Frequently Asked Questions
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How Do I Split Money With Investors?
How Do I Split Money With Investors? There is no “right” answer on how to split money with investors. The answer depends on the deal and your investors. You may not need any track record if you have friends and family who believe in you and what...
What Might Happen if I Lie About My Financial Qualifications to Get Into a Deal?
What Might Happen if I Lie About My Financial Qualifications to Get Into a Deal? Some securities exemptions, such as the Regulation D, Rule 506(b) exemption (and some state securities exemptions), allow investments by a limited number of...
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...
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...
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”...
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,...
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...
What if I have a Rule 506(c) offering, but want to admit a self-directed IRA Investor who is not accredited?
What if I have a Rule 506(c) offering, but want to admit a self-directed IRA Investor who is not accredited? You can’t allow this investor to purchase Interests in your company under a Rule 506(c) offering. The only way you can admit a financially...
Can I just put 10 close friends and family in an LLC to buy real estate without following securities laws?
Can I just put 10 close friends and family in an LLC to buy real estate without following securities laws? NO. Ten people is too many to put in one LLC and maintain a legally defensible joint venture, as there aren’t enough jobs to ensure that...
Why Can’t I Get Compensated for Selling Securities for Others?
Why Can’t I Get Compensated for Selling Securities for Others? You can, but you must have a license to do it. Just like a real estate broker is required to have a license to get a commission for selling someone else’s house, you need a license to...
What’s a Good CRM for Raising Capital?
What's a Good CRM for Raising Capital? We started out with Insightly (a Google app); we now use Active Campaign. Insightly is a good starter, as it used to be free for two people. We upgraded to Active Campaign when we wanted to start a newsletter...
What’s a Convertible Promissory Note Offering?
What’s a Convertible Promissory Note Offering? A Convertible Promissory Note Offering allows you to raise money in advance of having a deal under contract or within a short timeframe. With a Convertible Promissory Note Offering, you can offer note...
Can We Use Our Individual Entities to Co-Manage a Real Estate Syndicate?
Can We Use Our Individual Entities to Co-Manage a Real Estate Syndicate? We recommend that you use a single-Manager entity to manage a syndicate.The individual entities owned by members of the management team can be members of the Manager entity,...
Do You Provide Securities Offering Document Templates?
Do You Provide Securities Offering Document Templates? We don’t offer document templates. We provide reasonable, lump-sum fees for drafting our clients’ securities offering documents and helping them properly structure their companies, and we have...
What’s the Difference Between a Cumulative Preferred Return and a Compounding Preferred Return?
What’s the Difference Between a Cumulative Preferred Return and a Compounding Preferred Return? “Cumulative” means carried over from year to year. “Compounding” means the unpaid balance is added to the principal and it, too, accrues the return.For...
Can I Use a Simple Compensation Agreement to Raise Money for Other People?
Can I Use a Simple Compensation Agreement to Raise Money for Other People? You can’t use an agreement to get compensated for raising money for others unless:a) You have a securities broker-dealer license (not a real estate broker’s license) orb)...
What do You Have to do to Verify Repeat Investors for Rule 506(c) Offerings?
What do You Have to do to Verify Repeat Investors for Rule 506(c) Offerings? In the SEC’s publication Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets[1], the SEC relaxed the...
Do I Need a PPM?
Do I Need a PPM? Recently, we were asked: "I know someone who does deals with the same group of investors over and over and just uses a limited partnership agreement without a subscription agreement, PPM, or securities notice filings. Can I do...
Can a Canadian Citizen Invest in My Syndicate?
Can a Canadian Citizen Invest in My Syndicate? Yes, but if your investment entity is a limited liability company, they could be double-taxed in the United States and Canada unless they have their own C Corp or Limited Partnership that makes the...
When Can I Talk Deal Points With Investors?
It depends whether you are doing a Rule 506(b) Offering, and if so, you must establish a pre-existing, substantive relationship before discussing specific deal points (which constitutes making an offer) with them. I suggest you read the article in...
