Transcript: ‘10 Steps to Becoming a Successful Real Estate Syndicator’


Edited transcript of the teleseminar ‘10 Steps to Becoming a Successful Real Estate Syndicator’

Originally broadcast on Aug. 29, 2019


Listen to the teleseminar.


Kim Lisa Taylor:

Thank you, everyone, for joining our call today. We really appreciate that you’ve taken time out of your busy day to spend with us and we hope that the things we’re able to talk about today are going to be valuable to you in your syndication practice.

This is Syndication Attorneys, PLLC’s free monthly teleseminar where we talk about topics of interest to real estate syndicators, new and seasoned, with the opportunity for live questions and answers at the end of the call. I am attorney Kim Lisa Taylor. Also joining me on the call is Charlene Standridge. Before we get started, please note that all of our calls will be recorded and may be used for future promotion, posted on our website, or broadcast in a podcast available to the public. If you don’t wish to have your voice recorded, please schedule a one-on-one consultation instead of asking questions during the live call.

You can do that at our website:

Information discussed during this free teleconference is of a general educational nature and should not be construed as legal advice. Today, our topic is “10 Steps to Becoming a Successful Real Estate Syndicator.”

Let me tell you just a little bit about my background. I’ve been doing this exclusively for about 10 years and I’ve recently written a book on how to legally raise private money that’s available on Amazon or you can get to it through our website at if you’re interested in that.

I wrote that book based on my experience of having been the responsible attorney for over 300 securities offerings and just seeing a lot of things in the marketplace, both from my clients as well as other people out there that are doing syndications. I’ve also been to a lot of real estate training.

I was learning how to buy the same kinds of things that our clients are buying. So I’ve been to self-storage seminars; I’ve been through multifamily training and coaching programs; I’ve been to single-family training programs, regular commercial real estate training programs… So I really just tried to immerse myself in the same kinds of things that you guys have learned so that I can be a better advisor to you. In addition, I have also been a real estate syndicator. My husband and I syndicated a property with some friends that we just recently sold after we had owned it for nine years and I learned a lot during that process as well. And then I owned some other types of real estate. I’m a partner in a development project and also a have some vacation rentals.

So I get what you guys are doing. I’ve experienced it myself, both from my clients’ perspective and from my own. So I think that sometimes that helps me have maybe an insider perspective on the kinds of things that you guys are doing. And I hope that turns out to helpful for you.

So, the 10 steps…

First you really — if you want to be a successful real estate syndicator — you really have to pick your asset class, figure out what asset class you want to buy. Are you going to buy multifamily shopping centers, hospitality, hotels, self-storage, development projects, single-family residential projects … what are you going to do and what are you going to get really good at? Just like this firm; you may have noticed that Syndication Attorneys, PLLC is a very niche practice.

We pride ourselves in being really good at one thing and that’s syndications and setting up group investments both for real estate and non-real estate applications. But it’s really all about helping clients who are raising money from private investors. And so that’s our niche and that’s where we like to stay.

If you can pick a niche and get really good at that niche, that’s going to help you further your practice. If you’re coming into this from maybe a different profession, that’s just going to help you get there faster. Now that doesn’t mean that you can’t branch out later. So once you get really good at one thing — and you know, maybe you start with single-family, maybe you start with multifamily, get good at that — and then once you’ve done that for a while, then maybe you can branch off into self-storage or other types of things.

And maybe some of you will go from buying existing properties to later on building properties. You know, whatever your progression happens to be. But you’ve got to start somewhere and you should start with kind of a narrow focus that’s going to help keep you really centered and focused on that particular asset class without getting too distracted by trying to go in too many directions. This happens to all of us occasionally.

All right, so then once you’ve picked your asset class — and maybe you don’t know your asset class until you’ve done step two — so number two is: go get some training. If you’re not sure what asset class you want to pick, you might want to go get training in different fields and pick the one that feels good for you. I look back on my career and,  sometimes I wish that I had picked a different asset class than what I did at the time that I was looking at being a syndicator.

And I remember going to the learning annex where I met my original multifamily trainer —which was RE Mentor/David Lindahl, and I ended up buying his program there — but there was another guy there that was teaching people how to renovate mansions. And, still to this day I look back and think, “Gosh, wouldn’t I have enjoyed that more?” I don’t know. But you know, we all make choices in our life and I digress…  So get training in whatever appeals to you is where I’m going with that and, and figure out if it’s something that, first of all, you can envision yourself doing … that it sounds like something you’re going to enjoy and that there’s not something that is an absolute deal killer for you.

For example, you might hear in the training that, oh, well, in order to be really successful at it, you have to door-knock on a hundred doors. Well, if you’re never going to door-knock, then that’s going to be a deal killer for you. You’re not going to want to do that kind of an asset class. You’re going to want to pick something else that actually has a better fit with your personality.

Now, that doesn’t mean that you’re not going to be finding different aspects of whatever it is you’re learning that you’re not good at. And that’s where partnerships and teaming with other people comes in, because you’re probably going to figure out, as you’re learning and getting trained in a specific area, that you’re going to feel like “I’m really comfortable doing deal analysis and talking to brokers, but I’m not so good at talking to investors.” Well, then, you’re going to want a team with somebody who feels the other way, who says, “I’m really great at talking to investors and I know a lot of people, but I don’t really want to go digging up deals.”

So you’re going to want to find somebody like that that has a complementary skill set that kind of offsets the things that you don’t feel comfortable doing or you’re not great at doing and bring them in, so that they can do what they’re great at. So obtain training and while you’re obtaining that training, start meeting the other people that are also taking that trip because they are like-minded people. They’re maybe in a similar position to you as far as their motivations in why they want to do this. And they may be some of those people that you might ultimately team with later on when you’re actually going forward with your syndication model.

So the next thing you’ve got to do is figure out is: what is going to be your brand? You know, decide on the name of a company that you want to brand and how many years you’re going to use it as kind of your common element in everything you pursue. You got to have something to kind of identify yourself in the marketplace.

