Private Placement Memorandum Inquiry

Multi-Family and Apartment Investing
7yFollow

Private Placement Memorandum Inquiry

LaTara G.
Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes

Hello Bigger Pockets community,

Disclaimer: This is specifically a general question and I am hypothetically asking for informational purposes in case there is a way that I am not familiar with and appreciate the wisdom from the experience of others . I do have real estate experience( bought and sold multifamilies and bought and rented townhomes)  . Also, both sides of my family have real estate experience and I grew up watching them in real estate, but always seek to grow my knowledge.

The Question: After you have your Private Placement Memorandum, how to you find and get accredited investors to invest with your fund ? The structure would be an Equity 506(c) 

The Ideas Already in place:

-Brokers
-Online websites such as equity funding platforms
-Private Banking Firms
-Relationships PPM document creator has with other investors
-Forums
-Companies that sell lists
-Opt-in accredited investor databases
-Firms that do the marketing with you (must be licensed)
-FINRA broker-dealers
-Individual securities brokers
-Registered Investment Advisers
-Private equity firms
-"finders" for capital. The finder gets paid for the introduction; not for raising the money.
- Investor Relations Manager
- Host an informational session for accredited investors
- Reach out to people on bigger pockets that claim to be an accredited investor and verify their status

If you see any flaws in any of the above, have more details, or suggestions please feel free to let me know.

Thank you

0Reply
80 views

Most Popular Reply

Michael Le
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
7y
Originally posted by @Greg Scott:

LaTara:

Ideally you have your investor list BEFORE you create your PPM.  PPM start with "Private" and the law favors those with a pre-existing relationship.

Depending on which 506(c) exemption your PPM takes, some of the ideas you listed are a violation of the law and could get you in serious trouble.  I would work closely with an SEC attorney to understand what you can and cannot do.

If you are working under 506(c) Reg D, you can accept more than just accredited investors, but you cannot solicit them.  Again, you ideally know them beforehand with proof of an existing relationship.

That is not correct. A Reg D 506(c) can ONLY accept accredited investors but can indeed solicit publicly. You're thinking of 506(b) which requires a pre-existing relationship.

5Reply
See this reply in the discussion

27 Replies

Jump to latestLatest
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    7y

    LaTara:

    Ideally you have your investor list BEFORE you create your PPM.  PPM start with "Private" and the law favors those with a pre-existing relationship.

    Depending on which 506(c) exemption your PPM takes, some of the ideas you listed are a violation of the law and could get you in serious trouble.  I would work closely with an SEC attorney to understand what you can and cannot do.

    If you are working under 506(c) Reg D, you can accept more than just accredited investors, but you cannot solicit them.  Again, you ideally know them beforehand with proof of an existing relationship.

    0Reply
  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Greg Scott:

    LaTara:

    Ideally you have your investor list BEFORE you create your PPM.  PPM start with "Private" and the law favors those with a pre-existing relationship.

    Depending on which 506(c) exemption your PPM takes, some of the ideas you listed are a violation of the law and could get you in serious trouble.  I would work closely with an SEC attorney to understand what you can and cannot do.

    If you are working under 506(c) Reg D, you can accept more than just accredited investors, but you cannot solicit them.  Again, you ideally know them beforehand with proof of an existing relationship.

    That is not correct. A Reg D 506(c) can ONLY accept accredited investors but can indeed solicit publicly. You're thinking of 506(b) which requires a pre-existing relationship.

    5Reply
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    7y

    Thanks Michael.  There is a reason I hire good lawyers!

    0Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @LaTara G.:

    Hello Bigger Pockets community,

    Disclaimer: This is specifically a general question and I am hypothetically asking for informational purposes in case there is a way that I am not familiar with and appreciate the wisdom from the experience of others . I do have real estate experience( bought and sold multifamilies and bought and rented townhomes)  . Also, both sides of my family have real estate experience and I grew up watching them in real estate, but always seek to grow my knowledge.

