May 7, 2019
The SEC has set forth clear guidelines of what is acceptable
when raising capital for real estate. Nonetheless, some investors
have made missteps that have exposed them to harsh punishments. To
understand the dos and don’ts of raising capital, we sat down with
securities attorney Kim Lisa Taylor. Kim is the founder of
Syndication Attorneys whose sole purpose is to help entrepreneurs
create sustainable, successful investment companies. On this
episode, she clarifies the difference between a JV and a security,
what constitutes a pre-existing relationship, and why you need to
have a customer relationship marketing (CRM) system.
Partner: Get Your Early Bird Tickets to
the Midwest Real Estate Networking
Summit
Key Market Insights
- Involved in writing over 300 private security offerings –
mostly real estate
- Securities come into play when borrowing money from a private
investor
- If it’s a one-time deal, there are not many risks with
securities laws – especially if they are accredited investors
- When doing it multiple times, you are a serial borrower
- Can have someone in an LLC that is member managed and they are
actively involved in generating a profit and not relying on
you
- Members of member managed LLCs should have access to the bank
account and be involved in the decision-making
- If filing as a JV Partnership: don’t have too many members,
works best with 3-4 people max
- Hire a security attorney after you have a signed sales
agreement, visited the property, and reviewed the last two years of
income statement
- Once you know you are creating a manager managed LLC, you need
to decide how to comply with securities law
- Options are to register or look for an exemption – since
registration takes up to 9 months, individual deals require an
exemption
- Private exemptions will prohibit public communications - cannot
blast on Facebook, buying a list or advertising
- Can extend offerings to investors with a pre-existing
relationship
- VC Citizen Court Case – defined the pre-existing and
suitability relationship
- Operators must have a method of determining whether an investor
is suitable to be in an offering and a record keeping system
- Reg D 506b – allows an unlimited number of accredited
investors, up to 35 sophisticated investors, can self-qualify
- Reg D 506c – crowdfunding rule, allows you to advertise to
investors, but they must certify they are accredited from an
attorney or CPA
- If you don’t have experience, you can always borrow someone
else’s experience
- 506c may allow you to advertise and then put them in a 506b
deal
- Whales = wealthy investor who will take down one deal
- Think of Moby Dick as he destroys the ship and the crew
- Common mistakes operators make: Waiting too long to hire a
security attorney, need 3-4 weeks to have the offering put together
and then it needs to be approved by the lender
- Passive investors can request to see inspection report,
survey
- Subscription docs include (PPM) – details all aspects,
Operating agreement – details how all decisions will be handled,
subscription agreement – qualifies the investor for the deal
Bull’s Eye Tips:
Winning Your Market: Preparation
Tracking Market Changes: Subscription to LexisNexis, Securities
Mosaic
Daily Habit: Miracle Morning
Resources:
10 Things Investors Should Know Before Investing in a Real Estate
Syndication
Determining Investor Suitability
CRM Systems: Insightly, Hubspot, Podio, Salesforce
Best Business Books:
Miracle Morning by Hal Elrod
How to Create an Effective To Do List by Damon
Zahariades
Digital Resources
Asona for Project Management
Tweet This:
“Operators must have a method of determining whether an investor
is suitable to be in an offering”
“There are predators who will take your deal and can push you
out”
“With a private offering, you cannot blast deals on social
media”
Places to Grab a Bite:
San
Augustine, FL – Salt Life
Connect with Kim Lisa Taylor:
Syndicationattorneys.com
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