Can I Offer Different Terms to Different Investors?
Can I Offer Different Terms to Different Investors? The two primary reasons to do this are to reward specific investors for investing more than others or investing early.There are two ways you can do this:SUBCLASSES - You can create one or more...
When Do I Need to Worry About Doing a Securities Offering if I am Borrowing Money from Private Investors?
When Do I Need to Worry About Doing a Securities Offering if I am Borrowing Money from Private Investors? If you are just doing a one-off loan, you don't need to be overly concerned about Rule 506(b) — especially if your investor is accredited....
When Does Selling Interests in an LLC Constitute the Sale of Securities?
When Does Selling Interests in an LLC Constitute the Sale of Securities? We see many people try to avoid securities laws by saying they are doing “joint ventures” when, in reality, they are selling securities. Selling interests in a Manager-managed...
What Do I Need to Know About Syndicating in the Wake of the Coronavirus Pandemic?
What Do I Need to Know About Syndicating in the Wake of the Coronavirus Pandemic? The syndication market has slowed. Proceed with caution.Give yourself long escrows and extra extensions on any new projects right now, as investors are slow to act...
Can I Raise Capital Through Regulation D, Rule 506 for an Opportunity Zone Project?
Can I Raise Capital Through Regulation D, Rule 506 for an Opportunity Zone Project? You can raise money for an Opportunity Zone project under the Regulation D, Rule 506 securities exemption the same as you can for any other securities offering. You...
How Do We Delegate Responsibilities Among the Management Team of a Syndicate?
How Do We Delegate Responsibilities Among the Management Team of a Syndicate? First, you need to think about the organization structure within your company.You should list all of the responsibilities associated with your project and then delegate...
What if the Terms of Our Deal Change After We Have Already Shown it to Investors and Some Have Invested?
What if the Terms of Our Deal Change After We Have Already Shown it to Investors and Some Have Invested? You are required to provide investors with all material facts that would affect their decision to invest with you. If you have changed the...
How Do I Satisfy the Lender’s Requirement That I Provide 20% of the Needed Funds for a Development Project?
How Do I Satisfy the Lender’s Requirement That I Provide 20% of the Needed Funds for a Development Project? This is the typical syndication model. If you don't have your own funds to cover the balance between the construction loan and the funds...
Where do I file Blue Sky Notices if An Investor Invests Through an LLC?
Where do I file Blue Sky Notices if An Investor Invests Through an LLC? If an Investor is using an LLC to make their investment, you would use the state of LLC formation as the state of residence instead of where they physically reside. As far as...
Is This Ad Legal?
Is This Ad Legal? An advertisement containing the following language was forwarded to me, with the question, “Is this ad legal?”12+% AVERAGE CASHFLOW!!82+% 5-YEARINVESTOR RETURN!!The ad went on to show photos of a multifamily property, discussing...
Is a ‘Prequalification Questionnaire’ all I need to have completed by an investor before I can ask them to invest in my Rule 506(b) Offering?
Is a ‘Prequalification Questionnaire’ all I need to have completed by an investor before I can ask them to invest in my Rule 506(b) Offering? Most of our clients start out doing Regulation D, Rule 506(b) Offerings that allow them to bring in an...
Can A Syndicator Use SCOR And Rule 147 To Allow Non-Accredited Investors To Invest In A Deal?
Can A Syndicator Use SCOR And Rule 147 To Allow Non-Accredited Investors To Invest In A Deal? Rule 147 is a federal rule that basically says that as long as you, all investors and usually 80% of the assets owned by the company are all contained...
Are All Group Investments Syndicates That Require Compliance With Securities Laws?
Are All Group Investments Syndicates That Require Compliance With Securities Laws? There is a distinction between a joint venture, where all members are responsible for generating their own profits and where securities compliance is not required,...
Where Can I Meet Syndicators Who Allow Unaccredited Investors?