    The Question: After you have your Private Placement Memorandum, how to you find and get accredited investors to invest with your fund ? The structure would be an Equity 506(c) 

    The Ideas Already in place:

    -Brokers
    -Online websites such as equity funding platforms
    -Private Banking Firms
    -Relationships PPM document creator has with other investors
    -Forums
    -Companies that sell lists
    -Opt-in accredited investor databases
    -Firms that do the marketing with you (must be licensed)
    -FINRA broker-dealers
    -Individual securities brokers
    -Registered Investment Advisers
    -Private equity firms
    -"finders" for capital. The finder gets paid for the introduction; not for raising the money.
    - Investor Relations Manager
    - Host an informational session for accredited investors
    - Reach out to people on bigger pockets that claim to be an accredited investor and verify their status

    If you see any flaws in any of the above, have more details, or suggestions please feel free to let me know.

    Thank you

    Ideally, you have the investors lined up before you start making a serious legal/operational commitment. 

    That being said, most, if not all, of your marketing is going to come down to one thing: track record. You're off to teh races if you can show an auditable track record. If not, you will have to go hard on marketing and gimmicks. 

    1Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    Hi @Greg Scott I  actually do have an SEC attorney. While I do have confidence in my attorney and the contacts he indicated he would provide and  my business track record , I definitely believe in contingencies and Murphy's Law. With that being the case my business partner and I like to make a plan A, B, C all the way to Z. You never know who will have an amazing idea or spark off an idea that was not considered. We do have a few people that we have done business with willing to invest with us based on our track record, however, based on the amount we intend to raise based on specific goals accredited investors are deemed fit the best option. I do appreciate your input based on your honest believe to make sure we don't violate any laws when it comes to our PPM and I do sincerely thank you for that. I would never want to unknowingly violate anything hence our having an SEC attorney. 

    1Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Michael Le Thank you for clarifying on this thread. I appreciate your input as it seems you have familiarity based on your profile info.  It's interesting I saw you work on IT. I actually have a Master's Degree in Information Technology with a concentration in Security but my Bachelor's is in Business Admin. I didn't really do much with the IT as I always ended up doing something in Business and Real Estate . Plus I ended up in the Airline Industry as a career because for my love of  traveling the world to make a long story short. Ultimately Real Estate is both my Business Partner and my passion ,plus I can never escape it though growing up since that's all my family did and ironically my husband's Aunt is into real estate sooo needless to say I couldn't escape it if I wanted to lol.

    0Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Omar Khan Thank you for your input as well you do have quite the track record from your profile info. Are there any marketing tactics that stand out to you as being most effective ?

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @LaTara G.

    While we do get accredited investors who find our crowdfunding platform, and through my 11,000 contacts on LinkedIn, as well as through my online presence, the most success we have found is through face to face networking.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    3Reply
  • Amy Wan
    Attorney · Los Angeles, CA · Member since 2016 · 284 posts · 314 votes
    7y

    @LaTara G.

    Speaking as a securities attorney, other are right that it’s best to have relationships with investors already, but marketing strategies around a 506c are very different. Technically you can do almost anything that will get the word out—Twitter, Facebook ads, whatever. A word of caution though—I’ve seen clients spend a crazy amount of money on marketing with very little results. Having been in real estate crowdfunding since 2014 and represented the first 506c real estate deal, I would say that people rarely invest based off an ad; rather, they use 506c to reel in new interest folks, but those folks don’t usually convert or fund until several deals later.

    5Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Don Konipol I agree face to face networking is definitely effective in building a business rapport. Thank you for your input.

    0Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Amy Wan Thank you for the point of view as an experienced securities attorney

    0Reply
  • Luke Miller
    Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes
    7y

    @LaTara G. Any particular reason you chose a 506 (c) as opposed to a (b)? 

    0Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Luke Miller Yes, the reason I chose  to consider a 506(c)  was to be able to  generally solicit accredited investors. It does seem as if the majority leans toward the 506(b) and has a better success rate with this format. So that is definitely something for our business to consider. 

    1Reply
  • Theo Hicks
    Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
    7y

    Thought leadership platform: create a podcast geared towards educating accredited investors on investing in apartment syndications. Interview apartment syndication professionals and other accredited investors. Create a weekly newsletter to send out to a list of accredited investors.

    3Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Theo Hicks thank you very much for this idea it is greatly appreciated !! I have a YouTube channel as a hobby ( non real estate related) where I educate people on using technology ,social media, etc . I am pretty sure the same principles would apply for the idea you have given. So far on my channel I have 3.6k subscribers ,1.14MM total views , and about 76 videos generating growth in a short period of time using the Youtube algorithm and Google Search Engine Optimization(SEO). Which was another reason I highly considered the 506(c) since I am familiar with SEO targeted advertising. ( Targeted advertising was also helpful in securing a buyer for my Company's first multifamily deal a while back) Considering my familiarity with technology and platforms I am surprised I missed that idea. Hence this post lol. Again thank you.