You’re going to want to brand your company with a name that sounds like you, that fits your personality, fits your model. Maybe it’s something that you use as your last name. It might be something that is meaningful to you. For instance, my former profession was as a geologist and as a geologist, I like things that are earthy. So if I was going to brand a company that I was going to use for real estate investments, I actually had a company at one point that I was going to brand called Alluvium Capital cause alluvium is this geologic process of creating new land in the river environment. But I ended up not using that brand. And this is the process I want you to go through too, because when I did an internet search and a Google search on that, I found out that there was another company using the exact same name that had actually been in trouble with securities agencies. So that turned out not to be a good brand for me, so I didn’t end up using it.

Now, once you pick a name that you like or a couple of words that you like and you’d like to use over and over again in your process, then you will want to do a Google internet search. You’ll also want to get online at your state’s Secretary of State office and check to see if that name is available for our company name. If you find that somebody used the exact same words that you want to use, you may be able to overcome that by adding a different word at the end of it. For instance, if you want to use the words “Blue Sky” and you find that there’s a million “Blue Sky” companies out there, well maybe you can have Blue Sky Investments, Blue Sky Partners, Blue Sky Holdings, or you can put a couple of initials in front of those two words and then that can become your brand.

Next, pick a business model. Your business model is a little different than picking your asset class because your asset classes, this is the kind of property I’m going to buy, but the business model is more about what you’re buying it, why you’re buying it, where it is, what kind of parameters it has to make before you would consider buying it. And maybe thinking about what kind of personal goals that you’re trying to achieve when you’re going to be buying with that particular asset class, but not only that, what is your actual business plan for that particular asset class? Do you want to own five of them? Do you want to own 50 of them? Do you have a number of units in mind that you want to have? Or do you want to be able to just have a comfortable number and you’re happy with that?

What are your personal goals? What are you trying to achieve? And think about what your actual business plan is going to be and put it in writing. Because if you don’t put it in writing, it’s real easy to forget about it and you need to put it in writing, not in a notebook, not buried in a file on your computer, but put it in writing and stick it on your wall, because you really want to be able to look at that on a daily basis and remind yourself of what you’re doing and why you’re doing it and what it’s going to achieve for you. So that keeps you motivated to keep moving forward. There are going to be times in any business that the work becomes tedious and you just have to push through it, and reminding yourself on a daily basis of why you’re doing it is going to help you be able to get through those times.

The next thing you’re going to want to do is get training on raising money. So you’ve already got the training on how to buy whatever it is you want to buy. And that’s critical because you’re going to be ultimately raising other people’s money and using it to further that business model. So you better get good at that first, or at least get comfortable and get the right kind of support team set up so that you’re going to be good at that and you’re not going to be making $100,000 mistakes with other people’s money. Now you can learn about securities laws and syndication and what that can do to help you raise that money legally and confidently. One of the biggest problems that I see from people that approach our firm is that you’re not confident; you’ve heard a lot of conflicting information out there about what you can and can’t say to investors and what this exemption is or isn’t and who you can raise money from, who you can’t want, you can put it on your website.

There’s a whole world of information out there and it’s very confusing. So if you can get some actual training on syndication from someone that you trust, then that’s going to help you gain that confidence and be able to confidently speak to people. You’re not in the back of your mind going to be thinking, “Oh, am I doing something illegal?” that’s going to cause you to hesitate before you start talking to people.

How can you get training on syndication? Well, you’re doing it right now. You’re here, you’re on our teleseminar, you’re getting education and that’s fantastic. We’re so thrilled that you’re here and you’re listening today. You can go to our website. We’ve done this now for over two years and all of the previously recorded teleseminars that we’ve done are posted on our website. And you can right now listen to all of them, no charge.

There is some really fantastic content on there, and it’s not always me talking. A lot of times I’ll be interviewing a guest speaker who has some really important information to share with you. Some of my favorites that just come to mind that I would suggest for anybody who’s starting out in this would be the interview with Vinney Chopra, the interview with David Lindahl and the interview with Sam Freshman. Those three have raised a lot of money. They’ve been successful syndicators and trainers, and Sam Freshman has been doing it for 60 years. When I asked him how much money he raised, he said, “Oh, I don’t know, like $1 billion,” so if you want to learn how to raise $1 billion, I’d listen to Sam. He’s been around for a long time.

You also can read articles on our website. We have a lot of articles and Frequently Asked Questions. I post those frequently asked questions all the time; I posted two last week. Whenever somebody comes to me with a question that I hear over and over again, I try to write it down. I try to post it so that it can be part of your knowledge base. So those resources are also available to you.

I did just write the book “How to Legally Raise Private Money” that is available on Amazon or you can get to it through our website. We also have opportunities where you could become a client and get free training. Additionally, we’re setting up a clients-only Facebook Live group where we’re going to be doing training twice a month on teaching people how to effectively market for investors and to develop an effective investor marketing plan.

We also are planning to do some live seminars in next year and we’d love to have you on those. I’m not the only person that has taught this stuff. I just happen to write a lot and I put it on the website so it’s available to you. There are certainly other resources out there. There’s Sam Freshman’s book, “The Principles of Real Estate Syndication.” I highly recommend it. Vinney Chopra wrote a book, “Syndication Made Easy,” that’s out there. So, it’s great that you can get it from different perspectives, because I think that you will, with all of that, end up with a very well-rounded education that you can start putting into practice as you’re building your syndication practice.

The next thing you want to do is build your database of prospective investors. I know there’s a lot of trainers out there that tell you that you should go out and get the properties under contract and then the investors will come. It’s really got to happen concurrently in order for you to be successful. I’ve had people come to me in the past that say “I’ve got this property under contract” and I’ll ask them, “Who do you think might invest with you?” And they’ll say, “I don’t know.” Well, if you don’t know anybody at all and you can’t come up with a list of people you might even call, that’s a problem. Then your only option at this point is to team with somebody that has that network of investors, and you’d better find them right away. If you don’t have any investors and get something under contract, that can be a big problem because you’re going to probably have 90 days that you have to close on that property and it’s too late for you to go out and meet enough investors.

