Everyone is in denial. Hello.
And we are here with our advisor, Mauricio Raul.
How's everyone doing? Welcome. Welcome. Thank you. Looking forward to it.
So I'm really excited to chat with you about this, because, as
you guys know, he's a syndication attorney, always an attorney.
So he's more than just a syndication attorney.
But that, I guess, is what you focus on right now.
That's it. Real estate syndication.
That's that's what that's the focus.
So I was like, hey, let's do something on,
you know, all because there's a lot of money being raised right now.
A lot guys there's all kinds of dough going all over the place.
And so I know that there's problems that you see and the way the syndicators
are setting up their funds And also, I want to chat with you additionally.
What should investors look at because you so you got a lot of solicitation
on the Internet right
now. And there's people of course, saying they're accredited
and all that kind of stuff.
So what do you see? Well, first of all, thanks for having me.
But I totally agree there's so much money sloshing around the system
that we're going through. What I call a syndication boom like.
Yeah, everyone and their mother is raising capital, which has been great.
But as you said,
there's a lot of newbies or unexperienced syndicators are coming into the picture
so there's been a lot of mistakes that are that are popping up a lot that I see.
That's why I know there are.
I just don't see them like you see them from a legal standpoint.
Everything everything's probably going to be okay
until things start going south or things flatten out
because I think a lot of people are overpaying
for so many properties that, you know, it doesn't have to go
south for things not to not to not to go well.
Usually things don't become an issue until investors complain. Yes.
So as long as investors are happy and not complaining, then it's going to be fine.
But probably the two biggest mistakes makes errors.
You know, things that people
are even aware about is, number one, the advertising piece.
People are on social media, they're on podcasts,
they're on, you know, events
you know, seminars. And they're out there
promoting their deals when they're not allowed to write.
It all depends on you not to get too technical,
but depends on the exemption that they're relying on, may allow them to advertise
or may not allow them.
The most people relying on exemption, that will probably,
if you're in this business, hear about this five or six be exempt offering.
Right.
And that allows you not to have to register
your syndication with the SCC
and allows you to do this exempt you want to advertise.
There's there's there are channels that allow you to do that.
You can register it with the FCC.
There's a couple of exemptions you rely on.
That's the kind of the the litmus test isn't it, that they have
you have to have a preexisting relationship in order to avoid advertising
or being perceived as advertising or general soliciting.
You must have what's called
a preexisting substantive relationship with the prospective investors.
So that means you've got to know them, okay?
You've got to figure out whether they're sophisticated or are they
do they have enough knowledge and expertize
to actually understand your deal and evaluate the risks and the merits?
You've got to go through that process.
You can't just take somebody off the web.
Is this different if like somebody finds a deal and
they want a few people to invest in it, so they're just an average Joe person.
They don't have a 506 anything.
They just want to they just want to raise some money.
Like are they allowed to post in like a Facebook group?
Another great question
so I will rephrase the question a bit about which is what about joint ventures?
Because what you're describing it was what people want to do is joint venture.
So they come and say, well,
I'm not really selling securities I'm just getting a couple of my buddies together.
There's four or five or six of them
and we're just pooling our money and we're going to go buy some. Yes.
If everybody's coming together and contributing money
and everybody's rolling up their sleeves and everybody's
working towards generating the returns and everybody's contributing, then yes.
So there's four or five of those people that's going to be fine.
But what always happens is we bring four or five people together,
maybe one or two are doing the work and the rest are just writing a check.
That is actually the reality.
You hear people, I'll give you the money, but I don't want any of the phone calls.
But I think a lot of I mean, I think there's a lot of people like that.
You know,
we have investors that want to do the sweat equity
like they don't any money, but they're going to find a deal
and get a couple of people to invest in it.
Well, they're fine if they're rolling up the sleeves, doing the sweat equity,
that's fine.
But if they're going to bring some people along
and those people are passive, even if you have one passive investor,
that's going to be a security.
Oh, the definition, the layman's terms my definition, because you called me
an attorney earlier, Kenny and I and I get a little offended by that.
I'm the anti lawyer and everybody else, but I am sometimes a wet blanket.
But look, any time you take money from passive investors
where the returns are generated by your efforts
being your active and somebody else's passive, that's a security somebody.
Joe Schmo gets to passive investors to invest in this deal.
