Secrets To Syndicating A Deal Dave Lindahl – 100...

Secrets To Syndicating A Deal Dave Lindahl – 100 Weymouth St. Bldg.D – Rockland, MA 02370


Secrets To

Syndicating A Deal

By David Lindahl



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Dave: Hi, so I wanna welcome everybody to the call tonight. Tonight we

have a very special call because we have a very special guest. As many of you know, Gene is the SEC attorney that I use in my deals, and he also helps me teach the Syndication Boot Camp as well. And tonight he is going to answer questions that you may have regarding raising money, doing everything above board legal, what you need to do if you’re struggling with anything – any type of questions.

We’re gonna open up the lines for Gene. And what I’m gonna do is I actually have a list of questions that I’m going to ask first. But before I do, Gene, there may be some people on the line that aren’t familiar with who you are, what you’ve done, and your history. So if you could tell everybody who you are, what you’ve done, and your history, I’d appreciate that. So take it away, Gene, from Hawaii.

Gene: Aloha, everyone. I’m just in Hawaii on vacation right now. I’m

from Southern California. I’ve been in the real estate business all of my working life, from – for about 15 years I was a syndicator myself putting together real estate private placements, just like many of you are doing or want to do. And then I went onto law school in the mid-‘90s, and ever since then have been helping people put together the legal documents for their private placements.

Dave: So, Gene, what made you go to the other side of the fence? Gene: Well, actually, Dave, what made me go to the other side of the

fence was I is I was worn out with what – I always use the term “the care and maintenance of investors.”

Dave: A-ha. Yeah, and that’s a good point because as a syndicator you

are also a manager of the investors – the investor’s money, number one, but of the investors themselves as well. And at times, they can be demanding, and anybody that’s ever heard me speak about syndications you’ve heard me say to keep your minimum limit as high as possible because in doing that you will get a better quality investor, and the better quality investor the less chances you’ll get a pain in the ass – pain in the butt – excuse me – and the pain in the butts are usually the people that are the ones that put in the least amount of money into your deal.

So that’s why you wanna keep your minimums high, so you get the best quality that you can, and that’s why you wanna use all



accredited investors, and we’ll probably go into exactly what an accredited investor is in a little bit. So, Gene, I’ve got some questions I just want to throw out first. And, folks, to queue up to be in line to give Gene a question, what I need you to do is do “*0,” and you can do it at any time, but it will get you in the queue, and then the operator will come on, and she’ll do the question – she’ll go offline, she’ll ask you your name, and then she’ll introduce you to the call, and you can ask Gene whatever question you’d like. So, Gene, first question – when should somebody engage in a Securities and Exchange Commission attorney? When I say “SEC attorney,” what I’m saying is somebody who specializes in the rules and the regulations of the Securities and Exchange Commission. And actually, before we even go into that, Gene, why don’t you explain what a security is?

Gene: Okay, that’s really the important place to start. When you put

together a group of investors, the investors all have as a common goal to make a profit, and when they look to someone else to make that profit happen you have created a security. That’s about as easy of a definition as I can give for you: investors pooling their money together with an expectation of profit through the results of someone else’s effort – the syndicator. Dave, when you put your groups together your people are looking to you to make the investment profitable, and that makes it a security.

So to answer your question directly, you need to engage someone who knows the security laws right away when you start your project. I think most of the people who come to me come to me right after they have written their letter of intent and are doing the due diligence necessary to go into a purchase and sale agreement. And at that time, it’s really time to get started with doing things right so you comply with the SEC rules, Dave.

Dave: Okay. A very common question that I get is – now, a security is

when you’re pooling two or more people’s money together, yes? Gene: Yes. Dave: All right. Now, I get this question all the time: “Dave, if I’m

putting two of my relatives into the deal, is it a security?” Gene: It could be; the key is not whether it’s 1 person – whether it’s 2

people, or 20, or your relatives, or your doctors, it’s whether whoever is investing with you is counting on you to make the



investment happen. Dave, if you and I did a deal, and I said, “Dave, send me the money out to California. I’m gonna do this deal, and I’m gonna make it happen, and I’ll send you your proceeds,” just as simple as that, that’s probably a security. But if I said to you, “Dave, come on out to California. We’re gonna sign all the documents together. We’re gonna make all of our decisions unanimously. I can’t do anything about your investment without your say-so,” that probably is not a security.

So you could put two relatives together or three relatives together as long as every decision is made unanimously, but that generally doesn’t work, so that isn’t generally what our people are doing. They wanna be the managing member of the LLC, they wanna use their investment experience to make their investors some money, and that takes them right into the securities world.

Dave: So the typical answer that I give to that question is, “When you

have two or more people together with the expectation of profit where one person is making the management decisions and the others are not participating in the management of the property, then it’s a security.”

Gene: That’s right. Dave: Yep. Okay – good. Now, Gene, now we’ve got three different

levels of investors. We’ve got the accredited investor, we’ve got the sophisticated investor, and then we’ve got the man off the street. Could you quickly just give explanations of those?

Gene: Yes, an accredited investor is an investor who meets a definition

set by the Securities and Exchange Laws, and the definition is that that person has over $1 million in net worth, and that would include any asset they have –

Dave: Including their house? Gene: – including their house, and/or the person makes $200,000.00 a

year on their own, or $300,000.00 if they’re married filing jointly, and they show a pattern of having done that for the last couple of years. That’s just simply statutory definition. A sophisticated investor is an investor that, by definition in the SEC, doesn’t meet the accredited investor dollar amount limits, but has enough experience in investing to make an informed decision. And we ran across a great example of this in one of the last deals we did where a lady who is now a widow – she and her husband had been investing in real estate for a long time.



She knew everything about it. When he died, what was set up was an irrevocable trust, so she didn’t really have the assets or the income necessary to become a – to meet the definition of an accredited investor because of the formation of the irrevocable trust, but she certainly had the wisdom and the real estate experience to be a sophisticated investor. And, Dave, as you know, we can take accredited investors and a certain number of sophisticated investors into the offerings that we write.

Dave: Yes. Gene: And the man off the street – well, we’re probably not gonna want

to take the man off the street. That would be in my definition a non-accredited, non-sophisticated investor, and, if we can, I think we should let other sponsors – people outside of your network – deal with those people.

Dave: Typically, because they bring the largest amount of liability to you

if something happens to that deal. Gene: Yes, they have no experience. They would need quite a bit more

of the story told to them upfront. We call that disclosure. There’d be a greater possibility that we would neglect to disclose something that we wouldn’t think was important, but it might be important to an inexperienced investor, and that could increase our liability, Dave.

Dave: Okay. So before we cover the three documents we typically give

out – the private placement memorandum, the operating agreement, and the subscription agreement – and when we would need to give them to accredited investors and sophisticated investors, I’ve got a couple other questions coming in as to, number one – very basic question is why would you need a Securities and Exchange Commission attorney?

Gene: Well, you would need a securities attorney because what you’re

selling is a security, and you have to have the proper documentation to sell a security. The rule is that every security must be registered with the Securities and Exchange Commission with an exception, and the exception is if the security is exempt from registration. And so just by definition, if you have a security, you need to go to the federal government and get it registered before you can sell it. But what we do in the network here is we put together exempt offerings, and those are offerings that are made to accredited or sophisticated investors.



