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Real Estate syndication for
dummies. First, let's get rid of

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a misnomer. You're not a dummy
for watching this. Everybody

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starts out as a new person doing
real estate syndication, I did

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myself about 10 years ago, you
were starting out, it's all

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good. We will get you up to
speed. This video is designed to

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get you everything you need to
know to feel confident about

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starting to put together your
own real estate syndication.

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We're gonna go through all the
major pieces that go into it,

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just to give you a framework for
thinking about how to do it.

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It's a big endeavor, it's a big
goal, you should be applauded

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for it. It's something that is
extremely rewarding, not only

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for you, but also for your
investors and for your family.

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So I know that it's given a real
estate syndication has given me

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enormous benefits, a lot of them
financial, but it's also given

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me a lot of friends. It's given
me a lot of strength and belief

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in myself. And ultimately, I've
built my entire law practice

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around doing real estate
syndication as well and helping

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other people on the journey. So
without further ado, let's get

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right to real estate syndication
for Well, not really dummies,

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but for you.

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So first off, let's understand
the syndication basics. We need

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to understand what exactly we're
talking about when we talk about

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syndication. Essentially, a
syndication is defined as a

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group of people coming together
for a common purpose. Now, I

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oftentimes use the word
syndication and fun, completely

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interchangeably. Why? Well, a
syndication is a group of people

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coming together for a common
purpose. A Fund is a group is a

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pool of money being used for a
common purpose. So to me,

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they're very, very similar, if
not completely identical. So

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understand that when we're
talking about real estate, we're

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talking about syndication, and
we're talking about funds, I may

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use the term fund and
syndication simultaneously. But

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what I'm actually talking about
is getting a project done, where

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you take investor money, you
manage that money into a

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specific asset or into a pool of
assets, in order to achieve a

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common goal, which is to make
more money. So whether that

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money is by appreciation, or
whether it's straight cash flow,

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whatever it is, that's a
syndication or a fund. So there

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are two kinds of roles as it
comes into syndications is the

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role of a sponsor and the role
of the investor. Now, as a

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sponsor, that's you. So the
sponsor is somebody who's

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putting the deal together, who's
identifying it, they're finding

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the investors, they identify the
assets, they're doing all the

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things necessary to get it
started, they have a very active

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role. And in putting it
together, and they do that. So

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the We also sometimes referred
to them as the GP, or the

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general partner. Now
specifically, GP LP refers to a

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specific kind of entity
formation, which is a limited

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partnership. And you're probably
going to choose a limited

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liability company. And we have
other videos on how what the

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entity structure looks like. But
for this purpose, we sometimes

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call them GPS, the sponsor, the
manager, really, we're talking

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about you, the one who's running
the show. Your investors,

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oftentimes we call them the LP,
they're the investors, right, so

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your investors come in, they
pool their money, and they give

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it to you in order to invest in
the specific assets. And here,

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we're talking about real estate.
So investment, real estate,

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whether that's multifamily
office, retail, a hotel,

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whatever it is, it's generating
cash, primarily through leases

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that underlie it, right. So
that's what we do. Now, in terms

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of the actual structure, the
structure of these deals looks

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something like this. We have an
entity here this is called the

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sponsorship entity. And we have
over here an entity we call the

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investment entity. So you have
the sponsorship entity here now

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that here is you You are part of
that. So you're part of the

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sponsorship entity, the
sponsorship entity manages the

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investment entity, your
investors.

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They invest here

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into the investment entity, so
they invest in there. And that's

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it. And if you're doing a fund,
and it has other entities, those

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come here, and they're managed,
ultimately by you as the

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sponsorship entity. So that is
the basic legal structure of how

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all these work. So you are here,
the manager, your investors are

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here, all happy to invest, and
ultimately, of the asset. So

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whether this is one asset down
here, or here or here, or

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multiple assets, doesn't really
matter. So this is the basic

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structure. So either these are
individual LLC is down here, or

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it's just the property itself.
That is how these things are

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structured. In terms of the
legal framework, now, under the

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rules, since whenever you have
investors who are taking a

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passive role, it automatically
becomes a security as long as

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the goal of that thing that
you're putting together is to

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make money. So almost always,
this is a security, right? It

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doesn't matter whether you have
one person investing, or 100

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people investing or 1000 people,
it doesn't matter whether you're

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raising $1, a million dollars,
or a billion dollars, no matter

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what those are still a security.
Now, under the Securities and

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Exchange Act, every security
must either be registered with

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the SEC, or fall under an
exemption registration you can

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think of as going public. It's a
very formal process. It's

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extraordinarily expensive, with
a whole slew of lawyers and

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accountants, and underwriters
all talking with the SEC. And

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there's a huge amount of back
and forth goings on in order to

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make sure the investment works.
That's not what we're doing what

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we're doing. Here we go under an
exemption. Now, there are three

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basic exemptions and the
hierarchy. And that hierarchy

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looks like this. You have Reg D,
you have reg A, and you've have

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reg CF. Okay, those are the
three exemptions. I work

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exclusively in Regulation D
Regulation D offers, and I'll

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tell you why. under Regulation
D, there are two different rules

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that are primarily used. Rule
506 B, and rule 506. C, these

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are the two rules that are
primarily there. Now under

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Regulation D, rule 506 B, you're
gonna have an unlimited number

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of accredited investors, and
then up to 35 non accredited

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investors in any 90 day period,
you can raise an unlimited

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amount of money. So you could
raise a billion dollars, you can

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raise $10 billion, you can raise
$1 trillion. And if you can

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raise $1 trillion. My god, I've
got a job for you. But you can

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raise an unlimited amount of
money is the bottom line. The

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only problem and the only reason
why you may not do Regulation D

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rule 506. B is you cannot do a
general solicitation. A general

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solicitation is where you put
something out to the general

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public, you advertise it, you
market it, you put a billboard

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on Main Street can't do that.
You need to make sure that and

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how do we know whether or not
you've advertised? Well, we

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actually know because do you
have a relationship with all of

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your investors? So if you've
known all of your investors

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before you put the offering
together, you must be legit

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because you couldn't have gotten
those investors unless you add

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that relationship. Once you
start advertising, that's when

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suddenly you don't know them
anymore. The only option for

