Syndication and Small Multifamily Homes

[Justin Woodworth]

Hello fellow BP'ers. Recently I have bought a duplex in Madison WI as my first investment and am looking to keep the train rolling. I work a lot of hours at my job and I have eliminated most expenses in my life. I have come to realize though that even if I save up money for years it will take me a long time to save up 20%-25% for an actual investment property. After listening to 30+ hours of podcasts and hearing about syndication I have become very interested. 

Questions: Has anyone syndicated a duplex/triplex/quadplex etc and what was your experience? What is the most efficient way to set up your funding? More importantly, what is legal and what is illegal? (I don't want to experience prison)

I hope this has been clear! Thank you ahead of time for any responses and time taken to read this post!

[Mauricio Rauld]

So... any time you take money from investors where the returns are generated by YOUR efforts, you are issuing a security and must comply with Federal and State securities laws.  With a security, you must a) register it with the SEC, b) find an exemption or c) its illegal.  Most find an exemption to registration and almost everyone relies on one of the Reg D exemtptions (506b or 506C).  These generally require you to provide full blown disclosure documents (PPM) to your investors.  (technically if accredited you get to chose what disclosure you get but best practice is a ppm).  Undortunately there is a compliance costs of around $10k-$15k which makes doing small deals (ie:  $100K, $200K) not worth it.  If only 1 investor there are creative ways to structure in order to avoid being considered a security but you must still tread lightly.  In essence if your investor(s) are passive and your are active, you are dealing with a security.

Hope this helps and clarifies.