Mortgages & Creative Financing

Private Placement Memorandum: Using a PPM to Raise Private Capital

Expertise: Mortgages & Creative Financing, Real Estate News & Commentary, Real Estate Investing Basics
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Private Placement Memorandum

Are you familiar with a PPM – also known as a Private Placement Memorandum?

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A PPM can protect you and your personal assets as you raise money from capital investors.

As a real estate investor, it is important that you learn more about PPM’s and how you can use it to raise private capital for your investment business.

What is a Private Placement Memorandum (PPM?)

PPM = Private Placement Memorandum. A PPM is a private offering where investors invest in your Special Purpose Vehicle (SPV), which can be either an LLC or LP and the investment is backed by whatever that SPV owns i.e. real estate, notes, stocks etc. Most people think that the purpose of a PPM is to raise money — rather the true purpose of a PPM is to provide the full disclosure envisioned by the federal securities law. Hence it is a CYA (Cover Your Ass) rather than a fund raising tool (in my opinion.)

Key Questions for your Private Placement Memorandum

Everybody in real estate knows the acronym OPM. OPM (Other Peoples Money) means raising money from third parties to help accomplish your investment or business plan goals. If you want to raise money from third parties then it is important to understand to think through key questions, as your attorney will need answers to these question as they help you draft your PPM:

  • What is your asset investment or overall business plan and how does OPM work within that plan?
  • What is your track record, your model, or who your modeled after?
  • How will the investors participate and how and when will they receive their return on capital? You have to determine if you’re going to pay a return and an upside (which could lead to more scrutinizing of expenses).
  • How to market this offering and to whom; Are you only going after accredited investors (high net worth individuals) or will you consider sophisticated unaccredited investors as well?
  • What’s the exit look like? When do they get there capital back? Do you do different tiers of interest rate based on how much money is contributed or the length of term?

A PPM, like a business plan, is a great thinking and planning tool as you start down the path of raising private capital, especially from third circle investors.

Key Parts to a Private Placement Memorandum?

The Private Placement Memorandum (PPM) is a document that can feel shrouded in mystery and complexities and you do need a good local securities lawyer and CPA team as you finalize your PPM. As real estate investors it is important understand what these experts will be doing for you, as that way you can intelligently add to the process and maybe save some costs as well. Hence I have spent the last few months reading through sample PPM of REITS (hint: you can get a great boilerplate language of risks and conflicts by reviewing public REITS either 10-K or their initial IPO filing document) and reviewing Guide 5 issued by the Securities and Exchange Commission. Release No.33-6405 (June 3, 1982) (47 FR 25140). Below is my synopsis from reading and dissecting of pages and pages of information.

There a four major parts to a PPM document:

1.) Introduction

The introduction is the cover page of the PPM which includes a brief summary of the offering, description of the asset or assets to be purchased, the termination date of the offering period, minimum investment required, a brief statement of the key risks, suitability standards statement, and a disclosure of the commissions & fees payable to the Sponsor and Third Parties.

2.) Basic Disclosures

Sponsor Information

A PPM must provide enough information to help capital investors judge the capabilities and risks of the sponsor. The PPM must disclose the key items associated with a Sponsor:

  1. Manager name, address, and telephone number
  2. Fees and Profits Table detailing the fees to be paid out to the Sponsor
  3. Manager Biographical information
  4. Prior Sponsor Performance:
    1. Narrative report of the track of the prior performance of real estate investment groups that have been sponsored by this sponsor during the past 10 years for similar investments.
    2. Raising & Investing Funds Performance Table: the table will show the sponsors experience in raising and investing funds where the money raising has been completed of prior investments.
    3. Operating Results Performance Table: the table will show the operating results of prior investment assets that have been completed or have “gone full cycle.”
    4. Compensation Table: the table will show the compensation paid to sponsor for prior investments.
    5. Track Record: this table or narrative will provide the results of the sponsor’s prior programs/syndications that have been completed.

Specified Property Offering

The specified property offering section of the PPM will provide the key information associated with the asset description together with estimated project costs, use of proceeds table, and gross  sales revenues. It is important to note that the PPM document itself never mentions projected returns that an investor can make rather that information is provided via an Exhibit that provides a detailed project proforma. So make certain that your PPM document does not include a projected returns either asset or investor level within the PPM document.