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advertising is Regulation D rule
506 C under Rule 560 an

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unlimited number of accredited
investors and unlimited amount

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of funds you can raise. But you
have to make sure that every

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single one of your accredited
investors Is in fact accredited

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using a third party verification
system. So you need to make sure

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they're all accredited. But then
you can advertise, you can put

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something on Facebook, on Google
on YouTube, you can put up a

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billboard on Main Street, that's
how you can you can get new

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investors doesn't matter if you
know them don't know them. But

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you still got to make sure that
every single one of them is

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accredited. So there are two
other exemptions of with under

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the SEC rules that are fairly
common, certainly not to the

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extent of Regulation D over 96%
of all private money that's

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raised under the exemptions is
through Regulation D for good

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reason. The second one is
regulation, a Regulation A is

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actually a terrific exemption,
it lets you raise differing

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amounts of money based on the
rules that you do. The challenge

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with Regulation A is it's
basically reviewed by the SEC,

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which greatly slows down the
process of who can come in or

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not. So the typical turnaround
time of getting a Regulation A

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deal approved, is somewhere from
six months at the absolute

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fastest to typically more like
nine months. The cost in

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attorney fees alone is generally
around $70,000. Plus you have

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necessary absolutely mandatory
accounting fees that have to

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take place because you need some
third party, professional

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accounting and auditing services
done by an accountant. To do it,

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Regulation A oftentimes will
cost between 100 and $150,000.

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And take nine months, which oh
my gosh, that's a long time and

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a lot of money. So not a lot of
people use Regulation A for a

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lot of these kinds of offers.
There are certainly offers that

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definitely belong under
regulation and are very good.

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Why? Because you can advertise
to non accredited investors, you

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don't have to do a verification
of your accredited investors.

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Huge benefit, right that you can
now advertise to the entire

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world and still fall under an
exemption. It's like going

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public, but without really going
public. So it's a lot cheaper.

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So it's a really good option.
But it's just not a really good

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option for a lot of people, and
certainly not a good option at

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all for a new person who's
starting out in real estate

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syndication or real estate
funds. The third option is

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regulation CF. Now under
Regulation CF, you can raise up

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to 5 million, you can advertise,
you can bring in non accredited

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investors. But the real
challenge with REG CF is every

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part of that transaction needs
to go through what's called a

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registered portal. Now that
registered portal is not yours.

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The Registered portal is a
separate company that's

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advertised through a third
party. Right. So I mean, that's

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been put together and approved
by FINRA. So because it's been

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approved by FINRA, it has
basically a license in order to

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be able to do these things. And
there's a bunch of requirements

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that they need to do as well to
make sure that somebody is

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there. Now the fees that a reg
CF portal, oftentimes charges

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can be about 10%. A 10% is a
huge amount of money, basically

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that your investors are going to
be losing that potential return.

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So I mean, if they were going to
be making 20% IRR on the deal,

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now suddenly, because of a reg
CF, it's now at like 10%. So

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it's a huge knock on, on the
possibility to in order to do

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that. So bring CF really not a
very good option in order to, to

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generate to maximize

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your, your offering. Almost
always you're going to choose

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Regulation D, it's the big
gorilla. It's the most powerful

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one. And it's actually very,
very workable to work with. So

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that's the very basics of
syndication. So that's how it

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all works and how it kind of
fits together. From a very high

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level. Obviously, we can go into
a lot more details. And you'll

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see a lot more videos on my
channel that break down into

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these in in quite a bit more
detail. Now let's talk about

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investor relationships and
finding investors at all. When

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it comes to finding investors,
there's really kind of two ways.

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And one thing that you've got to
understand first is whether

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you're going to be under that
Regulation D rule 506 B or rule

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506 C. If you're under 506 B,
you really have one choice as

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your basic mechanism in order to
find investors and that's Going

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to your own internal network,
finding out who you who in your

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network all those people that
you know, everybody that you

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know, are they interested in
investing? Now you certainly do

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this under Reg D rule 506. C as
well, because there's more

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investors, you know, wouldn't
you want your friends and family

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to be able to invest challenges
that they all have to be

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accredited investors at that
point, if they're in that fight

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will succeed. So the basics
place that we start, when it

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comes to finding investors is
our own internal network, all

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the people that you know, if you
think about the spheres of

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influence. So if you think about
sphere of influence, these are

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people you know.

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This is the people who you know,
really well, these are your best

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friends, your your closing your
family members, your closest

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acquaintances. And those people,
you just pick up the phone and

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give them a call. Outside of
that, are your business

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contacts. These are people that
you have have a relationship

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with in a business setting that
you know that you can call up

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and say, hey, look, you know, we
did that business, we did that

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deal. A while ago, I wanted to
let you know that we're doing a

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real estate syndication, and I
would love to talk to you about

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it. And then you'd go through it
and discuss it with them.

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Alright, so that's your business
context. That them maybe you

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pick up the phone and call them.
Certainly, if you know them

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pretty well. If you don't know
them, if you haven't had a lot

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00:16:42,810 --> 00:16:45,840
of dealings with them recently,
maybe just start with an email

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00:16:46,020 --> 00:16:48,510
that just says, Hey, we've lost
touch, I'd like to get back in

222
00:16:48,510 --> 00:16:53,580
touch with you and talk to you
about a few things. Outside of

223
00:16:53,580 --> 00:17:01,710
that business contacts, may be
those acquaintances. Now the

224
00:17:01,710 --> 00:17:06,540
Queen's is starting to get into
the area that you don't really

225
00:17:06,540 --> 00:17:12,030
know them. So this is an area
where you may want to build up

226
00:17:12,030 --> 00:17:15,330
that relationship as shored up
before you specifically start

227
00:17:15,330 --> 00:17:20,580
talking about your syndication
if you're doing a Reg D rule 506

228
00:17:20,610 --> 00:17:25,020
B offering. So with those
acquaintances, you'll basically

229
00:17:25,170 --> 00:17:27,810
kind of hey, I want to it's been
a while since we've talked one

230
00:17:27,810 --> 00:17:30,570
to talk to you, you know, really
just about let's talk about real

231
00:17:30,570 --> 00:17:34,110
estate investing and things like
that. What ultimately you want

232
00:17:34,110 --> 00:17:39,720
to do is figure out two
different tests that come to

233
00:17:39,750 --> 00:17:43,140
whether you have a relationship
with them. So these are these

234
00:17:43,140 --> 00:17:46,080
are the tests that the court
uses in order to determine that

235
00:17:46,380 --> 00:17:49,860
the whether it's substantial
enough in order to do a Reg D

236
00:17:49,860 --> 00:18:06,300
rule 506 B. So tests. The first
one is do you understand them?