To be able to close that deal, you already have to have a database of prospective investors that are ready, willing, and able to invest in your deals. And part of building that database is, number one: networking with people. So getting to meet people face to face is fantastic. You can do that at real estate training events that you might attend or conferences that you might attend around the country. But I like to say — and this I took right from my interview with Sam Freshman — is get to be the big fish in your local community. It’s a lot easier to be that big fish in a small pond than it is to be a big fish in a big pond.

So you go to a real estate training event and you’re just starting out, and you’re looking for investors as well. Well, so are the other 999 people in that room. And some of them have a lot more experience than you do. And so you might not be quite as successful there as if you went to, say, your Chamber of Commerce and some philanthropic events local to your community where you could go and get to know people that you can interact with again and again on a regular basis,  and really get to know them on a personal level, talking to them about your business as it progresses and then eventually doing some business with them as investors. So that that’s really a great way for you to start building your network.

If you’re investing near where you live, people love to invest in things they can look at, drive by and see, and they like to improve their own communities. So if you are investing locally, think about creating a network of local investors who would team with you to do that. If you’re investing outside of your network, you can still meet local investors that will invest with you in an area that’s away from your geographic area; it’s just a different discussion that you’re going to have with them about what you do. At that point, you’d be talking to them about the fact that you’re investing in emerging markets and they have to have these specific characteristics. And if they do, then you would be looking for properties in those areas. And if you’re in an area, say, where your deals don’t make sense, like certain areas in California, northeast coast, things like that, then those investors will recognize that and you just have to educate them.

So you’ve got to build your database.

That’s how you meet people, but how do you actually start to develop relationships with people? Well, think of it like a dating process. You need to really just start to get to know them, have follow-up meetings if you can, and follow-up telephone conversations. But during those follow-ups you want to be talking about them and their goals. You’re going to talk a little bit about your company. You’re going to be talking to them about their goals and what they’re looking for in investments.

One of the ways as you might be able to kind of target that process is, we do have an investor marketing plan template on our website that you can download. There is actually a cost associated with that, or if you become a client, we’ll send it to you for free. But the whole idea is that you can lay out an actual marketing program that you can start to implement.

“How am I meeting investors? How am I going to follow up with investors? How am I going to further my relationships with those investors? What am I going to do to make sure that they’re ready and available when I have a deal?” — which could be three, six, or nine months from the time that you first met them.

In addition to meeting them, having a follow-up conversation, you’re also going to need to come up with a way that you can keep in touch with them. A lot of people will do that through a newsletter. You might do that through some local training programs where you are teaching them the same kinds of things that you’ve learned in your training program and educate them on how you find deals in the marketplace, how that process works.

Next you have to start finding deals. You’ve got to analyze deals, you have to send out letters of intent. I was actually on Bigger Pockets — and I would imagine that some of you guys are on there too — and somebody was saying, “These gurus are all a rip-off because you go to their events and you learn a bunch of stuff and pay a bunch of money and you don’t get anything out of it.” And I have to disagree because I think if you go to the event and then you go home actually do the things that they told you to do — which was probably something like send out 10 LOIs a week — you’re going to start seeing some results.

I get so many potential clients that come to our firm and they’re agonizing over sending out that first LOI and it’s like, “Oh, we’ve been analyzing this for two or three weeks and we’re ready to send our first LOI.” Well, that’s great, but you need to get that process down to about 30 minutes and you need to do that about 20 times in a month or 30 times in a month and do it as many times as you can possibly do it. I liken the LOI process to a numbers game. You’re going to send out a hundred LOIs, 10 of them are going to get discussed, one or two of them are going to actually get negotiated, and one of them you’re going to get to the closing table. So if you’re not sending out a hundred LOIs in a reasonable period of time, you’re never going to get to the closing table.

You really have to think about that and don’t get stuck on sending out the LOI. I have a philosophy that I’ve developed over years and it’s “Don’t turn down a job offer until you have one.” Right? Just because you send out an LOI … people are like, “What if they accept?” Well if they accept, you can take a second closer look at it and you can decide if you really want to go forward with it. At that point you’ve got nothing out, you’ve got nothing lost, and you can really decide whether you’re going to do it. You don’t want to keep just going back and forth on that without having any forward progress. But you don’t necessarily have to go forward with every LOI that you send out.

You should be sending LOIs out at prices that would make sense to you to buy the property regardless of what they’re asking. You never know what a seller’s motivation is. They could be deciding that, “Tomorrow, the next offer that comes in the door, I’m taking.” And I saw a perfect example of that with my neighbor’s house. My neighbor had her house on the market last year for $450,000. She turned down an offer for $450,000. This year, she spent about a week or two over there, fixing it up and doing all kinds of stuff outside in the yard. It was hot and I don’t think she was having a very good time and she put it on the market. She took the very next offer that came in and it was about $80,000 or $90,000 less than the one she turned down last year because she just didn’t want to deal with it anymore.

You could be that next person, but you got to get that LOI in their hands in order to find that out. So don’t be afraid to send out an LOI, just send the LOI. You’re going to feel a lot less afraid to send out an LOI if you already have a database of prospective investors that you’ve met and that you’ve followed up with in conversations and that you like, and you think might invest with you.

All right; so, get a property under contract. Once you have a property under contract, you’re going to have to do some preliminary due diligence and you don’t want to start sharing information about any property where you only have an LOI … you just want to make sure that you’ve got that property locked up legally so that somebody can’t steal it from you because they will.

