Frequently Asked Questions
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How Should You Carve up Management Earnings in a Syndicate?
Here’s how we suggest people carve up ownership in the management of a syndicate (and seems to be consistent with what we see our clients doing). As a default, this would apply to allocation of Manager’s fees and to Class B (profit) Distributions,...
Why Can’t Investors Self-Certify That They are Accredited for a Rule 506(c) Offering?
The short answer is, “Because the SEC says so.”. Here’s why: The SEC stated in the rules authorizing Rule 506(c) that the issuer must have a “reasonable assurance” that all investors are accredited, and that information has been “verified” wi...
Can I Accept an Investor Who is Referred By a Friend in my Regulation D, Rule 506(b) Offering?
You need to determine every investor’s “suitability” to invest before you offer them the investment opportunity, regardless of how they were referred, as that begins the “substantive relationship.” See the article “How do I Create a Substantive Re...
What is a ‘Sophisticated Investor’?
To be “sophisticated,” the Investor must have, under Rule 506(b)(2)(ii), “either alone or with his purchaser representative(s) such knowledge and experience in financial and business matters that he is capable of evaluating the merits and ris...
How to Choose a Name for Your Branded Company
Before you get too invested in your favorite name for your new company, here’s what you need to do: Do a Google search to see who else is using it or something very close to it; If that’s clear, do a domain search at GoDaddy to see if ...
What’s the Difference Between an Asset Manager and a Property Manager?
An Asset Manager’s primary job is to manage a company and its properties on behalf of the company’s owners. The owners include the investors who contributed the money to acquire, improve and operate the company’s assets, as well as members of the ...
How Does a Business Entity or Trust Qualify as an Accredited Investor
To be accredited, the entity or Trust has to meet one of the following conditions: ≥$5M in Assets, or Each of the beneficial owners must be accredited. For Trusts To invest in a Rule 506(c) Offering that only allows verified Accredited...
Beware of Single-Check Writers
Single-check writers are people who say they can fund your whole deal. They are usually private equity companies, hedge funds, family offices or high net worth individuals. Single-check writers have a habit of: 1. Going dark right befo...
When should a Syndicator contact Syndication Attorneys?
Before you Have a Deal Many clients contact us before they find a deal. We have a Pre-Syndication Retainer for this that allows them to become clients of the firm for a nominal retainer. Under this agreement, we can help guide Syndicators from whe...
How Long Do I Need to Syndicate a Property?
Timing of a deal is a balancing act. You can’t wait until you have completed all of your due diligence before you engage your securities attorney — or you won’t have enough time to raise the money. Once you engage us, we will schedule a deal-struc...
We Sold a Property; How and When Should We Dissolve Our Entities (LLCs)?
Generally, the Manager should dissolve all entities once the property is sold and all affairs wound up. You’ll need to review each of your operating agreements to see if a vote of the members is required before you do so. If it is, you’ll have to ...
Can My Real Estate Fund Hire Employees?
Typically, a Fund operating agreement does not contemplate or authorize the direct hiring of employees. It can be a mistake for an entity that has investors to hire employees, as you start mixing up liabilities (investor liabilities and employee l...
Can I Use the Same Entity to be the Manager of Multiple Syndicates?
You can use the same Manager LLC for multiple syndicates as long as you don’t change members of the management team for specific deals. If you do, you will need a new Manager LLC for each syndicate. Your Manager LLC should never own any...
What Entity Should I Use to Make Offers on Real Estate?
You should create a “Brand LLC” that you will use to make offers. It will either be used as the Manager LLC of a syndicate or it may be used as your representative member in the management of a syndicate if there are other management team members ...
What Name Should I Use to Present a Purchase & Sale Agreement to a Seller of Commercial Property If I Haven’t Created an Entity Yet?
You can use your branded entity to make offers via a Letter of Intent (LOI). When your LOI is accepted, you create the Purchase & Sale Agreement (PSA). The buyer listed on the PSA is “your branded entity and/or assignees.” You won’t create an ...
How do I Invest in a Rule 506(c) Offering?
Want to invest in a Rule 506(c) offering? Here is what you must do: In order to claim the Rule 506(c) exemption, the issuer of the securities you want to purchase must be able to demonstrate they took “reasonable steps” to ensure that all in...
Can I Convert a Rule 506(b) Offering to a Rule 506(c) Offering, and Vice Versa?
Yes, you can. There’s no waiting period if you convert from a 506(b) to a 506(c) offering. But if you convert from a 506(c) to a 506(b), you will have to stop raising money for the 506(c) offering for at least 30 days before you can st...
Reaffirming an Investor’s Accreditation
Question: Can an investor that invested with us before in a Rule 506 Offering complete a re-affirmation letter in lieu of getting re-verified as an accredited investor if they want to invest in our current Rule 506(c) Offering? Answer: Investors c...
