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Strategy Saturday
SS18: What Are the Legal Documents Required for a Real Estate Syndication?
April 18, 2021
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Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what documents are required for a real estate syndication and why they are essential.

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Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo. And today we’re going to discuss the legal documents required for real estate syndication and upfront. Disclaimer, I am not an attorney. If you’re interested in investing in a real estate syndication or forming a real estate syndication, speak to a securities attorney. First, my goal with this is to provide an overview of the legal documents required for syndication PPMS or private placement memorandums, or over a hundred pages long and would take hours to go through in depth. So this is going to be like a shot from 30,000 feet. So the private placement memorandum or PPMS as we’ll refer to them in this are the legal documents involved with real estate syndication. The most important goal of a PPM is to clearly communicate to investors, the risks associated with investing. It provides perspective investors with information about the company, the operators, the investment, the business plan.

Charles:
And of course the risks. Every investor needs to fully understand the risks before investing as a syndicator. You want to make sure that investors are well-suited for your investment. They will be financially stable if they lose 100% of their investment. And they understand that that is a real possibility with you. This is an investment, the main parts of a PPM, the first part would be noticed to investors and the notices include no registration. There’s an exemption for the registration. There’s no public market, right? So it’s not like buying a stock where you can just sell it a high degree of risk restrictions on transfers, no legal business or tax advice is given. You need to get your own and they should get thrown right of the company, the issuer to modify or withdraw. The offering investors are able to ask questions and receive answers prior to investing.

Charles:
The next section is called the executive summary. It’s a summary of the investment opportunity and the business terms of the offering restrictions and requirements of investors who participate. Are you only allowing a credit investors or are you also going to allow sophistic investors, risk factors, list of documents that the investors will be required to sign company purpose in overviews? The next section, and this includes a description of the property, a description of the market description of the industry, multifamily, industrial retail, et cetera, why you like it it’ll have a business plan in there. How are you going to increase the net operating income? You know, what are your marketing plans is all included in this section terms of the offering insecurities. Then next section who may invest what’s the minimum investment amount. Is there a maximum investment mountain, which I highly suggest you have one risk tolerance for this type of investment overview of the documentation that investors must sign?

Charles:
Next section is risk factors, risk related to the property risks related to the industry risks related to the offering and the securities next section is use of proceeds. So it’s usually a chart and it’ll show it’ll have it’ll outline a total project costs the debt financing that you’re acquiring the purchase price of the whole project. You know, the properties and project general partnership, limited partner, equity, capital expenditures, operating reserves, closing costs, acquisition costs, and fees. The next section, it talks about the management team, right? The general partners, biographies for the management team past experience for all members of the management team, and then past successes and past failures, the compensation of the management team, and then possible conflicts of interest. For example, one of the general partners also owns a construction company. That’s going to be doing a lot of the cap ex capital expenditure.

Charles:
Another one of the general partners owned a property management company, right? That’s going to be managing the property. The next section includes different documents and it’s called the exhibits, right? And in this section, it’s an include supporting documentation and data operating agreement for the entity, the LLC. So you’re investing into an LLC that owns this piece of real estate. The next section is going to be, or the next exhibit is financials, business plan, offering memorandum deal package. So you’ve already seen this before. It should have been the first thing that was sent out to you when you’re looking to invest, but they’re going to put it back into here. The next section is going to be subscriptions agreement and investor suitability questionnaire. So an investor completes the questionnaire and it includes how much they are investing. Have they invested in similar deals? Where do they want their distribution checks to be sent? Are they going to be investing in an entity, maybe a self-directed IRA or some sort of other retirement account. I if you have questions about this, I have a YouTube video that goes through an actual script agreement. So go to our YouTube channel and you can see that. So I hope you enjoyed, please remember to rate, review and subscribe, submit comments and potential show topics at global investors, podcast.com look forward to more episodes next week. See you then

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar incorporated exclusively.

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