And I’ve seen it happen a number of times and it doesn’t matter. You think, “If I don’t give them the name, they won’t know.” That’s not true. There’s a lot of people out there and they’ll be able to figure out what property you’re talking about pretty easily and they might just take it from you. So don’t talk about it with investors or anybody except for your legal team or your immediate partners before you get that property under a purchase and sale contract, once you have a purchase and sale agreement, now you have a legally binding contract. And some people will say, “What about ‘LOIs are legally binding’?” They’re really not. I mean, you can say that they are, but if somebody decides to take another offer for $50,000 more than what you offered, you’re not going to sue them. You’re not going to get very far. It’s just going to be a waste of money and time. You may as well just move on.

But once you have a purchase and sale agreement, it’s a lot harder for them to get out of it. So now you can start talking to people about your deal. But you really shouldn’t be offering terms until you’ve talked to your securities attorney because your securities attorney is going to help you structure that deal in a way that’s going to make sense, both from a practical standpoint and also legally, and they’re going to make sure that you’re not saying things you shouldn’t be saying.

A lot of times when people go out and start talking to their investors and they’re like, “I’ve already got my investors lined up.” When they come to us and say this, I start talking to them about their choices: “Do you want to offer a preferred return or do you want to have a straight split? What kind of a waterfall do you want? What kind of fees do you want to take?” A lot of times those people’s hands are already tied and they’re stuck with terms that I never would’ve recommended they take. And they have sometimes painted themselves into a corner that’s not going to be the most comfortable place for them and not going to be very profitable for them or it could end up so that they do a whole lot of work and don’t make any money, but the investors make a lot of money. So you need somebody who’s going to help you structure a deal properly to make sure that you’ve got the right tax provisions, you’ve got the right splits, it makes sense for you and your investors, but it also protects you so that you don’t end up doing all the work for no reward.

And I’ve seen that happen too many times, so don’t let yourself fall into that trap. Hire the right attorney; make sure that you’re using a securities attorney that has a lot of experience structuring securities offerings so that they don’t also help you into those pitfalls we just talked about, you know, the wrong tax provisions or the wrong structures. You know, there’s a lot of people that will grab a set of documents and say, “Oh, well I can do this,” and you’ve just got to be careful that they really understand how to do it and they are going to be working in your best interest.  Our documents evolve continuously. In fact, I was evolving documents even this morning based on some real experiences of our clients and just trying to make things easier for them.

For instance, if somebody wants to sell their interests or if somebody really just hates the deal and wants to get out of it … just trying to make it easier for our clients to be able to handle situations that come up and not having to make it a big ugly deal with all the rest of the investors or something that’s going to turn into a dispute that could escalate into litigation. A little bit of an aside: If you get into a dispute with investors, the best thing you can possibly do is try to find a way to make them whole and let them go. If you allow them to escalate it to a point where there’s litigation, you and all of your investors are going to lose.

So you always want to be able to de-escalate any problems that are occurring and try to get them resolved with the lowest possible drama. If there’s problems that are occurring with management, you want to make sure that your documents have the right clauses, that you’re able to relieve somebody, let them go, that’s causing a problem without creating litigation that’s going to cost you and your investors. Litigation is never a win for the parties; it’s always a win for the lawyers. Just think about that if you’re ever in one of those situations and, and do what you can to de-escalate it. Part of that is having the right provisions in your documents in the first place that deter people from trying to escalate problems. So having the right dispute resolution provisions in your documents can go a long ways toward that.

Make sure also that whoever you’re hiring to draft your offering documents is writing in plain English. If you’re reading the documents and you don’t understand what they say, then you might want to think twice about using those documents with your investors because you’re going to be the one that’s going to have to interpret those documents for them. Or you’re going to have to go back to the lawyer every single time you have a question and have them interpret it and that’s going to cost a lot of money. So you don’t want that. Make sure that you’re reading documents that are written in plain English and that you understand and that your investors understand. When people understand what they’re getting into, then they’re less likely to escalate into a problem in the first place because everybody understood it from the beginning. So be careful about that.

Number 10 is: Finish your due diligence. Line up your lender and your investors. We say, as far as when to hire your securities attorney, it’s after you have a signed purchase and sale agreement; you’ve physically been to the property, someone from your team has physically been to the property; and you’ve reviewed the last couple of years of financial statements. As long as you’ve done that, you’re probably 90 percent to 95 percent likely to close. That’s been our experience. And anything else you find during the rest of your due diligence is something that can be negotiated with the seller usually as some kind of a sales price break or a rebate or something like that. We say hire us at that point and then we can be drafting the documents at the same time that you’re out there doing the rest of your due diligence.

If the legal documents and the due diligence end at the same time, then you’ve got the rest of the time in your escrow period, which should be easily 30 to 60 days — 30 days is very skinny, 60 days is pretty comfortable — to go out and raise the money and to get your loan processed through the lender. So you’re going to be working on setting up your lender at the same time you’re doing your due diligence, finding someone, but you may not want to pay them to actually start working on processing your loan until you’re absolutely sure that you’re going to go forward with the deal. Just make sure that you understand their timing so you don’t wait too long to where they can’t get it done. Once you do that, then you can take the offering documents that the securities attorney has drafted for you and  go out and you can start raising money and putting money into a bank account.

We don’t recommend that you do commitments and capital calls for specified offerings. So if you’ve got something under contract right now, you just want to start collecting the money as soon as you get the offering documents done so that you’ve got enough money in the bank to close on the day of closing. You don’t want to be chasing people around for the last couple of days prior to the closing and trying to get them to wire their funds in, even though they subscribed several weeks ago.

I always say “you’re not an investor till your money’s in the bank.” Beware — you may have heard me say before — beware of big investors. One of the rookie mistakes is to chase after “whales” and you want to be careful of that because often they don’t materialize, they disappear, or they change the terms and you can’t do the deal and they leave people high and dry. So, just take that stance with them. If somebody says, “Well, I’d put in $500,000 or $1 million,” say, “That’s fine; as soon as I’ve got that money, then you’re in, but until then, I’m still raising money from other investors” and by the time they get around to deciding whether they’re going to be in or not, maybe you don’t need $1 million or $500,000 anymore.

