Securing Investors for Your Real Estate Syndication: Key Steps Explained

Learn the essential steps to secure investors for your real estate syndication, from obtaining soft commitments to finalizing investments. To get started with your syndication or fund visit https://www.moschettilaw.com

Securing investors for a real estate syndication or investment fund involves a series of strategic steps. Initially, it's crucial to obtain a soft commitment from potential investors. This isn't a formal agreement but an indication that the investor is likely to participate and how much they plan to invest. Maintaining a detailed ledger of these soft commitments is essential for tracking potential investments.

The process includes asking potential investors about their interest and addressing any questions they might have about the investment product. This helps in gauging their seriousness and clarifying any uncertainties they might have.

Once an investor shows interest, the next step is to move towards formalizing the commitment. This involves providing necessary documentation, ensuring compliance with SEC regulations, and maintaining clear and consistent communication throughout the process. Regular updates and transparency are key to building trust and ensuring investors feel confident about their investment.

In some cases, you might consider issuing investment certificates, though this is less common due to specific language requirements and restrictions on resale. However, it remains an option for those interested in a more formal acknowledgment of their investment.

Ultimately, the goal is to transition from potential interest to actual investment seamlessly, ensuring all legal and regulatory requirements are met. Maintaining strong communication and addressing any issues promptly will help in building lasting relationships with investors, paving the way for future opportunities.

Read more about accredited investors: https://www.moschettilaw.com/accredited-investors
Read more about Regulation D offerings: https://www.moschettilaw.com/reg-d-bad-actor-rule/

Moschetti Syndication Law Group is a boutique syndication law firm, serving small and growth-bound syndicators, as well as private equity firms. Our attorney, Tilden Moschetti, is determined to keep the firm’s ‘boutique’ size so we can tailor the services to each client’s unique needs without turning the firm into a faceless factory churning out private placement memorandums or passing unnecessary overhead expenses onto our clients. (As our client, you’ll only pay a fixed fee, so no surprises.) As for the client experience, we give real-time answers with Tilden Moschetti without making you book an official appointment or get passed along to associates or paralegals. We’ll work with your ambitions and overall vision to help you close the current deal and fill in that ‘missing’ piece – whatever you need – to keep adding more syndications to your portfolio. We keep syndicators syndicating (TM).

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Episode Transcript

Tilden Moschetti (00:00):
So you think that you have investors? So you
think you might have somepotential investors who are
interested in investing in yoursyndication, or investment fund?
What are the next steps?

(00:23):
So what are those next steps?When you think somebody is
interested in investing in yoursyndication or investment fund?
Well, first, it's probably toget some sort of soft
commitment. So and by softcommitment, this isn't anything
formal, it's basically, so youcan complete in your ledger,
that you're keeping track ofyour, your potential investors,

(00:43):
hey, I think that this person isgoing to come in for $100,000,
or whatever it is. So to dothat, we basically ask them, so
in this investment, what do youthink you would be likely to
invest in? Or does this soundlike something that you'd be
interested in investing in? Andif so, how much? Are you
thinking about? Are there anyquestions that you have about

(01:07):
this investment product beforeyou come in? So that I can
answer them for you? One of myquestions off the bat is going
to be you know, is thissomething that you're interested
in? And if so, you know, howmuch money are you thinking
about doing it, it's gonna bethe minimum amount or more.
Those are like three examples ofgetting a soft commitment that
can be done by email or thingslike that. A lot of times, if

(01:30):
it's written down in an email,it's a little bit easier to
convert to the next step to thehard commitment stage. But a lot
of times, you'll just do it inand just kind of an informal way
like this. When you've got thosesoft commitments, the next thing
that you need to do is you wantto provide them the key
information. Now that not onlyis not only as unnecessary, but

(01:51):
it builds that level of trust.So the first thing that you
always make sure that you do,and it's not provide them a
document yet, the first thingthat you do is make sure that
they know that they have accessto you for follow up questions.
That's what you're there foryou're a salesperson, you need
to make sure that any questionsthat they have get answered in a

(02:11):
timely manner, they need to knowthat. So that's the first thing
that you provide them. Now we goon to the legal documents. So
first, certainly provide themthat private placement
memorandum. This is the documentthat describes in detail, the
risks, the conflicts ofinterest, the terms, what
they're basically getting fortheir investment dollars.