237
00:18:11,910 --> 00:18:14,790
Do you have enough of a
relationship with them that you

238
00:18:14,790 --> 00:18:18,570
have a pretty good idea of to
whether they when they decide to

239
00:18:18,570 --> 00:18:21,300
make an investment decision,
that they're making a good

240
00:18:21,300 --> 00:18:24,750
decision for themselves? That
they're making a decision about

241
00:18:24,750 --> 00:18:28,830
something that ultimately that
investment is suitable for them?

242
00:18:29,190 --> 00:18:31,710
Do you have that kind of
relationship and understand them

243
00:18:31,710 --> 00:18:35,820
well enough to be able to help
them with that? The second test

244
00:18:35,850 --> 00:18:49,170
is do they trust you? Now, this
is from their point of view, do

245
00:18:49,170 --> 00:18:52,770
they have enough of a sense of
who you are that they have

246
00:18:52,770 --> 00:18:55,860
enough trust? That essentially,
if they had a question, they

247
00:18:55,860 --> 00:18:59,430
could pick up the phone and give
you a call? And have you know,

248
00:18:59,430 --> 00:19:02,670
go through a you know, I had a
question about this, your

249
00:19:02,670 --> 00:19:05,790
marketing material or your
private placement memorandum has

250
00:19:05,790 --> 00:19:10,800
said this? I don't understand
what is this? You know, do they

251
00:19:10,800 --> 00:19:13,200
have enough of a relationship
where they feel comfortable and

252
00:19:13,200 --> 00:19:16,770
feel comfortable in order to do
that? If the answer is yes to

253
00:19:16,770 --> 00:19:21,510
both of those got enough of a
relationship? The answer is no

254
00:19:21,510 --> 00:19:25,950
to both of those or no to one of
those, you probably don't have

255
00:19:25,950 --> 00:19:30,060
enough to be at that
relationship to do take them in

256
00:19:30,060 --> 00:19:34,650
under a 506 b. Now you can bring
them in, you can bring them up

257
00:19:34,650 --> 00:19:39,780
this scale in order to bring
them closer to you in order to

258
00:19:39,810 --> 00:19:44,040
do the 506 B. And ultimately,
those are the kinds of questions

259
00:19:44,040 --> 00:19:46,200
the kind of relationship you
want to be building,

260
00:19:46,740 --> 00:19:49,650
understanding what they need an
investment, understand what

261
00:19:49,650 --> 00:19:53,070
their needs are, and then
building that trust so that they

262
00:19:53,070 --> 00:19:58,500
feel comfortable with asking you
those kinds of questions. Now

263
00:19:58,530 --> 00:20:01,560
once we start leaving a quick
sentences obviously, we're in

264
00:20:01,560 --> 00:20:09,360
the world of advertising. And so
doing the 506 B myths we call

265
00:20:09,360 --> 00:20:12,090
people you don't know.

266
00:20:19,109 --> 00:20:23,429
And so people you don't know can
come in certainly under Rule 506

267
00:20:23,429 --> 00:20:28,799
C, it happens mostly through
advertising, where basically you

268
00:20:28,799 --> 00:20:34,859
have a not a good drive. Or
basically you have a sales

269
00:20:34,859 --> 00:20:45,959
funnel, people come in via ads.
And maybe you give them a

270
00:20:46,199 --> 00:20:57,299
presentation. Then there's
interest. And then there's a

271
00:20:57,299 --> 00:21:08,879
dialog. And then there's the
materials. So they go through

272
00:21:08,879 --> 00:21:11,759
this process where they're
getting to know your investment

273
00:21:11,759 --> 00:21:14,519
to be able to determine that
it's suitable when they can see

274
00:21:14,519 --> 00:21:17,609
the ad. It's not suitable for
them yet. They don't know yet.

275
00:21:18,089 --> 00:21:20,579
They you give them a
presentation that's generic,

276
00:21:20,579 --> 00:21:23,909
you're talking to the world in a
presentation manner, probably.

277
00:21:24,209 --> 00:21:28,169
But it's still not personalized
to them, you're not answering

278
00:21:28,169 --> 00:21:32,159
their individual questions, they
raise their hand and say, Yes,

279
00:21:32,189 --> 00:21:36,809
I'm interested in them. But then
then you start a dialogue. So

280
00:21:36,809 --> 00:21:39,689
they set a meeting, you have
that conversation. And then

281
00:21:39,689 --> 00:21:42,569
ultimately, you provide them the
private placement memorandum,

282
00:21:43,019 --> 00:21:45,569
the operating agreement, the
subscription agreement and

283
00:21:45,569 --> 00:21:48,989
investor questionnaire, so that
they can begin to understand

284
00:21:48,989 --> 00:21:52,229
your investment very detailed,
make a good choice for

285
00:21:52,229 --> 00:21:54,629
themselves, whether your
investment is right for them,

286
00:21:54,869 --> 00:21:59,819
whether or not it is suitable.
So once you go down that track,

287
00:21:59,819 --> 00:22:04,559
now suddenly, we need to
identify well, at these

288
00:22:04,559 --> 00:22:09,959
different stages at the
different stages here. What do

289
00:22:09,959 --> 00:22:13,649
we need to be telling them? What
does that communication need to

290
00:22:13,649 --> 00:22:18,209
be looking like? Right, what is
the effective presentation that

291
00:22:18,209 --> 00:22:22,649
can move investors in order to
do it will typically invest most

292
00:22:22,649 --> 00:22:27,629
sponsors and you will start with
a pitch deck. So you'll start

293
00:22:27,629 --> 00:22:32,009
with basically an overview of
what the property is, what the

294
00:22:32,009 --> 00:22:35,399
fund looks like, how it
basically works. And these don't

295
00:22:35,399 --> 00:22:40,169
need to be specific like into
incredible detail, it needs to

296
00:22:40,169 --> 00:22:43,529
give them enough of an idea to
be able to express their

297
00:22:43,529 --> 00:22:47,219
interest, in order to be able to
give them the materials of the

298
00:22:47,219 --> 00:22:50,579
private placement memorandum,
which has all of the details by

299
00:22:50,579 --> 00:22:54,689
dead. Now they should be
completely congruent. So they

300
00:22:54,689 --> 00:22:58,619
need to be the they should match
up. If you're promising, you

301
00:22:58,619 --> 00:23:04,019
know, a 20% IRR in one you
should be discussing 20% IRR

302
00:23:04,049 --> 00:23:08,069
target in your private placement
memorandum. So they need to be

303
00:23:08,069 --> 00:23:11,069
congruent like that, but they
don't need to be so specific.

