Syndication questions, where to start.
I've been listening and reading about syndicating and don't know really what the first step should be. One article here on BP says they're usually structured LLC's or LP's. I've set up quick LLC's in online in my state no problem so where is the line between a normal LLC and Syndication? I'm guessing it's when there's money pooled from passive investors? So do I just need a limited partnership agreement written up by a competent attorney who understands syndicating or what should my first step on that front be? I want to make sure I have my paperwork in order before I go get myself in trouble:)
Side note so people know how to respond, I am not new to investing, or raising money partners one per deal, just looking to step it up a notch so I can get into a bigger playground.
Thank you!
@Tyler Bobo I’d recommend you speak specifically to a securities attorney who has experience with syndication. Explain what you want to setup and they will know what to do.
There are a few on BP.
@Tyler Bobo - there are a lot of ways to get burned in syndications, so my recommendation would be twofold - set "syndication" up as a keyword in BP so you'll be notified about posts referencing them and then, as you see the many types and ways these deals can be structured, you need to spend some time with an attorney - a specialist - who can help guide you through the process. Syndications are great tools, but they can backfire on you in a second. We've done them all over the U.S. (Not in Alaska, though!) and every one of them follow certain guidelines, but every state and every deal has minor differences.
It can be a very expensive education if you aren't careful, but once you know the rules, they are excellent ways to raise capital. Good luck and by all means, keep all of us at BP posted on your successes.
@Tyler Bobo I'd say the first step is to consult with an SEC attorney that specializes in real estate syndications. But typically for asset protection you want to set up an LLC holdings company preferably in Wyoming, then from there you will set up 2 other LLCs one for the property your acquiring and one for the asset management company. Without going to deep off on the end here. The wise thing to do is to consult with the right attorney first to insure you are doing things ethically the right way
@Tyler Bobo - I'm in Palmer. I've been involved in a couple of syndications. Let's grab some coffee and I'll try to help you out.
@Tyler Bobo Recommend reading Joe Fairless book "The Best Ever Apartment Syndication Book" as this is the manual so to speak and easy to understand. There are plenty of blog posts on the subject as well such as, What is Apartment Syndication?, Syndication Worth the Trouble, Apartment Syndication Secrets Unlocked, etc. Search in BP for Syndication and read all the blogs on the subject. Form a list of questions.
Then, spend the hourly rate with a Securities Attorney, just search on bp for some recommendations, and ask all your questions or for an overview how you might set one up.
For steps it goes something like this, in brief, for sponsoring a deal:
- Build Brand & Credibility
- Select Market
- Build Team and Partner relationships
- Build Investor List
- Find Deals (started at partner relationships step)
- Submit LOIs and Acquire Deal under Contract
- Entity(REG D LLC) creation and documentation with Securities Attorney (started at partner relationships step)
- Secure Financing from Lenders (started at partner relationships step)
- Present Deal to Investors
Raise Capital from Investor List - Close on Deal
- Renovate & stabilize
- Manage Property/Communicate status to investors
- Share Profits & Losses until Sale
Additionally, It also could be beneficial to invest passively on a Syndication first to see the flow and build network relationships. Hope that helps!
In addition to speaking with securities attorneys as others recommended here, you should also educate yourself further on how syndications work. There're two great books that will give you clarification on the subject: "it's a whole new business" by Gene Trowbridge and "Best ever syndication book" by Joe Fearless and Theo Hicks.
As for securities attorneys, reach out to @Mauricio Rauld, @Amy Wan, or many others.
@Tyler Bobo what type of deal, dollar size and quantity of investors do you expect to have because that can drive entity structure. For example, if you are buying a $1M 10 unit property you might just JV with one person or have an LLC with you and four investors. Or if you are buying a $40M 200 unit property then you probably need to do a syndication with a private placement memorandum (PPM) to stay compliant with the SEC because you'll probably have more than four investors.
To be perfectly honest with you Tyler, I would not take any advise from anyone on here with business needs such as the questions you asked above. You know how you want to scale your business and the projected outlook for the past and upcoming year for tax purposes. Especially with discussing syndications, you need to consult with an attorney to advise you properly. A securities attorney should be your in your top search. Best success
Hey @Tyler Bobo If your questions are only on the structure, you can simply talk to an SEC attorney and they will handle. Just tell them what you're thinking and they can advise.
