Edited Transcript from the “Apartment Syndication Made Easy” podcast episode, “Understanding Syndication Law”

Host: Vinney Chopra

Guest: Kim Lisa Taylor

Originally broadcast July 2020

 

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Vinney Chopra:

Great. All right. Good morning, everybody. Thank you for tuning in to Vinney Chopra and “Apartment Syndication Made Easy” podcast (that airs) every week with different great personalities in the USA. And I’m really excited about today because Kim Lisa Taylor is a well-known personality in USA. And I’ve known her for 14 years, maybe 13. And it’s been such a wonderful mutual feeling to get to know you. You have taken such good care of me. We have done 26 syndications together. And I just welcome you today. I want to introduce you though formally before we go into our interview.

Kim Lisa Taylor is nationally recognized public speaker, author and attorney licensed in California and Florida. She’s the founder of Syndication Attorneys, PLLC, a nationwide corporate securities legal practice firm, the author of the Amazon best-selling book, “How to Legally Raise Private Money.” Yay. Let me see that, Kim. There it is right there guys. That’s the book I want everybody to buy and please buy this one also.

 

Kim Lisa Taylor:

There we go. The two of them are often sold together.

 

Vinney Chopra:

Yes. And then again, that was “How to Legally Raise Private Money” that Kim just shared. And then of course, “The Definitive Guide to Raising Money for Real Estate and Small Business.” That’s another one. And she routinely teaches subjects related to raising private money in front of groups ranging from 50 to 1000-plus attendees. Actually we just met literally over there in Orlando. Yes. Yes. At the conference. And you did a great, great job, Kim. Kim has the unique ability to convey complex legal subjects in understandable terms. I love that. I love that. That’s what we really need to understand the concept to audiences large and small. Her law firm helps entrepreneurs comply with the legal requirements definitely, definitely for raising money from private investors. She has been the responsible attorney for over 300 securities offerings. Kim, welcome. Welcome to the podcast.

 

Kim Lisa Taylor:

Thank you.

 

Vinney Chopra:

And great to have you again.

 

Kim Lisa Taylor:

Happy to be here.

 

Vinney Chopra:

It’s such a pleasure. Thank you for taking the time from your busy schedule to be with me.

 

Kim Lisa Taylor:

Love to, Vinney.

 

Vinney Chopra:

So tell me, I mean, you’re a very busy woman. How do you keep it all together?

 

Kim Lisa Taylor:

Well, I have a really great team that helps keep me on track, as do you, right? There’s a team that is our sanity.

 

Vinney Chopra:

Yes. Yes. It’s so important. I think, yeah, so like Kim what you just said, I mean, at the peak I had 135 people full-time in my businesses vertically with all the different parts and things like that. So you’re right. These are the systems. These are the quality people that we hire, vice presidents, directors and asset managers and all of them because that makes us look good. But if they are not in the background, we wouldn’t be anywhere.

 

Kim Lisa Taylor:

That’s right. That and technology.

 

Vinney Chopra:

Yeah. Technology. I agree.

So let’s talk about your company, Syndication Attorneys, PLLC. Can you explain a bit more about what syndication means?

 

Kim Lisa Taylor:

Yeah. A syndicate is just a group formed for a common purpose. And it could be for any purpose, you could be buying a yacht or an airplane or a real estate or a business. So it’s just pooling resources. Some of the people might be pooling their expertise and their knowledge. Other people might be pooling their money.

 

Vinney Chopra:

So right. So right. For the profit making. Right?

 

Kim Lisa Taylor:

Yeah.

 

Vinney Chopra:

Hopefully you’ll be making a profit. Right. Right. So then how about like you have developed a 10-step list of becoming a successful real estate syndicator. I’ve been hearing about it. Can you please run us through these steps? And let’s look into how if some new person, a syndicator, wants to start in this field, what will they need as the blueprint?

 

Kim Lisa Taylor:

Sure. Well, a lot of this is laid out in my book and the book kind of follows the same format. But it’s really all about laying the foundation. First you have to have the mindset. What is your mindset? Make sure that you’re not feeling like you’re asking people for favors when you’re asking them for money; you’re offering them investment opportunities that they need. The next thing is to select an asset class. Pick what it is you’re going to buy. Don’t jump all over the place. Really focus on one thing and get really good at that. And then if you’re interested in something else, then you can shift just like you did, Vinney, right? You started with multifamily and now you’re shifting into the assisted living. But you mastered the multifamily before you started looking at assisted living. So I would encourage everybody else to follow that same kind of a path. Right?

 

Vinney Chopra:

So true.

 

Kim Lisa Taylor:

Yeah.

 

Vinney Chopra:

I think getting the focus is so right, Kim, what you just mentioned. I mean, my first apartment building I ever bought was 14 units for $180,000. And it’s so exciting that last year I bought with Enzo Multifamily, my partners, $52 million deal last year right in Orlando, the Maitland, Bentley. And then we bought in Melbourne, $35 million one in December. So exciting things that if you stick with the game plan and don’t divert yourself to unfocused, then things happen for a reason. And you stay in that same niche and learn and build the business in there. Sure. Sure.

 

Kim Lisa Taylor:

Yeah. That’s such sage advice, Vinney. And we’ve seen you succeed. We’ve had other clients that have followed the same path where they’ve started out buying $1 million or $2 million apartment complexes or raising just a few hundred thousand dollars. And now they’re buying $35 million and $50 million apartment complexes. And some of them are still in multifamily. Some of them branched off into other things. But you get to pick your path but stay on the path and see.