304
00:23:12,209 --> 00:23:16,919
The most important thing about
your effective presentation of

305
00:23:16,919 --> 00:23:20,789
those investment opportunities
is making sure you're conveying

306
00:23:20,789 --> 00:23:26,189
to them what your founder
investment theory is. So founder

307
00:23:26,189 --> 00:23:29,519
investment theory is the phrase
that I use that I've come up

308
00:23:29,519 --> 00:23:32,789
with in order to describe what
it is that you're talking to

309
00:23:32,789 --> 00:23:37,679
your investors about. So founder
investment theory, step one is

310
00:23:37,679 --> 00:23:41,129
identify what the overall
strategy is, when we're talking

311
00:23:41,129 --> 00:23:44,579
about real estate, we're talking
about different strategies such

312
00:23:44,579 --> 00:23:49,079
as value add a stabilized
depreciation, play a development

313
00:23:49,079 --> 00:23:52,799
play, something like that re
tenanting Those that's your

314
00:23:52,799 --> 00:23:57,239
general strategy that you're
taking. Underneath that is your

315
00:23:57,239 --> 00:24:02,399
philosophy and your criteria,
also known as your tactics, and

316
00:24:02,399 --> 00:24:06,359
their you may be targeting a
specific asset type, or maybe

317
00:24:06,359 --> 00:24:11,039
you're targeting a specific kind
of geographical region. What is

318
00:24:11,039 --> 00:24:15,359
it that that makes that special?
Now this in of itself is not

319
00:24:15,359 --> 00:24:18,509
enough to convince an investor
right? So you can't say well,

320
00:24:18,509 --> 00:24:24,539
we're going to buy value add
multifamily buildings and and

321
00:24:24,539 --> 00:24:26,849
get and think that you're going
to get investors because you're

322
00:24:26,849 --> 00:24:31,109
probably not you haven't done
all the work yet. But once the

323
00:24:31,109 --> 00:24:34,379
you say do that, now, you need
to come up with your risk

324
00:24:34,379 --> 00:24:38,939
profile, where do you sit in
terms of risk profile, because

325
00:24:38,939 --> 00:24:44,219
your investors have different
risk tolerances, right. So risk

326
00:24:44,219 --> 00:24:48,629
tolerance is they like very,
very low risk or they like very,

327
00:24:48,629 --> 00:24:53,309
very high risk, high risk, high
return, Low risk, low return,

328
00:24:53,519 --> 00:24:57,839
and you can't really cross the
line between doing a low risk,

329
00:24:58,019 --> 00:25:01,679
high return thing big great if
there was such an investment,

330
00:25:01,679 --> 00:25:04,709
but generally, the belief is
that from people that there's

331
00:25:04,709 --> 00:25:10,169
not, so if I take a high return
deal to a very, very low risk

332
00:25:10,169 --> 00:25:13,469
person, they're not going to
invest, because they're going to

333
00:25:13,469 --> 00:25:16,769
smell something off, they're
gonna know that there's, they're

334
00:25:16,769 --> 00:25:19,949
gonna think there's some sort of
scam going on, because you don't

335
00:25:19,949 --> 00:25:24,509
get those kinds of returns from
a low risk deal. Likewise, you

336
00:25:24,509 --> 00:25:30,779
can't take a low risk deal to a
low return deal to a high risk

337
00:25:30,779 --> 00:25:33,869
person, they're not going to
take a very risky project and

338
00:25:33,869 --> 00:25:36,989
get a low return, that's just
not their bellowing, they want

339
00:25:37,169 --> 00:25:40,649
those huge grand slams in order
to do it. So you need to

340
00:25:40,649 --> 00:25:44,429
understand where that risk
profile is. And then ultimately,

341
00:25:44,429 --> 00:25:49,139
number four is you got to have a
good story. People make

342
00:25:49,169 --> 00:25:53,849
decisions about what to invest
in based on emotions, and then

343
00:25:53,849 --> 00:25:58,319
they apply to those emotions,
rationality, that is how

344
00:25:58,319 --> 00:26:02,909
investment decisions are made.
Without that story, and I'm not

345
00:26:02,909 --> 00:26:05,699
talking about a fictionalized
story, I'm talking about

346
00:26:05,699 --> 00:26:08,489
something that people can
emotionally get their arms

347
00:26:08,489 --> 00:26:12,809
around and feel good about and
want to be a part of. That's how

348
00:26:12,809 --> 00:26:17,609
you do it. Once you've got your
fit, once you've got those four

349
00:26:17,609 --> 00:26:21,689
parts understood, and you can
convey it into a story that

350
00:26:21,689 --> 00:26:24,839
makes sense for investors and
can move them emotionally,

351
00:26:25,169 --> 00:26:29,429
you've got a very compelling
investment opportunity that you

352
00:26:29,429 --> 00:26:33,179
can now present in an
appropriate way. So you've been

353
00:26:33,179 --> 00:26:36,359
looking, you've been finding
investors, you're presenting all

354
00:26:36,359 --> 00:26:40,769
those things to them. And now is
the big part where you need to

355
00:26:40,799 --> 00:26:44,399
actually be acquiring, you need
to commit to the doing this

356
00:26:44,399 --> 00:26:47,639
property or this fund of
properties, you need to commit

357
00:26:47,639 --> 00:26:50,519
to your investors and say we're
doing this I'm going to be

358
00:26:50,519 --> 00:26:54,269
calling you for to make sure
that you have all those

359
00:26:54,269 --> 00:26:57,569
materials. So you can make an
investment decision.

