Investment in a syndication through an LLC?

[Bob Gruenig]

There is a syndication in which my wife and I would like to invest alongside with another couple. We have discussed forming an LLC to make such an investment together (e.g., we, as an LLC, would be one of several investors in the syndication). Is this best approach? If so, could you recommend any LLC templates or other forms that apply to this specific type of situation?

[Chris Tracy]

You should be in conversation with an SEC attorney.  I would not recommend a "template".

[Bob Gruenig]

Thanks, Chris. I only asked about the template to give me a general understanding of how such an LLC might look on paper. I would absolutely have it reviewed by an appropriate attorney.

[Percy N.]

@Bob Gruenig, what @Chris Tracy may be trying to point out is that if you are creating a LLC and bringing in other passive investors into that LLC, your LLC may be subject to securities law.

The easier option would be to let each individual come into the syndication's LLC directly.

If you want to have your own LLC for your own benefit or where every member is active, that is another story.

Also agree with Chris that you should consult with an attorney.

[Ben Leybovich]

Originally posted by @Bob Gruenig:

There is a syndication in which my wife and I would like to invest alongside with another couple. We have discussed forming an LLC to make such an investment together (e.g., we, as an LLC, would be one of several investors in the syndication). Is this best approach? If so, could you recommend any LLC templates or other forms that apply to this specific type of situation?

A properly structured syndicated offering will be an LLC as is, therefore, from an asset protection standpoint, there is very little point to forming an LLC just to participate on the LP side.

Now, if you are trying to pull partnership money and charge the partnership a management fee, which sort of makes you a feeder fund into the syndication, then there are a whole host of questions for an attorney. Personally - don't do that. You are not licensed. And, this makes your LLC a limited partnership with you as a managing member, which is tricky in and of itself.

Just put money in individually.

[James Kojo]

@Bob Gruenig it might help if you could clarify what you're trying to accomplish with the LLC strategy.

The most simple and common way to invest in a syndication is to put money as an individual.

Almost all multifamily syndications will already be run as an LLC, in which investors like yourselves would be the passive "limited" members. That structure will usually shield you from inside liability, like a tenant lawsuit, and also limits your actual decision making power.

So, if you're trying to add another layer of liability protection, then it's probably not worth doing.

Syndications also have a minimum investment amount. Are trying to get around that by pooling your money with your friends? If that's the case, it may be simpler to just talk with the syndication sponsors to see if they'd make an exception for you.

In general, mixing money across your natural financial boundaries has some risk, so creating partnerships like the one you describe should not be done without due consideration. If you start pooling money from people who are not full partners (i.e. have decision making power), you will start to cross into the territory of securities, in which you will be subject to SEC rules. Tread very carefully there, for sure!

Hope that helps!

james Kojo

[Bob Gruenig]

Thanks everyone for your input!  And James, yes, I'm trying to pool my money with my friends as I don't have the minimum myself to invest in the deal.  I will definitely reach out to the sponsors to see if they will make an exception as I would be more comfortable investing as an individual.

[Dan Handford]

@Bob Gruenig Yes I agree with @Chris Tracy that you should be talking to an SEC attorney. 

https://www.crowdfundinglawyers.net/ or https://syndicationattorneys.com/

*You will need a real estate attorney as well but these people above will help guide you better.

[Mike Dymski]

Putting all your eggs in one basket is a bad idea (for both you and the sponsor).

[Bob Gruenig]

Thanks, Dan.  Actually, one of these groups is involved in the syndication, so I also plan to reach out to them on Monday.

[Alina Trigub]

@Bob Gruenig If the whole premise for LLC is to meet the minimum funding requirement as an LP, then 1) you don't need an attorney, 2) reach out to a sponsor of the syndication you're dealing with and ask if they will accept a lesser sum. This is assuming you meet the other requirement for a syndication - accredited and/or sophisticated - depending on the ruling they utilize.

[Peter Pratti]

You should probably just have an LLC formed with an attorney. I wouldnt have a template.

[Scott Morongell]

@Bob Gruenig I would speak to a syndication attorney in regards to this. 

[Bob Gruenig]

Hey Everyone, thank you for the terrific input! I took the recommendation of James Kojo about speaking with the syndication sponsors who ultimately allowed me to invest a lesser amount which allowed me to avoid investing as part of an LLC. However, I definitely learned a lot from everyone through this thread!

[Luis Herna]

Ok you should know that when forming a deal like this you need see which regulation will affect your partnership.