 

Vinney Chopra:

I agree. Totally agree with you, Kim. You’re so right. And I do want to say that I feel because we are expanded, I am still in multifamily big time and I’ll be buying in Melbourne and Tampa and all the places and Austin, Texas, also because dismantling of the Silicon Valley is happening right now. Because of the COVID happening, a lot of Silicon Valley employees have said, “You don’t have to come to work right here in Silicon Valley.” And don’t have to spend one hour or two hours of driving to come to this brick and mortar structure that they paid millions of dollars in prime locations. So that’s where I am really very heavily focused now to go into Austin market which we have already started building and so forth. And also in the tech space, like in Melbourne, right in your backyard actually, you live in St. Augustine, right below there. And we are looking to maritime land and all that. We just bought land over there. We put an LOI today for our assisted living in Sebastian and Palm, all the nice places.

 

Kim Lisa Taylor:

Yeah. There’s some very nice places in Florida.

 

Vinney Chopra:

True.

 

Kim Lisa Taylor:

All right. Well, so then the next step is to obtain training in that area once you decide. And maybe those two points are going to be one and the same because maybe you want to go get some training before you know which of those asset classes you want to focus on. But once you’ve decided then you really need to get some training and some coaching in that area. All of our successful clients have had coaches. Every single one of them that has gone on and done multiple deals and done this in a big way has started out with a coach. You don’t have to have the coach forever but maybe for the first two, three, four deals, you have a coach and then you kind of move past the coach because now you’ve got it down and you’ve got your own systems. So get some training. Vinney has got some great training for you, right?

 

Vinney Chopra:

Yes, I do. I do. And I really owe it to my coach really and the coaches and the program that I spent a good amount of money. I think a lot of times people say, “I can get free information, free information.” But you only go so far with the free information. It’s good to get a coach. Thanks for saying that. My coaching is getting bigger and bigger even though I don’t have any coaches underneath me, I coach myself every week. And then I have personal coaching students which I coach myself also. But my majority of the focus right now is buying multifamily, building senior assisted living, building a multifamily also and buying hotels. So those are my four main jobs.

 

Kim Lisa Taylor:

Wow. That’s great. Yeah. I don’t know how you get it all done. OK. That’s a lot. Well then the next thing is you need to brand your company. Think about branding yourself just like anybody who knows me or who’s been around Syndication Attorneys knows that we’ve branded Syndication Attorneys. And we try to get the name out as often as we can. We try to make it available for people who are searching on Google. And you just need to brand your company so that people know who you are just like Apple or Nike or any of the big companies out there, Google, Facebook, all of them have brands. And so that really means creating your logo, deciding what the look and feel of your online presence is going to be. What kind of fonts and styles and colors and things like that are you going to use? And then how are you going to get that out to the public? So thinking about branding your company.

 

Vinney Chopra:

Yeah. So true. So very true. And now in the social world, I should say social media and with LinkedIn and Facebook, Instagram even TikTok I think is another one, right? People do want to search you. I mean, if you want even $5 or maybe $50 or $500 or $50,000, people want to know who you are and where you have come from and things like that. You’re right. Your branding is so important. So what’s next after that?

 

Kim Lisa Taylor:

Well, so then you’ve got to think about digging deep into what is your business model going to be? If you’re going to do single-family, are you going to get money from private lenders? If you’re going to do multifamily, you’re probably going to syndicate at least when you get to a certain level, maybe you’re even going to start out with some small multifamily and do some joint ventures. But eventually you’re going to realize that the way to scale up your business and maintain control of it is to be able to syndicate it. So that’s where we’re going to set up the structure for you so that you have control over the day-to-day operations of your company and your investors who are passively investing with you. They’re relying on you to generate a profit for them. So we’re going to help you do that.

But you have to think about when you’re picking your business model, what are you buying? Why are you buying it? What do you expect to do with it? What personal goals will it help you achieve? So what is your underlying motivation for following this business model and really putting that into numbers so that you understand, “I have to have this many units before I’m going to be able to live the lifestyle I want to live or I want to be in before I can quit my job or before I can retire.” You have to pick what your personal goal is that you’re trying to achieve and then map to get there, set a roadmap to get there. And then creating some accountability so that you know when you’re getting to the right milestones and you’re staying on track. So I think that’s very important.

So you’re going to get training on an asset class. So when you get your training in your asset class, you’re going to go to a real estate trainer like Vinney. And Vinney is going to teach you how to analyze deals and how to find the right properties, which properties to buy, how to oversee the property managers. And how to determine when it’s the appropriate time to sell or refinance or things like that. That’s the kind of training you’re going to get from Vinney. Now Vinney is a little bit unique because then he has done so many syndications. So he also teaches a bit about how to syndicate. But a lot of the real estate trainers just teach you the real estate and they say, “Get your syndication training somewhere else.” And that’s where we come in. We have the book of course, “How to Legally Raise Private Money.”

But in addition to that, on our website there’s over 40 articles on different aspects of syndication. I write them in two-page articles. So they’re very easy to read. They’re bite-sized. They’re written in plain English so that you can understand. We do free monthly teleseminars so that we can educate people on different aspects of syndication. Vinney has been our guest speaker for a few of those. And so you need to just really kind of educate yourself on the process of syndication, which it’s in part buying the property but it’s more about raising the money legally and structuring your deals with investors and making sure that you’re complying with securities laws.

