Many clients have questions
about how to structure their

syndication or fun. So I thought
we'd do a blast from the past

for today's video to take a look
at just what goes into that

thought process. It's a blast
from the past, because it's a

video I recorded about three
years ago, when I was working

with people who are becoming
real estate syndicators and real

estate fund managers. But the
the information in it is

absolutely up to date. It's
timely, and I know you'll find

it useful.

We are talking through the core
right now we're talking about

companies specifically
Foundation. And in this segment,

we are going through structure.
Now why are we going through

structure? Well, structure is
obviously kinda like the

foundation. So it's what
everything is based off of view

structure at right, it makes it
much more easy to grow, makes it

much more easy to do what you
want to do. And it also can

protect you, as we'll talk about
soon. So, first, before we get

started, I'm going to use a
couple terms here that we may

not have gone through yet. And
you still you may not have seen

the segments yet on LLCs versus
corporations. And I use and we

need to go through specifically
two terms, which is member

managed. LLC is vs. Manager
managed. LLC is now a member

managed, LLC basically means
you've got people who are all

part of the same LLC. So this is
a property LLC. And each person

gets their own vote, and they
all have control equal to the

amount of shares that they own
or the membership units that

they own in that LLC. So this
becomes very, very hard to

manage, you're basically going
to be ceding control to all of

your all of your investors in
order to get things done. It

makes it so that you it makes it
hard for you to get paid. And

basically, it's kind of
defeatist in your in how you

want to do things. Now, you
actually may use this member

managed in one particular
context. And that's the joint

venture. And we'll talk through
that about what joint ventures

look like. But most of the time,
you are not going to do this, a

member manage instead, you're
going to do a manager managed

LLC, which basically means that
you or your entity, and we'll go

through that have the control
over the LLC itself. And your

investors have only the voting
rights that you give them in the

operating agreement. So I sent
that out because I'm going to

talk specifically about member
managed or manager managed in

the first way that you could do
this now, the way you can

structure a syndication and the
way a lot of people do. And

these are people who have not
gone through our core, they are

not members of the altitude
syndication founders club. This

is the way though that most
syndications take place. And

there's actually a very big
mistake that goes on when you'd

set it up this way, and we'll
talk about why. So let's say you

have identified a terrific
building. And I think this is

just perfect for investment
investing. It's gonna make you

and all of your investors a lot
of money. So you go you put a

down payment on it. And then you
call up your friends call up

Bob. You call up Joe. And, and
maybe three or four other

people, they all contribute
money into the property as well.

So yeah, smartly decided, okay,
well, I'm going to create an LLC

and that's what's going to own
the property. And so we're going

to call that property LLC. And I
am going to set this up now one

of the decisions you made when
you were setting this up, was it

was either going to be managed
or managed or member managed.

Hopefully most of the time you
will choose Manage your Manage

after we had this discussion,
because then at least you have

some control over the property
itself and over your actions.

But here's the problem with this
very simplistic form of

structure for syndication. Let's
say there's Bob over here. And

Bob has decided he just doesn't
like you. He just thinks, you

know, you sold them a bill of
goods, and he doesn't like this

property, Joe's totally thrilled
with it, and so are your other

investors. But for whatever
reason, Bob's gone off his

rocker, and just doesn't like it
anymore. So now he's mad. So

what's Bob do? Well, we're in
the United States, and I'm a

lawyer. So I always see it this
way, he is going to file a

lawsuit, and he's going to file
a lawsuit against you and the

property. So he's mad, he wants
his money back. He wants all

these other things. He wants
punitive damages, and he wants

to punish you. And the property
and anyone who has any

association with it, you're all
bunch of jerks. Problem with the

way that the structure is set up
in this instance, is that you

now are have exposure to this
lawsuit. So this lawsuit exists.

So there's an indemnity clause,
no doubt here. But it's not as

effective as you probably would
like, because ultimately, what

is your choice to do, you can't
just bankrupt this property LLC,

because you've got all these
other investors out here. So

things go horribly, horribly
wrong. And you just want the

whole thing to go away. You
can't even bankrupt that

property, because now all of
these people needed need their

money, and you are also on the
hook. So you've had control over

this property, if you've set it
up as a manager managed LLC. And

so you are acting kind of like
if you've heard of GPs before

general partners, the one who's
responsible for everything and

you are subject to the claims
against the property, LLC

itself. This is not the way to
go. But this is the way that

actually most small syndications
are put together, this is not

the way sophisticated
syndications are done. So what

are some How are sophisticated
ones done instead. So we still

got this, we've still got you
obviously. And we've got this

terrific looking building here
that you know is going to make a

ton of money and you've got your
investors and this time, this is

a whole new one you've learned
your lesson. So now Joe's got

Bob's gone but now you've got
Joe and you've got Sue and both

of them invest their money into
this great property. And we'll

call it property to LLC. But now
you've learned your lesson, you

know that the exposure if you
were just to put your money and

put the deposit in on that
property, you know that you're

being exposed so what do you do
instead, you create another

entity here that is you
management Inc, and we'll go

through entity choice of entity
but many times this will be a

corporation sometimes it's an
LLC for this purpose it doesn't

really matter. So you you
contribute your deposit money

into you management Inc. and
then you through you management

Inc, you make the downpayment in
the property, start gathering up

the investors and things like
that now property to LLC, pays

management fees and other fees
to you Management, Inc. So if

Sue suddenly decides that she's
mad at you, she can sue sue the

property, she can sue you
Management, Inc. and she can sue

you personally. So what have you
gotten out of this? Well,

because you've done it through
this company so long as there

isn't fraud, you're actually not
liable and the courts not going

to really recognize that as a
lawsuit that's, that's

meritorious. So it may be
meritorious against you

management Inc, or prop two LLC,
but at least you're protected

and now all of your other assets
are protected as well. So this

is the normal Wait, I'm gonna
just get rid of this lawsuit

because this is the normal way
to do it. And we don't want to

be associated with lawsuits
anymore. So let's just get rid

of that. All right, great. So
this is the the normal way to do

it. You're happy You and your
investors are happy. So this is

this is the most common
structure that you're going to

do. This is a management company
managing the LLC itself, the

property LLC. So this isn't the
only structure. So one other

structure that's a little more
advanced is basically you have,

you're still here. And now
you've identified not only one

really amazing building, we've
actually identified two really

amazing buildings.