Where Can I Meet Syndicators Who Allow Unaccredited Investors? Go to as many networking and “guru” events as possible where people are learning to buy the same thing you want to buy. For instance, if you want to invest in multifamily, find...
How Can I Develop A Relationship With a Syndicator So That I Can Invest With Them As An Unaccredited Investor?
How Can I Develop A Relationship With a Syndicator So That I Can Invest With Them As An Unaccredited Investor? Technically, the relationship begins when the syndicator knows enough about you to know whether you are accredited, or unaccredited but...
What to do if You Want to Invest in a Rule 506(c) Offering?
What to do if You Want to Invest in a Rule 506(c) Offering? In order to claim the Rule 506(c) exemption, the issuer of the securities you want to purchase must be able to demonstrate that it took “reasonable steps” to ensure that all investors...
How Can I Establish a Relationship With Investors to Invest in my Deals?
How Can I Establish a Relationship With Investors to Invest in my Deals? Generally, you can say you are planning to form some group investments for future multifamily acquisitions and would like to get to know others who might be interested in...
How Should I Structure a Small Multifamily Deal With Investors?
How Should I Structure a Small Multifamily Deal With Investors? There are lots of ways you can structure a small deal with investors. Some are cumbersome: Full-blown securities offering with Private Placement Memorandum, Operating Agreement,...
Should I Become an ‘Accredited’ Investor?
Should I Become an ‘Accredited’ Investor? Newbie investors who encounter opportunities that are open only to Accredited Investors sometimes wonder, “Should I become an Accredited Investor?”The fact of the matter is that “Accredited” is not...
Are Rule 506 Offerings Exempt from Blue Sky Laws?
Are Rule 506 Offerings Exempt from Blue Sky Laws? Rule 506 offerings are exempt from further regulation at the state level, except that issuers must:Be able to demonstrate to state regulators how they followed the applicable 506 rules,Not pay any...
How Long Does it Take to Set up a Real Estate Syndication?
How Long Does it Take to Set up a Real Estate Syndication? For a specified Offering, you should plan on 3-4 weeks from the time you engage us to the time you receive your completed documents.For a blind pool Offering, you should plan on 3-4 weeks...
How Does Cash Flow in a Syndicate?
How Does Cash Flow in a Syndicate? Here is how cash flows in a Syndicate (as drafted by Syndication Attorneys): On acquisition Investor funds are collected in the Investor LLC Operating Account. When it is time to close on the Property, the...
How Do I Split Money With Investors?
How Do I Split Money With Investors? There is no “right” answer on how to split money with investors. The answer depends on the deal and your investors. You may not need any track record if you have friends and family who believe in you and what...
What Might Happen if I Lie About My Financial Qualifications to Get Into a Deal?
What Might Happen if I Lie About My Financial Qualifications to Get Into a Deal? Some securities exemptions, such as the Regulation D, Rule 506(b) exemption (and some state securities exemptions), allow investments by a limited number of...
Can I Still Invest in a Securities Offering if I am Not Accredited?
For most securities offerings that allow unaccredited investors, you must have a pre-existing relationship with the “issuer” (syndicator) before it can offer you an investment opportunity. Your best option if you don’t meet the accredited...
How to Write a Winning Biography
How Can I Write a Personal Biography for my Investment Company that Inspires Confidence in my Investors? This isn’t a resume, so do this in paragraph format (not bullets). It doesn’t have to be long, just two to three paragraphs at most.Here are...
How Do I Structure a Small Deal With Investors?
How Do I Structure a Small Deal With Investors? From a securities legal standpoint, you could do a joint venture (JV) or member-managed LLC, where the investors are actively involved and stay in control of their own money, if you don’t want to have...
Can I Include in My Syndication an Investor Who Wants to do a 1031 Exchange?
Can I Include in My Syndication an Investor Who Wants to do a 1031 Exchange? No, an investor who wants to do a 1031 exchange cannot take partial ownership interests in a company that takes title to real estate (the typical syndicate structure)....
