Frequently Asked Questions

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 non-accredited investor is if the investor becomes a member of your management team and is actively involved...

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 Class A subclasses (Class A1, Class A2, Class A3,...

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. With a single investor, you may also want to consider structuring this as a joint venture (where everyone...

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 the law is concerned, when you form a legal entity, it’s like giving...

An advertisement containing the following language was forwarded to me, with the question, “Is this ad legal?” 12+% AVERAGE CASHFLOW!! 82+% 5-YEAR INVESTOR RETURN!! The ad went on to show photos of a multifamily property, discussing the status of...

QUESTION: “I have a pre-qualification questionnaire that lists the qualifications for an Accredited Investor. Is this 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...

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 within one state, then the SEC will allow states to regulate the sale of securities. The...

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, and a passive investment (otherwise known as an “Investment Contract”), where...

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 multifamily trainers and go to their events. You’ll learn how to buy...

Technically, the relationship begins when the syndicator knows enough about you to know whether you are accredited, or unaccredited but sophisticated. That’s why a lot of syndicators might ask you to complete a pre-qualification questionnaire early...

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 are Accredited within 90 days of the investment. The SEC, in its...

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 learning more about group real estate investing. Then, you need an...

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, Subscription Agreement and Securities Notice filings. Others are not...

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 something one “becomes;” you either meet the...

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 fees to unlicensed brokers (most states have this...

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 from the time you provide a draft Business Plan/Investment...

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 Manager LLC (Manager) – Note: this is not...

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...

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 some other tips and guidelines: Use a professional photo or headshot (it shouldn’t be more than two years...

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 to comply with securities laws. The mistake...

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). Such interests are considered partnership interests by the IRS and are...

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 a Regulation D, Rule 506(b) Offering. Can I email my deal to the group...

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 title that invites conversation, such as “Acquisition Manager” or “Acquisition Director”...

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 unlimited amount of money from an unlimited number of...

Be sure you consider the securities implications of obtaining money from family and friends for your syndication deals. Promissory notes are “securities” and so are selling interests in a company to passive investors. Those are called “investment...

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. Document the Relationship.The SEC says you need to have a...

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 as REMentor events (I do teaching for them, I must confess). The other people in the room may be...

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 marketing program that includes live networking to...

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 think it’s OK), you can elevate yourself above the crowd by...

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...

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 Investors are known for 3 things: Stringing syndicators along and then bailing...

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 manager as the authorized...

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, have read all of the documents,...

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 will meet a lot of non-accredited investors at...

Fannie Mae and Freddie Mac (and many commercial loans) don’t currently allow subordinate debt. You can thank the Great Recession and Dodd-Frank for that. However, you can create two classes of investors: one for your equity investors and one for...

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 Mac and most commercial loan providers (with the exception of certain bridge loan providers) don’t allow subordinate...

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 go forward with the purchase. Based on years of experience with more than...

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 an unlimited number of accredited investors). Friends, family and...

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 they are notorious for backing out or...

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 number of investors whom you know very well (3-5). If you get more than that, it’s...

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 book “How to Legally Raise Private Money” on Amazon) because if they don’t...

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 as the manager so only the manager has to sign. This entity should...

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 exemption you will use to legally raise...

If you are raising money from passive investors, you must register, i.e., get pre-approval of your offering from the appropriate securities agencies (federal, state, or both) or qualify for an exemption from registration. Each exemption has a...

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 as REMentor events (I do teaching for them, I must confess). The other people in the room may be...

Be sure you consider the securities implications of obtaining money from family and friends for your syndication deals. Promissory notes are “securities” and so are selling interests in a company to passive investors. Those are called “investment...

Blueprint 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. Document the Relationship.The SEC...

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 unlimited amount of money from an unlimited number of...

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 marketing program that includes live networking to...