360
00:26:58,950 --> 00:27:02,430
Now, two different things happen
at the same time, you have the

361
00:27:02,430 --> 00:27:06,420
purchase of your real estate
that's going on on one track,

362
00:27:06,660 --> 00:27:09,780
right, so the you're going to be
doing your due diligence, your

363
00:27:09,780 --> 00:27:13,140
risk assessment, making sure
it's the kind of property that

364
00:27:13,290 --> 00:27:16,680
really is something that you
want to be putting your name to

365
00:27:16,680 --> 00:27:20,460
as an investment. You want to be
able to tell your friends, think

366
00:27:20,460 --> 00:27:23,100
about it, if you're if your
grandma was going to be

367
00:27:23,100 --> 00:27:26,910
investing in this property is
something that you can sign your

368
00:27:26,910 --> 00:27:31,290
name to and say, yep, I promise
you this is as good as it's

369
00:27:31,290 --> 00:27:35,130
gonna get. This is a great
property, we really believe it's

370
00:27:35,130 --> 00:27:39,120
going to do amazing things. And
I hope you come along with it.

371
00:27:39,510 --> 00:27:42,450
Or is it the kind of thing where
it just smells bad and you're

372
00:27:42,450 --> 00:27:46,800
trying to shovel it? If it does,
don't do it? It's not worth it.

373
00:27:46,800 --> 00:27:49,980
There are other deals out there
that are grand slams, that are

374
00:27:49,980 --> 00:27:54,150
amazing deals that you want to
be a part of? Do those don't do

375
00:27:54,150 --> 00:28:00,060
the smelly ones? So you've got
those going on one track? So

376
00:28:00,090 --> 00:28:04,050
you're also looking at, well,
what's the best way that we can

377
00:28:04,050 --> 00:28:08,520
structure this from a purchasing
standpoint? If you're going to a

378
00:28:08,520 --> 00:28:12,120
bank? How are you going to
finance it, they're probably

379
00:28:12,120 --> 00:28:16,440
going to want to know about your
investors, you tell them? No, we

380
00:28:16,470 --> 00:28:20,880
because we don't have a single
investor who has over 20% of

381
00:28:20,910 --> 00:28:23,910
interest other than meets,
they're not going to be

382
00:28:23,910 --> 00:28:27,870
disclosed. They're just limited
partners. And the bank's, most

383
00:28:27,870 --> 00:28:31,020
of the time will go along with
it. Certainly, if you get your

384
00:28:31,020 --> 00:28:34,740
syndication attorney on the
phone, like I do every week,

385
00:28:34,920 --> 00:28:38,370
with banks, give me a call. And
we can get that all straightened

386
00:28:38,400 --> 00:28:41,880
out for you so that you can do
the financing that you need to

387
00:28:41,880 --> 00:28:45,750
do and still not have to
disclose your investor. So

388
00:28:45,750 --> 00:28:49,260
you're doing that deal on the
one track. The second track

389
00:28:49,260 --> 00:28:54,060
that's going on at the same time
is the regulatory compliance,

390
00:28:54,060 --> 00:28:58,080
the security stuff, this is
where I come into play. So as a

391
00:28:58,080 --> 00:29:01,980
securities attorney, what I do
is I make sure that you're in

392
00:29:01,980 --> 00:29:05,490
compliance. Now we make sure
your entities are formed, right,

393
00:29:05,490 --> 00:29:08,490
with that structure that we
talked about. We draft what's

394
00:29:08,490 --> 00:29:11,460
called the private placement
memorandum, the private

395
00:29:11,460 --> 00:29:14,610
placement memorandum, we go
through in detail, all those

396
00:29:14,610 --> 00:29:18,690
things that are necessary for
your investors to make a good

397
00:29:18,690 --> 00:29:22,380
decision about whether or not
they should invest, what the

398
00:29:22,380 --> 00:29:25,560
basic terms are, like what
distributions are supposed to

399
00:29:25,560 --> 00:29:29,490
look like, whether there's going
to be any ability to do capital

400
00:29:29,490 --> 00:29:35,040
calls, whether or not whether or
not they have voting rights, all

401
00:29:35,040 --> 00:29:38,190
those things are necessary for
them to know. But it's also

402
00:29:38,190 --> 00:29:41,340
important that they understand
the risks of the investment.

403
00:29:41,550 --> 00:29:45,150
It's an investment. It has
inherent risks. They gotta

404
00:29:45,150 --> 00:29:48,690
understand that because if
something goes wrong, you don't

405
00:29:48,690 --> 00:29:51,750
want them calling you up and
saying, Well, you never told me

406
00:29:51,750 --> 00:29:56,010
I could lose my money. Because
you told them in the PPM you're

407
00:29:56,010 --> 00:30:00,300
covered. So that's why we make
sure we cover those rare risks

408
00:30:00,480 --> 00:30:03,570
that are that have some
reasonable likelihood of

409
00:30:03,570 --> 00:30:08,100
occurring and and conveying
those to them. Also, in every

410
00:30:08,100 --> 00:30:11,670
syndication, there are conflicts
of interest, you're making

411
00:30:11,670 --> 00:30:15,210
money. By putting this
investment together, you have a

412
00:30:15,210 --> 00:30:19,860
vested stake on that you have of
your very own, on whether or not

413
00:30:19,860 --> 00:30:24,120
this succeeds at what level, you
probably will make more money if

414
00:30:24,120 --> 00:30:27,750
you sell the properties at one
time versus another time. And

415
00:30:27,750 --> 00:30:31,110
those may be different than the
best interests of your

416
00:30:31,110 --> 00:30:35,610
investors. So your investors
need to know, hey, there are

417
00:30:35,610 --> 00:30:39,150
conflicts of interest, here's
what they are, make a good

418
00:30:39,150 --> 00:30:42,120
decision, I'm gonna do my best
for you, but make your good

419
00:30:42,120 --> 00:30:47,040
decision for yourself. So
whether or not to invest. So

420
00:30:47,040 --> 00:30:49,290
those sorts of things go into
the private placement

