Avoiding Prison When Syndicating Real Estate Deals (Do YOU Know the Securities Laws?)

by | BiggerPockets.com

I’ve been writing lately about syndicating your apartment building deals by raising money from private individuals.

As Ben Leybovich said in his post about this topic, syndicating your deals is a great way to add a “zero” to your deals.

We’ve skirted around the commonly-asked question and concern, which is “what about the SEC? Isn’t it illegal to take investor’s money?”.

Let’s talk about it.

I will outline some of the securities considerations but I don’t want to overwhelm you with technicalities. This isn’t necessary because your SEC attorney will handle all of the details. But it’s important that you are aware of the main points.

When you accept funds from others to buy an apartment building, you are effectively selling shares, or securities, in the LLC (or other entity) that will own the building. As such, they fall under federal and state securities laws.

These laws differ by state and by how complex the deal is. Typically you have to provide your investors with some kind of disclosure document, and you have to file some forms with the federal SEC and possibly with one or more states.

Most investments will fall under the SEC’s classification of “small” offerings, i.e., not exceeding $5,000,000. The most important are those under Rules 504 and 505 of Regulation D. Under these rules, you can’t raise more than $5M and have no more than 35 non-accredited investors.

The SEC defines “accredited” investors with a household net worth of at least $1,000,000 and an income of $300,000. There’s no limit with how many of these types of investors you can have.

This impacts your fundraising only in the sense that you shouldn’t have more than 35 non-accredited investors.

Under these rules, you also can’t solicit strangers with your offering. This means you can’t put up billboards, send out mail, or post newspaper ads. Well, you can, but you need to file under another Rule, and then some of the requirements change.

I’m trying to cover the most common case where you’re raising money with word of mouth (more effective anyway in my opinion).

The SEC requires you (or rather, your attorney) to complete a “Form D” (download the form from the sec.gov here) and give a disclosure document to each investor.

The Private Placement Memorandum

This disclosure document is usually referred to as a “Private Placement Memorandum” or PPM. This document is prepared by your SEC attorney and is a long, laborious document that has information about you, the proposed use of the money, possible tax consequences and risks. The document also repeats the terms of your operating agreement.

Your SEC attorney may also have to file some state forms. Some states require you to file, others don’t. The attorney must review the filing requirements for every state your investors live in.

Working with Your Attorney

The only other thing you have to know about this is that it will COST YOU MONEY to hire an attorney to draft these documents. I found an excellent SEC attorney who “retired” from a huge expensive law firm that normally charges $20,000 for all of this, he charges me $6,000 for the PPM. He charges me half up front, and the rest can be paid at closing.

Be sure that your attorney specializes in these kinds of deals and has done a ton of them.


The details of being compliant with SEC regulations are complicated, and you should have your SEC handle them. All you need to know is the basics as I’ve described them, and your attorney will educate you on the rest.

The other lesson here is, since the attorney almost always charges the same for the PPM regardless of deal size, why not go after bigger deals in the first place?

I look forward to hearing from you!
Photo Credit: Jesse Acosta

About Author

Michael Blank

Michael Blank is a leading authority on apartment building investing in the United States. He’s passionate about helping others become financially free in 3-5 years by investing in apartment building deals with a special focus on raising money. Through his investment company, he controls over $30MM in performing multifamily assets all over the United States and has raised over $8MM. In addition to his own investing activities, he’s helped students purchase over 2,000 units valued at over $87MM. He’s the author of the best-selling book Financial Freedom With Real Estate Investing and the host of the popular Apartment Building Investing podcast Apartment Building Investing podcast.


  1. Jonathan Makovsky on

    Thanks for posting this Michael – great material.

    Do you pay $6K to your attorney per deal, or once the attorney drafts the documents for one deal do you just apply some “paint and carpet” for future deals and pay a lesser rate?

    • Michael Blank

      This is an interesting question. For my apt building, the answer was “yes, you pay the same amount for each deal”. But for the two restaurants I syndicated, that deal was set up as a “series”, meaning that you could use that structure to add more investors and capital and buy more restaurants (in theory). I think I’m going to use that structure with my next apt deal also. It’s very flexible, and you don’t need to start from scratch each time. The structure is an LLLP at the top, and then each property would be a separate LLC. The operating agreement defines how new members and capital is added, and how people can be bought out as well. Pretty cool.

  2. Great article, Michael. So often, new would-be syndicators get so caught up in the details that they never move forward. Having a working understanding of the basics and having competent legal counsel is the key to doing it right. There are no shortcuts or “no-cost” approaches to accepting money from others.

  3. Dino Pierce

    I’ve been working on my 1st syndication & I have a feeling The Michael Blank will say add more 0000s, Dino, it’s not big enough…

    I was going to raise 80K for (Closing, upside fund, & down payment) on a 10 Unit but I don’t think the numbers will support my projected returns if I spend the 6K discussed above.

    Well, it was as good practice running all the numbers & putting together a deal pkg for investors.

    I have a 37 door package on the table (off market) I could analyze BUT it’s a mixture of SFR & Duplexes NOT an apartment :-/

    Thx for all the great content The Michael Blank!
    Appreciate it!

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