Risk Factors

The PPM should contain a whole section relating to the various types of risks associated with investing in this opportunity. The risks categories will typically include asset, environmental  tenant, market, asset, legal, tax and risks associated with the sponsor and SPV (LLC holding the property). It is also important to think through and include any risks that are unique to this investment offering that may not be present in other offerings i.e. a special risk associated with the tenant or the asset location

3.) Legal Agreement

The legal agreement refers to the operating agreement or the limited partnership agreement that will govern the manner in which the SPV will be run and include information about key  issues:

  • Investment of the members of the group
  • Accounting rules of the group
  • Management plan to follow
  • Rights of members of the group
  • Ability to assign or transfer an ownership unit
  • Communication plan for the group
  • Termination of the group

4.) Subscription & Offering Questionnaire

The subscription agreement is an application document signed by the capital investors to purchase a certain number of investment units within the offering. The subscription agreement will usually be accompanied by a check or a wire by the capital investors.


Once you get that check, a real estate investor is usually on cloud nine, but there is a critical step that you need to take prior to cashing it. It is important to validate the sutiability of this investment to the investor. Utilize the offering questionnaire to asses the suitability of the investment for that particular investor and if it is not a match then it is better to return the money rather face a potential lawsuit in the future.

The Private Placement Memorandum is a great planning and CYA tool. If there any best practices that you know about it regarding utilizing a PPM, please share them through the comments below.