So, anyway, that’s what I believe are the steps that are necessary.  For those of you that read my book, you’ll see this is pretty similar to what I talked about in the book. It’s of course a lot more detailed in the book, but really it’s just a step-by-step process: learn your business model, pick your asset class, learn the business model, learn how to raise money legally and get the right team in place and go out and start doing deals. But the key to all of it is to get those LOIs out there and to do it a lot. If you’re doing one a week, you’re not doing enough. If you’re doing 10 a week, you might be doing enough; maybe you still need to do more. The people that are doing a lot of LOIs are the ones that find that the deals. So that’s all I’ve got.

Now, if there are any questions, if you want to raise your hand or if you want to type something, a question, I’m happy to answer questions from anybody.

And if you want to reach out to us, go to our website — — and there’s a place where you can schedule a free consultation and we’d be happy to talk to you. Also, look under the “Library” tab, there’s a lot of free educational material there as well. And we’d be happy to share any of that with you or explain it, if you have questions about it after you’ve read it. So does anybody have any questions?


Charlene Standridge:

This one’s from Jason.


Kim Lisa Taylor:

Okay. Hi Jason.



I’ve done several different partnerships on developments and stuff like that. What I’m trying to figure out is, do you start an LLC and just work off a subscription agreement once you find the deals? How does the syndication model work? Is it different than a partnership?


Kim Lisa Taylor:

There’s two different types of partnerships. There’s a general partnership where all of the other partners are actively involved in generating their own profit. And then there’s the passive model where you have kind of the general partner and the limited partners. So that’s the traditional syndication model. Sometimes you’ll use a limited partnership for that; a lot of times it’s an LLC. So the structure is the same. The terms are different in an LLC; you’ve got a manager and members. So, I guess the question is, are you looking to have passive investors, or are you looking at active investors?



Well, definitely passive and that’s how I’ve done it in the past. I guess I didn’t realize I’ve been doing syndication all along, if that’s the case. But, yeah, all of our investors are pretty much passive and we’re the general partner. I guess what I’m looking for is like a little more sophisticated …  maybe giving some preferred returns, waterfalls, whatever it may be. I feel like most of the time, I’m having to carry the deal and then the investors obviously make money, which is fine, but I want to do a little bit larger deals with a little more passive investor. What I’m trying to do is bring it to more people that are typically involved in these types of deals and able to bring in different people that I know and I want to make sure I did it right, and, and so that’s why I’m kind of on the call, I guess. Yeah, I know that’s not really a question, but…


Kim Lisa Taylor:

No, I totally understand what you’re saying. And that’s the question that most of our potential clients come with is: “How can I do this?” What you’ve described is a very traditional syndication model. There’s always two parts to a syndication. One part is that you have securities compliance because you’re asking private investors for money. And the other part is how are you going to structure your deal? So you were describing a structure where you’d have more like a limited partnership structure with a general partner — that would be you — and limited partners — which would be your passive investors — so that’s okay. But when you do that, you have to think about, “All right, have I created … am I selling securities?”

Whenever you have a situation where you have an investment of money in a common enterprise with an expectation of profits based solely on the efforts of the promoter, then you are creating what’s called an investment contract. Investment contracts are securities.

So when you’re selling securities, then you have to comply with securities laws, which means you have to register your offering and that means like the IPO process. You’re going to send a pile of paperwork to the SEC or state securities agencies or both and get their approval before you start raising money. Well, that works for a big company like Google or Facebook, but it doesn’t work people like for you when you’ve got to raise money and get to the closing table within 90 days. So either register your offering or you have to qualify for an exemption from registration.

There’s several exemptions from registration that would apply to the structure that you’ve described. The most common one that everybody uses is Regulation D Rule 506 and Regulation D Rule 506 has two different exemptions within it. One of them is Rule 506(b) and this allows you to raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 non-accredited investors. All the investors must be “sophisticated,” so they have to have more than just savings than a job and they have to have some educational financial background or experience that enabled them to understand the risks and merits of your offering.

But for 506(b), you can’t find investors through any means of general advertising or solicitation. And so this is the friends and family exemption where you’re only offering it to people with whom you have pre-existing substantive relationships. Those relationships are defined as having an understanding before you make offers about their financial situation and their suitability to be in your deal. If you want to know more about that, there is an article on our website called “Determining Investor Suitability.” And that’s a good one if you want to be able to include non-accredited investors.

The other exemption is Rule 506(c) — “C” like “cat” — which allows you to raise an unlimited amount of money from verified accredited investors only, and you can freely advertise. So that exemption is great for people that have experience in a particular asset class and they’ve kind of run through their family and friends, they’ve already got them invested, they don’t know any more non-accredited people, and they want to be able to advertise.

Anytime you are advertising to strangers, the first question they’re going to ask you is, “What’s your experience?” So until you can answer that question adequately, then you won’t be able to be successful with a 506(c) offering. If you don’t have your own experience, you can always partner with somebody who does and you can leverage on their experience. So, that’s the situation you’re in, is that if you want to be able to structure deals where you’re running the company and they’re relying on you to make a profit, then you’re definitely selling securities. You’re going to have to pick an exemption. Rule 506 is the most common one, but there are other intrastate exemptions that also —  if you, all the investors and the deal are all in one state — that you could look at to raise money legally as well.

Okay. Thank you for the question. Do we have anybody else?


Charlene Standridge:

We have a whole bunch of written questions. This is from Steven: “How long does it take for you guys to turn around the syndication agreements?”


Kim Lisa Taylor:

So we’re basically looking at two to four weeks. A lot of it is dependent on you and your ability to get us the information that we need to be able to complete the offering documents, but it’s possible to get them done in a couple of weeks if you can get us everything we need right away and you can review and provide comments right away.


Charlene Standridge:

Next question is from Dennis: “Is there any special considerations if your investor is using a 1031 exchange?”


