““““Team InvestingTeam InvestingTeam InvestingTeam Investing”””” For Bigger and Better DealsFor Bigger and Better DealsFor Bigger and Better DealsFor Bigger and Better DealsRichard Hake, Ph. D. Esq.

As a child, I learned about teamwork through sports. A good team has “synergy”—the sum is more than its individual parts. I also learned abouthow teams can fail.

Fundamental rules of a good sports team:1) they know the rules of the game.

2) they recognize each other’s roles, strengths and weaknesses.

3) they complement each others strengths and cover their weaknesses.

4) they can rely on the team to do their part.

5) they know a dysfunctional team won’t win consistently.

The article isn’t about finding your next deal, your strengths or weaknesses. It’s about “teaming up” for bigger and better deals.

Investing is a team sport. When I started “team investing,” I tried different ways to “team up”, some methods worked, some didn’t. I teamed up with money people, experts, “bird dogs,” contractors, etc., in order to work faster and better. I still use some of those team techniques like “joint ventures”, private lending….but I really like SYNDICATIONS.

“Syndications” have been around for decades. They’ve were used to pull down multimillion dollar company buyouts, oil and gas leases, water or timber sales, electric power generation, farming, entertainment financing, and big real estate deals. If you’re ready to go to the next level in real estate investing, form a team via syndication!

My working definition of syndication is “the formalization of a team of specialists with money to accomplish a commercial goal.” These include the redevelopment of a building, or the development of a strip mall from farmland.

Why not just stick to a simple JV or handshake partnership?Why not just stick to a simple JV or handshake partnership?Why not just stick to a simple JV or handshake partnership?Why not just stick to a simple JV or handshake partnership?

SIZE SIZE SIZE SIZE — Many times, this is not a single family rehab. It is often a 250,000 s.f. commercial building rehab that may include a condo conversion, and a million dollars in build out, tax credits, and grants. It may be a gift from a city, and it may be related to a county bond issue—it needs to look professional, raise BIG money, and be ready for the newspapers and media.

PERCEPTION PERCEPTION PERCEPTION PERCEPTION — It usually will end up registered as exempt under Reg. D (and usually in every state where an investor or the deal is), depending on how much money and time you are working with. It is better to look up an LLC on the internet, than to find your name personally as the author and finisher on a multimillion dollar deal.

Most important of all, Commercial lenders like and expect you to put larger deals into an entity. They may be OK with a land trust, but I have been asked to put things into LLCs “because that is how they do it” in several of the states I have worked in. You would be amazed what a corporate entity and a website can do for your credibility, even if you have little money and no employees.

PURPOSEPURPOSEPURPOSEPURPOSE — I raise the down payment (not the loan). I have deal in contract. But I need to go to the bank for the loan. The bank leverages me into the deal—they see the plan, they hear my story, and they smell “success” in the organization. The investors get the advantage of the bank’s leverage and the syndication’s professional expertise.

BANKABILITYBANKABILITYBANKABILITYBANKABILITY — When you pool money and talent, and then direct it at a good deal, it looks successful. Package it so bankers, investors, and sellers “get it” We call this making it “bankable”. It gets financier’s attention and approval, and opens doors to bigger deals.

There are other reasons to use an LLC or an LP: The “agreements” governing LLCs or LPs are flexible, and can be tailored to each person’s needs. LPs and LLCs are “separate legal persons” with liability defined in case law, and less by my behavior.

We can make a new LP or LLC anytime (i.e., a short bright life and a quiet ending). They “sound” more professional than “Bill and Ted’s Excellent Adventure” when you ask a bank for money. Space does not allow me to go into these ideas in detail here, but if you read my report on the “7 Deadly Mistakes” you already understand a few of them.

As soon as I see a deal too big for me to do alone, I think T.E.As soon as I see a deal too big for me to do alone, I think T.E.As soon as I see a deal too big for me to do alone, I think T.E.As soon as I see a deal too big for me to do alone, I think T.E.A.M.A.M.A.M.A.M.

THE DEALTHE DEALTHE DEALTHE DEAL — What am I doing? Where is the value I can unlock? How do I put it into a “Bankable Business Plan”? Don’t settle for an idea of what to do today, but how it could or should be done. What is plan B? _ _ it happens. Who (or what) else do I need to find?

ENTITYENTITYENTITYENTITY— I form a legal entity to work, to pay me fairly, and to telegraph to the world “we’re professionals”. A few dollars will set up an LLC. Once set up, it can open bank accounts, get credit, rent an address, etc.

I like A/B LLCs—A is the expert team doing the deal (minds) and B is group with the “money”. At the end of the deal A and B split profits, after loans are paid and B gets their initial cash back. The IRC (tax code) allows profit (e.g., capital gains) and deductions (e.g., depreciation) to “flow through” these entities, if we want them to—and you decide how and in what proportion.

Sidenote-names are important: I ask “how does this name sound?” for any new entity. Would a stockbroker like it? Naming the entity will help or hurt you. Before you check the web for name availability, see how people like it. Which would you rather invest in; “Friendship Legacy Group, LLC” or “Rural NY Commercial Rehab Investors, LLC”?

ANNOUNCEMENTANNOUNCEMENTANNOUNCEMENTANNOUNCEMENT—I like to think “marketing” here. Like dating, I want to tell people about my deal and how it will work for them initially—commitment and fright come later. As one guru puts it “Sell the sizzle!”

The announcement has a concise ONE PAGE term sheet and executivesummary that tells everyone “what’s in it for them”. If they are really interested, a couple of other steps are completed, and then they will receive a “Bankable Business Plan”, Subscription Agreement, and numbered PPM. I talk a lot more about the announcement below—it’s more than I can cover in a paragraph.

MONEYMONEYMONEYMONEY-Once I thought money would come if I found the right deal. WRONG! Money is available when you have the right deal, clearly articulated ideas, AND connections. My LLC’s announcement package is clear and attracts more money than an “elevator speech”. The combination of the deal, the minds and finding money make syndication work. If any of these are missing, the deal is a good story, not an investment.

AnnouncementsAnnouncementsAnnouncementsAnnouncements

Our announcements go to people who ask us, and we want them to know about the next deal. They get a 1-10 page summary, the name of the LLC we started, and some of our Bios. The announcement asks them to contact us if they want more information. Some exiting news is just impossible to keep a secret (we like that), so they tell a few close friends.

People who have received our announcement (or overheard it form a friend), contact us to get more information and we screen to see if they are “qualified.” Google “accredited investor” to see what we will ask them.

If they can “sign off” that they have the right pedigree and situation via a “subscription agreement” (think application to attend the gala”) then they get a package with a complete business plan, statement of the risks (Private Placement Memorandum or PPM) and info on how to invest.

On your approval (signing off on their signed subscription agreement), and their wiring of money, they will sign onto your LLC, as a member. You agree to invite them, they agree to abide by your rules, no surprises or fairy tales--everyone acts like an adult.

At the end, I like to do a “celebratory payout”. The day after the money is wired to our investors, we do a wine and cheese affair. It reminds everyone how good it is to be a part of the “team” and makes them want to come back again. Often we will showcase a new project at those gatherings, just in case they want to invest with us again!

ONE FINAL NOTE:ONE FINAL NOTE:ONE FINAL NOTE:ONE FINAL NOTE: the Courts have defined “selling securities” to include things you might not think of---sometimes selling mortgages, finding private loans, etc. are even viewed by courts or agencies as securities. The HOWEY test (named after one of the seminal cases) is a shorthand test to find out whether getting into a syndication is buying a “security”, write for our free report on HOWEY.