I wrote this article for those buy-rehab-rent-refinance-repeat (BRRRR) investors who are at the point of growth where they want to begin to recruit other investors to participate in their deals with them. Syndicating capital is the process of bringing multiple investors together to invest in a single project or pool of assets. The perfect project here is where you have a pool of properties that you could BRRRR if you had enough capital to do so. Another example would be to start small with one BRRRR project using these investors, build their confidence in you and then expand into a bigger pool of assets through their ongoing support and investment.
I will share with you in this article the expertise that I have developed as an attorney and real estate investor for millions of dollars of deals for my own portfolio and as a capital finance, securities law and fundraising attorney for companies you likely know, such as Sherwin-Williams, Procter & Gamble, Macy’s, and YETI Coolers, among many other household names. Ten years of doing this. I know my stuff. I want to share my knowledge and experience with you so that your portfolios can take off like never before as you attract outside capital, the right way.
The same resources that I will make available to you in this article are those that I am currently using in my own business. At this moment, my company has in the fundraising stage approximately $50 million in real estate assets located in the U.S., Puerto Rico, Portugal and Medellin, Colombia. The materials I reference below are the same that we are using to finance those projects. You can get access here to those same documents and resources.
My goal in this article is to share with you and describe the documents and tools that you are going to need to have in your arsenal when you start talking to outside investors about contributing capital to your projects. Let’s get into it.
Syndicating capital for real estate projects is done within the confines of a repeatable and “market” entity structure. Investors will expect to see this same structuring. How I have always structured these investment facilities is to create two entities. I prefer LLCs (limited liability companies). One of the LLCs you create, you will fully own. That LLC (we will call it LLC 1) will be responsible for managing the operations of the assets (accounting, paying bills, collecting rents, etc). The other LLC (we will call it LLC 2) will be the entity that actually owns and holds title to the properties. This is the entity that investors will buy equity interests in.
In all my projects, and I recommend you do this also, LLC 1 should own all voting and management rights in the project and LLC 2, and therefore your investors, should own just the economic rights. This will hugely trim down on steps required in the decision-making process. I structured all the agreements I discuss in this article in that manner so that you as the syndicator control the decision-making process related to the properties.
So what exactly is this first step? Get your entities setup. At the bottom of this article, I will include a link to our “More BRRRR Tools” page where you can access our free Business Formation Checklist for getting those entities formed.
2 – Private Placement Memorandum (PPM)
Simply stated, this is the document that you will use to describe to investors your project(s) and asset(s) and exactly what it is that you are selling. This document will detail the asset, the projected financial terms and also will cover all of the other material information that an investor would want to know before making an investment decision. Who will manage the project? What do construction budgets look like? What is the experience of management? This document is your chance to impress and sell your investors on your vision. It also contains all of your standard legal disclosure language, which you will want to be sure to include. Keep reading to get your customizable PPM for your BRRRR syndications.
3 – Investor Agreement
Investors you bring in are going to want to know what their rights are. What fees are you taking? Under what circumstances can they sell their shares? What are the terms of the security interest that they are buying? Who will make the decisions regarding selling the asset or refinancing the project? These are all the questions that this document addresses. I have a template that you can use and that I have tailored over the past decade. I do not want you to have to start from scratch and attempt to answer these questions on your own or realize down the road that an issue that comes up is something you really should have dealt with in your initial agreement. Make sure you have this agreement ready to go because investors will absolutely request it.
4 – Subscription Agreement
You, as the manager of this investment, need to know certain things about your investors. Are they financially capable of making the investment? Do they understand the risks that are involved? Are they willing to agree to your control with respect to investment decisions? This subscription agreement is where your investors will represent and warrant to you as to the information that you should and need to know to allow them to participate alongside you in these deals. This document is incredibly important for you as the syndicator of capital. You need to use something that is professionally-prepared, and this is it.
5 – BRRRR Analysis and Contracting Solution
It would be irresponsible to bring investors into a project if you did not (1) really know your numbers and (2) have hired a team on the ground to execute on your vision of great rehabs and then ongoing management. The deal analysis and legal solution that I created and that I use for each of my own projects needs to be a part of your syndication. Analyze your BRRRRs, make offers to get them into the portfolio in which your investors will invest and then use the legal solution to hire your contractors and property managers and lease to the tenants that will fill those properties on the investor-friendly terms I have crafted for all my clients listed above.
Simply stated, if you don’t get the numbers right and don´t build the team necessary to execute, you are not in a position to bring in outside capital. If you do not do things right from the start, your credibility will suffer down the road.
Every tool I just mentioned is crucial to bringing investors a product that they can actually invest in. For a limited time, I want to make all of these resources available to those of you who are ready to start raising money from investors. To that end, I have prepared for you the option to buy the same template private placement memorandum (PPM), investor agreement and subscription agreement that I am using, as we speak, to raise $50 million in investor capital.
I am going to make those available to all people who sign up for the fifth of the essential tools listed above, our BRRRR analysis and legal contract solution. Let me take one second just to put in context the value that I am offering.
The economics of your investment here just make sense. The template private placement memo, investor agreement and subscription agreement took me no less than 30 hours to prepare. When I was last in private legal practice, I had clients like Sherwin-Williams and others who paid me $750 an hour to prepare materials like this. Their total bill for what I am now offering you: $22,500.
My offer to you is much better.
Become a BRRRR Invest member at our regular price of $247.00 (one-time payment after free trial) to get full access to our deal analysis and legal solution AND I will include for you all these other resources (private placement memo, investor and subscription agreements) for no extra additional cost. These are the same resources that Fortune 500 companies were paying me $750 per hour to create that are now available to you for no additional amount over our everyday regular prices.
A couple of additional notes. Raising capital from investors requires compliance with a host of securities laws and other legal requirements, including filings with appropriate regulators. I am happy to work with you to share my experience about necessary compliance steps, but folks that want to have that chat must be BRRRR Invest members.
If you are at this stage as a BRRRR investor, you are truly on the precipice of some incredible projects. Bringing in outside investment can open your world to projects you may have never been able to do alone. Make sure you are armed with the tools, knowledge and resources that you need to keep your investors coming back project after project! Get Your Access.
A Video Blog: How to Raise Capital as Private Investors Without Tripping Legal Constraints
*Nothing contained in the foregoing should be construed as legal advice or as creating an attorney-client relationship. The use of any materials included or referred to herein shall not subject any person to liability or be deemed to have created an attorney-client relationship.