Until next week, Happy Investing.
Photo: artist in doing nothing

Ankit Duggal(G+) is the Investment Director of a New Jersey Income Operating & Consulting Company . Ankit is a seasoned value investor who enjoys achieving a zen through surfing, hot yoga, and snowboarding.
    Replied about 8 years ago
    Interesting post with some great details. I have an investor interested in kicking in some funds for a rehab project, and would prefer to give them the PPM and promissory note and not put them on the loan since its a short-term construction loan that will be secured in my name, refinanced after construction and then quit claimed to the LLC. Since their investing in the LLC, would this make the loan secured and allow me to write off the interest and file taxes correctly? I’ll speak with an attorney if this flies, but interested in your take.
    Replied about 8 years ago
    Hello Page, I appreciate that your taking massive action!! Please note this does not constitute legal advice by my educated opinion is that you don’t need to draft a PPM in the scenerio you mentioned. Overkill in your hypothetical as this article is contemplating an private placement offering. The key thing to remember if your contemplated agreement is a security is called the Howey test (SEC v Howey 1946). The test says if the agreement calls for: 1. an investment of money due to 2. an expectation of profits arising from 3. a common enterprise 4. which depends solely on the efforts of a promoter or third party It rings the bell of the securities regulation protection scheme. The agreement you identified if drafted correctly can avoid the expense of the securities registration process. Good luck on your project. You came to the right place.
    Russel M.
    Replied about 8 years ago
    Great information regarding the PPM thanks Ankit. I will definitely use this information
    Ankit Duggal
    Replied about 8 years ago
    Thank Russel. I appreciate the fact that you found the information useful
    Replied about 8 years ago
    +Got into apartment and office. Now will lose all investment, they did not delivered what they promised after 5yrs, and lender will take away property. Risky!!!
    Replied about 8 years ago
    +Got into apartment and office. Now will lose all investment, they did not delivered what they promised after 5yrs, and lender will take away property. Risky!!!
    Brian Burke
    Replied about 8 years ago
    Ankit, great overview of the PPM. I totally agree with your opinion that the PPM is not a fundraising tool. After reading a properly drafted PPM, most investors would say that there is no way they are investing in the deal! It is page after page of potential risks. A necessary component of the process, however. An investor that is truly suitable to invest in the deal will not be turned off by the disclosures in the PPM (unless its a disclosure that the sponsor is a criminal or bankrupt), so while it is not a marketing tool, it IS a filtering tool. If the potential investor is turned off by the risks disclosed, it is much better to discover this early in the process rather than after they invest. I use an executive summary and a fact sheet to market my offerings. If the investor is still interested after reviewing those documents, then they get the PPM and Subscription Agreement. No one wants to read a PPM until they are pretty sure that this offering is a fit for their objectives. They are no fun to read! Great article, thanks for sharing.
    Replied almost 4 years ago
    Hi Brian! Great post! Do you mind sharing that Executive Summary wording and fact sheets outline? I agree wholeheartedly that no one wants to read a boring PPM! I am working on my first PPM and could definitely use your kind assistance. Many thanks for your generosity!
    Ankit Duggal
    Replied about 8 years ago
    Brian great explanation on what a PPM should do to an investor mindset.
    Alejandro Casablanca
    Replied over 7 years ago
    Hello Ankit & Brian I was doing some research in Bigger Pockets about the PPM tool and I got to your article, which is very informative. I’m now working with an Investment / Executive Summary for a deal that I’m working on and I’m just wondering if it would be appropriate or can be considered customary disclosing financial and profitability highlights, such as approximate ROI, interest rate to be paid, etc. Or if those are details that are simply disclosed formally in the PPM itself? Your feedback on this will be very appreciate it.
    Replied almost 4 years ago
    Hi Brian! Great post! Do you mind sharing that Executive Summary wording and fact sheets outline? I agree wholeheartedly that no one wants to read a boring PPM! I am working on my first PPM and could definitely use your kind assistance. Many thanks for your generosity!
    Colm McCormack
    Replied about 8 years ago
    Thanks, Ankit! I learned a lot from your post!! The way I manage private investor money is by doing joint ventures with them. It’s really very simply; they loan me the money by wiring it to the title company to buy & rehab the house then we split the net-net-net profits on the back end. We do this via a non recourse Note and Deed of Trust. That way the only secuirty is the house we are fixing, not me and not my company. Basically, they’re the bank.
    Brian Lunsford
    Replied about 8 years ago
    Is there a threshold or number of investors that trigger an offering from a private money loan. I like Colm’s simplicity better, but not sure of the validity. Also, I presume that state laws will differ and you are only speaking of SEC requirements.
    Ankit Duggal
    Replied about 8 years ago
    Brian state laws can differ. Technically you need disclosures even when they are investing as the bank. It is simpler I agree but they need to get disclosures and some kind of risk document even with a loan security instrument.
    Replied about 8 years ago
    Is the PPM apart of a Fed/State SEC registration or is the PPM solely between the fund manager (you/me) and the investor/lenders? Any suggestions on what internet resource (there’s many) to buy a PPM template from? Any suggestions on where to buy the Reg D form D and other Fed/State forms from? Thanks, curt Reply Report comment
    Replied about 8 years ago
    Is the PPM apart of a Fed/State SEC registration or is the PPM solely between the fund manager (you/me) and the investor/lenders? Any suggestions on what internet resource (there’s many) to buy a PPM template from? Any suggestions on where to buy the Reg D form D and other Fed/State forms from? Thanks, curt
    Replied about 7 years ago
    Ankit, Great article! I am a new investor but have dove right in recently. Found a couple great deals that I am working and I was wondering if there was somewhere I could go to get example disclosures and agreements?
    Luke Kukwa
    Replied over 6 years ago
    Great article! being a first time investor does anyone have a sample PPM that I can look at for my review? I have never seen this type of document and I think it would be vital information as well as see how something like this is structured? Please let me know. Thanks, Luke
    Toto Ultio
    Replied over 6 years ago
    We’ve used this approach before. We had a company in Texas layout the PPM and file the SEC and state forms. They did it for $500. The site was They did a great job. We had an attorney review the docs later. They made one minor adjustment and charged us $1600. The adjustment was a 1 paragraph addition to the risk section. Another attorney said the paragraph they added was uncalled for. Regardless, this is a great way to raise capital for real estate projects. Beware, the SEC regards real estate as a security when used to sell equity, or debt, positions in real estate projects. The Form D has a check box reading “Tenants-in-Common.”
    Kelvin Lim
    Replied over 6 years ago
    Dear All, new to this field but am wanting do get somethings done here. I am presently in china and have access to PE groups which mainly finance mortgage REITs. Now, my partner and myself are wanting to set up a management company in Hong Kong and let international companies take over these mortgage. Our projects are 12-18 months, PE charges 16% per annum. Currently looking for 3 pieces of the puzzle, 1.) Which entities are interested in taking over these mortgages? 2.) Said entities would wish to take over at ?% per annum. 3.) How feasible is this train of thought. I have over 15 projects financed in China, wish to move them.
    Luis Miramontes Investor from Albuquerque, New Mexico
    Replied over 4 years ago
    Hello. Love the discussion on here. I am trying to see a couple of PPM real life examples instead of just reading about what they contain and their key elements. Does anybody have one they are willing to share with me or let me look at? or do you know where I can find some real life examples? thank you in advance
    Replied almost 4 years ago
    I have one if you are interested.
    Jonathan Rocca from Los Angeles, CA
    Replied over 2 years ago
    Sky – I’d love to see an example of PPM. Thx
    David Hudson from Draper, Utah
    Replied almost 4 years ago
    Sky – If you have a sample PPM available I would love to take a look.
    Replied almost 4 years ago
    Sky, would love to see a sample PPM as well as I started working on mine. Let me know if you can share. alex
    David Lutz from Granada Hills, CA
    Replied 4 months ago
    Is the information here still accurate?