Hey, it's Clint Coons here.
And in this video, I'm going to teach you
about creating your first real estate syndication.
I'm going to give you some rules so you don't screw it up and end up in jail.
More importantly, I'm also going to show you
how to set up a structure where it's not considered a syndication
so you can go out there and raise money and put deals together.
All right. Let's get started.
All right.
So rule number one, when it comes to creating a syndication or
raising money, is knowing what a syndication is.
There's a lot of confusion that goes into this.
People have always come up to me and said, hey,
if I raise money from friends and family, that's not a syndication, right?
Clint I can just go out there
and the people I know talk to them about a potential investment.
For example,
I'll set up a limited liability company here that I'm going to be in charge of.
I identify this property that we want to buy,
and then I'm going to go to my friends and say, Hey, guys,
give me money so I can go out and buy this property
and you're going to get a profit off of this deal over time.
Now, there's a lot of misinformation out there about how this actually works.
You see, the IRS defines a syndication
essentially as where you have investors who invest into a deal
that is controlled by someone else and they have an expectation or profit
and that these investors over here have no say in the deal,
that they're just sitting there waiting to get paid back.
They're not working on the deal.
So that is what is considered a syndication.
So if you're out there and you're raising money from individuals,
what you call friends and family and you don't think it's a syndication
and they have nothing to do with this deal, will you?
R syndication.
Now, something else I want to teach you about this rule number one,
understanding what a syndication is.
I've had plenty of people
come up to me and say, well, Clint, they're not going to invest into my deal.
I said, Oh, interesting. They're not.
No, I'm going to do something different.
I'm going to have them loan money. Okay.
Because people have creative strategies to work around these rules.
Well, let me tell you something.
Even if they loan money to a deal like this, if you have ten individuals
that are your friends and family or people you don't even know worse yet that loan
you money to go out and buy real estate and they are the only expectation is
to get paid back on these loans that's still considered a syndication.
You know if it looks like a duck talks like a duck, it's probably a duck.
Okay.
So this brings me to rule number two, and that is,
do not advertise your syndication. Why?
Well, here's the thing.
Let's assume you understand this now that if you're going to go out
and raise money, this is considered to be a syndication.
You decide. All right.
I'm going to go through the proper steps and create my syndication.
And so you're working on having some attorneys, S.E.C.
attorneys put this together for you, get your syndication going.
One mistake that you see people make time and time again
is that they will start advertising on social media
about their syndication and their deal to try to drum up interest.
Now, that is a huge mistake you can make when you're setting up
your first syndication, going out in advertising.
Now, I've seen people before that say, well, I'm not advertising my syndication
on social media.
All I'm doing is talking about my past successes.
So that's not considered advertising.
Well, the thing is, is that if you even go out
and talk about your past successes, you put out their videos.
Hey, guys, look what I did.
This is what I generated for my investors on this deal was so awesome.
Everybody got paid.
That's considered to be advertising for syndication.
So you got to be very careful with social media.
My advice, don't even go on social media at all unless you're going on
social media and it's more of an educational aspect to it.
So you're talking
about how you go out there and identify properties or something like that.
That is one way you could probably get or get around the advertising issue.
But a lot of people who start out with their first syndication,
they don't have the money lined up.
They think they're going to generate it through their social media platform
where they have a lot of followers that can be your for a downfall for you.
And the thing is with syndications is that you don't do it right.
You can end up in jail.
So we don't want to do that. Okay.
So this brings me to my third issue when it comes to creating
your first syndication, do not pay people
to raise money for your syndication.
Now you're probably wondering, well, why would you do that?
Well, I've been run into a lot of investors
lately who've been approached by syndicators who will say to them,
Hey, I see that you have several people that follow you on social media.
Or you you have this investment group you work with.
I tell you what we're going to do.
You bring people in.
So you go out there and you would find those investors
and based upon the amount of money that they bring into the deal, I'm
going to cut you in on this syndication for a percentage.
For example, if you raise for me or you bring in investors who bring in $5
million, I'll give you $100,000 in interest in my syndication.
Now, if you were in that situation, you can't do that.
But more importantly, you can't pay someone else to do it
if you had a syndication.
And so this is where a lot of people have gotten trouble in the past.
And now what I'm
starting to see here with individuals is are trying to skirt these rules.
The only people who can be paid when it comes to a syndication
are individuals who are actually involved in the syndication,
that are creating the syndication or license brokers and dealers.
Now, if you're going to bring someone in and you want to compensate them
for working for your syndication, this is what you need to do.
You need to get them up here at that management level.
So they need to be part of the team
that's identifying the property, doing the due diligence.
Maybe they're working on entitlements, maybe they're part of the advertising,
maybe they're with the ongoing syndication itself.
Keeping that going
as far as the management team is concerned on an ongoing basis
after the project is taken down.
But they have to be doing something so long as an individual is doing something
and you don't tie it into an agreement specifically to what they're bringing in.
You can probably put this together and it'll be fine for you.
But that is a huge mistake that I see.
People who are starting their first syndication typically make
is that they need they don't have the the investor set up yet.
So they find target someone who has a client base
or they know a lot of people and they tell them, hey, I'll tell you
what I'm going to pay you based upon how much money you bring in.
That's just going to put both of you at risk. Okay.
So rule number four, when it comes to creating your first syndication,
do not use someone else's syndication document.
This is critical when it comes to creating this
because these are legal documents that spell out your investors risk
in getting involved in your syndication.