And you think that there's this
other building out there as

well, that would be amazing. You
don't know exactly what it is,

but you're going to find it and
you're going to, it's going to

be a perfect investment for your
investors. So what do you do

here in this case, so these are
all different properties. So

let's leave this property, a
LLC, property B. LLC. And after

you find it, it will be property
C, LLC. Now, you still have your

management company.

And but how do you do this, your
investors who are here have a

choice, here's Joe, your Sue.
They could put money into you

management, but then again,
we're not shielded against them.

So we actually build another LLC
or corporation here. And this we

could call Investment LLC.

And your investors go there,
investment LLC buys and manages

these properties. Investment LLC
is managed by you. And pays fees

that way. So now what you've
done basically, is you've built

out a structure where one entity
that's easy to manage, can

manage multiple properties all
protected and shielded, can

manage its investors, and so and
protect, and basically be able

to treat investors efficiently.
So the amount of money is all

treated based on how you however
you design to do it. But

typically, it would be they're
all you know, if if they put in

if Joe puts in 50%. And Sue puts
in 50%. You know, they each have

50% ownership in all three of
those buildings. Now, you may be

asking, Well, why are we doing
the extra work of having these

other LLCs here. So the great
example of this exact situation

is the ghost ship. Ghost Ship, I
encourage you to look it up,

look it up on Wikipedia, there's
a really good description of it

there. And then there's some
links within that to different

news articles. But what happened
in the ghost ship, so the ghost

ship was an office building in
Oakland, California. Some of the

tenants decided to convert it to
live in lofts and a dance hall

of sorts. And there was a fire
that broke out now the ghost

ship was owned by a trust, who
was owned by one person. So but

the trust didn't only own the
ghost ship, it owned something

like 13 other buildings. So all
the value of all of that was

owned by the trust, which
ultimately was owned by this one

person. So go ship firebreaks
out 20 people died family Sue

against the trust, who's the
owner of the building. And now

because they now because there's
one entity that's being sued,

all of these other buildings are
suddenly vulnerable to have to

losing everything. So if they
were done in this manner, in the

manner that we're talking about
here let's say there was a major

slip and fall on property a
that's somebody's fault lying on

the ground. That was really bad
and and you know, they lost

their leg or something and
property a isn't very big. So

they would file a lawsuit
against property a and they may

try to get to investment LLC,
but they're probably not going

to, to have that chance to get
further up the line unless

there's been a case of fraud or
something like that. So property

a LLC, they file a lawsuit. And
if it just doesn't become worth

it anymore, property A goes
bankrupt. But property B and

properties, these still exist
and Joensuu still own their 50%

portion. So they've been
protected for that. So that's

why we we separate, each
building has its own LLC. So the

last way that you may encounter,
putting together a syndication

would be something like this. So
you have identified a terrific

building an apartment building
that's worth that's on the

market for $2 million. So the,
this is a great opportunity for

you, you decide that you want to
buy this because you see how

much upside there is, but it's
going to take a lot of work.

So you put your money in, you
don't have any invest any

development experiences. So
rather than seeking investors

for this property, you seek a
different kind of investor, you

seek a joint venture. So say,
you know somebody who owns the

company development, Inc. and
they are a developer and are

terrific at rehabbing apartment
buildings. It's owned by two

people's it's like two brothers.
And they own that. So you have

now contributed $2 million into
this building, and they are

contributing, say their time and
materials into improving it into

what it is. And then when it
comes time for, for receiving

money. It goes according to
however your joint venture

agreement has been written. So
your joint venture agreement is

kind of the umbrella that covers
all of this talks about what

your duties are and what the
responsibilities are and how

everybody gets paid. So let's
just recap for a minute. This

way of doing things here, where
you've got everybody investing

into the same LLC, including you
is just not going to work. It

doesn't protect you from
litigation, this is the most

common way to do things. So this
is the way let's separate that.

This is the way you're probably
going to set up your first

several syndications, it may be
the only way you use to set up

syndications because it just
works great. You can also have

different investments and still
have you as the management. So

this is prop three. LLC, which
has its own investors.

And this may be how you
structure your entire fund. Or

maybe you decide you want to
become more like a fund and do

it this way and have people
invest into your investment fund

whichever way works for you.
This is the basics on how you do

it. So this is the structure to
keep in mind. Now I encourage

you to actually draw out what
structure you think is going to

fit your needs the most. Is it
something like this where you're

going to go property by
property? Or is it something

like this where you're going to
have a pool of funds a pool of

money in order to buy several
properties at once. Most of them

view will probably be doing this
but some of you may be doing

pools as well. So I hope that
was helpful. Draw out your

diagrams, and we'll see you in
the next segment. I hope that

was helpful for you. My name is
Tilden Moschetti. I am a

syndication attorney with the
Moschetti Syndication Law Group.

If we can help you structure
your syndication or fund in the

right way, please give us a call