Dave: Following rule – regulation – Gene: Regulation D of the Securities and Exchange Laws created a whole

world of private placements. I think one of the issues was the government said, “We just don’t have time to place every single security that’s being sold. There must be a group of people out there, through their financial wherewithal or their business experience, don’t need our protection, and so we’ll create an exemption for those people, and those people are the sophisticated and accredited investors.”

Dave: Yep. And the maximum amount of sophisticated investors that

you can have in any one particular deal is 35, so you’ll wanna write that down.

Gene: Yes, 35 sophisticated investors in any one deal, and an unlimited

number of accredited investors. Dave: Yep. Now, what should somebody have ready? What information

should they have ready to be prepared to talk to somebody like you, an SEC attorney that’s going to fill out the proper paperwork?

Gene: Initially, what I’m looking for is the information about the property

that you’re going to syndicate. The property information package that you’re people put together, Dave – that you give them the template for –

Dave: Yeah, that’s at the Syndication Boot Camp. Gene: Yes – is a terrific place for me to start. At least I know about the

property. I mean, one of the things that I have to do in writing the documents is I have to be able to tell the potential investors everything about the property – as much about the property that the syndicator knows. So I have to get all that information from the person who’s gonna put together the transaction. And then in addition to that, we need to know how the sponsor of the group wants the group to operate.

Sometimes the sponsor wants to group members to be able to vote on a whole range of things. Sometimes the amount of items that you can vote on is limited. The profit sharing arrangements that the sponsor wants – Dave, even though I do a lot of deals for your people, no two deals are the same. Everyone wants to take your model and tweak it just enough where nothing’s boilerplate. So I need a lot of information to get started, and I find that your people,



Dave, generally have enough information for me to get started at that letter of intent and purchase and sale agreement execution phase.

Dave: Okay, good. Now, one of the statements that you had made in that

explanation was you need information to tell the investor, and you’re going to – what you meant by that is you’re going to tell the investor through the documents that you’re going to create, which is the private placement memorandum, the operating agreement, and the subscription agreement. But before we get to those, there is a couple more questions I want to ask, and the first one is if somebody was to engage an SEC attorney, what would be some of the smart questions that they should be asking that attorney upfront?

Gene: Oh, I think one of the questions that I would like to be asked,

“What was the last syndication package I put together, and who did I put it together for, and were they successful in raising the money?” I think those would be good questions – questions I – when I wasn’t an attorney and I was doing this, that I used to find the attorneys I would work with, just like shopping for a plumber, you know – just like shopping for a plumber.

Were they successful? Did they have any testimonials, I guess? We can’t advertise, Dave, as you know, so I can’t advertise my testimonials, but we can sure give references.

Dave: Yes, absolutely. And typically, from start to finish, what’s the

timeframe to getting the documentation completed? Gene: My experience is that four weeks is just the bare minimum, and it

would be great if we had six weeks. But from four to six weeks I think is a very standard amount of time. Most of the time, we end up waiting for documents from the syndicator – from the sponsor. Someone might come to us right now and say, “Let’s get started on the paperwork,” and as I’m going through my checklist, I’m going to say, “Okay, where is the commitment letter from the lender?” because I wanna tell the investors about what the loan commitment is.

And the sponsor will say, “Well, I’ll have that in about two weeks.” Well, then I’m waiting. I’m getting a lot of other stuff done, but we’re waiting until that comes in.

Dave: And that would be one of the reasons why it’s important to start

early – to engage an attorney early on in the process, because they



can’t give you money until they’ve signed these agreements: the private placement memorandum, which I’ll all PPM for now, the operating agreement, and the subscription agreement. And you cannot accept money until you have that signed. If you do, you need to return it and wait until those agreements are signed, because that is basically the underlying agreement between you and your investors, and they need to be able to read that, and they need to especially be able to read the disclosures and sign off on them before you _________________.

[Crosstalk] Gene: David, you’re right. In the last year, that’s one of the mistakes that

I think I find more often than other mistakes from the sponsors, is they contact me, and they’re ready to get to work, and some people already have money. They’ve already collected money, and they unfortunately have probably put it in their company bank account, which you know is just totally wrong, and we have to go through a lot of hoops to correct that issue. So we really need the books – as you said, the private placement memorandums – the PPMs – need to be completed before you raise any funds.

And there’s one other thing. One of the rules in the syndication world is that all of the investors are given the information needed to make an informed decision, and all the investors are given the same information. The only way I know of being sure that you give all the information – all the same information to everyone is giving them all a copy of the same book. You can start telling people something early on, and then let’s say your loan commitment changes, and then you’ll go back to raise the money, and you have to tell them something different, and it just is – it’s wrong, but it sure complicates the money-raising process.

Dave: All right. And in terms of the – when you’re doing a deal, you’re

going to have a good SEC attorney on your side, and you’re also gonna have another attorney: a title attorney. And a lot of people confuse the two because you don’t – you’re not the one that’s gonna review the purchase and sale agreement, yes?

Gene: That’s correct. I’m not going to do the real estate transaction. An

SEC attorney practices federal law, and we can practice anywhere: anywhere in the country. A real estate attorney practices state law, and if the property isn’t in California, I couldn’t possibly give you good advice about the real estate transaction or the loan funding documents.



Dave: Absolutely. So you’re going to be in and doing all of the paperwork in terms of the – that deals with the raising of the funds and the execution of the raise. And then the title attorney is going to review the P&S, make changes to that P&S. They’ll see the closing statement. They’ll be with you on closing day, not literally, but figuratively because if you’re buying in emerging markets and out-of-state you’ll be talking over the phone and you’ll be going through emails back and forth regarding the closing statements.

So it’s basically – it’s your – Gene’s job and the SEC attorney’s job to get you the proper paperwork, to get the information from your deal, package it all nicely by the rules and regulations of the Securities and Exchange Commission so you can then go out, give it to your investors. They can review it. If they have any questions they’ll call you themselves and ask you the questions. They’ll – you should give them the option to bring it to their attorney so they can review it. A lot of times their attorney may say they want this changed, and they want that changed, and blah-blah-blah. Well, you don’t let them change anything, because if you change one thing for one person you then have to go back and change all of the documentation for everybody else because everybody gets the same deal. So it’s either – it’s one of those take-it-or-leave-its.

Gene: David, there’s one other thing that has been occurring recently that

we have – we’re concerned about is – and we haven’t talked about the operating agreement, but we’re talking about documents that I would draft, and one of them is the operating agreement. And that’s how the limited liability company operates from the time the money is raised all the way through the eventual sale of the property and the final distribution. And I honestly think, through experience, that there are sponsors who are only concerned in the documents that I write as far as the money raising and really don’t take any time to read the operating agreement, and I wonder if they’re really running the business the way the rules say that they should be. I’m concerned about that.

Dave: It’s the sponsors that aren’t reading the operating agreements? Is

that what you’re saying? Gene: Yes. Yes, I am surprised that I don’t think that they are. Dave: So you’re creating them and then sending them over, and they’re

not reviewing them.



