Syndication Attorneys Podcast
My name is Tilden Moschetti. I’m a syndication attorney with the Moschetti Syndication Law Group. I’m working on private placement memorandums a lot of times syndicators asked me, What exactly can I do to structure my fees? How should I do it? What’s the best way?
Syndicators are doing their syndications, not only because they enjoy the process, but because they want to make money by doing it. So a question I oftentimes get is, “How can I structure my fees?” There are a lot of ways that you can structure your fees. And the basic rule that I tell clients is, you can structure them any way that you want to as long as it’s legal. And it’s disclosed and known to your investor. So it’s completely legitimate to do a Rule 506c offering, where you’re getting 95% of all the profits and everything out of it and the investor is only getting 5%. As long as you made it very, very, very clear that you’re getting that 95%, and they’re only getting that 5%, there is nothing that’s that the rules say that is holding you back from doing that. You’ll never find an investor who’s willing to do that, but you can technically do it that way. So that opens up a lot of different ways. So whether you are choosing to do a preferred return with a waterfall, or you’re choosing to do a what we call a harvest, promote, or whether you’re just taking equity off the top, sometimes called a rake. Those are all legitimate ways of doing a syndication and doing fees as part of it. And there can also be the asset management fees that people can make as part of it. And because I’ve syndicated so many different projects, I can give you advice to along the way if you decide to hire our firm about, you know what’s normal, and like what do I normally see as working and not being and being successful. So you can make up your own mind about you know, just how how you’d like to push the envelope of how much money you can make in your fees. If you need some help with your syndication, be it for real estate, you’re an entrepreneur, you’re raising some capital for your business, or you’re putting together that new cryptocurrency hedge fund. Give us a call. My name is Tilden Moschetti. I am a syndication attorney, if you need help just with your private placement memorandums, we’ve got you covered there too.
My name is Tilden Moschetti. I am a syndication attorney and the founder of the Moschetti Syndication Law Group. We focus on private placements and doing private placement memorandums for syndicators. One question we oftentimes get is, what exactly is an Accredited Investor anyway?
So what qualifies someone to be an Accredited Investor? Well, there’s really a few different tests that tell us whether or not they are. Now first, there are some categories that I’m not going to talk about here, I’m going to be talking just about individual investors. There are some different categories different ways to analyze if a organization is an accredited investor, but for the purposes of this video, we’re just going to talk about individuals.
§ 230.501 Definitions and terms used in Regulation D.
(a) Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person…
(10) Any natural person holding in good standing one or more professional certifications or designations or credentials from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status. In determining whether to designate a professional certification or designation or credential from an accredited educational institution for purposes of this paragraph (a)(10), the Commission will consider, among others, the following attributes:
(i) The certification, designation, or credential arises out of an examination or series of examinations administered by a self-regulatory organization or other industry body or is issued by an accredited educational institution;
(ii) The examination or series of examinations is designed to reliably and validly demonstrate an individual’s comprehension and sophistication in the areas of securities and investing;
(iii) Persons obtaining such certification, designation, or credential can reasonably be expected to have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment; and
(iv) An indication that an individual holds the certification or designation is either made publicly available by the relevant self-regulatory organization or other industry body or is otherwise independently verifiable…
So they may hold a securities license, that one’s pretty clear. If they hold certain securities licenses, they are allowed to be considered an accredited investor. Now, those are very specifically securities licenses at this point, the rules may change. But it does not mean licensed real estate broker, it does not mean CPA, it does not mean lawyer, it means that they actually have a securities license that’s registered through FINRA, and also is known by the SEC.
The main test, though that we look at are two, and they are the income test and the net wealth test.
(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse or spousal equivalent in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year…
So the income test asks this, it says is the net income of the investors so the taxable income is the number that we use, is that taxable income greater than $200,000 For the past two years, the past two tax years, and likely to be present in the current year, if that amount is over $200,000, for an individual, or if you’re signing with a spouse is that amount over $300,000. So if you and your spouse are made both make $160,000 a year, that’s fine. That’s $320,000, which is over $300,000. That works, even though it’s below that $200,000 mark. Or if you make $210,000, and your wife doesn’t make any, that’s okay too, because you can come in under the individual status as well to make that investment. So that’s the income test. So two years, $200,000 or $300,000 of income, and then also have the same expectations for the current year.