What are the Rules Regarding 506(b) Solicitation and Mass Communication?
What are the Rules Regarding 506(b) Solicitation and Mass Communication? A reader writes:“I am a member of a group of several hundred people who are interested in investing in commercial real estate. Many of them are not Accredited so I want to do...
What Should be Included on a Business Card You Use for a Real Estate Investment Company?
What Should be Included on a Business Card You Use for a Real Estate Investment Company? If your company is an LLC, your cards need to say “LLC” after the company name, either in the logo or elsewhere on the card.Also, you should consider using a...
What is the Difference Between Rules 506(b) and 506(c)?
What is the Difference Between Rules 506(b) and 506(c)? Often, in social forum discussions concerning offerings under Rules 506(b) and 506(c) you only find good partial explanations. Here are the complete rules: 506(b) allows you to raise an...
Can I Just Borrow Money From My Family And Friends Without Having To Comply With Securities Laws?
Can I Just Borrow Money From My Family And Friends Without Having To Comply With Securities Laws? Be sure you consider the securities implications of obtaining money from family and friends for your syndication deals. Promissory notes are...
Is There a General Format or Template for Soliciting Investors?
Is There a General Format or Template for Soliciting Investors? The following is a blueprint for soliciting investors for a Rule 506(b) offering, but it will increase your fund-raising effectiveness if you use it for all securities offerings.a)...
Where Do You Meet Syndicators Who Do 506(b) Offerings that Allow Sophisticated Investors in Their Deals?
Where Do You Meet Syndicators Who Do 506(b) Offerings that Allow Sophisticated Investors in Their Deals? The best place to meet them is at educational events that attract a lot of people and network with the people there who are doing deals — such...
How Can You Set Yourself Up for Success In Syndication?
How Can You Set Yourself Up for Success In Syndication? The best way to set yourself up for success in syndication is to have a ready source of potential investors so that when you have a deal, you have investors to call.You do this by developing a...
Is “Managing Partner” the Right Title for Me to Use in my LLC?
Is “Managing Partner” the Right Title for Me to Use in my LLC? NO! Doing so will advertise your lack of knowledge about corporate structures to the world. While many of your peers may be equally uninformed (since they are all using that title and...
5 Steps To Choosing Your Branded Company Name
5 Steps To Choosing Your Branded Company Name Do a Google search to see if anyone is already using the name or something similar.Check GoDaddy or another domain provider to see if the domain is available.If both of those fly, then check the...
Why Shouldn’t I Look for Big Investors Instead of a Bunch of Smaller Investors?
Why Shouldn’t I Look for Big Investors Instead of a Bunch of Smaller Investors? Whale Investors Can Krill Your Offering…Waiting for large investors (I call them “Whale Investors”) to fund your offering is a certain way to doom it to failure. Whale...
What is a Consent Resolution?
What is a Consent Resolution? A consent resolution is a specific document giving you authorization from the members/managers of each of your companies to proceed with the purchase and the loan and designating one or more of the members of the...
What’s a Subscription Agreement?
What’s a Subscription Agreement? A Subscription Agreement is a legal document in a securities offering package that contains an investor’s representation and warrantees that they meet the financial qualifications to invest, understand the risks,...
Should I Only Include Accredited Investors in My Deals?
Should I Only Include Accredited Investors in My Deals? Some people say “yes,” but honestly, my clients usually don’t start looking for new accredited investors until they have tapped out their group of family and friends who aren’t accredited. You...
How Can I Incorporate Seller Financing in a Multifamily Purchase that has a Loan with Fannie Mae or Freddie Mac Financing?
How Can I Incorporate Seller Financing in a Multifamily Purchase that has a Loan with Fannie Mae or Freddie Mac Financing? Fannie Mae and Freddie Mac (and many commercial loans) don’t currently allow subordinate debt. You can thank the Great...
If I Offer My Investors a Fixed Return on a Commercial Property, Can I Avoid Having to Comply with Securities Laws?