Now there’s a lot of fear around complying with securities laws and the more you learn about it and the more you understand why you’re doing things the way you’re doing it or why your attorney is recommending you do things in a certain way or that you can say certain things and not certain things, that maybe you can advertise sometimes, sometimes you can’t. Once you understand the reason for all of that, then you’re going to have a lot more confidence that you’re doing it correctly. You’re not going to be afraid of getting in trouble. And you’re going to be able to go out and fearlessly raise the money and not only helpiyourself achieve your goals, but also help your investors achieve their financial goals.

 

Vinney Chopra:

So true. Kim, I want to put a plug for you because your articles are so understandable. And I share that with my students all the time. And I promote syndicationattorneys.com, www.syndicationattorneys.com. I like my audience to really click on that, get hold of that and go there and look how many tremendous articles Kim has put together. And I mean, a lot of my students tell me too, when they go there, they say, “My gosh. There is so much information. I’m a better person. I learned so much from Kim’s website.” So she’s got great, great things there, guys. And the other good part are the telecasts. My gosh. I mean, you’ve been doing it for many years now like…

 

Kim Lisa Taylor:

Over three years. Yeah. Over three years.

 

Vinney Chopra:

And all are archived and very nicely put together and you could see the subject, the content. So no, thanks for giving that to all the investors, young syndicators, how they can really learn this business. Because that’s how I got started with these baby steps 14 years back. And now, I’m kind of grown up a little bit.

 

Kim Lisa Taylor:

That’s right. That’s right. And also read the frequently asked questions. So at our website, there’s a Library and that’s where all these things are housed. And the frequently asked questions are things that people are actually asking me and I’m writing an answer for that. And then I realized if one person’s asking that question, so are a lot of other people. So let’s put that out there so everybody has that information available to them.

So then the next thing you need to do is build a database. And that really starts with developing an investor marketing program. So you’ve got your deal flow going. So you really have two parts to this business. One part is your real estate side and finding deals and learning how to manage your deals and all of that, getting them to the closing table. And then the other part is finding and managing investors. So you’re always going to be in the marketing business of learning how to market for investors and get them into your database, find people who are interested in investing in the kinds of things that you are going to be doing and helping them understand the syndication process. Maybe they’re getting them some education suggesting that they read a little bit about it and get educated themselves. There’s a whole chapter in my book just for investors on what they should know before they invest in a syndication. So if they understand it then they’re more likely to want to invest with you.

So you’re going to figure out how you’re going to meet investors, how you’re going to make a lasting impression once you meet them. Because just because you meet someone and exchange business cards doesn’t mean you have the right relationship to start offering them investment opportunities. You have to go a little deeper. You have to get to know them. You have to develop a relationship with them. There’s actually an article on our website called “Determining Suitability for Investors,” for Regulation D rule 506, the offering. So just look for the article called “Determining Suitability.” And I think everybody needs to read that article because it really talks about how to establish a relationship with an investor and how to keep a record of having established that relationship so that if you’re ever questioned by a regulator or by opposing counsel in an investor lawsuit or something like that, you have that record to fall on to be able to defend when you met them, how you developed the relationship, how you got to know them and that you later on made offers to them but only after you had gone through those steps.

So read the article called “Determining Suitability” on our website and then use that. Write a list of all the people that you know right now. And don’t judge people. Don’t prejudge people. Don’t turn down investors before you know you have one, right? Talk to everybody. Ask them if they’re interested and get to know a little bit more about them. That article actually even has some examples of questions you can ask. And then tell them about yourself and what you’re doing. And find out if it’s a good fit because it’s all about getting to know them well enough, not just financially but also personally, so that you know whether you want them to invest with you and you want to be in a relationship with them for the next five to seven years, when things could get rocky or things could go well. You don’t know what’s going to happen so you want to have good partners.

So build your database of prospective partners so that you will have enough people that you can ask to invest with you when you have a deal under contract. Here’s a little SEC statistic. The SEC says that the median raise for a Regulation D rule 506 offering is a million and a half dollars with 14 investors. And so under the rule of thumb amongst the real estate trainers and other syndicators is you really need to have two or three times that many people in your database. So whatever you want to raise, you need to know that the people in your database are capable of fulfilling that much three times. And that way you’re pretty likely to be able to raise the money and get that deal closed.

If you don’t know the people now, part of your investor marketing plan is how are you going to get to know people? What kind of events are you going to attend? Are you going to actually hold some educational events in your community that you can invite people to, that you can get to know them that way? Are you going to join philanthropic organizations? Are you going to go to nationwide real estate training events? There’s all different ways that you can meet people … even your church for just some local meetups. All of those things are excellent ways but you have to do it. You have to get out of your home and go and meet those people once we’re all able to go and meet people again.

 

Vinney Chopra:

So true. So true, Kim. And also the webinars, right? Educational webinars are getting more and more popularity. I know that way we are bringing people in to educate them so that from there they could ask you again more information and then we could turn them into getting the pre-existing relationship. I would love to ask you that. I know we have talked about curation periods or what does SEC say about that? How long before we can really show a future deal? That’s the other thing I have a question. I tell my students always, Once you get the project on the ground or LOI signed or something, you cannot really take after that, the investors on this side that you meet later on… So kind of explain a little bit more.

 

Kim Lisa Taylor:

So that’s really what the crux of that article on determining investor suitability is about. This is an explanation of what the SEC believes is necessary to develop the relationship before you can start making offers to people. And there was a company that asked the SEC to give them what’s called a no-action letter. And they wrote down, “These are the procedures we’re going to follow when we’re developing relationships. If we do it just this way, would you consider that to be in compliance with the rules? Can we get a no-action letter saying it’s OK to do it that way?” And the SEC, they gave them the no action letter. And they said,  it’s not about the passage of time. It’s about the quality of the relationship. It’s about making sure that you already know enough about that investor to understand whether they’re suitable to be in your deal and that they know enough about you to understand whether they would be comfortable investing with you.

