Originally posted by @Jay Hinrichs:
Originally posted by @Steve K.:
when I first started researching investing in syndications, one of the first web pages I found was this:
Private Placements and the Risk of Fraud
Entities raising capital through private placements often have a limited operating history and typically have more modest revenue streams than larger companies.
Because private placement offerings made in reliance on Rule 506 of Regulation D are not reviewed by regulators, they have become a haven for fraud.
According to the most recent enforcement statistics from the North American Securities Administrators Association, private placement offerings are the most
frequent source of enforcement cases conducted by state securities regulators.
there are many reasons for this.. as you stated there are regulations but the sponsor is on the honor system and when it turtles up that's when they get hammered and its not pretty and the investor usually take a huge loss.. try being one 50k investor with 50 other investors in a deal were your sponsor goes dark or is not operating correctly.. you don't know who the other folks are.. you have no REAL access to any financial other than what the sponsor provides .. your not on the checking account so no way to know where the money went or is going.. there is a total lack of control by the limited partner or small investor.. then you take not ready for prime time sponsors lay millions of dollars on them for the first time in their life's.. ? and next thing you know you get that robbing peter to pay paul thing going on. I have seen it first hand many a time.. they don't start out that way but somehow start going down that slippery slope to oblivion.
The Sponsor is the key to any of these deals.. especially rental property.. rental property simply is not that complicated.. there are many ways to lose money at it.. poor management being the main one.. but the transactions its self is not complicated.. So everything being equal and 90% of he syndicators chasing the same product.. it comes down to who do you trust.
another article I found at the same time was talking about how the syndication groups will state that they are "in compliance with SEC regulations" or throw around terms like "rule 501 (a)", "rule 506 (c)" and "regulation D" and imply that these securities are regulated/monitored like stocks, bonds, etc
this is not the article I am talking about, but another SEC document
https://www.investor.gov/news-alerts/investor-aler...
What should I consider when investing in private placements?
- Investing in securities, including through private placements, involves risk. You can lose your entire investment.
- You will not be able to sell the securities you invest in as easily as you would a publicly traded stock. You may have to hold your investment indefinitely.
- You will likely be provided with less information about your investment than would be required to be disclosed to you if the securities were sold to you in an offering registered with the SEC. Companies and private funds engaging in private placements have more discretion in what information to disclose to you.
- If the company or private fund does not regularly file reports with the SEC, there will likely be less information available about your investment on an ongoing basis.
You should read and understand all the information that is provided to you regarding the investment, including any offering memorandum or private placement memorandum that describes the investment. Pay particular attention to any risk factors that are described to you. In addition, you should carefully consider the terms of any subscription agreement or other agreements you have to enter into for the investment.
I can only speak for myself, but I think many of the other posters in this thread are trying to say the same thing- syndications in and of themselves are not a bad thing, nor are all syndicators bad or fraudulent. but you need to examine the track record and credentials of the sponsor team along with the terms of the deal
