Securities Licenses and Real Estate Licenses for Reg D Syndications

Tilden Moschetti: One question I
often get from syndicators who

are doing their first
syndication is whether or not

they need a license, a real
estate license, a securities

license, any sort of license in
order to do a syndication or put

together a fund? Well, we're
going to answer that question in

this video.

My name is Tilden Moschetti. I
am a securities attorney with

the Moschetti syndication Law
Group. We specialize in

Regulation D Rule 506b and 506c
offerings in order to raise

capital for your business or for
real estate. When I have clients

who are new to grid syndication
or putting together a fund,

oftentimes they'll ask me if
they need a license from the

SEC, or FINRA or a real estate
license to do real estate

syndication? The short answer is
no. So you do not need a license

in order to do those things. So
let's break it out into

securities licensing, and then
real estate licensing, and then

we can go through those, and
maybe you'll decide to get a

license and maybe you will
decide not to. So in the

securities licensing,
oftentimes, having a securities

license is an additional
problem, rather than a benefit.

Now, under Regulation D, rule,
506b and 506c, that sponsor of

that security. So that's you the
syndicator, or the fund

organizer, putting it together,
is automatically allowed to sell

its own security. So you're
already allowed to go and sell

all the securities yourselves,
you do not need a broker dealer.

In order to do that, you need to
follow the rules, obviously, of

the SEC regulations that say
that you can't have non

accredited investors unless it's
a 506b offering and then up to

35. But then you can't advertise
all those things need to be

complied with. But you as a
sponsor can do the advertising.

Now, why did I say that it was
actually more difficult if you

do have a licensing? Well, the
problem comes down to what we

call suitability, whether the
investment itself is suitable

for the job that it's being
hired to do. So is your

investment in very best
interests of that investor. Now,

broker dealers deal with
suitability all the time, and

they make sure that the
investments that they put their

clients into are suitable, but
your investment may not actually

be suitable for a specific
person. And you may not know the

know that that is the case, it
may be a perfectly great

investment. But if you're, if
your investment is simply just

waiting for this gigantic cash
flow at the end of 10 years, and

you were trying to sell this
security to somebody who was 90

and really just needed that cash
flow, right, they needed monthly

checks, well, the investment
isn't suitable for that person.

But you wouldn't necessarily
know that as the sponsor, a

broker dealer would need to know
that. So if you had a securities

license, you would need to know
that. And it'd be a problem if

you sold it to that nine year
old person, because it then had,

you're not meeting that
suitability problem. So when I

have clients who do have
securities license, really the

challenge becomes distancing
themselves from their their

securities license itself,
making it very, very, very clear

that you were acting in this in
the capacity of a sponsor, and

not in the capacity of an RA or
a broker dealer, or anything

like that, that you're making no
claims about suitability

whatsoever, and have no input on
whether it is suitable or not.

And so it's a lot of work to
actually separate the two and

it's not perfect when it's done.
Because if they knew you, as a

broker dealer, there's still the
chance that they relied on your

information, because you were a
broker dealer. That's the

information on why a securities
license would be a little bit

more challenging than not having
one at all. So not required to

have a securities license to
sell your security. When it

comes to real estate licenses.
That's a little bit different

story. So the answer is no. If
you're doing a real estate

syndication, you do not need to
have a real estate license.

However, the real estate license
can help you in a lot of ways.

It most importantly, it can
change your fees. So the work

that you do as a real estate, a
salesperson or a real estate

broker can be used and you can
get those fees that you would

generate from things like buying
real estate or selling real

estate State or being a property
manager. Now it needs to

obviously be disclosed that
you'd be acting in that capacity

as part of the syndication. But
you as an agent or a broker

would be hired by the
syndication itself. In order to

perform those activities, we
also make sure to put in

language that makes it very
clear that we're you not the

broker, that you might have
gotten a higher price for the

sale of the property. Or you
might have gotten a lower price

for the purchase of the
property. If it had been some

other agents or some other
salesperson that gets rid of the

argument later down the road of
somebody saying, well, we could

have made a lot more if we hired
my friend Suzy. It doesn't

matter, because we've already
described that we're hiring you.

And we're also saying that, you
know, it's possible that the

rates would have been higher,
but we're going to be hiring the

salesperson anyway. So at least
long before the money ever came

into your hands into the
syndication. It was already

disclosed and discussed with the
investors. So they knew at least

that it was going on. So I like
to have my investors to have my

syndicators have a real estate
license if they're doing real

estate syndication, because it's
an opportunity for them to get

increased feeds. And as long as
they do good, competent work,

that's a win for everybody
because then you know the real

estate better than anyone else,
and you can sell or buy the real

estate that you need to do. So I
hope that helps answer the

question about licenses and you
doing a Regulation D Rule 506b

or 506c syndication. If you're
putting together a syndication

or fun, feel free to call my
office and set up a time for us

to talk and we can go through
your own situation and see if I

am a good fit to help you do
that next deal and the next

deals thereafter to accomplish
your goals.

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