Can I Accept IRA Funds From Investors in My Syndicate or Fund?
There are no restrictions on accepting IRA funds for purchasing directly owned real estate, allowing you to raise up to 100% of your funds from pension funds. However, if you invest in non-real estate assets or securities in others’ real es...
How Should I Structure the Entities for a Development Project?
For development projects (or possible development projects), we recommend using 3 LLCs as follows: A single-purpose venture/title-holding entity (SPV) — This LLC will hold title to the property and will become the borrower for any subsequent cons...
How Do I Calculate ‘Annualized Returns’ for Investors?
Annualized returns are calculated by adding up “distributable cash” both from cash flow during the operation of your investment property and “equity” realized on eventual resale. Distributable cash from operations is the cash remaining after payin...
How Do I Determine Investor Splits?
Start by answering this question: What is the overall average annualized cash-on-cash return (AAR) for the project? If you don’t know how to calculate this, please follow the steps below. If you don’t want to do this yourself, there are plenty of...
What Happens if I Don’t Dissolve My LLCs?
If you want to raise capital and be a syndicator, you have a fiduciary obligation to your investors to properly form, operate and dissolve the companies you create in connection with your offerings. The proper way to terminate a company is to fil...
Should I Start an Internet Marketing Program to Attract Investors? Is There Someone Who Can Help Me Do This?
Here’s the thing: Building relationships on the internet is expensive ($5k-$10k/month). We spend thousands of dollars every month on marketing/SEO/professional editors/graphic designers/social media consultants, and 5-10 hours of my time...
Do Non-U.S. Investors Have to be Accredited to Invest in a Rule 506(c) Offering?
There is a separate exemption — Regulation S — for Non-U.S. Persons. The rule for Reg S says there are no financial qualifications for Non-U.S. Persons who invest in a U.S. Offering under Regulation S. However, the industry standard is: If i...
Can I Collect Funds From Investors Before the Offering Documents are Complete?
Here are a couple of options: 1. You can create a “Securities Escrow Account” in the Company name where Investor funds are collected based on a preliminary Subscription Agreement. The funds would not be released to the Company until the inve...
Where Should We Send Investor Contributions in a Joint Venture or a Syndicate?
The answer is the same, regardless of whether you are collecting funds for a syndicate or joint venture: Do not ever send individual investor funds to a property escrow or closing account or to an attorney’s trust account. Property escrow account...
Is it Ok to Continue to Raise Money After Closing a Syndicated Deal?
When we create a syndicate for our clients, we always set a minimum and maximum amount of the offering. The target raise should be somewhere in the middle of the minimum and maximum. The minimum is just what’s needed to close the deal; the m...
Does a Syndicator Have to Keep Investors Informed if Something Changes Post-Closing?
If this is a securities offering (with passive investors contributing funds), then the “issuer” of the securities has an obligation to inform prospective investors of all material facts necessary to make informed consent prior to makin...
Is it True That Most Syndicators Have Less Than 3 Years’ Experience?
We were recently asked: “Some LinkedIn posts suggest that 70% of syndicators have less than 3 years’ experience; is this true? “ I haven’t analyzed the data, but it wouldn’t surprise me if this is correct. There are MANY real esta...
How to Review a Balance Sheet and Income Statement
When considering any investment opportunity, you should perform due diligence not only on the deal being offered but the entity sponsoring the deal. An important aspect of that is to examine the entity’s financial records. Two of the main ones are...
How Do I Calculate Annualized Returns for Investors on Sale of a Property?
To calculate annualized returns for investors on the sale of a property, follow these steps: Formula: Annualized Cash-on-Cash Return = (Total Distributions divided by Capital Contributions) divided by the number of years the property was owne...
Do I Need a License to Raise Money for Somebody Else’s Deal?
Short answer: Yes, but you can co-GP as long as you follow some defensible guidelines: To defend a charge of acting as an unlicensed broker, you have to be able to prove you had an active role in management other than raising money...
Is a Deal That Has a 10% Overall Return Viable for Private Investors?
If the overall cash-on-cash return for this project is only 10%, it’s not a viable deal. Investors generally want annualized returns from a combination of cash flow and equity on sale in the mid-to-high teens, and if they perceive it as a ri...
What Happens if I Want to Leave My Unreimbursed Pre-Closing Expenses or Acquisition Fees in a Deal?
A member of a syndication asset management entity can convert all or part of their uncollected management fees (such as the acquisition fee), or any other reimbursements that were owed on acquisition of the property, into investor membership inter...
How to Abandon an Offering
Here are the things you should do to abandon an offering that has no assets and no members:
Can I Show Past Deals To Prospective Investors?
This is a common question we hear in the real estate securities law industry so we wanted to answer it here. Until you have established a substantive relationship, you cannot show past deals if you are doing Rule 506(b) Offerings, as the SEC consi...