New to Real Estate · Reading, PA · Member since 2020 · 12 posts · 4 votes
I wasn't sure how to search this so I apologize if it's been asked before.
I'm planning on buying some real estate shortly and I have some friends and family that are interested in investing with me. This kind of sounds like real estate syndication, but my friends and family aren't accredited investors.
How do I get them involved from a legal stand point?
If Tom, Joe, and Pat all want to put up $10,000 dollars, and I tell them they can expect a 7% return what kind of lawyer do I need to be talking to?
Capital invested with a reasonable expectation of a return is a syndication. If Tom, Joe, and Pat are investing their capital and each of them has a specific job, laid out and explained in detail in a partnership agreement then a normal joint venture may be possible but if they do not have jobs in the partnership then you will want to consult with a syndication attorney or a securities attorney that specializes in private placements or real estate syndications. In many cases I have heard of family and friends being a newbies first investor but everything needs to be laid out in clear language with the risks known. It would also help if you have a partner who is experienced to alleviate potential fears but that is another conversation outside of what you have asked.
Well said. I am not an attorney, to get that out of the way. I think the main quibble someone would have with the above is that capital invested with a reasonable expectation of a passive return constitutes offering of a security, not a syndicaiton. Syndication is what one does when offering a security and remaining compliant. A bit pedantic, perhaps, but an important distinction.
If you're just raising tens of thousands of dollars, syndication isn't going to pencil out. You need to find a way to get the deal done another way. Many people use promissory notes, but even those have pitfalls. They do not automatically get you out of securities waters, depending on how they're structured.
Capital invested with a reasonable expectation of a return is a syndication. If Tom, Joe, and Pat are investing their capital and each of them has a specific job, laid out and explained in detail in a partnership agreement then a normal joint venture may be possible but if they do not have jobs in the partnership then you will want to consult with a syndication attorney or a securities attorney that specializes in private placements or real estate syndications. In many cases I have heard of family and friends being a newbies first investor but everything needs to be laid out in clear language with the risks known. It would also help if you have a partner who is experienced to alleviate potential fears but that is another conversation outside of what you have asked.
Capital invested with a reasonable expectation of a return is a syndication. If Tom, Joe, and Pat are investing their capital and each of them has a specific job, laid out and explained in detail in a partnership agreement then a normal joint venture may be possible but if they do not have jobs in the partnership then you will want to consult with a syndication attorney or a securities attorney that specializes in private placements or real estate syndications. In many cases I have heard of family and friends being a newbies first investor but everything needs to be laid out in clear language with the risks known. It would also help if you have a partner who is experienced to alleviate potential fears but that is another conversation outside of what you have asked.
Well said. I am not an attorney, to get that out of the way. I think the main quibble someone would have with the above is that capital invested with a reasonable expectation of a passive return constitutes offering of a security, not a syndicaiton. Syndication is what one does when offering a security and remaining compliant. A bit pedantic, perhaps, but an important distinction.
If you're just raising tens of thousands of dollars, syndication isn't going to pencil out. You need to find a way to get the deal done another way. Many people use promissory notes, but even those have pitfalls. They do not automatically get you out of securities waters, depending on how they're structured.
Securities solutions get expensive quick, and that's why you see it when raising LOTS of money. For small amounts when the F/F don't actively participate, just do a note/lien on terms. That's the only place you can guaranty a return, because it is by contract on debt owed. Anything else, statements about future performance is tap dancing on a landmine.