Gene: That’s right. That’s right, and it’s funny because I think that they’re asking their investors to sign a document where the investors are saying that they’ve read them, but I’m just getting some comments lately and some actions – reviewing some actions of some sponsors who wouldn’t have taken the action or wouldn’t have asked me these questions if they had actually read how they’re supposed to be running their group. And the –

Dave: So when you send over that email with a rough draft of the

operating agreement, you want the sponsor to read through it and come back with questions.

Gene: You know, I think so. I think at the boot camp we’re going to

expand this section of what we’re gonna talk about, Dave, on – we’ve gotta talk a little bit more with the people this time about how the LLC actually runs. There are four or five important things that happen in the operation of the LLC after you’ve raised the money that everyone needs to sit up and take notice. I think that’d be a good use of our time.

Dave: Can you just briefly go through those four or five now, because

I’m sure everybody now is wondering what they are? Can you give us a bullet point?

Gene: Well, I would think the voting issues – Dave: Yep. Gene: Okay. I would think the documentation that we give the people to

represent what did they buy. I had a sponsor call me and said, “Well, what receipt do I give them?” Well, the operating agreement spells out and the booklet that you get in the three-ring binder has the certificates of the units. You give them those certificates. The whole issue on meetings – meetings and correspondence with the investor – and the distribution of the cash flows –

Dave: When it’s taking place. Gene: When it’s taking place, and how is it gonna be determined. The

managing member, Dave, has quite a bit of flexibility within a set of rules, and everyone who signs the documents agrees that this is how the company is gonna be run, and it is a company; it’s a limited liability company. And it’s the managing member’s responsibility, Dave, to run the company according to the rules.



Dave: That’s right, and that’s a key statement right there because if you – if this operating agreement spells out or actually defines the way you oughtta run the company, and you sign off on it, and you get your investors to sign off on it, and then there’s something in there that you don’t want to do, you can’t not do it because it’s your operating agreement. So you really need to read through that.

Gene: That’s right. That’s right. I think they really need to read through

that, and I think that my – I send out a – oh, some sort of a certification statement when I deliver the final documents to most sponsors, and I think somewhere along the line we’re gonna modify that, and we’re gonna have our sponsor or our syndicator sign that, “Yes, in fact, before I sent this out to my people I did read the operating agreement.”

Dave: That’d be a good idea. All right, a couple more questions, and then

we’ll open it up for Q&A. Everybody’s’ interested to know how it’s priced. How do you do your pricing? How does the Securities and Exchange Commission attorney do their pricing? What should people expect to pay? Let’s put it that way.

Gene: All right. Well, I’ll talk about myself, okay. And over the years, I

have come to a flat pricing arrangement for 99 percent of my clients, and the flat pricing arrangement is $15,000.00, which is payable upfront, and that covers the three documents we were talking about, all the securities regulation, both state – registration, both state and federal, for the property LLC. If there’s an additional LLC that needs to be formed for the managing member, then it’s a flat $2,500.00 for that set of documentation. Sometimes on subsequent transactions that are very similar, we do go by an hourly rate.

Dave: Which is typically? Gene: $350.00 an hour – that’s what my firm charges. And I can’t

advertise, but I will put in a plug that my fees are quite reasonable in the range of SEC attorney fees.

Dave: Uh, well, let me put it this way; anybody that has been shopping

around will know that they’re reasonable. I, myself, when I first started this, oh, doing syndications – actually asking for other people’s money – four or five years ago, I actually went to – I was referred to three different attorneys in Boston, and the first one I went to said that they would be happy to be doing it for me. I explained what I planned on doing in the future, and they said they’d be happy to do it for $45,000.00 per deal, and – of which I



pretty much just gasped and looked at them like – and they were serious.

And then the next one was $35,000.00, and then the one after that was between – they said $30,000.00 to $40,000.00. So I think other people searching out there will have the similar experiences that I’ve had getting the higher priced ones, and their – I don’t know anybody that’s less than the $15,000.00 doing a syndication.

Gene: We do have – and I just didn’t make this up based on that comment

– we do have a $20,000.00 pricing when someone comes to us, and I think we’ve had one situation like this in the last year that absolutely had to be done in less than four weeks. Everything had to be dropped to get this one done, and then that’s a $20,000.00 price. But the good thing about and the reason I’ve gone to a fixed price is that everyone knows what they’re getting into. And I would think the first time you used an SEC attorney, just like the first time I used one when I was a syndicator, I had no idea how many hours it was gonna take someone to do all this work. And it was just – it just was nice to have a flat fee quoted.

Dave: Yeah, that’s good. All right, so let’s go through – subscription

agreement, operating agreement, private placement memorandum – what they are, and just briefly because I know we’re gonna have a ton of questions.

Gene: Okay – all right. The subscription agreement is the agreement that

really is two parts. One part is the questionnaire; at the time that you present all the information to the investors and ask them for their money, at that time we want them to fill out the questionnaire that reaffirms the fact that they’re an accredited investor and/or a sophisticated investor. At that time, they write a check, and they actually fill out a subscription agreement subscribing for X number of units in the investment. That is one document in and of itself; an up-to-date offering questionnaire and the subscription agreement.

In addition to that, there is the operating agreement. The operating agreement, as we’ve talked about, is just a document amongst all the members outlining how the business will be run. That’s the rules. The PPM is really a term that combines the operating agreement, the subscription agreement and offering questionnaire, and documentation about the risks of the transaction – the description of the real estate.



How is the property going to be run? Do you have a management plan for the property? Do you have a plan for renovation of the property? What is the track record of the sponsor – a summary explanation of the operating agreement, and how will the money-raising process go from start until all the money is raised and the company is formed. And one of the more important things about the PPM is the sources and used of proceeds description, which really explains to the investor upfront the story of how all the money is going to be raised, and then once it’s all raised, how will the money be used as we go through the process of getting this company up and running and closing on the real estate and starting the operation phase. Because I think there’s three phases. There’s the acquisition phase, which is really explained quite well in the PPM. The operational phase of your business is explained in the operating agreement, and then the disposition, when it’s all said and done, that also is explained in the operating agreement. So I think those are the three, Dave.

Dave: Okay – excellent. One more thing – what are the biggest mistakes

that you have seen sponsors make? Gene: Oh, Dave, I was hoping you weren’t gonna ask me that. We just

have an hour call. Let me just tell you what I’m running into now, okay. What we are running into now is, number one, “Can I pay a referral fee to someone who’s gonna help me raise money?” And the answer to that is “no,” unless that person happens to have a securities license. Okay? I get that question all the time.

Dave: What about a real estate broker’s license, because I get asked that

all the time? Gene: Well, yeah, there’s only one state I know of that would allow that,

and that is in California through one exception of the Corporation and Real Estate Code. If there’s another state that knows about it, I haven’t studied it, and I don’t know. But the analogy is – back to real estate – you can sell your own house without a real estate license, but you can’t sell my house and get paid. You can sell your own securities, which is what you do when you’re a sponsor and you put together your own securities package. You can sell those, but no one else can sell those and get paid without a license. And in that case, it’s a securities license.



I think another mistake that the sponsors make is not giving themselves enough time. I’d like to see 120 days, and I know in certain marketplaces 120 days from the time you go into your letter of intent until the time of closing can be difficult to arrange.

