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 300 offerings and my own investments, I believe this occurs when the syndicator has a signed purchase agreement (NOT an LOI), has reviewed the income and expense statements for the property, and has physically visited the site.
Once you have gotten to this stage, and assuming the property still looks good, it’s more likely than not to close. This is also the time I suggest you hire your securities attorney to start drafting your offering documents.
Note that I did not say you should complete all of your due diligence.
But how do you make offers when you don’t have the entity formed that will take title to the Property?
All LOIs and purchase agreements should be made in the name of “Your Branded LLC and/or Assigns.” This alerts the seller and lender that you will be forming a single purpose entity to take title to the property so they can’t complain when you assign it to another entity that is formed later on. The lender will require this entity to serve as the borrower on the loan and title holding entity.
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...