So you really have to actually have a conversation about their finances, about their past investing. Maybe you want to ask them now where their funds are because that’s going to be very important if you’re raising money in the short term to people who have money in the stock market and may be reluctant to pull it out or maybe after it recovers, everybody wants out. So you really want to understand where they are and what their thinking is about that so that you’re not asking them at the wrong time. So that’s something to consider.

So it’s really more about making sure that you’ve had that conversation with them to determine their suitability before you start making offers. So it really shouldn’t happen in the same conversation, then that’s why you want to have your own internal policy where when you get someone’s business card, you get their contact information that you then follow up with a call where you go through those questions in that article and you get that information and you put it in a record-keeping system with date and timestamps. So you know when that conversation happened and then after that when you get deals, you can talk to them about your deals.

 

Vinney Chopra:

Love it. Love it. Love it. I know you have really taught me well over the years about record-keeping. Preexisting relationships do not just happen overnight. I mean, you got to make sure that they understand the risks and all that and they understand who you are and what you will be looking into and what you’ll be bringing in. And then maybe in the second or third contact, you could share some case study of something that you have, is that right?

 

Kim Lisa Taylor:

Yeah. That’s right. That’s right. But don’t start out with case studies because the SEC considers that to be the first step in making an offer. So don’t do that until you’ve established that relationship. Once you’ve had that suitability conversation then at that point, you can start showing them what they call tombstone ads or deals that you did before.

 

Vinney Chopra:

And kind of touch also, I know social media has overtaken the world and (tell us)what’s permissible. I know when you looked at my website, you were able to cross off a lot of things in there. Can you give us some light on that? Yeah.

 

Kim Lisa Taylor:

So you kind of have to decide where you’re at in your syndication business. So if you’re starting out, most people start out doing Regulation D Rule 506(b) offerings. And Rule 506(b) offerings allow you to raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 non-accredited but sophisticated investors. But you can’t find them through any means of general advertising or solicitation. So the way you prove that is to prove that you have this preexisting substantive relationship that we’ve been talking about. The investors are able to self-certify so you will give them a subscription agreement when they make their investment. And they’ll tell you whether they meet the definition of accredited or if they’re not accredited, then they’ll tell you how they believe they’re sophisticated enough to understand the merits and risks of the offering.

And they’ll put all that into a subscription agreement. A subscription agreement will also have an offeree questionnaire where they’ll be asked questions about their prior investing experience and their education and things like that that are relevant to determining whether they’re sophisticated enough to be in these deals. So a sophisticated investor is more than somebody with just a job and some savings. They have had to have had some past experience, education or training. So maybe even somebody who’s in Vinney’s coaching program who wants to invest with you. Well, they have been trained in Vinney’s coaching program, so they could be suitable. Whereas somebody who just has a job and some savings but no training like that, they may not be suitable. So I guess if you have investors that aren’t suitable, you’ve got to send them to Vinney’s training program.

 

Vinney Chopra:

I’ll indoctrinate them. Right?

 

Kim Lisa Taylor:

That’s right. That’s right. Or get them to read my book as well.

 

Vinney Chopra:

Yours and mine.

I’m so happy that your book became a top seller on Amazon and it’s such a pleasure and it was wonderful. And I’m even coming out with a new one. This is my new one, “Positivity Brings Profitability.” So I’m looking forward to that. We just started writing the third one, “Investing in Assisted Senior Living.” And “Senior Living Investing” is another title. And then “Lending Made Easy” is my another one with my buddy who is a good, good friend. And we are a co-host also on a Friday show, we do it together.

 

Kim Lisa Taylor:

Great. Great. Well, so after you’ve done those steps, building your database of investors, the rest of the steps are about analyzing your deals. You’ve got to have a lot of deals to look at before you’re going to get one accepted. And realize that the people that are finding deals are the people that are sending out 30 or 40 LOIs a month. Not the people who are sending out one every two weeks. You have to analyze a lot of deals. And you can’t agonize over your LOIs. You have to get quick at it. And I’m sure Vinney has some techniques for doing that. So analyze your deals, make offers. This is a numbers game. For every 100 LOIs you send out ,maybe 10 of them you’re going to get a positive response. Maybe two of those are going to get accepted. And then one of them gets to closing.

So think about that when you’re doing this. It’s just all about numbers, and keep the numbers going. Then we get a property under contract. Once you get a property under contract, now you’re ready. You’re ready to syndicate. What we say is hire your attorney or hire your securities attorney. You’re going to hire a real estate attorney to help you with the purchase agreement. And they’re going to help you. A real estate attorney is not a securities attorney. They’re very different. And be careful because there’s a lot of real estate attorneys out there that will tell you they can do your securities offering documents but if they don’t practice in this area of the law, they may not have securities liability insurance. And a lot of them don’t understand PPMs or compliance.

And so they might give you some bad advice not even realizing that there are some other requirements that you need to follow. And they’re not going to be on the hook if the thing goes wrong; it’s you that’s going to be on the hook. So make sure you’re getting the right advice. So let your real estate attorney help you with the purchase and sale agreement, with the escrow, the title, and with the lender. So they’re going to be the one reviewing the loan documents and helping you with all of that. The corporate securities attorney, like our firm we’re going to be the ones who draft your private placement memorandum, your operating agreements for you and your investors, for your management team and your subscription agreements. We’re also going to do the filings with the SEC and with the state securities agencies. There’s some very strict timelines on when those things have to be filed. And it’s kind of a pain to file them.

