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Many clients have questions
about how to structure their

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syndication or fun. So I thought
we'd do a blast from the past

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for today's video to take a look
at just what goes into that

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thought process. It's a blast
from the past, because it's a

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video I recorded about three
years ago, when I was working

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with people who are becoming
real estate syndicators and real

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estate fund managers. But the
the information in it is

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absolutely up to date. It's
timely, and I know you'll find

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it useful.

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We are talking through the core
right now we're talking about

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companies specifically
Foundation. And in this segment,

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we are going through structure.
Now why are we going through

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structure? Well, structure is
obviously kinda like the

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foundation. So it's what
everything is based off of view

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structure at right, it makes it
much more easy to grow, makes it

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much more easy to do what you
want to do. And it also can

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protect you, as we'll talk about
soon. So, first, before we get

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started, I'm going to use a
couple terms here that we may

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not have gone through yet. And
you still you may not have seen

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the segments yet on LLCs versus
corporations. And I use and we

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need to go through specifically
two terms, which is member

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managed. LLC is vs. Manager
managed. LLC is now a member

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managed, LLC basically means
you've got people who are all

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part of the same LLC. So this is
a property LLC. And each person

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gets their own vote, and they
all have control equal to the

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amount of shares that they own
or the membership units that

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they own in that LLC. So this
becomes very, very hard to

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manage, you're basically going
to be ceding control to all of

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your all of your investors in
order to get things done. It

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makes it so that you it makes it
hard for you to get paid. And

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basically, it's kind of
defeatist in your in how you

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want to do things. Now, you
actually may use this member

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managed in one particular
context. And that's the joint

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venture. And we'll talk through
that about what joint ventures

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look like. But most of the time,
you are not going to do this, a

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member manage instead, you're
going to do a manager managed

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LLC, which basically means that
you or your entity, and we'll go

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through that have the control
over the LLC itself. And your

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investors have only the voting
rights that you give them in the

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operating agreement. So I sent
that out because I'm going to

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talk specifically about member
managed or manager managed in

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the first way that you could do
this now, the way you can

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structure a syndication and the
way a lot of people do. And

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these are people who have not
gone through our core, they are

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not members of the altitude
syndication founders club. This

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is the way though that most
syndications take place. And

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there's actually a very big
mistake that goes on when you'd

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set it up this way, and we'll
talk about why. So let's say you

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have identified a terrific
building. And I think this is

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just perfect for investment
investing. It's gonna make you

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and all of your investors a lot
of money. So you go you put a

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down payment on it. And then you
call up your friends call up

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Bob. You call up Joe. And, and
maybe three or four other

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people, they all contribute
money into the property as well.

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So yeah, smartly decided, okay,
well, I'm going to create an LLC

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and that's what's going to own
the property. And so we're going

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to call that property LLC. And I
am going to set this up now one

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of the decisions you made when
you were setting this up, was it

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was either going to be managed
or managed or member managed.

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Hopefully most of the time you
will choose Manage your Manage

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after we had this discussion,
because then at least you have

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some control over the property
itself and over your actions.

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But here's the problem with this
very simplistic form of

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structure for syndication. Let's
say there's Bob over here. And

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Bob has decided he just doesn't
like you. He just thinks, you

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know, you sold them a bill of
goods, and he doesn't like this

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property, Joe's totally thrilled
with it, and so are your other

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investors. But for whatever
reason, Bob's gone off his

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rocker, and just doesn't like it
anymore. So now he's mad. So

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what's Bob do? Well, we're in
the United States, and I'm a

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lawyer. So I always see it this
way, he is going to file a

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lawsuit, and he's going to file
a lawsuit against you and the

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property. So he's mad, he wants
his money back. He wants all

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these other things. He wants
punitive damages, and he wants

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to punish you. And the property
and anyone who has any

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association with it, you're all
bunch of jerks. Problem with the

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way that the structure is set up
in this instance, is that you

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now are have exposure to this
lawsuit. So this lawsuit exists.