Kim Lisa Taylor:

Yes. So for 1031 exchanges you won’t be able to use the structure that we just talked about with Jason, because that’s going to be considered a partnership structure. So even though it’s an LLC, instead of a limited partnership, for IRS purposes they’re going to classify it as a partnership. And partnership interests are specifically excluded from the ability to 1031 exchange. And that’s an IRS rule. So the way to be able to bring 1031 investors into your deal is that you can do it as a tenant-in-common. So instead of using that LLC or limited partnership entity, you would use a tenant-in-common structure. In a tenant-in-common structure, all of the investors have direct title in real estate for their fractional portion of the raise. So let’s say if you’re raising $100,000 and you have 10 investors — ten 1031 investors that each put in $10,000 — they would each own one-tenth of that deal. So that’s the most simple concept of it.

The problem with tenant-in-common deals for syndicators is that there’s not a lot in it for you. In  the limited partnership model we were discussing with Jason,  Jason would sell off a portion of the interest in his company to investors. So maybe he’s going to sell them 60 percent or 70 percent of his deal, but they’re going to put up all the money and then he’s going to keep 30, 40 percent — the remainder — for himself and his management team. You’re not able to do that in a tenant-in-common. Everybody’s interest has to be proportionate to the amount of money they’ve contributed, so you can’t get your slice of that pie, that sometimes that’s called your “promote.” You wouldn’t be able to take that in a tenant-in-common.

So tenant-in-common makes sense when you have somebody with a lot money, like say you have one investor that wants to put in $500,000 or $1 million through their tenant-in-common and maybe you have a $2 million raise, you can syndicate the million dollars that you’re going to raise outside of that 1031 investor. That syndicate can become a tenant-in-common with that 1031 investor. So they own half the deal. Your syndicate owns half the deal, but you’re basically just giving away half the deal because that 1031 investor’s profits are going to be derived directly from property operations. So your syndicate is only going to get 50 percent of that property to deal with and you’re going to have to get your share and your fees off from the 50 percent that your syndicate owns.

So one other way that you can handle a 1031 investors, is if you are buying properties in opportunities zones. The hard part about opportunities zones for real estate investors is that if you’re buying existing properties, you actually have to improve the value of the property twice the amount of the value of the improvements. So for instance, if you have a property that has land worth $1 million and existing facilities on it that are worth $1 million, then you would also have to put in another million dollars to be able to double the value of the improvements. And,  that’s not usually what our clients are doing when they’re renovating existing properties or they’re just doing value-adds. It works really well for development opportunities or if you could buy a property that has an adjacent undeveloped portion to it where you could actually meet that requirement.

But if you did a property in an opportunity zone, then that 1031 investor would be able to invest their gain in your limited partnership structure and they would still be entitled to the same benefit they would get as if they had bought their own property in their 1031. So kind of a long answer, but you know, that’s kind of how it works.

And we can go longer (with this call). There’s still a lot of people on the call and we can go ahead and continue answering. If some you have to drop off, that’s fine; we totally understand and we thank you for listening. Are there any more questions, Charlene?


Charlene Standridge:

One from Will; he wants to know if he can raise money in advance of a project like setting up a fund without having a project identified yet?


Kim Lisa Taylor:

Yes, it is the hardest way that you will raise money and like the 506(c) you’re going to have the same dilemma. Because it is hard, people are going to be looking at your track record very hard and if you have a significant track record, go ahead; you can do it. And I mean, there’s no legal reason you can’t do it, but I hesitate to do it or to advise people to do it when they don’t have the right experience because they’re rarely successful. And we just have a policy here: We don’t like to take money from people if we don’t think their deal is going to be successful. So we wouldn’t advise that unless you have the right experience for it.


Charlene Standridge:

Our next one’s from Jerome. He wants to know, “Are you able to talk about Greenfield development deals before you start raising capital?” He had someone say that they can be seen as conditioning the market.


Kim Lisa Taylor:

Well, and that doesn’t apply just to Greenfield development deals. That applies to any deal. It goes back to whether you’re going to do a 506(b) or a 506(c)offering. If you’re doing a 506(b) offering, then you should only be talking about the deal to people that you already know and not to people that you don’t know because in order for them to be eligible to invest with you in a 506(b) offering your relationship with them has to predate your offering. If you already identified a deal, just because you don’t have it under contract or just because you don’t have the securities offering documents completed yet, if you’re still talking about that deal it’s a current or contemplated deal.

People that you’re meeting from that point forward would be prohibited from participating in that deal because you met them through a form of general advertising or solicitation. If you are doing 506(c) offerings; you can talk to anybody you want about any deal you want, it doesn’t matter. So it really goes back to which exemption are you going to pick.

Alongside that in 506(b) offerings, if you wanted to put up a website, you can’t post past deals and how they’ve worked out because having posting the past deals and making them available to the public can be seen as the first step in making an offer. You know, why would anybody care about your past deals unless you are trying to get them to invest with you in the future? And  you’re not supposed to do that if you’re doing 506(b) offerings. Again, if you’re doing 506(c) offerings and you’re going to freely advertise your deals, then you can freely talk about the deals you’ve done before.


Charlene Standridge:

Ryan wants to know, “What would you recommend as a minimum or a minimum size deal, a minimum capital requirement for a new syndicator focused on CRE property?”


Kim Lisa Taylor:

In order to syndicate a deal, it really starts to make sense when you’re raising more than $400,000 or $500,000, just because the amount of work that your securities attorney has to do doesn’t change. The securities offering documents are the same if you’re raising $100,000 or $1 million, so the work they have to do is the same and the cost could be prohibitive if you’re raising less than $400,000. So if you are going to be raising less than that, then we would probably try to talk to you about maybe creating a joint venture structure.