So a lot of people especially like your real estate attorney might not realize that those things have to be filed and they might even not even give you that right advice or they might tell you, “You have to do it yourself.” And it’s not easy to do. So make sure you’re hiring an attorney who has experience in this field, preferably hire us. And we’ll show you how to structure the deal with investors and how to set up everything right within your management structure. If there are going to be problems in your syndicate, it’s more likely going to happen at the management level than it is going to happen with the investors. So just keep your management team small. Don’t bring people into management that you can hire to provide services. So if you’re already paying somebody a commission or some other fee, don’t bring them into your management and then continue to pay them for the duration of the project. I see that happen a lot.

 

Vinney Chopra:

Can you expound on that little bit more? Sorry. Yeah.

 

Kim Lisa Taylor:

So a lot of people will say, “My property manager —  I want to bring them in and let them be part of my management team. And we’ll give them some of the equity.” And the problem is then you can’t get rid of them if they don’t perform. And they don’t really have an incentive to perform. And you’re paying them way more than you would because you would just be hiring them to do the job anyway. And you’d be paying them a fair wage for that. Now you’re actually giving them something extra that they weren’t necessarily entitled to if they’re not doing anything extra in order to get the deal done.

So don’t bring people in that you can hire but do bring people in that complement your skill set. So if you’re really good at talking to brokers and analyzing deals, then you want somebody else on your team who’s really good at talking to investors and raising money. And you need to cover both those bases. And teams of three or four people seem to be the best of the hundreds of securities offerings that I’ve been the responsible attorney for. Anytime you have five or more people in management, things start to get a little bit tense within the management team that not everybody agrees on everything and then somebody’s feelings get hurt or…

 

Vinney Chopra:

Too many cooks in the kitchen.

 

Kim Lisa Taylor:

That’s right. That’s right. That’s right. And if you don’t want to have other partners, then just hire staff. Hire really good staff. Hire some young college student who’s anxious for experience and bring them on and get them to help you with the deal analysis and the finding the deals.

 

Vinney Chopra:

Awesome. Awesome idea. Awesome idea for sure. And you can train them and they will be more valuable to you as you teach them skills.

 

Kim Lisa Taylor:

… realize at some point they’ll leave you and go become a syndicator on their own.

 

Vinney Chopra:

They will. Which is all right. I want my students to do better than me, I always tell them. Because I really believe in giving of course forward, not only that but where I am now. And a lot of the students who are in my Academy of course, they’re starting out. Right? But a lot of people are joining me who have already like 1,000 doors, 3,000 doors, and they’re still joining me. I’m surprised by it. I mean, they find that I’m relatable and I can teach them even to get to the next level.

 

Kim Lisa Taylor:

That’s right. I referred somebody to you today.

 

Vinney Chopra:

My gosh. Thank you, Kim. So kind of you. No. I think this world is to really I mean, help each other. I mean, we are in it together. It’s such a big pie. And I totally, totally appreciate the 26 deals we did together and we’ll be doing more. And the exciting part is that it’s always… Repetition is number one, right? And especially in the syndication world, I wanted to mention that transparency, communication, honesty, everything, trustworthiness, integrity, all those things are number one.

 

Kim Lisa Taylor:

And remember that the securities agencies, there’s the SEC and then every state has its own securities agency. And their biggest mandate is to protect investors and to make sure that the investors are well informed before they make investment decisions. And that’s your obligation. If you’re selling securities, you have an obligation to give your investors all of the information they need to make informed consent. And that’s what the private placement memorandum is for. The other thing about the private placement memorandum is it becomes an insurance policy for you. So if you explained in the private placement memorandum all the different things that could go wrong, that could cause the deal to lose money or for the investors not to get all their money back or not to get the returns that you’re offering … if they understand all of that and they read it and they invest with you, which they then attest to that when they fill out their subscription agreement that they’ve read everything, that they’ve asked all the questions they had, they’ve sought whatever legal or financial advice they wanted before they’re making their investment decisions.

Well, by doing those two things, they’re assuming the risk of that investment. And so as long as you’ve told them in advance the different things that could go wrong — and if it’s not based on your negligence or something that someone on your team willfully did wrong — and then you’re going to be protected. And you’re not going to get sued if the deal tanks. Ideally, you want to have good coaches so that you’re not finding deals that tank but things happen. And sometimes it’s just unavoidable and it’s the result of the weather or some environmental event that you couldn’t control that things do happen. And certainly there’s a lot of people probably right now who because of the coronavirus are suffering a little bit because of lost rent and things like that and lost jobs.

So things like that do happen. They’re not always foreseeable. But you can at least write about those things in your offering documents and warn people that these things do happen. And that you’re not responsible for all of them. You can’t be.

So then the last step, Vinney, is just finish up your due diligence. So once you get that property under contract, you’ve got your attorney drafting your offering documents, you’re conducting your due diligence at the same time. Don’t wait too long to hire us. Don’t finish your due diligence and then hire us. You won’t have enough time to raise the money. You really need to have us drafting the documents at the same time you’re conducting your due diligence. And my suggestion is always that you have a signed purchase agreement before you hire us.