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So there's an indemnity clause,
no doubt here. But it's not as

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effective as you probably would
like, because ultimately, what

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is your choice to do, you can't
just bankrupt this property LLC,

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because you've got all these
other investors out here. So

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things go horribly, horribly
wrong. And you just want the

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whole thing to go away. You
can't even bankrupt that

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property, because now all of
these people needed need their

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money, and you are also on the
hook. So you've had control over

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this property, if you've set it
up as a manager managed LLC. And

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so you are acting kind of like
if you've heard of GPs before

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general partners, the one who's
responsible for everything and

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you are subject to the claims
against the property, LLC

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itself. This is not the way to
go. But this is the way that

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actually most small syndications
are put together, this is not

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the way sophisticated
syndications are done. So what

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are some How are sophisticated
ones done instead. So we still

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got this, we've still got you
obviously. And we've got this

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terrific looking building here
that you know is going to make a

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ton of money and you've got your
investors and this time, this is

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a whole new one you've learned
your lesson. So now Joe's got

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Bob's gone but now you've got
Joe and you've got Sue and both

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of them invest their money into
this great property. And we'll

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call it property to LLC. But now
you've learned your lesson, you

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know that the exposure if you
were just to put your money and

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put the deposit in on that
property, you know that you're

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being exposed so what do you do
instead, you create another

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entity here that is you
management Inc, and we'll go

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through entity choice of entity
but many times this will be a

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corporation sometimes it's an
LLC for this purpose it doesn't

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really matter. So you you
contribute your deposit money

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into you management Inc. and
then you through you management

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Inc, you make the downpayment in
the property, start gathering up

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the investors and things like
that now property to LLC, pays

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management fees and other fees
to you Management, Inc. So if

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Sue suddenly decides that she's
mad at you, she can sue sue the

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property, she can sue you
Management, Inc. and she can sue

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you personally. So what have you
gotten out of this? Well,

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because you've done it through
this company so long as there

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isn't fraud, you're actually not
liable and the courts not going

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to really recognize that as a
lawsuit that's, that's

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meritorious. So it may be
meritorious against you

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management Inc, or prop two LLC,
but at least you're protected

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and now all of your other assets
are protected as well. So this

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is the normal Wait, I'm gonna
just get rid of this lawsuit

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because this is the normal way
to do it. And we don't want to

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be associated with lawsuits
anymore. So let's just get rid

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of that. All right, great. So
this is the the normal way to do

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it. You're happy You and your
investors are happy. So this is

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this is the most common
structure that you're going to

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do. This is a management company
managing the LLC itself, the

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property LLC. So this isn't the
only structure. So one other

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structure that's a little more
advanced is basically you have,

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you're still here. And now
you've identified not only one

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really amazing building, we've
actually identified two really

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amazing buildings.

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And you think that there's this
other building out there as

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well, that would be amazing. You
don't know exactly what it is,

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but you're going to find it and
you're going to, it's going to

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be a perfect investment for your
investors. So what do you do

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here in this case, so these are
all different properties. So

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let's leave this property, a
LLC, property B. LLC. And after

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you find it, it will be property
C, LLC. Now, you still have your

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management company.

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And but how do you do this, your
investors who are here have a

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choice, here's Joe, your Sue.
They could put money into you

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management, but then again,
we're not shielded against them.

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So we actually build another LLC
or corporation here. And this we

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could call Investment LLC.

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And your investors go there,
investment LLC buys and manages

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these properties. Investment LLC
is managed by you. And pays fees

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that way. So now what you've
done basically, is you've built

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out a structure where one entity
that's easy to manage, can

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manage multiple properties all
protected and shielded, can

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manage its investors, and so and
protect, and basically be able

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to treat investors efficiently.
So the amount of money is all

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treated based on how you however
you design to do it. But

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typically, it would be they're
all you know, if if they put in

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if Joe puts in 50%. And Sue puts
in 50%. You know, they each have

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50% ownership in all three of
those buildings. Now, you may be

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asking, Well, why are we doing
the extra work of having these

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other LLCs here. So the great
example of this exact situation