Dave: Yeah, that’s gonna be really difficult to arrange in this market. Gene: Very difficult, but it’s great if I say, you know, “You gotta have

120 days,” and you negotiate real strong, and you get 90. Dave: Yep. Gene: Because I can do – we can do very well in 90. Dave: And 90 is more – Gene: Extremely well in 90! Dave: The marketplace has really gone to 90 days now. Gene: Yes, it was. A year ago, when we would have said 90, and we’d

hope the people could negotiate 45 or 60, right? Dave: Yeah, exactly. Gene: And so I really think a 90-day timeframe, Dave, sounds like 30

days to get all your letter of intent, your purchase and sale agreement, everything up and ready to go; 30 days for me to finish the book, for you to get your loan commitment in place; and 30 days to raise your money. Don’t you think, Dave, if you only leave yourself a one or two weeks to raise your money, you’re investors are jumpy at that.

Dave: It doesn’t happen if you leave yourself one or two weeks. As a

matter of fact, the real cutoff is the three-week mark, because at three weeks you start asking people for money, they’re gonna feel rushed. Most people won’t give you money if they feel rushed.

Gene: Right – so I’m glad the market is slowing down. I say 120 days –

that would be great. I don’t need 120 days. I’m just suggesting that the sponsor – the syndicator – if they had 120 days, they would be comfortable. And I think a second – another mistake that sponsors are making today that I see –

Dave: All right, hold on before you say that –



Gene: Okay. Dave: Operator, could you – is the operator on the line? The operator

should pop on the line any second now. I just wanna make sure they’re there and they’re queuing the first question. Operator?

Operator: Yes, hi. Yes, hi, this is Bernadette. I’m your operator for tonight. Dave: Can you go ahead and queue up the first question, and as soon as

Gene’s done answering this, bring him on? Operator: Okay, very good. Dave: Thank you. Gene: Another mistake that I think sponsors are making today is that they

have not taken an inventory of their investors. I think you have to – and I’m asking this all the time when people talk to me, “Well, how long will it take me to raise my money?” I say, “Well, have you taken an inventory of the people that you have an existing relationship with to figure out how much you think you can raise from them today? You might have talked to them six months ago, but lives change. People’s spending changes. Today, who do you know that you can call and be ready to go to work?”

It’s too late after you’ve drafted the private placement memorandum to decide that, “Gee, I missed the demands of my clients. My clients wanted X, and I wrote this to be Y, and now we have to start all over again.” So inventorying your investors I think is a mistake I see today. There’s a lot of technical things that we can talk about at the boot camp.

Dave: He’s a great guy – Gene! All right, so first question, operator. Operator: Okay, our first question for tonight will be coming from Carl.

Carl, please go ahead. Question 1: Yes, my question is if I have a deal that I put together with let’s

say one other person who – you know, I have a primary mortgage company, but as a second mortgage I have a private investor let’s say investing $100,000.00 to $200,000.00 as a second mortgage. Is that considered a security?

Gene: Carl, let me ask you one qualifying question. The repayment of

that mortgage – is there anything other than a stated interest rate?



Question 1: That’s what I would anticipate, just a – Gene: Just a stated interest rate? Question 1: Yes. Gene: I feel pretty comfortable that that’s a note with some security, and

the people are getting interest, not a profit in any way, and that would not be a security. One person, one note on a property – I think you’re safe there.

Question 1: Okay, thank you. Dave: Okay, operator, next question. Operator: Next person is Brian. Brian, please go ahead. Question 2: Hi, I’d like to get some qualification on the difference between an

accredited investor and a sophisticated investor, specifically the $200,000.00 versus $300,000.00, and what if an individual has a salary of say $225,000.00, but they have a spouse who doesn’t work and has no income at all? Does that mean they’re disqualified because they don’t make $300,000.00 together, or does that mean they are an accredited investor because the one individual makes $200,000.00 or more on their own?

Dave: Gene, before you go forward, just let me answer that real quick.

The comment that you missed in between each one of those explanations was the word “or.” So an accredited investor qualifies if they earn $200,000.00 a year as a single person, or if them and their spouse qualify by earning $300,000.00 or more, or if they have over $1 million in net worth. So if they have $1 million in net worth, but yet only make $20,000.00 a year, they still qualify. And Gene, do you wanna elaborate on that question?

Gene: Yes, the $1 million is one threshold. The next threshold, which is

an “or” is, “Gee, if they don’t have $1 million, are they making enough income to be deemed accredited?” And the question was what if they’re married, and they have $225,000.00? That will not qualify. If they’re married, they have to have $300,000.00. If they’re individual filing a separate tax return, $200,000.00 is the answer. I’m gonna add something to this, and then, Brian, I’ll let you have a follow-up, there is a proposal at the SEC right now to adjust the accredited investor rules.



These numbers came out in 1994, I believe, and they’ve never been adjusted by – for inflation, and there’s quite a bit of difference in $1 million now and 1994. So if this rule goes through, in two or three years we’ll start seeing a five-year adjustment to the accredited investor dollar numbers for inflation. Okay, Brian, do you need a follow-up on that?

Question 2: Yeah, because I’m hearing a little bit of a contradiction between

the two explanations. Gene: Well, let me – let me follow – again, it’s $1 million – okay, if you

have $1 million in net worth, you’re accredited. Okay – now, you don’t have $1 million, so now we have to look at the front page of your 1040. If it’s married, filing jointly, it has to be $300,000.00 or more. If it’s a single taxpayer –

Question 2: So even if you made $250,000.00 – Gene: That doesn’t make any difference – no. Question 2: So even if you made – Gene: If it’s married filing jointly – Question 2: Yeah – so even if you made $250,000.00 yourself, if you are the

spouse who had no income, and you were filing jointly that would not count.

Gene: You are correct. Dave: So you would qualify. Gene: No, you would not. Question 2: No. Gene: No, you would not qualify. Dave: No, if one person’s making $250,000.00 – oh, I see what you’re

saying. Gene: If they file jointly they have to have $300,000.00. Dave: Oh, really? If they file their tax returns jointly, even if one of them

is making $200,000.00, and the other one’s not making anything.



Gene: Yes. Dave: Oh, I didn’t know that. Hmm, that’s interesting. Did that answer

your question, Brian? Question 2: It did, and that’s why I was trying to get the follow-up clear, so

that’s an important point when I’m talking to somebody who is filing jointly.

Dave: Yeah – yeah, that is an important point. All right, thanks for the

question. Question 2: Thank you. Gene: Yep. Question 2: Thank you! Dave: Operator, who’s next? Operator: Okay, our next person is Steve in Dallas. Steve, please go ahead. Question 3: Hey, this is actually Keith Warrington from Dallas. How you

doing? Dave: Hey, Keith. What’s up? Question 3: Hey, I got a question for Gene, here. In reference to paying your

referral fee to somebody that helps you raise funds, does that include offering them part of your deal? Is that the same thing as a referral fee?

Gene: If compensation is paid as a result of money being raised, okay,

that would be cons – in my opinion, would be construed a referral fee, and what is being paid, in your example, is some ownership units in the company – right?

