Advice from A Syndication Specialist!

16 Replies

I am looking for someone with experience in real estate syndication. I am trying to get a syndication deal together I have investors willing to do a deal with me. I have a few questions on syndications, someone with experience and knowledge with this aspect of investing would be a great help to me. I need guidance with the legalities and structure of the deal. If you have had experience with syndications in or out of state please reach out! Thanks!

Tia, I would like to do the deal with all accredited investors. I will put in the extra work to get more accredited investors in on it because i understand it is easier to put together with accredited investors; but I would also like to know how to do this with non accredited investors. I would like to keep the amount of non accredited investors low or structure them together in a less expensive deal.

Hi Patrick, 

A few things to think about:

  1. You'll need to find a property management company who will manage any deal that you buy
  2. You'll need to meet the net worth and liquidity requirements to qualify for a loan 
  3. You'll likely need someone with experience to also sign on the loan
  4. Typical structure between the LP and GP is a preferred return  and a 50/50 to 70/30 profit split
  5. You can have up to 35 non-accredited, sophisticated investors with a 506(b) offering, as long as you have a pre-existing relationship

Also, do you have previous real estate experience? If not, I would recommend finding a partner or sponsor who does. Because it will be difficult to attract accredited investors without a track record.

Hey Theo thanks for your reply.

I have a list of property management companies in the areas I am looking to buy. I have a partner with the net worth and liquidity to qualify for a loan. I plan on a 65/35 split at exit. I need help with the legal side of things, what is referred to a pre existing relationship? I have attracted multiple accredited investors and plan to structure a deal with them before I fund a deal with non- accredited investors. 

Well, if you accumalate a whole  bunch  of non accredited investors and raise the funds, you can do what you want with out the bank. I like the way that sounds better.  But you have to get the structure down and make it legal. No, I havent done any syndication, only partnerships and our own deals.

Accredited means you have to have a  net worth of 500k minimum,  correct? I am asking.

You should consult with an SEC attorney and for your non-accredited investors, I would still structure it as closely as possible as you would for accredited just so that you have sound terms and all the legalities covered. Per the SEC, the category for non-accredited is 506(b) offering under regulation D and you would file a form D with the SEC

https://www.biggerpockets.com/blogs/10191/72197-private-placements-506-b-vs-506-c

@Carolyn Morales Thanks for your reply! to my knowledge a Accredited investor is defined as someone who has annual income of $200,000, or $300,000 for joint income, for the last two years with the expectation of earning the same or higher income. A person is also considered an accredited investor if he has a net worth exceeding $ 1 million, either individually or jointly with his/ her spouse.

@Patrick Daly If this is your first syndication, you have to prep up in advance in terms of investors conversations, legal structure, assembling your team: securities attorney, CPA, lender, insurance broker, etc... As for the legal structure, you best bet is to speak with a securities attorney. 

As you noted, it's better to start out with accredited investors only. Also if you use Rule 506 (c) for your syndication then you'll be allowed to do general investors' solicitation. But again, your attorney will be guiding you through this process. 

Working with sophisticated investors is a slightly different avenue and allows no general solicitation under 506 (b). You also must have pre-existing relationship with them. The definition of pre-existing relationship is somewhat vague. Normally your attorney will provide you a specific guidance as to the expectations of it.

Happy to chat more offline if you have any additional questions. 

Best!