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is the ghost ship. Ghost Ship, I
encourage you to look it up,

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look it up on Wikipedia, there's
a really good description of it

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there. And then there's some
links within that to different

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news articles. But what happened
in the ghost ship, so the ghost

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ship was an office building in
Oakland, California. Some of the

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tenants decided to convert it to
live in lofts and a dance hall

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of sorts. And there was a fire
that broke out now the ghost

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ship was owned by a trust, who
was owned by one person. So but

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the trust didn't only own the
ghost ship, it owned something

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like 13 other buildings. So all
the value of all of that was

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owned by the trust, which
ultimately was owned by this one

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person. So go ship firebreaks
out 20 people died family Sue

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against the trust, who's the
owner of the building. And now

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because they now because there's
one entity that's being sued,

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all of these other buildings are
suddenly vulnerable to have to

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losing everything. So if they
were done in this manner, in the

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manner that we're talking about
here let's say there was a major

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slip and fall on property a
that's somebody's fault lying on

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the ground. That was really bad
and and you know, they lost

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their leg or something and
property a isn't very big. So

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they would file a lawsuit
against property a and they may

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try to get to investment LLC,
but they're probably not going

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to, to have that chance to get
further up the line unless

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there's been a case of fraud or
something like that. So property

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a LLC, they file a lawsuit. And
if it just doesn't become worth

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it anymore, property A goes
bankrupt. But property B and

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properties, these still exist
and Joensuu still own their 50%

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portion. So they've been
protected for that. So that's

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why we we separate, each
building has its own LLC. So the

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last way that you may encounter,
putting together a syndication

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would be something like this. So
you have identified a terrific

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building an apartment building
that's worth that's on the

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market for $2 million. So the,
this is a great opportunity for

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you, you decide that you want to
buy this because you see how

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much upside there is, but it's
going to take a lot of work.

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So you put your money in, you
don't have any invest any

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development experiences. So
rather than seeking investors

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for this property, you seek a
different kind of investor, you

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seek a joint venture. So say,
you know somebody who owns the

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company development, Inc. and
they are a developer and are

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terrific at rehabbing apartment
buildings. It's owned by two

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people's it's like two brothers.
And they own that. So you have

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now contributed $2 million into
this building, and they are

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contributing, say their time and
materials into improving it into

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what it is. And then when it
comes time for, for receiving

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money. It goes according to
however your joint venture

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agreement has been written. So
your joint venture agreement is

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kind of the umbrella that covers
all of this talks about what

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your duties are and what the
responsibilities are and how

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everybody gets paid. So let's
just recap for a minute. This

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way of doing things here, where
you've got everybody investing

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into the same LLC, including you
is just not going to work. It

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doesn't protect you from
litigation, this is the most

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common way to do things. So this
is the way let's separate that.

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This is the way you're probably
going to set up your first

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several syndications, it may be
the only way you use to set up

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syndications because it just
works great. You can also have

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different investments and still
have you as the management. So

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this is prop three. LLC, which
has its own investors.

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And this may be how you
structure your entire fund. Or

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maybe you decide you want to
become more like a fund and do

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00:18:25,300 --> 00:18:28,180
it this way and have people
invest into your investment fund

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whichever way works for you.
This is the basics on how you do

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it. So this is the structure to
keep in mind. Now I encourage

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you to actually draw out what
structure you think is going to

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fit your needs the most. Is it
something like this where you're

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going to go property by
property? Or is it something

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00:18:47,620 --> 00:18:52,060
like this where you're going to
have a pool of funds a pool of

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money in order to buy several
properties at once. Most of them

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view will probably be doing this
but some of you may be doing

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pools as well. So I hope that
was helpful. Draw out your

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diagrams, and we'll see you in
the next segment. I hope that

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was helpful for you. My name is
Tilden Moschetti. I am a

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00:19:14,260 --> 00:19:17,740
syndication attorney with the
Moschetti Syndication Law Group.

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If we can help you structure
your syndication or fund in the

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00:19:21,490 --> 00:19:23,650
right way, please give us a call