So at that point you have a locked-up contract and review the financials, get to the site as quickly as possible before you spend any more money because you don’t want to waste a lot of money and then find out that the deal is not going to happen. But once you’ve done those three things —you’ve got a purchase agreement, you’ve been to the site, you’ve reviewed the financials — you’re ready to hire your securities attorney and hire us to help to start drafting your documents. We’d like to finish the documents at the same time you finish your due diligence and now you’ve got another six weeks or so to be able to go out and raise the money. Give yourself enough time. Be careful of people who want short closings. Make sure you build in some extensions especially right now, with your investors being a little nervous and maybe some of them having lost money in the market, you may have to talk to more people to be able to fill your investment than you would.

 

Vinney Chopra:

Money. Yeah.

 

Kim Lisa Taylor:

So give yourself a little more time. The banks are being crazy slow right now. They are just over-scrutinizing every single thing. And they’re also asking for additional reserves to our debt service. And it could be as much as six months to 18 months reserves in some cases. So you want to make sure that you’ve got the time to raise all that money and get those reserves and get the lender everything they’re going to want to get right now. Things will loosen up eventually. But right now, things are a little tight.

 

Vinney Chopra:

No. I will definitely say, Kim, like you just said, start the due diligence process quickly. Because pretty much, we have looked through, I hope when we put the deals, the exciting part is I’ve closed on all 28 deals from start to finish, from LOI ‘til the closing which is very good … 100% record. But the key thing is once you have done really great analyzing, and also going through all the ups and downs or the business plan I call it, right? For the property. When you get to the due diligence within four days, you can make a decision if it’s a go or a no-go. And hire Kim’s service right away, right away. And I even tell my students and I’ve done it, “Start the repair letter in the seventh day of the due diligence.” Don’t wait ‘til 25 days or 30 days because you want the time to negotiate.

If there is something to uncover, you want to go to the seller and to the broker to say, “Hey, this is what we found already.” And we start taking pictures and put them in Dropbox. So that we say, “We have proof of everything.” And even get some quotations for some of the major things which I’ve done itAnd I’ve won as much as even $450,000 repair credit at the closing and things like that. $250 comes to my mind. I don’t re-trade that much. But in some C plus or C class assets, you may come across that. Right? So it’s very good to get to that point where you say, “You know what? It’s a go and let’s hire Kim’s services.” Because you’re right. You want to have ample time to get the investors to DocuSign and everything and wiring the money.

The key thing I like, I would love to share that also with everybody, is to give your investors 2% interest per annum from the day they wired the money into the property LLC, up to the day of closing. And that has served me well because I’ve never lost sleep. I have always had more money in the bank than I needed at the closing table. So that has been something which has really served me well.

 

Kim Lisa Taylor:

That’s fantastic. And so once you get your final offering documents, then it’s up to you to go out and start raising the money. And that’s really just calling all those people that you’ve already pre-vetted. By now you should have already shared with them your property package. So when you hire your securities attorney, when you hire us, we’re going to ask you for a copy of your property package. And that’s where you’re going to have put together some basic information about the property with photographs, the description showing what’s in the immediate vicinity, maybe doing some demographic studies. Then you’re also going to provide three tables. These three tables are very important and everybody gets them in the right order or they get them in the wrong order. You’re telling a story. So your story has a beginning, a middle, and an end.

The beginning is how much money do you need to get into the property? The sources and uses of funds. Where’s the money coming from? How much is from the bank? How much is from the investors, any other sources? Any seller credits? Anything like that? And then the second thing is how is that money going to be used? And that’s where you are going to itemize your acquisition fees, your closing costs, your attorney’s fees, any kind of reserves that the lender is requiring, any loan fees, things like that and your improvement budget. All of that’s going to be at the bottom of that table. And those two numbers at the top and the bottom have to add up. So that’s your sources and uses of funds. We’re going to take that information right out of your property package and put it into the private placement memorandum. That’s an SEC requirement. So they want to see that. They want to have that in there so the investors can see where the money is going.

The next table that you need to have is your projections. Most people do a five-year projection where you’re showing what you’re going to do to the property, your anticipated income and expenses and how that’s going to change over time. And what that’s going to translate to as far as a return for your investors and payments and compensation to the manager. So that’s a very important table too; that’s the middle of your story.

The end of your story is what do you anticipate doing when it comes time to sell? How much do you think you can sell it for and how much equity will there be after you’ve paid down some of the loan after the property has increased in value because you’ve increased the net operating income, all of those things.

Now you’re going to be able to show that to your investors so that they can see that there should be a big chunk of money coming back after you sell the property, that’s going to get divvied up amongst all the investors and yourselves. And whatever that is, you’re going to take that amount of money that you’re going to give each investor, divide it by the number of years that you’ve had that property added to the returns you’ve already given them. And that’s going to give you your average annual return. Your investors want to see that. And they want to see that right now, somewhere in the mid-teens.

So that number should be in the mid-teens. Any preferred returns that you’re doing should be maybe 6% to 8% preferred returns. I’ve seen them as low as 5%. And there’s some very big syndicators that will even do 5% or 6% preferred returns in years one and two while they’re getting the property positioned and more profitable. And then they’ll go to 8%. So there’s nothing wrong with doing all of those things. But that’s something we can help you with, is help you figure out what’s the right strategy. But that property package is going to be the first thing that you’re going to show your investors. Don’t show it to your investors until after we have reviewed it. And the reason for that is because we may ask you to change something or we may say, “Well, if you do it this way, it will be better than the way that you’ve shown it.”

But once you’ve shown it to people, you may be stuck and you may not be able to change it the way that we’re suggesting. So have us review it before you start showing it to your investors. But then you can show that to your investors while we’re drafting the rest of the documents and tell them to get their money ready if they’re interested. Then when they get the documents, it’s just the formality. They read about the risks. They go ahead and they sign it and they wire the funds and you start accumulating those funds in your bank account, not in the property escrow.