And if you're using someone else's documents on a completely different deal,
then those documents themselves are not germane to yours.
And people who invest into your syndication
based on that information have a cause of action against you.
So if you're considering going out and creating your first syndication,
you need to hire a professional who understands how to set up
these documents the right way so you're going to be protected.
I see.
I've seen this so many times in 22 years of doing this.
People will say, Well, Clint, I've done six and I never had a problem.
That's because all six of them worked out.
But that first time a deal doesn't work out.
If you're taking that approach, then you're going to run into issues.
I mean, why go on the cheap?
There's too much at risk, so don't use someone else's docs
when it comes to creating your first syndication.
Okay.
So rule number five, when creating your first syndication is do
not solicit funds from individuals.
You do not already have a preexisting relationship with.
This is critical depending on which Reg you're qualifying under.
Most of the time you're going to be under the rig
that does not allow you to go out there and just actively solicit funds.
Hey, I'm raising money for my next deal.
In order to raise funds, you have to have a preexisting relationship.
So you need to establish some preexisting relationship with them
before you go out and borrow from or for
you go out and try to raise money from those individuals.
Okay. So rule number six, it's pretty straight forward.
I've been mentioning it time and time again.
If you want to create your first indication,
then you should hire an attorney.
You must hire an attorney
that is experienced in creating the syndications
and can then determine which rule you're going to qualify under under.
506 So you know what the regs are as far as how it's going to apply
to your first syndication.
So it's going to outline for you how you can go out there and raise money,
what type of people you can work with and more importantly,
how to stay out of jail.
All right.
So those are six rules that I think are really important.
If you're going to go out and create your first syndication things
that you need to be aware of.
But how about if you
don't want to go down that road, you don't want to deal with syndication?
Is there another option for you?
Well, the answer to that is yes.
If you don't want to go out and create a syndication,
you can
actually put a deal together and not run afoul of these rules.
But here's what it's going to require.
So the first thing is, is that you're going to want to create
a limited liability company.
Of course, that's typically how we're going to do this.
And when it comes to raising
money, keep it to five investors,
no more than five investors that you want to bring into your deal.
So if I found a property over here and this deal is say
it's a $5 million deal and I need to raise 1.5 million.
Well, find these five individuals that are going to invest with you.
That's who is going to be your fundraising source.
I try to keep it under five, maybe even go to seven,
but don't get more than that when it comes to bringing partners in.
So that's the first rule of this.
The second thing I would look at
is this all of these investors, the people are going to be working with you.
They need to be part of the management team, okay.
That is involved in that process.
So you want to include them on the management side of your business
here in the syndication.
So as I told you at the very beginning, a syndication, the classic syndication,
what they determine is that where you bring in investors
and they don't participate, their only expectation is a profit.
Now, here we're bringing them in when they're actually working it.
Maybe we got someone doing the due diligence.
You got someone identifying new opportunities.
You have someone doing entitlements, you have someone managing the property,
someone in charge of the contractors in the rehab work in your
you're meeting on a monthly basis.
You're discussing this now.
Everyone doesn't have to be part of all the activities,
but they have to be doing something meaningful inside of this company
in order to participate and have it not be considered a syndication.
Of course, this also allows them to to participate in the profits of this deal.
Now, the other thing to keep in mind when you're doing this is to make sure
that these investors here have some skills.
All right. So
skills there.
I can't even print so or spell.
So when you're
putting these things together, you want to make sure that these investors
are involved in real estate or they're bringing something to the table
because you can run and follow these rules if this guy right here.
All right. For instance, he's got a real estate background.
Doesn't know anything about real estate.
You're putting him on the board and saying, oh, look at you're a manager,
but he's a manager in name only of the limited liability company,
but he doesn't bring any value.
Now, is this getting technical? Yeah, it is.
But my concern here is that if you're not going to go down the syndication route
and go and work with an attorney and put the docs together the right way,
and you want to come and put one of these deals together
because you're trying to save some money. I get it.
Well, the investors that you're bringing in,
they need to bring something of value to the deal.
Right.
They can't be there in name only, because if this deal doesn't work out,
you know, they're
probably they could turn on you and say, well,
he told me if I invested this money in South, there is a manager
and didn't do anything, I could participate in the profits of the company.
So I was just their manager and I never had any responsibilities.
That can be a problem for you, so you always want to make sure
that they have some skills and I would document those skills.
Right. We're bringing Karen in to do this.
We're bringing Joe on to do do this aspect of the deal.
And you have it all listed out in your LLC operating agreement.
So that's the next important thing is your LLC operating agreement.
Okay.
So I've created many of these before
with multiple joint venture partners and that's what we're talking about here.
This is the classic joint venture.
And I tell the individuals who are coming together in this joint venture, listen,
we need to outline out the expectations of each of the investors
that are coming in to your deal so they know what their responsibilities
are, specify what their backgrounds are, why they're part of this deal.
So anyways, this is how you go about creating your your syndication.
Or if you don't want to go to the syndication route,
go the joint venture out,
just got to make sure you know who you're dealing with
and what the rules are to make sure you don't end up in jail.
Hey, guys, if you like this video, smash it like button.
If you want to take part of my B
part of my tax and asset protection event, we teach this event every other weekend.
I got a link in the show notes
below where you can come join myself and my partner, Toby Mathis,
when we talk about this in other subject matters, when it comes
to real estate investing to make sure that your assets are protected.
But more importantly, we're going to show you how to reduce your taxes
and take advantage of everything that real estate has to offer.