949-392-1999
SHOW NOTES FOR EPISODE 049 – THE ABCs OF MULTIFAMILY SYNDICATION WITH KIM LISA TAYLOR
If you have an interest in purchasing multifamily properties, you most likely will need to consider syndication as a means to finance larger multifamily properties. But what is syndication? Why would I need to do it? What is required? These and many more questions will be addressed in our interview with one of the leading syndication attorneys in the U.S. In this episode, expert syndication attorney Kim Lisa Taylor, gives us a mini-course on multifamily syndication basics. Listen and learn!
What You Will Learn
- What are the two types of securities real estate investors regularly use?
- When do you need to syndicate?
- What are the first steps you must take before bringing in outside investors to your deals?
- How much time does it take to set up a syndication?
- What is in a Syndication Offering Package?
- What is an Investment Summary?
- What is “Crowd Funding” and how can it help you raise money for your deals?
- How you can set up a fund that allows you to raise funds before you have a deal under contract
About Our Guest
Kim Lisa Taylor
Kim Lisa Taylor, author, real estate investor, and nationally recognized speaker, is the founder of Syndication Attorneys PLLC, a Florida law firm that helps entrepreneurs create successful investment companies. She and the other members of the Syndication Attorneys team focus on helping small business owners/developers structure and convey their investment opportunities in a way that will attract private investors, both domestic and foreign. They teach their clients how to use securities laws effectively and provide them the tools and resources they need to achieve their business goals legally. An attorney since 2002, Kim has made corporate securities law her primary focus since 2008. She has written more than 100 Securities Offerings and numerous Joint Venture Agreements for entrepreneurs raising money — $50,000 to $100,000 or more at a time — from private investors, whether from within their own network of family and friends, through crowdfunding on the Internet or from private equity joint venture partners. In addition to her work with the firm’s clients, Kim is a nationally recognized expert in the securities industry and a highly sought-after speaker, instructor and author.
More About Kim
- Her husband has been real estate investor for 30 years
- 2007 went to multifamily real estate investing event in California
- Formed Syndication Attorneys LLC to work with real estate investors specifically
- Attended many seminars
The Basics
What is a security?
- Many different types of securities but only 2 types that pertain to investors
- Promissory notes
- Investment contracts – An investment of money in a common enterprise with an expectation of profits based solely on the efforts of the promoter
- When an investor starts getting money from private individuals they are either
- Selling promissory notes
- Selling investment contract – interests in LLC or limited partnership to buy properties
- When you (the person promoting the deal) are selling either a promissory note or investment contract, you are “selling securities” and you need to either:
- Get them registered by going through a public offering (IPO, sell stock in your company), or
- Qualify for an exemption (of which there are a number you can choose from depending on many factors). Once those factors are determined, she, as a syndication attorney, can help investors achieve their objectives
Does the law regulate how many investors you can have?
- If you are only going to purchase one property on a one-shot basis, a promissory note will do but if this investment is part of your business (common plan or scheme), and you plan on bringing in more people to buy other properties down the line, you will be dealing in securities.
- If you’re pooling people into an entity and maybe have just one investor in a deal with you, who is active in the decision-making process, you can do with an operating agreement that’s a joint venture
- But once you have “passive investors” who are not part of the overall decision-making, you are also dealing in securities and you need to comply with securities laws
Sharing profits
- Doesn’t matter if you are paying investors interest, equity or both, they all constitute “sharing profits” and are governed by security laws.
When someone realizes they need to bring in other investors to purchase properties, what are the first steps a person must take?
- First, you must answer a few questions:
- What is your business model?
- What do you want to do with the real estate?
- What type of real estate?
- Is there bank financing involved?
- How much do they need from investors?
- Next, talk with a securities attorney, after they have selected the property, before due diligence, and draft up the appropriate documents and select the appropriate exemption. And that will depend on:
- How much money they need to raise
- Who they will be raising the money from
- Whether they need to advertise
What about when you need to move fast on a property?
- Always try to get 90 day escrow period on a commercial property, with one exemption for a 30-day extension for financing contingency whether for you to raise more money or for the bank to process the loan
- Typically, bank financing is 60-75%, the difference from your investors, closing costs and funds for property improvements from your investors
- Time required for typical syndication deal:
- 2-4 weeks to draft offering documents with securities attorney
- Bank due diligence, underwriting
- Time to raise the money
Composition of the Offering Package for Syndication
- Private placement memorandum – disclosure document that tells the story of the investment for your investors
- How the company is structured
- Info about you
- What identifies the property
- Due diligence documents
- Risks of investing and conflicts of interest (full disclosure of all of the ways things could go wrong and the investment could fail)
- Corporate Structure or Security
- LLC
- Limited Partnership
- Promissor Notes
- Subscription Agreement
- Qualification of the investors
- They meet the qualification
- Have read the documents
- Securities notice filings
- FCC
- Notices in states where investors come from
- If the property and investors are located in the same state, they can look at specific exemptions for that state and look at what best meets the investors’ needs
- This package must be completed before the promotor/buyer can receive any money from investors
What is an Investment Summary?