When I was talking to Jason earlier, I mentioned briefly that you could create a general partnership where all of the investors were actively involved in generating their own profit. That could be called a general partnership; it can also be called a joint venture. That truly is the difference between a joint venture and a passive investment opportunity is whether or not the investors are involved in generating their own profit or if they’re relying on you to make a profit for them. If it’s the latter, then it’s a securities offering; you need the securities offering documents. That’s usually going to include a private placement memorandum, operating agreement for your investors that takes title to the property, a subscription agreement and securities notice filings with the SEC and with state securities agencies.

If you’re just doing a joint venture, we can create a member-managed LLC and just one operating agreement for that and it’s going to be significantly less expensive. You want to be careful because you really don’t want to have a joint venture in which all of the members are considered managing members and can make decisions about the property unless you just have, you know, three, four or five people who you know very, very well and you know that you can get along with for the duration of the project. If you start to have too many people trying to make decisions, then you’re going to get differing opinions and you’ll never come to a consensus. So if you have a very small amount of people, that structure can work; otherwise, you’d probably need a syndicate.

So, you know, there are other options beyond that. You could do an accredited-only offering that sometimes that can  lower the costs a little bit because the documentation is a little bit less stringent. But here’s the deal with an accredited-only offering: You’re not technically required to have a private placement memorandum. So we can just reduce the amount of documents that you need to the operating agreement, subscription agreement, and filings; that will reduce your costs. But the PPM is very important for you.

The PPM is your insurance policy. It shifts the risk of loss from you to the investors as long as we talk to them in the PPM about all the different risks of investing and what things could go wrong. And if we’ve told them about that in advance and one of those things happens, they can’t come back on you and complain about it. But if you don’t have a PPM, then they could blame you for not providing all the information they needed to make informed consent. And that way they might end up trying to blame you for it and and trying to sue you for it. So the PPM can stave off a lot of lawsuits. So again, if you’re going to have more than four or five people whom you know very, very well, we would recommend that you’d want that PPM just to protect yourself, so you can sleep better at night.


Charlene Standridge:

Our next question is from Matthew. He wants to know if the syndication process is required when asking family members and friends to invest.


Kim Lisa Taylor:

Yeah, so that’s where we go back to that friends and family exemption, that Rule 506 exemption is the actual friends and family exemption. So you still need to follow securities laws even if you’re only inviting friends and family to invest with you. And I would say especially because you really do want to inform them of all of the risks of investing so that they don’t blame you later on and you can no longer go to Thanksgiving dinner.


Charlene Standridge:

Our next question from Ryan: “What is a good target number for LPs in a deal?”


Kim Lisa Taylor:

I’m not sure what he means by that question. Maybe he’s talking about the number of limited partners. The SEC says that the median raise for Rule 506 offering — and this is nationwide — is one and a half million dollars with 14 investors. So that gives you an idea.


Charlene Standridge:

Okay, our next question is from Carol: “If your numbers are coming in lower than the asking price, is there a certain percentage of the asking price that is suitable to put on the LOI?”


Kim Lisa Taylor:

You’ve just got to put on the numbers that makes sense for you. Because regardless of what the investor thinks the property’s worth, it’s only worth as much as you think it’s worth. And if they’re asking something beyond what you can- support with your underwriting, then you wouldn’t buy it anyway. So if they don’t accept it, then you’re probably better off. Just move on.


Charlene Standridge:

Our next question from Richard, he wants to know: “How would you suggest best practices for developing preexisting substantive relationships, whether it’s email, one-on-one meetings, newsletters, blog, etc.”


Kim Lisa Taylor:

This is where you’d really benefit from having the investor marketing plan template, because that’s going to talk to you about, stepwise, “How am I going to meet people? How am I going to follow up with them? And what am I going to provide them at every step in the process that’s going to help enhance my credibility and help them remember me later on when I actually have a deal?” So I’d say you’d want to start with having a plan for how you’re going to meet people and then what are you going to give them at that meeting? You’re probably going to give them a business card, but then how are you going to follow up? So you could go to read the article that we have on determining suitability and follow that questionnaire process — learning information about that person and start putting that information in a database; now, what are you going to do to follow up? What are you going to do with them the next time to keep yourself top-of-mind? Are you going to have some kind of a periodic email or drip system or just call people once a quarter? What is your plan? What’s going to work for you? Or are you going to meet with them once a month, maybe at a meetup or something like that? So you really have just got to have a way to further that relationship and make sure that they still remember who you are when you’ve got a deal.


Charlene Standridge:

“And what is the definition of a waterfall deal?”


Kim Lisa Taylor:

Well, every deal that you have with passive investors is going to have a “waterfall.” If you had a deal with general partners, you might just have a deal like “Hey, if we’re all going to split this, there’s four of us for a split at 25 percent each.” So whatever money you get, you just slice it up four ways. But in a limited partnership type structure, you’re going to have a waterfall where you’re going to talk about different stages of operation of your company. During the operations phase, how are you going to split cash flow? If you get excess cash flow after paying your operating expenses and your lender payments —  and you’ll decide how much you want to keep in reserves or for future improvements or whatever like that — but whatever’s left after that, you can distribute; that’s called distributable cash. What do you do with that?

So you disperse it to yourself and investors in a stepwise fashion. It’s step-by-step. Number one, you’re going to probably split it. Maybe you just have a straight splay; you say, we’ll split 50/50, that is your waterfall. Maybe you’re not; you’re going to say, “Okay, number one, we’re going to give investors a preferred return so they get all the cash until they’ve achieved their preferred return. Then we’re going to give something to the manager. And, then after that, the rest of it gets split.” So that’s an example of a very short, simple, waterfall.

You’re going to have a different waterfall for when you actually sell the property. So at that point, hopefully, you realized some equity and so you’re going to first pay back the investors’ original capital contributions, then you would make up arrearages and preferred returns if you had them, and then you might make up any catch-up if you have a catch-up provision for the manager. You might make that up and then you would split what was remaining … whatever split you had described in your documents. So those are how waterfalls work.


Charlene Standridge:

Okay. Our next question is: “So would it be correct to say that outside of your family and friends, you should not talk to anyone about investing until all of your compliance documentation is in place?”