Question 3: Yes, that’s correct. Gene: Okay, so I believe if that payment – the number of ownership units

they received – is dependent upon how much money they raise, that would be a referral fee, and that would not be allowed. Here’s how I have seen that being dealt with. When we’re at boot camp, Dave and I are gonna tell you about the structure of having a managing member LLC, and then the equity LLC. Sometimes in the managing member LLC that’s gonna manage all of this, you



could bring in a – oh, gosh – an angel or whatever – Dave has some words for these people.

You could bring them in as an additional member of the managing member LLC and give them a share in the profits that the managing member LLC receives, but that share could not be dependent on how much money they raised. You’re just gonna have to take a chance that you’re gonna bring them in, and they do what they say.

Question 3: Okay, great. Gene: All right. Dave, what do you call those – other than angels? What

do you call those people? You have some names for that in money raising. Dave, are you there?

Dave: Yeah, I’m here. Can you hear me? Gene: Yes. Dave: Yeah, I can’t remember the term I’m using. Gene: Okay – but angel is like that – I think that Kim is on the line. If

Kim is on the line, maybe she could – there’s a specific term we’re using for that. Maybe she could comment and come in with that answer.

Dave: Is she on the moderator line, or is she on the regular line? Gene: She’s on the regular line – yeah. Dave: Oh, she should call you on your cell phone. She’ll never get in.

I’m sure there’s a big line of questions ready. Gene: Oh, okay – all right. Dave: Sorry. So, operator, could you give us the next question, please? Operator: Okay, gentlemen, we do have Kim on the line. Dave: You do?!? How’d you get her? Operator: Kim, please go ahead. Kim: Hi, this is Kim from San Diego.



Dave: How did you skip everybody? Kim: Hey, I’m special! Gene: Hello, Kim. Kim: Hi, Gene. I think what you’re referring to – Gene: Just before you ask – Kim, before you ask your question, let me

just say that – to everyone who’s listening – this is Kim Taylor, and Kim is an attorney in San Diego who works with me on a lot of my deals. More than likely, if a transaction comes in through Dave’s network you’ll get a chance to work with Kim and Gene on this. Okay. Kim, what’s your question?

Kim: Well, let me just add one thing to that. I’d like to say that I’m also

– my husband and I are coaching students of Dave. Dave: That’s right. Kim: And we have been for a number of years, and we are also fellow

investors. I think the term that you were looking for was the what Dave calls the sponsor, and that would be a person who comes in and perhaps puts up their credit maybe to a be a guarantor if you have to do a recourse loan, or the person that maybe brings in a larger amount of money to the deal than some of your other smaller investors.

Gene: Was that a golden sponsor? Kim: I don’t know. Dave can speak to that. Dave: No, I just call them a sponsor. Gene: Just a sponsor. Okay, because I think in our flow chart – Dave: That’s what I thought you were referring to, but then I didn’t

wanna confuse everybody because we’ve been referring to the principal as the sponsor.

Gene: Sponsor – right – okay. Gene: I think on our flow chart we have a hyphenated word for

something, but – darn it – I can’t remember what it is, Kim.



Dave: Okay – well, Kim, I appreciate you jumping the line and answering that. I’m still not sure how you did it, but don’t tell it over the air. Everybody will be jumping the line. All right, so next question, operator.

Operator: Okay, our next question for tonight will be coming from Brian in

Wisconsin. Brian, please go ahead. Question 4: Hi, I’d like to get some clarification on going back before the LOI,

Gene. When you’re talking with people about potentially becoming investors, what kind of documentation, if any, should you have in place before you actually have all the formal documentation ready to go? How can you talk with people and get an initial interest expressed in writing without violating the SEC rules, and without taking money itself?

Gene: This is the number one question, isn’t it, Dave? Dave: Yep. Gene: This is the number one question, and I’m gonna give you quite a

legal answer here, okay. And the legal answer is before there is a letter of intent, the only thing I believe you can do – well, let me start over again; before you have a private placement memorandum completed, I believe the only thing you can do is to work with people to develop an established relationship with them that would lead you to believe that when you had the private placement memorandum, they would be interested in seeing it.

Now, I’m gonna try to expand on that. There is a prohibition in the securities world of solicitation and advertising. The only people that you can make an offer to are people with whom you have a business relationship, and it is a prior established business relationship so when you make them an offer it’s not an advertisement; it’s just simply, “Gee, Dave would like to hear about this. I know he would. I think I’ll make an offer to him.” In plain English, I think what you have to do is you have to get into a relation with someone where, number one, you know that they are accredited or sophisticated. You know that they might be interested in generically the types of things that you do, and that they have had a chance to meet you and ask you questions about your business that would lead you to believe that they’re ready to receive an offer from you. Now, nothing in what I said leads me to believe that you can talk to them about any specific apartment building or any specific product.



We all start with general introductions, general database building, general relationship building way before we talk to people about any specific deal. How does that sound?

Question 4: Well, there’s been some discussion about – I understand that you

can’t talk to them about a specific property, but that you could talk to them about more generic topics, but there’s also been suggestions that it’s good to have them sign an initial commitment form expressing interest –

Gene: Well, we haven’t – Question 4: – in further discussion. Gene: We have a form – you would not have heard that topic from me.

You would not have heard that comment from me, but you would have – and I know Dave uses a form, and I don’t know if it’s – I think it’s called a prequalification questionnaire or preaccreditation questionnaire –

Dave: Yep. Gene: And that’s a good form that I think works, and it is used to identify

people who are either accredited or sophisticated so you can start putting them in your database and building a relationship with them, but nowhere in that document should it say anything about a specific property or specific dollar amounts they would be willing to invest, or any sense of a commitment ahead of time.

Question 4: Okay – thank you. Gene: Then it gets a little – then there’s the next phase of that. If you

have people with whom you have this established relationship, and you’re pretty sure that they’d like to hear about what you have – you know they’re accredited, you know that the type of deal you’re bringing to them is suitable for them, and they’ve learned enough about you – then you can go out with a preliminary property package type of information before you have the PPM because you’re not advertising.

You’re not soliciting those people. They’re people with whom you already have a relationship. And there’s no bright line there. This is really a very subjective discussion we’re having here.

Dave: How’s that for an answer.



Question 4: Okay. Gene: Yeah! So you’ve got – you should – here’s what I think you

should do. I think you should always be prospecting and building your database of people and finding people. It’s really all about suitability. If you were gonna do an apartment project in an emerging market that you were gonna walk in and you were gonna totally reposition the property, that takes a special investor, doesn’t it. That’s a different type of an investor than if you were gonna go in and buy a nice B-building in an A-location, and you were just gonna put some new management in place and gradually raise the rents.

Those are probably two different types of investors. You need to be sure that you know what type of an investor it is before you make the offer to them, and if you do know you must’ve counseled with them. You must’ve built a relationship. That’s wonderful. We’ll talk more about that at the boot camp.

Dave: Yep. And we’ll give you – one other thing, Gene, is we’re on a

coaching call, and they’re all coaching students, so some of them have been to boot camp, some of them haven’t been to boot camp, and some of them may not be planning on going to boot camp.