421
00:30:49,290 --> 00:30:53,670
memorandum. Now, because these
are formed as LLC is the

422
00:30:53,670 --> 00:30:57,300
entities themselves are formed
his LLC season, whichever

423
00:30:57,300 --> 00:31:01,770
jurisdiction is the most
appropriate than an LLC is

424
00:31:01,770 --> 00:31:05,040
governed by a document called
the operating agreement. An

425
00:31:05,040 --> 00:31:09,630
operating agreement is the rules
for the road of how these things

426
00:31:09,630 --> 00:31:14,550
work in themselves. So what it
what is necessary, what, you

427
00:31:14,550 --> 00:31:18,330
know, what the rules are a when
an investor wants out, what does

428
00:31:18,330 --> 00:31:22,740
that look like, when management
fees get paid? What does that

429
00:31:22,740 --> 00:31:25,980
look like? How does
distributions happen? How does

430
00:31:25,980 --> 00:31:28,980
the capital accounts work, all
those things take place within

431
00:31:28,980 --> 00:31:33,180
the operating agreement. Then
there's a subscription

432
00:31:33,180 --> 00:31:36,720
agreement. This is where your
investors formally sign on to

433
00:31:36,720 --> 00:31:41,070
your investment. In exchange for
this $100,000, you're going to

434
00:31:41,070 --> 00:31:48,300
get 100 units of XYZ fund. So
that's what it what the

435
00:31:48,300 --> 00:31:52,170
subscription agreement does, it
also provides several promises

436
00:31:52,170 --> 00:31:58,800
from the sin from the investor,
things like I received a PPM, I

437
00:31:58,830 --> 00:32:02,400
am able to make this investment.
I've been forthcoming on whether

438
00:32:02,400 --> 00:32:05,460
I'm an accredited investor and
things like that, which only

439
00:32:05,460 --> 00:32:10,470
protect you more, we also do an
investor questionnaire, which

440
00:32:10,470 --> 00:32:15,360
also puts together the the basic
information that you are going

441
00:32:15,360 --> 00:32:19,860
to need as a syndicator, from
your investors. So things that

442
00:32:19,860 --> 00:32:23,130
are going to be necessary for
tax time, but also things that

443
00:32:23,130 --> 00:32:26,400
comply with anti money
laundering laws and know your

444
00:32:26,400 --> 00:32:31,290
customer laws. So a syndication
attorney can help put all that

445
00:32:31,290 --> 00:32:35,790
together. Can you do it on your
own? Sure, you can. But why

446
00:32:35,790 --> 00:32:39,180
would you, I mean, for a small
price to be paid, which is paid

447
00:32:39,180 --> 00:32:42,900
for by the, by the investors
anyway, they get really

448
00:32:42,900 --> 00:32:46,140
reimburse you for this cost, you
get all this level of

449
00:32:46,140 --> 00:32:50,130
protection. But you can
theoretically do this for

450
00:32:50,130 --> 00:32:53,640
yourself, you can write a
private placement memorandum,

451
00:32:53,820 --> 00:32:56,790
you just got to make sure that
there's no conflicts that all

452
00:32:56,790 --> 00:33:01,260
this stuff that's necessary to
be in a PPM is accurately and

453
00:33:01,290 --> 00:33:05,460
adequately portrayed to all of
your investors. If there's one

454
00:33:05,460 --> 00:33:08,820
missing piece, the whole thing
can crumble like a house of

455
00:33:08,820 --> 00:33:13,710
cards, suddenly, now you owe all
of your investors money back

456
00:33:13,740 --> 00:33:18,090
instantly. And that's a very,
very bad thing. Criminal

457
00:33:18,090 --> 00:33:21,900
penalties can ensure in some
cases, certainly civil

458
00:33:21,900 --> 00:33:25,830
penalties, and that problem of
having to give you all the money

459
00:33:25,830 --> 00:33:29,550
back, we call that the right of
rescission that your investors

460
00:33:29,610 --> 00:33:34,770
may have, if there is a huge
mistake that's made in the ppm

461
00:33:35,490 --> 00:33:39,210
or in the operating agreement
for that matter. So that's what

462
00:33:39,210 --> 00:33:43,290
a syndication attorney can do.
What also a syndication attorney

463
00:33:43,290 --> 00:33:46,890
can do, at least what my firm
does, is we make sure that you

464
00:33:46,890 --> 00:33:51,690
have every opportunity to be
successful. So me personally,

465
00:33:51,690 --> 00:33:54,990
I've done hundreds and hundreds
and hundreds of deals for my

466
00:33:54,990 --> 00:33:59,490
clients. And I've done many,
many deals for myself as well.

467
00:33:59,640 --> 00:34:03,690
So I think I'm the only real
estate syndication attorney out

468
00:34:03,690 --> 00:34:08,610
there who's actively doing deals
today, who's got the experience,

469
00:34:08,610 --> 00:34:12,540
not only from a theoretical
point of view, a legal point of

470
00:34:12,540 --> 00:34:15,900
view, but I've been in the
trenches. I've sat across from

471
00:34:15,930 --> 00:34:19,230
investors and talk to them about
things. I've had all the

472
00:34:19,230 --> 00:34:23,670
questions asked of me. I've
asked had investors asked me

473
00:34:23,670 --> 00:34:26,340
about what why do you have this
in there? Why do you have this

474
00:34:26,340 --> 00:34:29,880
in there, and I've had to
explain it, to make sure that

475
00:34:30,000 --> 00:34:32,880
ultimately, I want them to
invest. And ultimately, I want

476
00:34:32,880 --> 00:34:35,640
them to make money. And I've
felt that pressure. And I think

477
00:34:35,640 --> 00:34:39,720
that's a huge benefit that our
clients get from it as well. And

478
00:34:39,720 --> 00:34:44,460
so you can use me as a resource
to bounce questions off of us

479
00:34:44,490 --> 00:34:47,010
talk about marketing, how are we
going to market this to

480
00:34:47,010 --> 00:34:49,470
investors? How are we going to
do this with investors?

