Real estate syndications and the significance of the subscription agreement

Unlock the secrets of securities compliance from the lawyer that syndicators trust. Mauricio Rauld, the syndication attorney for real estate syndicators, shares how to leverage legal requirements to your advantage when investing in syndications.

About Mauricio Rauld

Mauricio Rauld is an attorney and founder of Premier Law Group, which specializes in real estate syndications. He helps real estate syndicators comply with securities laws. He is also a co-host of the podcast, Drunk Real Estate.

Here are some power takeaways from today’s conversation:

[03:00] How he got into the real estate space

[05:49] Issues to look for when investing in syndications

[09:29] Questions to ask when looking at deals

[15:45] The importance of reading the PPM (private placement memorandum) 

[27:30] Things to look for in an operating agreement

[30:53] Punitive consequences of not doing a cash call

[35:07] Thoughts on changes to the accredited investor definition

[40:31] What is a disregarded entity?

[42:52] Investing through an LLC versus investing in your own name

[46:09] The pros and cons of LPs

Episode Highlights:

[06:13] The Importance of Due Diligence in Limited Partnerships

In a limited partnership (LP), the investors' liability and decision-making ability are both limited. Once they've entered into the deal, their legal control is minimal or non-existent. They contribute capital to allow the sponsor or syndicator to take charge. The only time the LP has control and a say is before making the investment. This underscores the significance of thorough due diligence, particularly when evaluating the sponsor. Knowing their credentials, track record, and operations becomes paramount. A great deal can be ruined by a subpar sponsor, while a strong sponsor can navigate challenging situations and turn things around.

[09:29] Things to Look for When Reviewing Deals

When reviewing deals, consider the sponsor's experience in the specific asset class and their track record. Plan for potential sponsor incapacity and funding for replacement operators. Check if experienced legal counsel advises on securities compliance. Ensure the required PPM is prepared and matches oral and marketing descriptions. Assess sponsor fees and compensation alignment with investors' goals. Understand the recourse for LPs if they wish to remove a poorly performing sponsor.

[15:45] The Importance of Reading the PPM and Operating Agreement

The PPM is a crucial disclosure document that highlights investment risks. Focus on the sponsor's experience and track record outlined in the document. Pay attention to the risk factor section, reviewing material disclosures like bankruptcies or convictions. Conflicts of interest and compensation disclosure are crucial when reviewing a PPM. It's essential to pay attention to risk factors and ensure that all compensation details are disclosed. The absence of a PPM is a significant red flag, indicating potential corner-cutting by the sponsor. Matching information between the PPM and the operating agreement is also important, as the latter governs terms and conditions. Inconsistencies may lead to discrepancies in expected returns and fees.

This show is for entertainment purposes only. Nothing said on the show should be considered financial advice. Before making any decisions, consult a professional. This show is copyrighted by Passive Investing from Left Field and Left Field Investors. Written permissions must be granted before syndication or rebroadcasting.

Resources Mentioned:

Premier Law Group

Drunk Real Estate Podcast

Rich Dad Poor Dad by Robert Kiyosaki

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Aspen Funds

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