Kim Lisa Taylor:

No, I don’t think that’s true at all. Because if you haven’t talked to people about what you’re doing, then they’re not going to know who you are. And if you’re doing 506(b) offerings, it’s too late. You can’t meet them and talk to them about it at that point; you would’ve had to have met them and already developed relationships with them long before you had your offering documents in place in order to be able to offer that particular opportunity to them. So you really want to be talking to people in general terms about what you’re doing from the time you start doing it, and developing that list of people, following up with them, deepening your relationship every way you can. And that way when you’re ready, then you have a deal. You know, if we go back to the SEC’s rule of a one and a half million dollar raise with 14 investors, while you should have two or three times that number of investors in your database in order to fulfill that deal.

Most of our clients are starting with $50,000 minimums. So if you wanted to raise one and a half million dollars you have to have enough investors that could invest $50,000 at a time in order to fulfill that and close on that deal. So that’s the number of people you should have. But you should always have more people than you think. Some people would invest more. Some people invest $100,000, some people invest $150,000, some people invest $50,000, but some people will string you along and never come through. Or, by the time you call on them and say, “Okay, I’ve got a deal,” they’re going to say, “Oh man, I just invested in something else.” Or, “I just lost my job or something else happened in my life; I can’t do it now.” So you’ve got to plan on the fact that 30 percent or 40 percent of those people are not going to be able to invest with you at that time.

So you’ve got to make sure that you’ve got plenty of investors that you can comfortably subscribe for the amount of money that you’re raising. It’s a mistake to come out of the gate and try to do too big of deals. I’ve seen people try to do that before. They tried to do $20 million or $30 million deals for their first time out. Unless you have a partner that can raise that kind of money,  assume whatever your purchase price is, if you assume you’re going to have to raise a third of that from private investors, you’re probably in a pretty good ballpark on an existing property. So if you’re buying a $2 million property and then you’re going to have to raise somewhere around that, you’re going to need 25 percent for your down payment.

Plus you’re going to need 3 percent for closing costs. You’re going to need your acquisition fee. That’s another 3 percent. You’re going to have to pay your attorneys, your real estate attorneys, us,  and your due diligence expenses. By the time you add all of that up, that’s probably going to be around $600,000 or $700,000 that you’re going to have to raise for a $2 million deal. So that’s kind of how you should be looking at that. And then you look at, “How many investors do I need to raise that kind of money?” And that’s how many people you should be able to approach.


Charlene Standridge:

Okay. We have a follow-up question from Will. He wants to know if the same requirements apply to deferred sales trust funds like the 1031 exchange fund.


Kim Lisa Taylor:

Say that one again. Read that again.


Charlene Standridge:

He wants to know if the same requirements apply to deferred sales trust funds like the 1031 exchange fund.


Kim Lisa Taylor:

I’m not sure what he’s talking about so I’m not going to be able to answer that.


Charlene Standridge:

Okay. Then our next one that we have here is: “If you have a capital company and a website, how can I legally advertise for sophisticated investors to register?”


Kim Lisa Taylor:

You can’t; well, very carefully. You can give them something for free. You can offer them a white paper or something that would entice them to give you their contact information and then you would go through those steps of getting to know them and determining their suitability and adding them to your drip system and starting to develop your relationship. And then at some point in the future when you have a deal, you’d be able to offer that to them. But you can’t just advertise deals to non-accredited investors if you want to do Rule 506 offerings, which is what most people do.

There are some other things that will allow you to offer investment opportunities to non-accredited investors, but they’re quite a bit more complicated. For example, you could do a Rule 504 offering. The problem with Rule 504…

So Rule 506, the reason everybody likes it and it’s so popular is because it’s a federal rule and it preempts all individual state laws. If you follow Rule 506, as long as you follow the rules of 506 and we file notices in the states where the investors claim residency, then we don’t have to get permission from the state for you to be able to raise money in those states.

But if we did a Rule 504 offering, for example, then that would require that you actually get pre-permission from the states where you’re going to be offering those investment opportunities. That takes time; there’s always fees involved with it; it can get a little complicated.

Another option would be to do a Reg A+ offering … you should be planning on having $80,000 to $100,000 to be able to do that type of offering. I mean, it’s just going to cost you this; that’s not all legal fees. You’re going to have a lot of other costs associated with doing that type of an offering. That’s why I say you should have $80,000 or $100,000 at your disposal.


Charlene Standridge:

This is the last question, Kim: “Are there any syndication structures in which you can pay real estate brokers fees for bringing in investors?”


Kim Lisa Taylor:

California is the only state that allows you to do that. California has two ways that you can do that. One is there is an actual a law on the California records statutes that says that you can pay licensed real estate brokers for referring investors to a deal in California. California also has a finder’s fee where somebody who has to be a California resident can register as a finder with the state and then they can earn fees for referring investors, again, to California deals. So it’s all stuck within California. There is some pending legislation at the federal level that would allow finders in certain instances to receive fees, but that has not passed yet. And this is not the first time it’s been proposed. So it’s possible it won’t go anywhere. But we all wish that something like that would happen. So is that it?


Charlene Standridge:

Yeah, that’s it.


Kim Lisa Taylor:

Okay. Well, Hey, thank you everyone. These were really great calls. You totally picked my brain; that’s okay. We don’t mind that; that’s the fun part of this job for me. So if you still have other questions or you’d like to have a free 30-minute consultation with us, please arrange that at our website. And, everybody wish me good luck with the hurricane; I’m in St Augustine, so you can all see what happens next week. We’re waiting to find out. And I hope you all really have a great day.


Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

About Syndication Attorneys

We are NOT your stereotypical law firm. We don’t believe in simply taking your money, handing you a stack of technical, often-incomprehensible legal documents and then bidding you good luck and good-bye. At Syndication Attorneys PLLC, we are committed to your success – not just with the project at hand, but your continuing success in business and investing. We are your long-term legal team.

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Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!