481
00:34:49,920 --> 00:34:52,890
Investors ask questions, you
know, we're there to answer

482
00:34:52,890 --> 00:34:56,880
those questions. So that's the
additional benefit that my firm

483
00:34:56,910 --> 00:35:01,050
provides our clients as well. So
that That's under the whole

484
00:35:01,050 --> 00:35:05,340
legal and regulatory compliance
piece. Now, certainly, as part

485
00:35:05,340 --> 00:35:08,760
of that process, you're going to
need to explain what's very

486
00:35:08,760 --> 00:35:12,450
important to you and your
investors is exactly how did the

487
00:35:12,450 --> 00:35:17,430
finances work, and how does
profit distribution work. So

488
00:35:17,430 --> 00:35:20,820
there we go into a lot of detail
in other videos about how to do

489
00:35:20,820 --> 00:35:25,920
this. But what the basic idea
is, is you'll probably be paying

490
00:35:25,950 --> 00:35:31,140
your investors in your first set
of deals, some sort of amount of

491
00:35:31,170 --> 00:35:35,700
equity. So they're going to get
some piece of actual ownership

492
00:35:35,730 --> 00:35:40,110
of the whole thing, and they
collect profits from. So

493
00:35:40,110 --> 00:35:45,330
typically, what this will look
like is you will have a what's

494
00:35:45,330 --> 00:35:52,470
called a waterfall, profits come
in most of the time, there will

495
00:35:52,470 --> 00:36:00,750
be a preferred return. And now,
I'm just going to put numbers

496
00:36:00,750 --> 00:36:04,020
here because it doesn't, these
are just, you know,

497
00:36:04,560 --> 00:36:09,540
occasionally, some, some
sponsors do it this way, others

498
00:36:09,540 --> 00:36:12,840
may choose completely different
numbers. So you made choose a

499
00:36:12,840 --> 00:36:18,090
preferred return of 8%. That
means that the of the very first

500
00:36:18,090 --> 00:36:22,200
amount of money that's
available, 8% of the amount of

501
00:36:22,200 --> 00:36:26,730
money that's been invested on an
annualized basis goes back to

502
00:36:26,730 --> 00:36:32,790
your investors, which leaves
some more money leftover, right?

503
00:36:33,450 --> 00:36:41,820
Then out of that we saw here is
a bucket, that's an additional

504
00:36:41,820 --> 00:36:50,130
pool of money that's leftover.
Here, it's split. Between

505
00:36:50,130 --> 00:36:51,540
investors.

506
00:36:57,210 --> 00:37:07,260
And sponsors. And that number
may be 70% 30%. Just as a rough

507
00:37:07,260 --> 00:37:11,460
idea. That's a very basic
waterfall. Again, I have other

508
00:37:11,460 --> 00:37:14,580
videos that go into a lot more
detail about exactly how

509
00:37:14,580 --> 00:37:20,280
waterfalls work. So that's one
aspect of how profits are

510
00:37:20,280 --> 00:37:24,120
divided now for you, you also
care about another thing

511
00:37:24,120 --> 00:37:27,570
probably, you know, there is
proud there is not only those,

512
00:37:27,780 --> 00:37:33,540
those profits, that gets split
out, but there's also fees to be

513
00:37:33,540 --> 00:37:39,840
made. So typically, there's a
number of set fees that happen.

514
00:37:41,190 --> 00:37:49,890
Most commonly there will be an
asset management fee. The asset

515
00:37:49,890 --> 00:37:53,700
management fee, often times is
somewhere around 2% of the

516
00:37:53,700 --> 00:37:57,810
amount of money that's raised.
So the total capital account,

517
00:37:59,130 --> 00:38:04,890
then there will be a property
management fee, which may be

518
00:38:04,890 --> 00:38:08,640
paid to you. If you're doing the
property management, or if

519
00:38:08,640 --> 00:38:12,900
you're hiring a third party, it
just goes out to them. There

520
00:38:12,900 --> 00:38:22,140
will be an acquisition fee. For
the work that goes into buying

521
00:38:22,140 --> 00:38:25,200
the property, right, buying a
property takes a lot of work not

522
00:38:25,200 --> 00:38:28,380
only from the real estate agents
in the finance team, but you are

523
00:38:28,380 --> 00:38:31,170
going to be putting in a lot of
work in order to complete the

524
00:38:31,170 --> 00:38:36,090
acquisition. And likewise,
there's also oftentimes a

525
00:38:36,630 --> 00:38:42,180
disposition fee. That covers
the, you know, preparing the

526
00:38:42,180 --> 00:38:45,660
property for sale. So putting
all the due diligence materials,

527
00:38:45,660 --> 00:38:52,080
things like that. Occasionally,
there's also a finance fee. And

528
00:38:52,080 --> 00:38:56,790
that's for the work that goes
into basically signing on a loan

529
00:38:56,790 --> 00:38:59,910
and promising becoming a
guarantor on the loan, that's

530
00:38:59,910 --> 00:39:02,670
worth something. And so
typically, they might not

531
00:39:02,670 --> 00:39:06,900
typically, a lot of times there
will be a finance fee. So put

532
00:39:06,900 --> 00:39:11,520
together we've got profits, and
we've got our splits is what we

533
00:39:11,520 --> 00:39:16,710
normally call them in the trade
and fees, fees come out first,

534
00:39:16,710 --> 00:39:20,100
those are expenses that always
get paid back before any

535
00:39:20,100 --> 00:39:26,400
profits. And then comes the
split. One thing I want to

536
00:39:26,400 --> 00:39:29,970
stress here in we talked about
this a little bit in conflicts

537
00:39:29,970 --> 00:39:34,140
of interest. And what happens in
splits, really across the board

538
00:39:34,320 --> 00:39:39,210
is the importance of ethics and
the importance of your role to

539
00:39:39,210 --> 00:39:43,860
your investors. Look, these are
people who are trusting you with

540
00:39:43,860 --> 00:39:48,150
a lot of money in order to make
them money. You can't promise

541
00:39:48,150 --> 00:39:51,300
that you're going to make them
money, but you can promise that

542
00:39:51,300 --> 00:39:55,080
you'll work your darndest to
make sure that you do and that's

543
00:39:55,080 --> 00:39:58,710
what they expect from you. So
they may not necessarily they

544
00:39:58,710 --> 00:40:02,430
certainly want you to succeed
did, but they also want you to