Gene: Okay. Dave: So – but – although we do – what we cannot cover in the 60 to 90

minutes that we’re going to be on this call we will be covering in 3 days at the boot camp.

Gene: Then they also have the book – some of them already have my

book. Dave: Yeah. Gene: Chapter 3 on securities is a good read. That’s another mistake.

You – Dave, you asked me about mistakes. I have people who have come from the boot camp who have called me and asked me questions, and it’s obvious that they haven’t read my book. There is a huge mistake right there. If nothing else, it insults me!

[Laughter] Dave: Please, read the book. All right – operator, next question.



Operator: Okay, next question is coming from Alex. Alex, please go ahead. Alex?

Gene: Alex? Dave: Alex, we know you’re out there. All right, Alex, we’ll come back

in line and we’ll take the next person. Maybe he muted himself out. Do “*6,” Alex. Mute yourself back in.

Operator: Okay – Dave: Operator? Operator: Hold on, Alex actually – Alex, go ahead. Question 5: Yes, guys, I actually have two questions, if you don’t mind. The

first one is what defines an experienced investor in terms of if they’re sophisticated, does it count if they have single family experience, or does it have to be commercial?

Gene: Okay, that question is – there is no such definition as an

“experienced investor,” and all there is is the term sophisticated, and all it says is that they have enough experience that by themselves or with their advisors they can make an informed decision and can ask the questions that they need answered before they make a decision to invest.

Question 5: Okay. Gene: I mean, you know, it could be a Ph.D. in real estate who’s never

bought anything – Question 5: Got it. Gene: – or – you know, or a college student. Who knows? And it’s not a

real bright line, and there’s no requirement that they’ve purchased anything. Another thing, going back to the last question we had from Brian, I think it was, about a relationship with investors. You don’t have to have sold an investor anything to have a preexisting relationship with them. You just have to be counseling them on what they were looking for. What’s your next question, Alex?

Question 5: Yeah, my question was is there a distinction between the

disclosures you need to give a sophisticated investor versus an accredited investor, or is it the same amount of disclosures?



Gene: Okay. There is a distinction. An accredited investor could receive fewer disclosures. A sophisticated investor should receive more disclosures.

Question 5: Okay. Gene: And so when you sit down and – practically speaking, there

probably isn’t. When you sit down and come to me and say, “We’re gonna do a Regulation D offering – a 506 offering where everyone is accredited and sophisticated,” we’re gonna write a book that’s gonna cover the disclosures that a sophisticated investor would need, partially to protect you, because if you said, “Well, Gene, everyone’s accredited,” which means the book could be a lot thinner – but what if you were wrong on one person? Then we would have had to have a little thicker book. We’re gonna write the thicker book to start with so you’re protected.

Question 5: Okay. Dave: It’s a really good idea to do that, too, because people are gonna

sign your qualification form, and they’re gonna say they’re accredited, and then they’re going to get the operating agreement, the PPM and the subscription agreement, and they’re gonna wire you over the money, and then in that subscription agreement is the questionnaire, again, asking them if they’re a sophisticated investor, and then in there they’ll say “no,” whereas on the form they said “yes.”

And all of a sudden, you’re gonna see the “no,” and you’re gonna see $100,000.00, and you’re gonna think to yourself, “All right, how can I keep this $100,000.00?” And if you don’t do the big package initially, then you’re going to have to redo the packages and have anybody who has signed a previous package get the new package in order for you to be able to take that money. And, of course, the bigger package has more disclosures, and it has more what I like to call “scare the hell out of ‘em” information, which basically states, you know, “Investing is a risk. You may lose some of all of your money.” And to point, it just basically says that, and it’ll say it two or three or four or ten different times in there. You know, the one that we just did – the private placement memorandum that we just did for our big fund raise that we did – I mean, that was just littered with “scare the hell out of ‘em” information, and it was a little bit different from the regular packages that we had created because we wanted to make sure that it did cover any and everybody. And



some of our investors weren’t used to it, and they said, “Isn’t this one of like your regular deals, Dave?” And I said, “Yeah, it’s just more disclosure on risk. It’s just as much or as little risk as there are in the other deals. We’re just telling you how much risk there is, and we’re telling you more fervently, I guess.”

Gene: And a lot of that is for the protection of Dave – the protection of

the sponsor, and I constantly have dialogues with whom I’m writing books on – there’s kind of a blurred line between, “Is the PPM a marketing tool, or is it a legal disclosure document?” And we keep working on making it more marketing and more plain English. We’re always working on that, but we can never forget that it is a disclosure document that the investors are actually paying for that protects the sponsor.

Question 5: Okay, perfect. Thanks a lot, guys. Dave: You’re welcome. Operator? So, Gene, what’s the weather out

there? Gene: Oh, you know, it’s terrible! Dave: I’ll bet! Gene: You know, if you’re into clouds, you wouldn’t like it at all. Dave: Because there are none? Gene: There are none! It’s just absolutely – it’s been gorgeous. I’ve

been here for a couple weeks now. I was working the first ten days, and then it was real hot and humid, and that went away, and it’s great.

Dave: Sweet! So are you out there surfing? Gene: Not this body! I do a lot of different things, though, but that’s one

thing I have tried probably 20-25 times with lessons and everything. I just can’t do it.

Dave: Huh, that’s _______. You know what you should do is do some

wind-surfing first. That will get you up there. Gene: Would it?



Dave: Yeah, that’s – I wind-surfed for years up here in New England. I went to La Hoya, Southern California to learn how to surf, and I jumped right up on that board. The guy said, “Nobody jumps right up on the board like that unless they’ve been wind-surfing. Have you been wind-surfing?” and I said, “Yeah.”

Gene: Huh – so I can get up – the times I’ve been successful, I’ve gone

out with someone for a lesson, and I started kneeling on the board, and they’d push me, and then I’ve been able to stand up and surf all the way. But it’s just paddling and getting up my sense of balance – it just doesn’t do it. Plus, my midsection probably is a little too big, but I see really big guys –

Dave: So instead of hanging ten, you’re hanging a little more – is that

what you’re saying? Gene: Yeah! I see guys a lot bigger than I am who make it, so I don’t

know. Dave: Yeah. Operator, do you have another question? Operator, are you

still with us? I think we lost the operator. Jeff, if you could call into that operator and ask her to turn off the TV that she’s watching and come onboard, that would be good. Gene, you got anymore big mistakes that you’ve seen people make that we should avoid?

Gene: I’m just – I’m really trying to think of more than that what issues

are we running into when we’re writing documents currently that the people could avoid and save themselves some time and some aggravation. Oh, here’s one! And Dave, you could probably respond to this – when you’re meeting with your lender, get a good understanding of who may have to sign the note on the loan. Are there any times that you’ve run into that if you have someone who has a 25 or 30 percent interest in LLC during the underwriting procedure they may have to actually sign on the note?

Dave: Yeah. Gene: Financing is tough today, and I keep running into that. We need to

put that in the book and warn the people they may have to. Dave: Yes, there’s a way around that, though. Justin – Jason Rice, one of

the guys – and Matt Sheppard – the two guys that I use for – Gene: Yeah, I’ve talked to them – right.