    0Reply
  • Luke Miller
    Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes
    7y

    @Theo Hicks is right, @LaTara G. The goal is to get investors to come to you so you don't have to solicit. Thought leadership is an excellent idea and there's no one better at it than Joe Fairless. Read his and @Theo Hicks content/book and you'll be set. 

    3Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Luke Miller and @Theo Hicks I will definitely check out the content/book . This is such helpful information !! 

    1Reply
  • Amy Wan
    Attorney · Los Angeles, CA · Member since 2016 · 284 posts · 314 votes
    7y

    @LaTara G. 506c offerings work well to advertise and bring in new investors generally, but not to any specific deal. If the thought is to do SEO or digital advertising to specific funding for a specific deal, you’re better off doing a 506b.

    2Reply
  • Theo Hicks
    Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
    7y

    @LaTara G. Nice metrics on the YouTube channel. You already have previous experience growing an audience, so you definitely have a head start!

    @Luke Miller Thanks for the shout out!. LaTara, if you have any more specific questions, apartment syndication or thought leadership related, feel free to send me a DM.

    0Reply
  • Account Closed
    Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
    7y

    @LaTara G. Think through how you want to package the investments. As a toe-dipper, I'm limiting my investments to $1K per offering for the time being to let the test of time work its magic. I stay away from offerings with a higher minimum because it's more money than I want to lose if something goes wrong.

    In exchange for advertising a 506(c) offering, I believe you have to verify accreditation. Some sites want to see detailed financial statements, while other sites accept self-certification with a 15-minute follow-up phone call from the investor relations officer. This conversation helps each party get to know the other.

    The more investors you take on (with lower offering minimums), the larger your operation becomes in terms of development, compliance, and customer service. Financial technology (FinTech) is supposed to drive down the cost and make this scale-up economically feasible. Repeat clients are the best kind to have over the long term.

    Once your site gets on crowdfunding review lists (such as The Real-Estate Crowdfunding Review and YieldTalk), investors will find you. I like sites with extensive FAQs and education because I'm a knowledge junkie. A link to a YouTube channel is an added plus. I prefer the under-20-minute TED-Talk-style tutorials to podcasts that last an hour or more.

    2Reply
  • Matthew Baltzell
    Rental Property Investor · Denver, CO · Member since 2018 · 183 posts · 172 votes
    7y

    @LaTara G. I'm in agreement with @Omar Khan hopefully you would have your investors lined up before the PPM. 

    With that said, if you don't have investors lined up already, I would reach out to people in your network to see who's interested. I believe this is where you will find the most success.

    Now, I'm not saying you can't do the digital marketing, but if you're lacking the experience or online authority it could be tough to raise money from new investors with no prior relationships. 

    Best of luck mate:)

    0Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Amy Wan thank you letting me know which offering is works well depending on if a deal is specific or not.

    0Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Theo Hicks I will definitely reach out to you if I have any more specific questions on apartment syndication or thought leadership. Thank you.

    1Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Account Closed I am a fan of the TED-Talk style tutorials also and have watched quite a few myself. I have never heard of The Real-Estate Crowd Funding Review and Yield Talk so I will definitely take a look at these two sites as well. It is great to have a perspective from an investor and the initial thought process of reducing your risks. I completely understand the knowledge junkie side and FAQ's because you always want to be as informed as possible when making any important financial decisions so that is very reasonable and makes sense. 

    0Reply
  • LaTara G.
    OP
    Flipper/Rehabber · Atlanta, GA · Member since 2014 · 61 posts · 8 votes
    7y

    @Matthew Baltzell  and @Omar Khan Thank you again for your feedback based on your experience. The cliche saying  "It's all about who you know" does have some validity to it so the sound advice of reaching out to people in my network cannot be denied. I do have experience with both flips and rentals for multi-family and single family so that should definitely be a plus going forward for my business partner and I as we take our business to the next level of investing. I really do appreciate the honesty as far as how tough it can be with no prior relationships. This does help put a realistic perspective into the course of action needed to achieve our goals. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free