(5) Any natural person whose individual net worth, or joint net worth with that person’s spouse or spousal equivalent, exceeds $1,000,000…
For the net wealth test, it actually asks just whether it’s spouse or not, it says do they have over $1 million not counting the value of any equity in the primary residence. So what that means is, you know, all the assets and all that the that the family has, or the investor has is that minus any liabilities is that greater than the than $1 million. Now, when it comes to the family residence, if the family residence is underwater, then we do bring the residents into play just on the liability side.
(i) Except as provided in paragraph (a)(5)(ii) of this section, for purposes of calculating net worth under this paragraph (a)(5):
(A) The person’s primary residence shall not be included as an asset;
(B) Indebtedness that is secured by the person’s primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability); and
(C) Indebtedness that is secured by the person’s primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities shall be included as a liability…
So say that the house is worth $1 million, but you’ve got a loan of $1.2 million on it, then all we’re doing is we subtract the $200,000 from the as part of calculating net wealth, so it could bring it down some more. But we do not add any value if that same $1 million house has a loan on it for $500,000. You do not get that additional $500,000 To add to the asset column.
So that is how we calculate and figure out if you are an accredited investor. If you need some help with your syndication, be it for real estate, you’re an entrepreneur, you’re raising some capital for your business or you’re putting together that new cryptocurrency hedge fund. Give us a call. My name is Tilden Moschetti. I am a syndication attorney, if you need help just with your private placement memorandums, we’ve got you covered there too.
My name is Tilden Moschetti of the Moschetti Law Group. I’m a syndication attorney and I put together a lot of private placement memorandums. When I do that many times I get asked the question, should I put together a Regulation D Rule 506b offering? Or should I do a Rule 506c offering?
As a syndication attorney, most of my practice is within Regulation D. And so many times I hear from syndicators some confusion on whether they should use the exemptions of Rule 506b versus Rule 506c. So here’s how I explain that decision-making to them, there’s really two questions, and they kind of give you the guidance that you need. So the first question is, do you know and have a substantial business relationship with your investors, if you already have all of them, and they’re already established, you’re a very long way away from, you could either choose 506b, or 506c. Now, if you don’t know l have your investors, if you’re gonna need to put it out to the public, that automatically puts you into rule 506c, because if you’re gonna need to market, the only way to market is Rule 506. C. The second question is, is every one of your investors and accredited investor, meaning do they meet the test requirement for an accredited investor? If they do, then you can do either Rule 506c, or 506b. And then if they don’t, your only choice is Rule 506b. So that pushes you back into the 506b category. Now, when you’re making the decision on whether or not say you that you know everybody, but you have all and you only have accredited investors, then it really becomes up to you on which you want to choose. In general 506c is a little bit more complicated to put together, because it’s in best practice to have a third party verifier of the accredited investor status. Under Rule 506b, you can have the accredited investor self verify that they are an accredited investor. And we do that through a questionnaire. And through your knowledge of what you think their finances actually are. They also sign a statement that says that yes, everything is truthful, and that they are indeed an accredited investor. Under so I would tend to think that 506b is a little bit easier. But Rule 506c is really quite safe, because then you don’t run into the issue of having investors, we’re not accredited investors, but saying that they’re accredited investors still come into your deal under that kind of false light. So it is safer to go Rule 506c, but it is probably easier to go under Rule 506b. From this, the syndication attorney’s point of view, you can do whichever you prefer, it really is deciding Well where does it tip on that side. But if you’ve got non-accredited investors, then that puts you in 506b but you better know all of them and have a substantial business relationship with them. If you need to advertise, then you’re gonna be in 506c, and then you’re going to find out quickly if everybody is an accredited investor because you need to get that third-party verification of their accredited investor status. If you need some help with your syndication, be it for real estate, you’re an entrepreneur, you’re raising some capital for your business or you’re putting together that new cryptocurrency hedge fund. Give us a call. My name is Tilden Moschetti. I am a syndication attorney, if you need help just with your private placement memorandums, we’ve got you covered there too.
