Where is the line between Partnerships and Syndication

[Paul Bowers]

I've been looking at some projects and have a couple people that may be interested in putting up some money.  I'm a bit confused about the legality/difference between what is considered private funding and what is considered a syndication.  I know the rules on syndication is very complicated and very specific but I don't know what constitutes the difference.

[Laura Alamery]

@Paul Bowers

It is all about how it is structured. If you create an LLC, for instance, where you are one of the member-managers, and you purchase property under the LLC, then as an owner you are entitled to distribution per your operating agreement (which outlines the split and distribution.) That is the simplest way to be entitled to be an owner, and participate in the gains without reporting. The funds are directly deposited with the title company or attorney for the purchase, rehab and construction. You do not handle the funds directly.

If you pool the money together, all the investors will contribute a certain amount, which is deposited in a general account and used for real estate projects. That would have to be reported and disclosed. The amount is not earmarked for a specific investment and ownership in a particular piece of real estate becomes a little hazy. 

I personally have done investments, rehabs and new construction (a 23 homes development) using the first option above.