Do I have a JV or a syndication?

Question

Have 1 business partner who will handle investor relations. We are buying small multifamily deals near me, which I will be the Asset Mgr of.

My partner has connections with 5-6 investors who would supply the down payment and rehab money. My business partner will be bringing some money as well. Together, my partner and I will split duties on managing our deals: I will take care of due diligence, sourcing deals, underwriting, and ongoing asset management. He does investor relations and helps in decision making.

Do we have a JV partnership with the two of us plus the 5-6 investors, or are we the GP of a syndication deal?

Roni E. · Answer

You have a Syndication. I would speak to your attorney for guidance but what would could try to do is do a JV with your partner. Then those investors become hard money lenders and you pay them interest via a note and mortgage. Again speak to your attorney

Blake Dailey · Answer

@Sam Epperson It sounds like you and your partner have good complimentary skills to knock this out. It also sounds like you have a syndication.

In a JV all members take part in management, whatever those roles may be. They also all sign on debt. And all would have equal voting rights, or decision making ability. This is also usually limited to 5 or under people, but that is not a hard and fast rule. It's just hard to argue that if you have 6 or more people that each one is equally involved or that all are involved at all.

When you and a managing partner team up to offer investors returns in a deal that they are not involved in the management of, you are selling a security and it becomes a syndication where you will have to meet SEC guidelines and want an SEC attorney.

A syndication is where all members do not take part in management (where you have your GPs and LPs), and all members do not have voting rights.

There are more differences but for me these are the main ones and the easiest to use to tell the difference between the two. It sounds like you and your partner are the GPs and the 5-6 investors are going to be the LPs with your current structure.