Dave: – lenders – they actually know a way around that. Gene: Okay. Dave: So we’ve actually taken that course because, you know, many

times we’ve got some investors that are invested 25 percent. Gene: Yes. Well, I think the sponsor needs to get that cleared up in the –

while they’re looking at the note so they understand – Dave: Yep. Operator, are you with us? Operator: We have the next name. Dave: Okay. Operator: And that would be Carl from Florida. Carl, please go ahead. Question 6: Hi, I’ve got two questions. First one is when I’m initially talking

to potential investors, would it be appropriate or okay to provide them with my business plan which does not have any detail specific to any specific properties?

Gene: Carl, my answer to that question is if this is the first time you’ve

met them, the answer is “no,” and my rationale for that is the only reason you would provide them with your business plan in the first meeting is to get them to say, “Well, that sounds good. What have you got for me?” Okay – and that’s too early in the relationship.

Dave: Well, Gene, what if you were going in front of one of those angel

investor groups that had invited you to speak? Would that be considered the second meeting because they’ve invited you the first time? Would the invitation be the first, because they’re gonna be looking for your business plan?

Gene: Well, it depends upon what I know about the people in the

audience, Dave. Just because they’re in the audience, and they’ve seen me speak once before, if I had a business plan that didn’t mean I could – doesn’t mean –

Dave: No, the situation I’m thinking of is there are a lot of different angel

investor groups that meet, say, once a month and they invite you to come in front of them.

Gene: Yes – oh, no – yeah, I can answer that question; no, I don’t believe

you should present a business plan in front of an angel group. I



think – the word “generic” pops in my head. I don’t know how you can make that generic enough that it’s not going to cause a problem. And I’m speaking legally. Everyone has their own business decisions they’re going to make.

But I could point to several, several action letters coming out of the SEC that people have asked the same type of question. “Could I put a tombstone ad in? Could I just put an article in a newspaper talking about the last deal I did?” and the SEC always comes down and says, “No, because the only reason you’re doing that is to attract people who are gonna contact you and say, ‘Well, tell me when your next deal is’.” So to be absolutely right about that on the legal edge, you really shouldn’t present your business plan to anyone unless you have established a relationship with that person where you know that they’re accredited and you know that they are suitable to invest in your business plan.

Dave: Okay? Question 6: Okay, thank you. And the second question is pertaining to your

book. Does that contain the points that you’re making on tonight’s call?

Gene: Yes – yes, it does, primarily in the area of – I’m going through my

notes here – Chapter 3, “In the Securities World,” and then Chapter 5 on the entities, which is going to explain the LLC. And then there’s a chapter on what is in the private placement memorandum, and there are three exhibits at the back of the book: two private placement memorandums that we’ve used. They’re actual deals. One was a blind pool for medical office buildings, and one was a small development project in California.

And the third thing that is an exhibit is a tenant in common agreement, which brings me up to another mistake – Dave, you keep asking for mistakes.

Dave: Yep, hold on. Let’s – give me that mistake while we ask for the

next question – while we have a gap there. But – I’m sorry – I forgot your name, sir.

Question 6: Carl. Gene: Carl.



Dave: Carl – did you have another question before we go to the next caller?

Question 6: Well, I just – I really wanna go back to the business plan just for a

moment and the way you – Gene – you answered that. When – you know, there – I have two kinds of people I’m talking to now, which is probably common to everybody; one is people I’ve known for a while, and others that getting to meet through other people who have money to invest. And so it sounds to me like I need to talk to them in general terms without providing them with any kind of product material at all. Is that correct?

Gene: The second group of people. Question 6: The second group of people. Gene: The second group of people, yes. I think the first group of people,

the people that you’ve known, I would start immediately with this prequalification or preaccreditation questionnaire that Dave has, and even though you’ve known them. See, if you can get them to sign that and fill that out there’s an important process there because it will require them to date the document, which officially starts a relationship. It starts an ability for you to document your relationship, and I’ll talk about that in a second.

This new group of people that you’re meeting through your friends or through other people, I don’t believe you should give them the business plan until you have a meeting with them, and I’d really like to see you get that questionnaire signed – filled out. The NASD, two years ago, put together something that I have as an exhibit in the book that talks about money raising and promotion and advertising, and what it says – it says, “Here are three things you can do with people you don’t know. “Number one, you can make a presentation that is totally generic. When you’re making that presentation, number two, don’t make any offer connected with that generic presentation. And number three, have a record-keeping system so that you can keep track of when you meet people for the first time and be able to prove that they didn’t buy something you were offering at the time you met them.”

Question 6: Okay, thank you. Gene: And that’s right in – it’s the NASD Notice to Members 2005 that’s

in the book. It would be referred to in Section 3 – in Chapter 3.



Question 6: Okay, thank you. That’s the end of my questions. Gene: Okay – great, Carl. Dave: Okay, excellent. And, operator – Gene: Mistake – mistake – Dave: – who’s next – and as she’s getting the next, what’s that mistake? Gene: Cut and paste! Dave: Oh, yeah, cut and paste. Gene: Cut and paste – Kim and I were wondering how many documents

are now out there that says that I’m the attorney of record for all these LLCs that every – you know, one client does it and they pass it on to someone else. They word process it, and change it, and send it off, and that’s frightening because there’s so much – so many intricacies inside of a PPM and an operating agreement that, unless you’re totally conversant with what it says, you’ll make a mistake, and it’ll come back to haunt you.

Dave: The whole idea – the money that you’re paying your Securities and

Exchange attorney is an insurance policy, and it’s money well spent because they’re going to insure that you don’t get in trouble with the Securities and Exchange Commission, because if you do, they’re gonna slap you with a big fine. And when Gene’s saying “cut and paste,” he’s saying cut and paste from any materials that he has that he gives out as examples – whether it be examples in his book, examples at our boot camp – or it’s if you’re in one of my deals and you’ve gotten my operating agreement or subscription agreement and you’re just changing the name for a deal that you’re doing – that’s cutting and pasting.

And if you’re doing that, it’s just like playing under a guillotine, because eventually your head’s gonna get lopped off, because there are – just like Gene said earlier, each deal is different, and it has its own intricacies, and if your deal isn’t supportive of what you’re actually doing, and you’re not familiar with what’s in your operating or subscription agreements, you could get in a lot of trouble, and it could happen fast. And if it’s one of the couple of deals you’re doing, and you’re trying to save the money because it’s your first couple of deals, well, you could get knocked out of



the game before you even get up to the plate. So it’s really important that you do not do that, especially –

Gene: Dave – Dave: This is not a purchase and sale agreement where there are people

out there with courses and you can fill in the blanks. This is serious stuff. This is Securities and Exchange Commission rules and regulations.

Gene: Right – and actually it’s the unauthorized practice of law to put an

operating agreement together that anyone other than yourself signs. Dave: So that’s just – they’ll just add that onto the charges. Gene: The charges – Dave, you know that I take surveys of CCIMs and

real estate people, and I have – I’ve completed a new survey this year, and for the first time when I asked – I ask people at the end of the survey, “What two mistakes have you made in the past that you’re not gonna make again?” and for the first time I’m starting to see people comment on the fact that they wish they had had better documents. They wished that their documents had taken into consideration liquidity and had – they had spent more time on the risk disclosure and a full description of voting rights.

