Syndication and SEC guidelines

[Nick Love]

I am sort of a amateur when it comes to syndicating deals, but I have this property in Waco that I would like to purchase, but I do not have the capital. I understand that there are guidelines that need to be followed by the SEC such as section 506b and 506c. So what is the best way to locate and gain investors for my deals without breaking the SEC rules.

Thanks!

[Lennon Lee]

Originally posted by @Nick Love:

I am sort of a amateur when it comes to syndicating deals, but I have this property in Waco that I would like to purchase, but I do not have the capital. I understand that there are guidelines that need to be followed by the SEC such as section 506b and 506c. So what is the best way to locate and gain investors for my deals without breaking the SEC rules.

Thanks!

 Hi Nick,

First and foremost, you should be talking to an SEC attorney for advise on this matter. 

The answer to your question is: It depends. 

Yes, the way you approach investors, how you market your deals to them, and the type of investors you can bring into a syndication depends on the route you want to take. Under rule 506(b) of Reg D, for instance, you can only market your deals to accredited investors (and some sophisticated investors) that you have a pre-existing relationship with, where as under 506(c) you can go ahead and publicly advertise your investment opportunity to accredited investors. Both have pros and cons, so at the end of the day only you can assess those benefits and challenges according to your goals and those of your potential investors.

If you haven't built a network of investors yet and you are expecting to syndicate a deal, you're probably going to have to partner up with someone that has that network of investors that have been primed and educated in the model and the investment strategy already. Forget about what they say about "If it's a good deal the money will come".  While that is "possible", believe me it is not "probable".

Continue to ask questions here on BP, read as many books as possible, and listen to several hundred hours of podcast on real estate syndication. Yes, analysis paralysis is something you don't want to fall into, but it will be way worse to jump into a syndication deal without the proper education, a good team in place, and a solid network of investors that are ready when you are.

good luck!