(02:32):
Another document is theoperating agreement, the
operating agreement describesthe company or funds structure
itself, in terms of how it'sgoing to work in order to
fulfill what you're talkingabout in your marketing
materials and in the privateplacement memorandum. The third
document is the subscriptionagreement. The subscription
agreement is what the investorwill sign that basically says,

(02:55):
in exchange for this money thatI'm about to give you, I am
going to get those members ofunits. Here's what I promised,
I've read the PPM, et cetera,the syndicators saying, Yes, I
understand that, here's what Ipromise I'm going to live by the
operating agreement, it bindsthe investor to the operating
agreement to the investment funditself. The last thing that I do

(03:16):
that I think is very helpful asan investor questionnaire, this
can take care of a lot ofdifferent things. Certainly, it
makes it easier at tax time byputting all the information in
one place. But also, it also canset that basis for making sure
that people coming in under arule 506 B are knowledgeable
about investing. So that it'snot a it's not unusual for them

(03:38):
to invest in something like yourinvestment fund. After your
investors have the all thedocuments that they need. It's
now time that you do that youand address any questions that
they have. Now, they may have abunch of questions. So it's also
a very important that you'veread through the operating
agreement and the PPM and thesubscription agreement, so that

(04:00):
you can answer any questionsthat are there things that are
likely to come up as discussingabout the risks of the
investment, talking about whatthe terms are, what kind of
return are they likely to get,and why they think that your
investment is worth going into,they may have questions about
your management team, how it'sactually going to function so

(04:20):
that they can build that levelof trust even higher so that
they're willing to give you that$100,000 that they already gave
you a soft commitment for theymay be interested in the exit
strategy, what sort of timingare you thinking about going the
you know, timing is defined inthe private placement memorandum
most of the time, but they wantsome assurance on what that

(04:41):
timing is. It can it can bedeviated from but they need to
know what to expect. And alsofees and expenses is the normal
thing as well. They need to knowyou know, what sort of fees are
you charging off the top ifyou're charging 20% asset
management fee? Holy moly,that's a big number. Normally,
it's something and closer to do.So they need to know what that

(05:03):
is and why why you've allocatedexpenses and fees that way. And
they may have questions on itbeyond what's in the PPM. After
you've given the investor thedocuments after they've asked
all the questions that they needto, now it's time to finalize
the investment. A lot of timeswe call this the closing of the
subscription. So sometimesyou'll see that in the

(05:25):
subscription agreement itself,we're referring to closing note
for this on the side, that's notthe closing of the real estate
property, we're talking aboutclosing of the contract of the
subscription agreement. So whatare those steps look like? Well,
the first is signing thesubscription agreement, the
investor signs it saying andexchange for this amount of

(05:47):
dollars, I'm getting this muchunits or this much interest in
the company or the fund or thesyndication. So they sign that
agreement, then I have themcomplete the questionnaire that
gives them not only get not onlygives you the information you
need on the taxes, but it alsogives you that additional
information to make sure theyknow what they're getting

(06:08):
themselves into, and that theyhave the level of sophistication
to get into it in the firstplace. And then third, they wire
their funds or send by Ach,there's different mechanisms for
it. There are pros and cons toboth and if you like once, once
you're a client of mine, we cango over what the different
choices are. Last step isconfirm the last step after your

(06:30):
investor has wired you themoney. What do you do then? Do
you just deposit it or what whathappens? Well, that money
typically gets deposited intoyour LLC, your investment LLC
bank account, typically we don'tuse escrow accounts, typically,
it's going into that bankaccount. So you as the
syndicator, the investment fundmanager, the sponsor, you are

(06:53):
going to look in that accountand verify it's there. So you
want to make sure it's there,you want to make sure that
there's no nothing funny aboutit. And that the money is is
basically safe, because youdon't want to get yourself
caught into a situation wheresomething bad can happen.
Second, and wait till thosefunds have cleared. By the way,

(07:14):
there is bad things that canhappen with fake checks and
things like that. So just makesure that the money has cleared
and is truly in the bank accountfirst. So you're going to
confirm that those funds arethere, you're going to confirm
you're going to counter sign thesubscription agreement and send
it back to the investor. You canalso issue what we think of it's

(07:36):
like stock certificates ormembership certificates and
things like that. It's not verycommon, but I have had clients
do it. There's reasons why it'snot very common, mostly because
their specific language thatneeds to appear on them, if
you're going to do it, and itkind of takes away though, the
fun of it, because we have tosay it's not for resale and

(07:57):
things like that on theinvestment certificate if you
decide to issue them. Very, veryrarely does do people do that
probably maybe 2% of my clientsactually issue something like
that. So that is what happens.Those are the steps in order to
get the money from or go from aninvestor is interested into,

(08:19):
they've already invested in nowall is good. From very just make
sure you've got thatcommunication. You execute your
plan the way it is. If there areproblems that come up, you deal
with those problems and stillstay in constant communication
with your investors. Soultimately, they are confident
in you and they will trust youin your very next deal. My name

(08:41):
is Tilden Moschetti. I'm asyndication attorney for the
Moschetti syndication Law Group.If we can help you with your
Regulation D rule 506 B or 506 Coffering, be happy to help give
us a call set up a time to meetwith us and we can go from
there.