If you have more questions on raising capital from your existing network, growing your investor network or building a syndication business then you should certainly check out various free resources (plenty on these forums as well as different articles and podcasts). In addition, think about getting Joe and Theo's book on apartment syndication. Lastly, depending on your goals and experience you can consider hiring a mentor that can help you learn the specific steps and help you build confidence and credibility.
LLCs are entity structure. A syndication is a securities offering--it can be done using any type of entity. If this is your first rodeo, as securities attorney, I'd much rather you let the attorney structure the deal for you set up the entities for you, because when clients do it incorrectly the first time, it actually costs more and takes longer to fix it (as opposed to doing it incorrectly the first time). Once you're more experienced, its fine to do entity formation on your own (but an attorney should still represent you in the actual offering).
Originally posted by @Tyler Bobo:I've been listening and reading about syndicating and don't know really what the first step should be. One article here on BP says they're usually structured LLC's or LP's. I've set up quick LLC's in online in my state no problem so where is the line between a normal LLC and Syndication? I'm guessing it's when there's money pooled from passive investors? So do I just need a limited partnership agreement written up by a competent attorney who understands syndicating or what should my first step on that front be? I want to make sure I have my paperwork in order before I go get myself in trouble:)
Side note so people know how to respond, I am not new to investing, or raising money partners one per deal, just looking to step it up a notch so I can get into a bigger playground.
Thank you!
This is not legal or tax advice. I would if setting up LLC always have an operating agreement drafted and keep things organized for the LLC. Then I would speak to a securities attorney if need shoots me a message.
Agreed with @Amy Wan. Legal services aren't a place to go cheap on a syndication. As you get deeper into doing deals you'll see the value in having the pros set up your entities.
Thanks everyone for the great responses. I just downloaded the Best Ever Apartment Syndication book on Audible and will be talking to a few people who replied as well, thanks for taking your time to help.
Danny Randazzo, I'll probably be looking at some smaller ones like the 1-2M range at first, and might just do an LLC with a couple other people yet I intend to move from there on up in value so I want to make sure I'm prepared when I find one that will require syndication. Thanks so much for your input!
@Tyler Bobo
Another good book to read is "It's a Whole New Business" by Gene Trowbridge. Gene is a securities attorney and does a very good job discussing the basics of syndications law.
It's not a replacement for getting a lawyer but I think it'd be a good start so you know the business factors to discuss with your lawyer and minimize their billable time explaining the process to you. Good luck!
https://www.goodreads.com/en/book/show/25647309-it-s-a-whole-new-business
Thanks @Alina Trigub Feel free to reach out to @Amy Wan or me and we are happy to help. If you search my name on Youtube you will also find my channel with some educational videos. Happy to hop on a call @Tyler Bobo
@Tyler Bobo, make sure you get educated before you start raising money, even on your 1 off deals. You still maybe selling a security. Reach out to a good SEC attorney and learn before proceeding. @Mauricio Rauld, @Amy Wan, @Jillian Sidoti are all very good SEC Attorneys and more importantly, educators that speak English!!! (Before anyone gets all huffy about my use of the word English, I mean that they can explain things so you can understand them as opposed to some attorneys that can't seem to get away from legal jargon that only other attorneys can understand.)
HI @Tyler Bobo (thanks @Anthony Chara for the shout out). I am happy to chat with you if you would like. You can make an appointment with me or one of our 6 lawyers on our website. I represent both @Scott Meyers and Anthony Chara. We also did the offering for BiggerPockets. My recommendation would be to wait to form your entities until you have your structure determined. At the end of the day, unless you are using Canadian investors, you should have an LLC as opposed to an LP. Canadians get a tax break through LPs.
It is not that use of an U.S.A. LP provides Canadians with a "tax break", but, because LLCs do not exist in Canada, the CRA treats them corporations and does not recognize an LLC as a flow-through entity. Any income from an LLC will be viewed by the CRA as a dividend, even if the LLC has elected to be taxed as a flow-through entity. As such, Canadians would not receive credit for any personal income tax paid in the U.S.A. when filing their Canadian taxes.
If a Canadian participates in an LLC which chooses to be taxed as a corporation, there is no dissonance.