My name is Tilden Moschetti. I’m the founder of Moschetti Syndication Law Group. I’m a syndication attorney. And one question I oftentimes hear from syndicators is how do I go about marketing a private placement offering?
As a syndication attorney many times, I’ve heard the question of how exactly should I market my offering? Well, the question of that actually becomes a little bit complicated. And it becomes complicated because of the rules of the SEC. So I’m going to go under the assumption that we’re talking about Regulation D here. Regulation D offerings. We’ll talk a little bit about the other kinds of offerings in a second. But I really want to focus in on Regulation D, because most of my clients are doing that. So when somebody wants to do an offering through Regulation D, most of the time, they’re either talking about rule 506b, or rule 506c. The rule 506b, when it comes to marketing, the answer is no, you don’t market the property, you cannot or the investment, you can’t market under 506b. Under 506b, the SEC is very clear, this is not for public consumption. This is something that you only discuss with people that you have substantial business relationship with. And you cannot advertise it in any forms. They very specifically call out what syndicators used to do, where they would put on seminars, and invite people into the seminar and then market that specifically, whatever their offering is to them. You can’t do that under 506b, under 506c, however, you can mark it all you want. Because now under 506c, you know, you are not going to be taking any nonaccredited investors. So you could put up a billboard, you could put an ad in the newspaper, you can put it on the internet, you can put it on social media, whatever it is, you can advertise to your heart’s content. Now, I’d advise you, it’s probably in your best interest to say this is for accredited investors only. Because it’s kind of annoying to have to field calls from non accredited investors and say, sorry, you’re not able to invest in this. But you can advertise to the entire world. And when can you do that you can actually start advertising immediately, before you’ve even done a private placement memorandum, before you’ve done anything else before you do anything. Because the only restriction that you have is you can’t advertise it, and then take their money without putting in those additional things in place. So you need to make sure that they are accredited investors before you take their money. They should get a copy of your private placement memorandum, the operating agreement, and then they can subscribe through that subscription agreement. That’s the best way to do it. But you can start advertising immediately. Now you obviously want to make a good case for why your investment is different and worthy of getting invested into. But that’s also a marketing question. So how can you market that in the best form?
So I promised you earlier that we talked about a couple other ways in order to get raised capital. So there’s also Regulation A, which is different than Regulation D substantially.
So under Regulation A are actually are filing documents with the SEC for their registration. So Regulation D is an exemption to registration. Regulation A is actually registering with the SEC, they review it, there’s a lot of work that goes into making sure that a reggae offering is a good offering before you get approval from the SEC to start using it start collecting money from but like a Regulation D under Regulation A you can start advertising it immediately. You just cannot take any money until it is been approved.
The last one is regulation CF regulation. CF stands for crowdfunding and its whole purpose is to be able to raise money in a crowdfunding-type environment. The restriction there is that all the money that comes in must come in through what’s called a registered portal. So that isn’t just a website that you put up your own portal. It must be registered with FINRA, which is a regulatory body that works with the SEC in order to make sure that offerings are disclosed in the right way and that the investors know what they’re getting into. So a Regulation CF is okay to advertise you as a sponsor can advertise it, but all the money that comes in must be going through that Regulation CF investor portal. So those are the ways that you can market your offering.
Again, Regulation D, we’re talking 506c, market to your heart’s content, Regulation 506b, you can talk to your friends and family but I would not talk about it elsewhere. It just is not worth it. If you need some help with your syndication, be it for real estate, you’re an entrepreneur, you’re raising some capital for your business or you’re putting together that new cryptocurrency hedge fund. Give us a call. My name is Tilden Moschetti. I am a syndication attorney, if you need help just with your private placement memorandums, we’ve got you covered there too.