And then it's not producing the because like you said,
if it's producing the return they want, everybody's happy.
Probably no problem, right?
What if it's not?
What if it's falling behind or there is some big issue?
What could happen to the person that is putting together the deal?
Great question. And that's that's when things fall apart.
I mean, the Assessee
doesn't have the budget or the time or really the inclination for a small
you know, syndicators were raising a couple million bucks.
They're not going to go actively look and go on social media and stuff.
But the minute an investor is not happy with their return, right.
That's when they pick up the phone and they call someone.
A lot of times it's not even the SCC, it's the state regulators the state
where the investor it resides, that's where they're going to pick up.
They're going to pick up the Arizona
and they're going to call the Arizona Department of Securities
and call the Securities Exchange Commission.
They're going to make a complaint and once that happens, an audit begins
and the SEC will start sending out letters and say, hey, send me
all the docs that you provided. You know what?
You know
all the information they're looking for that's going to happen as an investor.
What should I be looking at?
You know, as you know now, looking at it from the other side,
what should they be asking questions of of the piece?
Yeah, I mean, I think the number one thing, a passive investor
who's considering investing is going to be the due diligence on the sponsor.
Right. What is their level of experiences?
The first time they've syndicated as
the experience indicators, do they have a team behind them?
I mean, due diligence on the sponsor is the first thing.
Can they pull off the fancy pitch deck that they put together?
You know, you always joke about the pitch deck.
I love you. You tell a story, but can they actually pull that off?
It's very easy to put together a nice glossy business plan,
but do they have the ability to actually pull that off?
That's one thing.
Just keep in mind that the pitch deck itself can be easily
you can come up with numbers, you can make them up however you want.
So it's really, really important
to understand whether the syndicator has those credentials and that experience
actually pull that off.
So that's number one.
On the due diligence side, what are some things
you guys I know they have to do due diligence to? They go on the Internet.
Do they check with the SEC Is it is it filed correctly?
What are some things that action steps they can take?
Yeah, I mean, obviously, if you can get your hands on a
on a passive investor who's invested in the deals before
without without getting to that person through the syndicate
because obviously the syndicate is going to give you their best investors.
But if you can find a way of finding people which these days isn't that hard,
somebody who's been invested in the deal, then that obviously
lends a ton of credibility you can't go on.
The SEC does keep track also of all of the offerings
that have actually been made by the specific syndicators,
you can go back and see if it's been done properly, how many they've done,
because again, you can kind of make anything up that's important.
I, hey, I've done 100 of these.
Well, you can actually go check you can go on the SEC website, the
thing called Edgar E-D-G-A-R
and check to
see every single syndication that that particular sponsors may.
That's why you really want to do your research
and do your due diligence as an investor.
You want to make sure that you're investing with somebody
that's done this before and has a track record here.
And a lot of the stuff should be buttoned up.
So before we put an offering out, we already have a term sheet for the loan.
We already have all the,
the construction, all the, all those things are all bid out.
We have we know what it's going to cost to replace the roof.
We know what it's going to cost to replace the parking lot.
Those numbers in our business plan are real.
They're actually come with an actual bid.
So all that stuff done before we put it out but not everyone does this.
So sometimes they're like, Oh, you know,
we think it's going to be a million bucks, you know?
Right. And then it's a million seven right?
It happens all the time.
So you have to have all that stuff.
Guys, these are questions you can ask. Yeah.
How do you have a bid here?
Is this a slush fund and you're trying to manage to it
or you know, are these real things?
And have you done due diligence?
Have you been on the roofs?
You know, have you have you checked all these different things?
Have you walked all the units and, you know, do you know of all the appliances,
all the carpet and all that kind of stuff, if there's any damage to repair,
are there any city or county issues or any fire issues and any plumbing any
any electrical, any of those kinds of things or
even properties that are had high losses?
You know, properties that have had high losses come with consequences.
Yeah.
We should put together a little checklist of the top
100 top 50 questions to ask a syndicator or something.
You know, I get a ton of those. That'd be a fun one to do.
Let's do that. I'll do it.
Okay. That's Sounds Carolina on you.
Well, Michelle, thank you.
This is great to look at it.
One from the syndicator side and from the investor side.
I appreciate you as always.
Thanks again for having me, Neal.