If I Offer My Investors a Fixed Return on a Commercial Property, Can I Avoid Having to Comply with Securities Laws? If this deal is financed by a lender, they will want to know the source of your down payment and closing costs. Fannie Mae, Freddie...
When Should I Form an LLC to Take Title to a Property I am Syndicating?
When Should I Form an LLC to Take Title to a Property I am Syndicating? We suggest that formation of the entity that will take title to a property be done once you are far enough along in your due diligence to know you are more likely than not to...
I’m New to Syndication; Should I use Rule 506(b) or 506(c) for my Offerings?
I’m New to Syndication; Should I use Rule 506(b) or 506(c) for my Offerings? Approximately 95% of our returning syndication clients and all beginning syndicators do 506(b) offerings (that allow up to 35 sophisticated, non-accredited investors and...
Where Can I Find Big Investors for my Deals?
Where Can I Find Big Investors for my Deals? Looking for large investors can be a dead end for many syndicators until they have significant syndication experience. A lot of new syndicators spend tons of time seeking “whale” investors only to learn...
Can I Bring on Investors as Joint Venture Partners? Can They be Non-Accredited?
Can I Bring on Investors as Joint Venture Partners? Can They be Non-Accredited? Basically, all investors must have a role in generating their own profits (more than just voting rights) to be Joint Venture partners. This only works with a small...
How Much Should I Pay Finders for Raising Money for my Securities Offering?
How Much Should I Pay Finders for Raising Money for my Securities Offering? A 25% combined total is a good target. However, read the article entitled “Paying Finders Fees in a Real Estate Syndication” in our website library (or Kim Lisa Taylor’s...
What Entities Do My Spouse and I Need to Represent Us in a Syndicate?
What Entities Do My Spouse and I Need to Represent Us in a Syndicate? You can create a branded LLC that can either be member-managed or manager-managed. If you don’t want both spouses to sign every contract, make it manager-managed, with one of you...
Should I Just Use an LP or Syndication?
Should I Just Use an LP or Syndication? This is like comparing apples to oranges. For every Syndicate, there are 2 parts; one is what business structure you will use (LLC, LP, TIC, DST, promissory notes, etc,) and the other is what securities...
What Should an Opportunity Zone Fund Manager Think About When it Comes to Compliance With Securities Laws?
What Should an Opportunity Zone Fund Manager Think About When it Comes to Compliance With Securities Laws? If you are raising money from passive investors, you must register, i.e., get pre-approval of your offering from the appropriate securities...
Where Do You Meet Syndicators Who Do 506(b) Offerings that Allow Sophisticated Investors in Their Deals?
Where Do You Meet Syndicators Who Do 506(b) Offerings that Allow Sophisticated Investors in Their Deals? The best place to meet them is at educational events that attract a lot of people and network with the people there who are doing deals — such...
Can I Just Borrow Money from my Family and Friends Without Having to Comply with Securities Laws?
Can I Just Borrow Money from my Family and Friends Without Having to Comply with Securities Laws? Be sure you consider the securities implications of obtaining money from family and friends for your syndication deals. Promissory notes are...
Is There a General Format or Template for Soliciting Investors?
Is There a General Format or Template for Soliciting Investors? Blueprint for Soliciting InvestorsThe following is a blueprint for soliciting investors for a Rule 506(b) offering, but it will increase your fund-raising effectiveness if you use it...
What is the Difference Between Rules 506(b) and 506(c)?
What is the Difference Between Rules 506(b) and 506(c)? Often, in social forum discussions concerning offerings under Rules 506(b) and 506(c) you only find good partial explanations. Here are the complete rules:506(b) allows you to raise an...
How Can You Set Yourself Up for Success In Syndication?
How Can You Set Yourself Up for Success In Syndication? The best way to set yourself up for success in syndication is to have a ready source of potential investors so that when you have a deal, you have investors to call.You do this by developing a...