You are going to keep those funds in your company’s bank account. You don’t touch those funds until you’re ready to close on the property. Then you wire only the amount needed to close to the property escrow account. And then that gets dispersed between the buyer and the seller and the escrow and all of that and title. And then whatever other money is left over, that’s then after you close on the property, you can pay yourself your acquisition fees and you can reimburse yourself for any pre-closing expenses including your legal fees.

 

Vinney Chopra:

Yeah. Yeah. Excellent. Wow. What a systematic way? And like you said Kim, you’ve written it in the whole book also. So I would highly, highly recommend everybody listening and watching to us, go to Amazon and get the Kindle edition. Get the paperback.

 

Kim Lisa Taylor:

Article’s coming.

 

Vinney Chopra:

Yeah. Article is coming. Awesome. Awesome. That’s fabulous. Let’s change gears a little bit. I know we have seen that many of the investors have friends and family and they want to raise money for other syndicators. So throw some light on it and what’s legal, what’s illegal and how people should do and what not to do about all that.

 

Kim Lisa Taylor:

So the rule is that you’re not allowed to pay commissions to anybody who doesn’t have a securities license for referring investors to your deal. So what you need is to create your management team who are going to provide services to your company and then you can carve up the management amongst all the people that will be providing services to your company. But realize that everyone in management has a job of raising money. No one is getting compensated for raising money or for the amount of money they’ve raised. They’re all getting compensated for the other jobs they’re doing for management. So that is the most defensible way to do that is to create a team where everybody understands they’re all raising money but they’re all getting paid for the other jobs that they’re doing, not for raising money.

Don’t ever pay people an amount that’s based on the amount that they’ve raised because that’s going to be construed as a commission and you can’t even do that within your own management team. So never have a formula on how they may be calculated, what percentage was theirs. It’s always got to be based on their other jobs that they do in management other than raising money. So that’s one of the ways to do it. Another way that’s been discussed is doing a fund of funds where you actually create your own securities offering and you go out and raise money from your own investors. And then your company comes in as a single investor in somebody else’s deal. So that’s another way to do that. And I believe that Alicia has put a link to an article called “Fund of Funds.”

 

Vinney Chopra:

Yes. Yes. We got it. We’re going to put that in there so that everybody can get that. Definitely. Yes.

 

Kim Lisa Taylor:

Yeah. Go read that. Or you can get it off our website, either way, but read that article about fund of funds. So just realize that to do that, you can’t just go out and create an LLC. You’ve got to do the same exact thing. So you’ve got to either register your offering or qualify for an exemption from registration. You have to pick the appropriate exemption. You have to make sure that your investors have the right qualifications for that exemption. You have to have the right documents to be able to substantiate that exemption. And so you’re going to still have to work with a securities attorney on your own to set that up so that you have that structure in place when you go invest in someone else’s deal. We do have some clients that do that and they do it over and over again. So maybe they’ll bring in $500,000 or a million dollars into each deal through their own LLC but they each have their own securities offering to do that. But we can set those up for you as well.

 

Vinney Chopra:

So how does it work then, Kim? Is it like a blind pool? Because these investors are pooling the money into that fund of issuer.

 

Kim Lisa Taylor:

You could create your own fund just for one deal.

 

Vinney Chopra:

Yeah.

 

Kim Lisa Taylor:

So we have something that we call a segregated offering where we do a master PPM, teach people this is what we’re investing in and show them what your business model is. And then when you find something, then we can create a separate offering just for that offering but they’ve already seen the PPM. So they’re just waiting to hear the details of the offering and then they’re ready to invest.

So the other way to do it, Vinney, is the way that you discussed where we just have one big pool of investors that you’re raising money before you know what deals. You’re raising money based on your business plan at that point, we call that an investment summary. So you would just raise the money in advance. Say, “These are the kinds of deals we’re going to invest in as long as we find the deals that meet these parameters, we’ll make the investment.” You might set some rules that you don’t put in over a certain percentage of ownership interest or something like that so that you don’t become responsible for guaranteeing somebody else’s loan. But a lot of times, if you’re bringing a fund of funds, you have to realize that your company investing in someone else’s deal is only entitled to the same thing that they’re paying their investors.

And so if you’re going to get paid from your own fund, you either have to reduce and give them something less than your company actually received from that other syndicate. Or you have to maybe ask the syndicate that you’re investing in to give you a piece of their management and a role in management which your investors will like because then that gives you the opportunity to find out from the management level what’s going on at the property. And you can have a better pipeline into what’s happening at the property to be able to keep your investors informed. So that’s another way to do it that I think is protective of your investors.

 

Vinney Chopra:

I appreciate that. That’s so good because I’ve been reading or listening and people are asking. So I don’t know if it’s appropriate but like any kind of help you might give people, what might be a range, right? Because you’re right. If it’s a fund of a fund, the investors are the same investors, they’re in two different buckets. But the property is the same so they should get the same returns in my thinking. Right?

 

Kim Lisa Taylor:

Yeah. That’s right. That’s right. So as the manager, you really want to get compensated for your role in management of that other syndicate that your fund is investing in. So it’s very common that you’ll find people. If you’re going to bring in $500,000 or a million dollars, they’re not going to have any problem letting you in to their management usually. And it depends if it’s a $50 million offering, maybe they’re not going to do that. But if it’s a $5 million offering and you’re bringing a substantial amount of that, then they may be more than willing to let you in to management. And I think then you carve off a piece of the management earnings for you. But you also participate in helping them manage that property.

