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 accounts allow the seller control over the release of the funds if something goes wrong and you decide not to close, which could end up in litigation. Attorneys are constantly being disbarred or suspended for misusing funds in their client trust accounts. Don’t give third parties (even your attorney) control over your investor funds.
You need to create your own company bank account and accumulate your investor funds there. Don’t spend any of it until closing, because if you don’t close, you are obligated to return all investor funds without deduction. Then, you should only send the exact amount required for closing. The title company will usually request the exact amount a few days before closing after they produce the final closing statement.
Any leftover funds (and there should be some if you have calculated your raise correctly) should be held in your company’s bank account for reimbursement of expenses to members who contributed to third-party costs, for manager’s acquisition fees (in a syndicate), for capital improvements, and for company operating capital and reserves. If certain members contributed pre-closing expenses, they can either be reimbursed or converted into capital contributions. Anyone getting reimbursed or converting pre-closing expenses must produce the actual receipts for the funds they spent, as your CPA will need that information when establishing capital accounts for each member and for tax deductions for the company tax return. No receipt = no reimbursement or expense conversion to an investment.
Post-closing, you should provide all of your members with a reconciliation of the bank account showing how much was deposited, how much was sent to title or escrow for closing (with a copy of the closing statement attached), how much was disbursed to members for reimbursement of pre-closing expenses (if there are any), and how much remains in the account, and what you intend to do with it. Also, if there is still capital that needs to be raised, how much is needed, and what’s the plan to get it?
