible legal documents and then bidding you good luck and good-bye. At Syndication Attorneys PLLC, we are committed to your success – not just with the project at hand, but your continuing success in business and investing. We are your long-term legal team.

More Resources

Should You Really Start a Fund?

We get potential clients who reach out to us every week who want to start a fund. While we could simply take their money and set them up with fund offering documents, we actually talk a lot of people out of doing a fund. Why? Because they don’t have the necessary...

How do I Create a Substantive Relationship?

Question: If I am doing a 506(b) offering, do I still need a pre-existing substantive relationship before I can solicit from an Accredited Investor (AI)?  If “yes,” is there still any waiting period after I get that Accredited Investor to sign a document attesting to...

What is Real Estate Syndication?

If you have a self-directed IRA or substantial investment funds, you probably have considered investing in real estate. But perhaps you have concluded that you lack the funds to invest on your own. Or maybe you simply don’t want to deal with the hassles of...

Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!