I want to syndicate a deal that will be around $600,000 (2 duplexes). Must my investors be accredited investors? What are the rules regarding this.
I plan to pool the money with a few friends of mine. Can we do this without them being accredited investors?
Any light on this topic will be very helpful.
It doesn’t seem like it’s worth it for 600,000 to do a syndication. I would just put it in the friends names and be tenants in common. Maybe borrow the money and have mortgages on the property and have it in your name. I’m not sure what your goals are but most syndications I have at least a couple million dollars.
@Camden Smith , I think BP is an excellent guide with a great community, but I wouldn't take too much stock from advice on this issue as gospel unless you get it from a qualified attorney. And attorneys on here, even if qualified, likely will not want to say anything that arguably qualifies as legal advice in case that may inadvertently create some type of A/C relationship. And most attorney insurance policies exclude offering advice on Securities unless the attorney elects special coverage. This can be a minefield of an area both for an attorney and the investor because of the potential repercussions.
When you ask what are the rules "regarding this," do you mean the rules regarding accredited investors, whether a syndicate constitutes a security (in which case the accredited investor rules will likely apply absent registration), or both? With respect to what constitutes an Accredited Investor, the SEC has several guides on this, and I would highly recommend Googl'ing for those.
I suspect the primary issue will come down to whether your plan, however it ends up being structured, qualifies as a "security." It's a pretty broad definition that comes up several times both in various federal laws (15 USC 77b probably being a good place to start), not to mention various state counterparts as well. A common issue is whether the investor's expectation of profits is ultimately based on the managerial efforts of someone else besides the investor--whether you simply call it a syndication or something else is almost secondary. (I can even think of some scenarios where structuring a deal with tenants in common as @Carl Fischer suggests could create a potential scenario for offering of a security.)
So, that's my long winded way of avoiding directly answering the question, except to say that I think a lot more detail is necessary to render a more accurate opinion, and strongly recommending seeking legal counsel if you have any concerns that you may be offering an unregistered security and/or accreditation issues.
Get with a commercial attorney. A syndication for PPM could run 10k to 15k and for a 600k deal can get expensive. Check with the attorney on alternative structures that may fit better for a deal this size.
No legal advice given.
Lots of other ways to do deals with friends/family without syndication and it’s done all the time. I frankly don’t understand way people are always afraid to give opinions on an opinion website. Always referencing cases. I’d be interested in seeing a case where a random person gave advice or his/her opinion on an advice forum like this and got sued.
We do joint ventures to share profits and if they are people you want to do business with a long time a LLC with an operating agreement is an option we have also done this. Depending on if this is a lot of money to you or not I’d go with attorney to draft up stuff for you (budget $1500 or so)
Now if you are raising money from people you don’t know there are tons of rules and other things to consider. But for people you’ve know for a while less rules and simpler.
Originally posted by @Josh C. :
I frankly don’t understand way people are always afraid to give opinions on an opinion website. Always referencing cases. I’d be interested in seeing a case where a random person gave advice or his/her opinion on an advice forum like this and got sued.
It isn't necessarily about 'getting sued'. I can't speak to the laws of Indiana, but in Virginia Lawyers, CPAs, and Investment Advisers are regulated. (Some might say 'highly regulated'.) Part of those regulations include what you can or cannot say in a public forum, and what does or does not constitute official advice. Governments are merely decades behind the rapid evolution of social media. Ambitious young regulators (and frustrated old ones) have been known to take a narrow view of the law (written in 1978, but being applied in 2018) when citing violations of the code. (Citations that stay on your public record forever.)
While everyone here wants to be helpful, no one wants to do it at the expense of their professional license and livelihood.
Best of Luck with Your Real Estate Investments!
@Camden Smith I think you should consult with your attorney on the best structure for a deal with your friends. Just make sure all responsibilities are clearly spelled out in terms of who is responsible/has the authority and for what type of decisions.
TIC sounds like it may be your best bet. Definitely not worth syndicating. So "accredited investor" status will be irrelevant in this case. This is just my opinion.
Thank you all for your responses! I guess I hadn't viewed alternate methods of pooling money on a deal.
end case: we would come up with 100k+ for the downpayment and leverage the rest. Sounds like the end answer is an attorney