545
00:40:02,430 --> 00:40:07,590
try really hard to succeed. The
most important thing is that

546
00:40:07,590 --> 00:40:10,590
you're there and that you
communicate that you're an

547
00:40:10,590 --> 00:40:15,540
active, you are truly an active
sponsor, it's somebody that they

548
00:40:15,540 --> 00:40:19,080
can call up, if they have any
questions, they want to not only

549
00:40:19,080 --> 00:40:22,260
trust you, and when they make
that give you the money, they

550
00:40:22,260 --> 00:40:25,500
want to trust you at the end of
the deal. And it'd be better if

551
00:40:25,500 --> 00:40:29,730
they trust you more, not only
because these are people and

552
00:40:29,730 --> 00:40:34,320
that that's what you do. But
also, just from a, from a purely

553
00:40:34,920 --> 00:40:38,070
materialistic standpoint, these
are the people who are also

554
00:40:38,070 --> 00:40:41,520
going to be investing in your
next deal. So you want to build

555
00:40:41,520 --> 00:40:44,910
that trust, you know, the best
situation is you keep making

556
00:40:44,910 --> 00:40:48,360
people money, or you keep
treating them perfectly, like

557
00:40:48,360 --> 00:40:52,620
wonderful investors, the great
investors that they are, that's

558
00:40:52,620 --> 00:40:56,190
what you want to do. You want
your investors to feel good

559
00:40:56,190 --> 00:41:00,990
about investing throughout the
entire investment. And so you do

560
00:41:01,050 --> 00:41:04,260
just do the right thing. I mean,
we could go through the the

561
00:41:04,260 --> 00:41:07,380
fiduciary duties, and I have
videos that talked about the

562
00:41:07,380 --> 00:41:12,960
fiduciary duties that you owe
investors, the reality is, do

563
00:41:12,960 --> 00:41:16,650
the right thing and talk to them
a lot. That's really what it

564
00:41:16,650 --> 00:41:21,900
boils down to, if you do those
two things, 99.9% of it gets

565
00:41:21,900 --> 00:41:26,640
taken care of do the right
thing, communicate a lot, treat

566
00:41:26,640 --> 00:41:29,640
them the way that they should be
treated. And you're not going to

567
00:41:29,640 --> 00:41:35,880
have any issues as it relates
to, to ethics or in taking care

568
00:41:35,880 --> 00:41:39,330
of your investor interests.
Almost always right. There

569
00:41:39,330 --> 00:41:42,660
always can be somebody who gets
a little upset about something,

570
00:41:43,050 --> 00:41:47,340
something that never even
happened, perhaps we can't help

571
00:41:47,340 --> 00:41:51,960
that we can just do our best.
And that's what the vast, vast,

572
00:41:51,960 --> 00:41:56,190
vast majority of investors want
is work really, really hard for

573
00:41:56,190 --> 00:41:59,880
them work really hard to make
them money, and really try to

574
00:41:59,880 --> 00:42:03,240
make them money. If you work
really hard at it, the odds are

575
00:42:03,240 --> 00:42:06,000
so tipped in your favor that
you're going to be successful,

576
00:42:06,000 --> 00:42:09,720
it's almost certain that you're
going to be successful, as long

577
00:42:09,720 --> 00:42:12,900
as you do really good work for
them. And they're going to see

578
00:42:12,900 --> 00:42:15,090
it and they're going to
appreciate it. And there'll be

579
00:42:15,090 --> 00:42:17,970
your investors in the next deal,
and the next deal and the next

580
00:42:17,970 --> 00:42:21,360
deal. And you'll both be making
a lot of money together, which

581
00:42:21,360 --> 00:42:25,830
is perfect. That's exactly what
you want from this relationship.

582
00:42:26,580 --> 00:42:30,690
At the end of the day, you then
close the deal. So you've you've

583
00:42:30,690 --> 00:42:34,350
run this deal for five years,
seven years, three years, one

584
00:42:34,350 --> 00:42:38,190
month, whatever the duration is,
you do all the things that are

585
00:42:38,190 --> 00:42:41,910
necessary in order to get your
investors their money back to

586
00:42:41,910 --> 00:42:45,090
get them the returns that
they've appreciated, and

587
00:42:45,120 --> 00:42:48,540
communicate with them about how
proud you are of this

588
00:42:48,540 --> 00:42:52,620
syndication. Hopefully you are
and the deal that you've done.

589
00:42:53,130 --> 00:42:57,090
And that's it. That's how you do
a real estate syndication and

590
00:42:57,090 --> 00:43:00,660
all the components that take
place up in it. And I talked

591
00:43:00,660 --> 00:43:04,020
about this a little bit earlier,
but my name is Tilden Moschetti.

592
00:43:04,110 --> 00:43:07,440
I am a syndication attorney with
the Moschetti syndication Law

593
00:43:07,440 --> 00:43:11,280
Group. Now we call this video
real estate syndication for

594
00:43:11,280 --> 00:43:14,580
dummies. I know you're not a
dummy. And now certainly you

595
00:43:14,580 --> 00:43:17,610
know a lot more about
syndication than you knew before

596
00:43:17,610 --> 00:43:21,420
you watch this video. So
congratulations. Now look if we

597
00:43:21,420 --> 00:43:24,570
can be a part of your
syndication journey, putting

598
00:43:24,570 --> 00:43:28,470
together that first syndication,
putting together that fun. I'm

599
00:43:28,470 --> 00:43:32,610
happy to work with new people I
work with with the huge private

600
00:43:32,610 --> 00:43:36,930
equity funds with over $4
million. I also work with people

601
00:43:36,930 --> 00:43:40,860
who are putting together very
small syndications. If I can be

602
00:43:40,860 --> 00:43:44,130
part of that journey for you and
help you be successful, and

603
00:43:44,130 --> 00:43:47,070
ultimately, the more successful
you are, the more you'll keep

604
00:43:47,070 --> 00:43:50,280
hiring me to do your second,
third, fourth deal because

605
00:43:50,280 --> 00:43:53,670
you're making so much money. I'd
love to be a part of that.

606
00:43:53,910 --> 00:43:56,010
Please don't hesitate to give me
a call