- Should be written first
- Explains what the issuer is doing with the funds that will be raised
- A document that summarizes key details
- What kind of property
- Where it is located
- Parameters to buy
- Projections
- Demographics, etc.
- This is written by syndicator
- Can show this doc to potential investors. Once they are interested, they get the Offering Package
How to determine qualifications of potential investors
- Kim usually holds a “Deal Structuring Conference” with client (90 minute meeting) to help determine the parameters of the deal
- Determines what the syndicator wants to do, which allows the attorney to pick the exemption that best helps syndicator to achieve goals
- Pick exemption which dictates who can invest in the deal
- Some say you can advertise
- Some say accredited investors
- Sophisticated investors (word-of-mouth family and friends)
- Crowd funding
- Determines minimum investment amounts
First deal is always the hardest. With each successive deal, it gets easier and more investors want to be involved
Joint Venture vs. Syndications
- Joint Ventures
- Partners stay actively involved
- They control their own money
- Dole out money when it’s need
- Not passive, just waiting for interest checks
- Works best with 2-4 people you know very well and can work closely with
- Not good for people you don’t know that well
- Can be more complicated because partners can take the reins and call the shots
- Syndication
- You’re dealing with passive investors
- Investing $50,000 to $100,000 at a time
- You show them the terms and they decide to invest or not
Sponsorship (one single investor)
- Talk with a securities attorney first because they understand the intricacies, risks and implications best – they have best documents to protect you
Crowd Funding
- Raising money online through an investor crowd funding portal
- You must be syndicated first before you do crowd funding
- Reg 501 (6) c
- Reg A + – streamlined public offering (requires 6 month process for approval)
- Regulation crowd funding – they promote your offering
Developing Your Own Fund
- Works best for raising a small amount for investments, like single family investments
- Good for mobile home parks because they are typically smaller investments
- Good for entry level, smaller amounts
- Other Models
- Pooled Investment Structure
- Segregated Blind Pool Model
- She has done with a number of clients
- Must have a consistent deal flow
- Can hold investors funds in escrow for 90 days, before paying interest, so there isn’t pressure to pay
- Includes
- Blanket PPM
- Attached Investment summary
- Types of properties you are looking to buy
- When you get a property under contract and it’s time to raise the money:
- Then, they create separate operating agreement, form separate company to take title, subscription agreement
- Don’t have to set up a new PPM every time (saves time and money)
General Syndication Legal Costs
- Joint Ventures are generally $2,500 and up
- Full package $15-20,000 and up
- Segregated Blind Pool Model is a lot less
Advice for those considering syndication
- Seek expert legal counsel first
- Don’t just copy other people’s documents
- Form filling have to be done on time and properly
- Can suffer tax consequences if improperly done
- If you are selling promissory notes, you are selling securities
Rap-It-Up
- Favorite real estate book: Emerging Real Estate Markets by Dave Lindahl
- Favorite business book: Think and Grow Rich by Napoleon Hill
- Most valuable web site for success (other than your own): Get to know Crowd Funding websites – crowdstreet.com, realcrowd.com, realtymogul.com, fundamerica.com (Fund America has great resources)
- Favorite app: Words Worth
How to Reach Kim
- Email: kim@syndicationattorneys.com
- Phone: 904-584-4055
- Website: syndicationattorneys.com
- Free consultation offered
- Newsletter
- Free monthly teleconferences – get legal advice and questions answered
IF YOU LIKED THIS PODCAST, we would love if you would go to iTunes, Stitcher, GooglePlay and iHeartRADIO and Subscribe, Rate & Review our podcast. This will greatly help in sharing this podcast with others seeking to learn real estate investing as a means to achieve a successful retirement.
Check out our other podcasts at olddawgsreinetwork.com.
Get a FREE copy of our 3-Minute Rental Property Analyzer at olddawgsreinetwork.com.
Episode Sponsor: Meno Studio – menostudio777@gmail.com
1 comment. Leave new
Thank you for an awesome useful and valuable information.