 

Vinney Chopra:

Sure. Sure. You have to have active participation, I guess then, right?

 

Kim Lisa Taylor:

That’s right. And you’re going to want to because that’s going to give you that inside information to be able to share with your investors.

 

Vinney Chopra:

Totally. Totally. Totally. And then again I was going to say like compensation-wise, can you touch that? Or is it all over the place?

 

Kim Lisa Taylor:

As far as what the manager earns?

 

Vinney Chopra:

Yeah.

 

Kim Lisa Taylor:

You can still get an acquisition fee. So maybe you get a portion of that other syndicate’s acquisition fee. You could get maybe even a share of their asset management fees and probably those are the main things you’d get and then you’d get some share of the profits ideally from your own syndicate. Right? So you’re probably going to set it up so that you’re still going to maybe split some profits with your investors perhaps or you do that at the other syndicate level.

 

Vinney Chopra:

I see. I see. Any range? Is it 10%, 15% or anything?

 

Kim Lisa Taylor:

It’s all dependent on how much the raise is and how much you’re bringing. And again, we don’t want it to look like it really can’t be completely dependent on what you’re bringing. But if you’re just bringing $100,000 then you really shouldn’t affect any compensation for that because what kind of role can you really play that’s going to be meaningful to that syndicator? Not very much. But if you’re bringing in a third of the money, then you are going to take an active role to protect your investors.

 

Vinney Chopra:

Surely. Surely.

 

Kim Lisa Taylor:

Then you’re going to have to carve out what portion of that is available to your investors. And I think there’s so many different ways to slice by. In fact there’s actually a book called “Slicing Pie.” It’s really about doing it for startup companies and how the founders, how they carve out the interest for the founders. But it has some relevance to syndication. You have to think about the fact that somebody is going to find, vet and oversee the deal. And that person is going to be busy for the whole entire time that you have that deal. OK?

 

Vinney Chopra:

That’s right. So true.

 

Kim Lisa Taylor:

And so they need to get paid well for the duration of that or else they’re going to end up having to go out and get other jobs and that investment could suffer. Then you’ve got a portion that should be reserved for the people that are raising the money. But again it’s really kind of all intermixed. But if you’re doing it that way, then you have to think about the fact that the people that are raising money that’s important. And then you’ve also got people who are guaranteeing loans and maybe somebody who found the deal. And so you have to think about how you can carve up all of those things. But the people that are raising money, they’re important but they’re only involved in it maybe in the beginning. And you’re keeping them informed as things happen and maybe you’re giving them some jobs. But the people that are really working hard are the people that are managing the deal.

 

Vinney Chopra:

So true. So very true. Kim, it’s such a pleasure. My gosh. I can’t believe it. We’ve spent about an hour and we can talk for another hour.

 

Kim Lisa Taylor:

Yeah. We could do a whole day.

 

Vinney Chopra:

So many nuggets. So many great nuggets you have given to the audiences and I’m really so appreciative and would love to have you back.

 

Kim Lisa Taylor:

Thank you so much Vinney.

 

Vinney Chopra:

Yeah. It’s such a pleasure and please tell our audience how they can reach you and how they can be in business with you.

 

Kim Lisa Taylor:

The best way to reach us is at syndicationattorneys.com. If you want to schedule an appointment there’s a button there I think on almost every page where you can schedule an appointment with me. And then we do have a pre-syndication retainer that we use for people who want to have access to us as they’re developing their investment strategies and their investor marketing plans. And we can help you with all of that. We’ll give you an investor marketing plan with that. So that’s kind of a minimal-cost way to get involved with us.

 

Vinney Chopra:

Is it funded or something? Something like that.

 

Kim Lisa Taylor:

Well, we do charge about $1,000 for it. It gives you up to three hours of one-on-one legal advice, the investor marketing plan template. And we can have calls to talk about that and help you develop that. We’ll even review it. Whatever you need, we’ll give you an investor marketing plan blueprint. We’ll even give you a discount off your first syndication that’s equal to or greater than the amount of your pre-syndication retainer. And we’ll give you access to our Facebook group where doing Friday Masterminds.

 

Vinney Chopra:

Love it. Love it. Love it. My God. That’s amazing. Kim, it’s such a pleasure and it’s just so great to know you. We are great friends and what I really have right now, you have so much that you’ve given me and guided me along and I really appreciate that. It’s a pleasure to know you. And God give you all the abundance, happiness, wealth, business, everything. And I look forward to seeing you in Florida because we are purchasing, buying, building a lot of things over there. Thanks again for coming today.

 

Kim Lisa Taylor:

Thank you. Thank you so much.

 

Vinney Chopra:

Thank you guys.

 

Kim Lisa Taylor:

Bye.

 

Vinney Chopra:

Bye-bye. Bye-bye Kim.

 

Kim Lisa Taylor:

Buy the book.

 

Vinney Chopra:

Yeah. The book is there, guys. And thank you for tuning in. Please give comments, share, like and tell us who are the great personalities you’d like Vinney to bring on this show. And thank you again for tuning in every week on my two shows ,as I have the “Apartment Syndication Made Easy” and my motivational show, “Mr. Smiles Motivation Talk Show.” And my third is starting now, “Innovative Investing in Senior Living.” That’s the third podcast we’ll be doing every week for you. So thanks again. God bless you. See you next week. Bye-bye.

 

Kim Lisa Taylor:

Bye.

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