My name is Tilden Moschetti. And I’m the founder of Moschetti Syndication Law Group. I’m a syndication attorney. And we oftentimes get a question of “What is the best way to structure my Reg D offering?” As a syndication attorney, one question I hear many times is, what’s the best way for me to structure the entities for my syndication? It’s a great question, and there is a best way to do it.
So it all starts because it is a syndication and an investment, I like to start thinking about it in terms of what people are going to be investing into. So they’re investing into a company because it’s a syndication. So as that that’s an entity itself, so that entity I like to call the investment entity, it can be an LLC, it can be a corporation, talk to your accountant or your attorney about the best way to, which is the best to do that, which is the best form and the best place to place it. But that’s the investment entity. Now the investment entity doesn’t just run itself. So the best practice isn’t to have just you be the CEO of that company. It is actually for the sponsor, you to have an entity yourself. And that sponsor is the manager or the president of the the has the controlling interest of that company. So the investment entity is managed by the sponsor entity, which is a separate LLC or corporation, depending on which works best for you your situation. And the manager then protects you from any liability. So what do I mean by that? So let’s say an investor gets very upset about something. So they file a claim against the entity about the investment entity, but they also file a claim against the sponsor. Now, if you would stay just you as a person as the sponsor, they could file a lawsuit against you personally, and all of your assets would be subject to whatever the decision was. However, if you file it as if the manager of the investment entity is an entity itself, they can sue the investment entity, and they can sue the sponsor entity. But unless there’s fraud, they’re not getting past the sponsor entity. So what that structure does is it shields you from those kinds of things happening, it’s a form of asset protection. And it also makes the management much much simpler. As you go forward in case you need to make any changes with how you work as a sponsor. For example, if you’re have a group of people that are the sponsor, it then you can make changes amongst yourselves that don’t impact the investors, the investors aren’t, don’t need to be privy to it, because the entity is still the entity. So that is the typical way to do it. Now one challenge, which comes up sometimes is if you’re doing a fund, something that owns multiple entities, then what I like to do is have the investment entity there. And the investment entity becomes a manager itself of the individual properties or companies or businesses or ventures, whatever. So each one of those, I’ll use properties as the example become their own property LLC, which is managed by the investment entity, which of course is managed by the sponsor entity. So I know it sounds confusing once we get to the fund level, but it really does make sense and it protects everybody at every step of the way. So that’s the best way to do it, too. The best way to structure your investments is structure. If you need some help with your syndication, be it for real estate, you’re an entrepreneur, you’re raising some capital for your business, or you’re putting together that new cryptocurrency hedge fund. Give us a call. My name is Tilden Moschetti. I am a syndication attorney or visit us online on at www.moschettilaw.com or if you need help just with your private placement memorandums, we’ve got you covered there too.
Newer Episodes:
Episode 69 – What Happens When an Investor Wants to Exit Early in Your Reg D Syndication Or Fund?
Episode 66 – How to Start a Real Estate Fund: A Step-by-Step Guide Using Reg D, 506b, and 506c
Episode 65 – Mastering Financial Analysis: A Key Skill for Reg D Syndicators and Fund Managers
Episode 64 – Raising Money From Friends And Family: Unlocking the Legalities of Raising Funds
Episode 63 – Are You Creating a Security? The Howey Test Knows: A Look At SEC vs. Howey
Episode 62 – Deconstructing a Reg D Real Estate Syndication Deal A-to-Z: Part 2
Episode 61 – Regulation D Waterfalls 101: Understanding Investment Distribution
Episode 60 – Choosing Between Regulation D Rule 506b and 506c for Your Syndication
Episode 59 – Deconstructing a Reg D Real Estate Syndication Deal A-to-Z: Part 1
Episode 58 – 10 Essential Tips to Secure Investment from Family Offices for Your Reg D Offering
Episode 57 – The ‘Syndication LLC’ Disaster: Consequences of Bad Advice
Episode 56 – What Is Equity Dilution In A Regulation D Syndication Or Fund Offering?
Episode 54 – Demystifying Open-Ended and Closed-Ended Funds In Reg D Private Equity
Episode 53 – An Innovative Example Of A Syndication Investment Strategy: F.I.T. In Action
Episode 51 – Cash Flow vs. Appreciation: Understanding Reg D Syndication Investor Types
Episode 50 – Choosing Between Regulation D and Regulation CF: An Attorney’s / Syndicator’s Analysis
Episode 49 – How To Find Investors For A Regulation D Offering Without Using A Broker-Dealer
Episode 48 – The Difference Between REITs and Real Estate Funds & Syndications
Episode 47 – Securities vs Joint Ventures: Know the Critical Differences or Risk the Consequences
Episode 46 – Eight Steps to a Successful Real Estate Syndication
Episode 45 – How Long Does It Take to Raise Money for a Reg D Syndication?
Episode 44 – How to Ensure Your Reg D Syndication Offering is Marketable and Legal
Episode 43 – 5 Mistakes Rookie Regulation D Syndicators Make
Episode 41 – How Capital Accounts Work in Syndications
Episode 40 – Why You Need a Private Placement Memorandum (PPM)
Episode 38 – Strategies for Managing Multiple Reg D Offerings: A Guide to Fundraising
Episode 37 – Understanding Real Estate Syndication Through a Practical Example
Episode 36 – The Art of Getting Investors’ Commitment: A Six-Step Guide
Episode 35 – Unlocking The Secrets To Establishing A Pre-Existing Relationship for Reg D Rule 506b
Episode 34 – Unveiling The Essential Fiduciary Duties For Syndications & Funds
Episode 33 – Navigating Securities Laws And Social Media: A Guide For Syndicators
Episode 32 – Assembling Your Real Estate Syndication Team: Who’s In?
Episode 31 – Understanding Waterfalls in Real Estate Syndication
Episode 30 – Choosing the Right SEC Exemption for Your Investment: Alphabet Soup
Episode 29 – Understanding Reg A, Reg CF, and Reg D in Syndication: The Alphabet Soup Explained
Episode 28 – LLC vs. LP vs. Corporation: Which to Choose for Syndications?
Episode 27 – Can You Get a Bank Loan?: Leveraging Traditional Financing in Syndication
Episode 26 – Securities Licenses and Real Estate Licenses for Reg D Syndications
Episode 25 – Unlocking the World: US Syndications Open to Non-US Investors
Episode 24 – Syndicators’ Guide to Self-Directed IRAs: Maximizing Capital Sources
Episode 23 – GP and LP: Exploring Syndication’s Key Players
Episode 22 – Syndication Fallout: What Happens When Losses Happen?
Episode 21 – Business Funding Unleashed: Embracing the Opportunities of Regulation D
Episode 20 – Behind the ‘Bad Actor’ Rule: Rule 506d Demystified
Episode 19 – The Myth Of The Friends And Family Securities Exemption For Syndications
Episode 18 – Demystifying Form D Filings with the SEC: In-Depth Walkthrough and Tips
Episode 17 – Can An LLC Invest Into A Regulation D Rule 506b Or 506c Syndication Offering?
Episode 15 – How Does Regulation D Rule 506c Work For Syndication?
Episode 14 – Syndication Attorney Webinar – ‘Ask Me Anything’
Episode 12 – ‘Can I do both a Regulation D 506b and Reg D 506c in one LLC?’
Episode 11 – ‘Can I do a 1031 exchange in a Regulation D syndication?’
Episode 10 – Regulation D Limitations on Resale: What You & Your Investors Should Know
Episode 9 – How does Regulation D Rule 506b work for syndication?
Episode 8 – How do I pay people to market my Regulation D syndication?
Episode 7 – What information must be disclosed in a syndication private placement memorandum?
Episode 6 – What are ‘Blue Sky’ laws when it comes to syndication?