Before, the mistakes always have been that the time it took to manage the group of investors was always more than anyone anticipated, and the second mistake always was that the risk usually was greater than you thought and the rewards were not as great as you thought; so there’s an imbalance in risk and reward. But this year it just jumped right out in that survey about the documents that people are using. And that’s what happens. The first time a syndicator doesn’t have $15,000.00, they go out and they cut and paste, and they raise some money, and then they get in trouble.

Dave: Yep – true. Operator, next question. Operator: Okay, our next question is coming from Les. Les, please go ahead. Question 7: Hi, Gene. Gene: Hi, Les.



Question 7: Hey, I need to find out if I’ve got a problem here. I just entered into a contract on an apartment complex today – just went to the title company today –

Gene: That doesn’t sound like a problem so far. Question 7: Okay. Here’s what I’m looking at; I have five accredited

investors. They’re people that I’ve developed relationships with where the shortest one is like eight months; most of them are longer than a year. In June, I had them sign the accredited qualification form – the same form that Dave has. So I used the same format.

Dave: Yep. Gene: Yes? Dave: So far, so good. Gene: That’s perfect. And now you have a deal to offer them. Question 7: Right. Gene: You’ve done that – so far, you’ve done that exactly in the right

order. Tell me you don’t have – you haven’t raised any cash from them.

Question 7: No, I have not raised cash. They have ___________ Gene: Very good. Question 7: – interest on the form. They have indicated interest as to what they

would be willing to invest. When – Gene: Well, see, what you did is exactly the right order. You developed a

relation – Dave: Hold on – hold on for a second, because I wanna make sure we get

to the problem. What do you think the problem is? Question 7: Okay – the problem is I have one of the persons that’s coming in as

a sponsor because he’s very strong. He would qualify for the deal all by himself, so – but he’s coming in 35 percent of the shares.

Gene: And so your question is will he have to sign on the note?



Question 7: Well, yes, I know he will because I’ve already talked to the lender about it, and he knows. But I don’t have an offering memorandum yet, but yet at the same time he is going to be putting up things ___________ money and so forth because he’s actually the sponsor, but I’m the one that’s putting the deal together. So now I’m wondering, should his name be on the contract?

Gene: Oh, this is a complicated – a complicated situation. You’re gonna

form an LLC to take title of the property, right? Is that correct? Question 7: Correct. Gene: Some time you’ll form an LLC to take title to the property. Question 7: Prior to closing. Gene: Prior to closing – and right now you’re name is on the contract,

Les, and/or assigns? Question 7: Correct. Gene: Okay, that’s fine. This gentleman could loan you money – just

loan you money in the meantime. Question 7: Okay. Gene: And then you need to get this LLC formed right away and get your

documents done, and then we could get that person into the LLC. You can’t take money from him on the pretense that it’s for ownership interest in something that isn’t there. But he certainly could advance money. Is it all gonna go into an escrow account or be used for actual out-of-pocket expenses?

Question 7: Some of it is gonna be out-of-pocket expenses: for example, the

syndication fee. Gene: Well, you’re not gonna get paid the syndication fee, I don’t

believe, until you raise all the money, right? Question 7: Oh, correct. Gene: Okay – so you’re not gonna take anything from him now. You

need to get a hold of us and get your documents done right away. But in the meantime, if there’s something you have to do, keep it in arm’s length relationship with this person outside of an entity that other people are gonna invest in.



Question 7: Okay. ___________ was is because _______ with me on the

inspection trip next week. Gene: Yeah? Well, that’s okay. I think you just might have to tell him

that the LLC isn’t formed, and you probably weren’t going to form the LLC until after the inspection trip to assure yourself that the deal was gonna proceed toward the purchase and sale agreement. Oh, you already have that today, right?

Question 7: Yeah, I was – it was sent to the title company today. Gene: Okay. And is there a contingency period in there? Question 7: Oh, yeah, it’s 90 days after the application, and I don’t have to do

the loan application for 10 days. Gene: Oh, okay. I don’t think you have a problem yet. I – when is the

first time you think you’ll actually have to take money from this angel, Les?

Question 7: I have $20,000.00 earnest money that’s due in 3 days, and then

another $20,000.00 that’s due at the end of the 30-day due diligence period.

Gene: Okay, that’s fine. That’s the $20,000.00 you’re really worried

about. That’s the $20,000.00 that I – that’s the thing I’m concerned about right now. Well, my suggestion to you is talk to that person and tell him that you’re gonna – that he needs to give you the $20,000.00, even if it’s just on a personal note between you and him.

Question 7: And then we were – the only other place was gonna be we were

gonna split the loan application fees. Gene: Well, that’s fine, but that’s gonna be for a while. I mean, that is

not going to be for 30 days, you said, right? Question 7: Well, no, we have to file the loan application – the actual

application for the loan has to be filed within ten days of today. Gene: Okay. And how much will the loan application fee be? Question 7: All total, it’s – third party plus the actual – the origination feel – all

total, it’s $17,000.00.



Gene: Okay. Well, I guess here’s my only answer to you; if – since you have a good relationship with this person, and since you don’t have the LLC formed yet, I don’t know how else you’re gonna do it other than just have him put up the money, and if he needs some documentation from you it has to be between you and him right now.

Question 7: Okay, so no funds would go from him directly in; it would have to

come through me. Gene: Well, yes, because there’s no place for the funds to go from him. Question 7: Right. Gene: Okay, so – and as soon as we get – as soon as you get the

documents done for the offering, he could sign on as an investor and get credit for those funds that he had advanced to you. Are you gonna be the managing member of the LLC?

Question 7: I am. Gene: You are – as an individual? Question 7: Well, I had debate – I have a Washington LLC that I operate out

of. I call that kind of my “acquisitions company.” And so I was thinking about having –

Gene: Well, there’s your answer. In the meantime maybe this gentleman

can – or this person can fund the money to your Washington acquisition – your Washington LLC, and then you can use that money if the Washington LLC is gonna be the managing member – or you individually. It doesn’t make any difference. It’s just that there’s no place for him to put the money today that directly relates to this property because there’s no LLC.

Question 7: Correct. Gene: But you have – you aren’t in any trouble at all. It’s more of a

relationship between him and you and how the money is gonna flow until you get the paperwork done.

Question 7: Yeah. Gene: And you’ve given yourself plenty of time to get the paperwork

done.



Question 7: Right, so – okay. I was concerned that he was – you know, he’s basically the primary funding party. I mean, but he’s putting in a significant amount, and he was having to put in – you know, within the first 30 days he was gonna have to put in about $57,000.00.

Gene: Yeah. Well, we can get to work on that right away. Why don’t

you send me an email with your contact information, okay? And I’ll access my email, and I’ll forward it over to Kim, and Kim will follow-up with you tomorrow. I’m speaking for her. I don’t know if she’s available tomorrow, but she could follow-up with you right away and help you get started on this.

Dave: There you go. Gene: Does that sound okay? Question 7: Thank you. Gene: Oh, okay. Dave, does that sound all right? Dave: Oh, yeah – absolutely. Gene: Okay, good – good. Question 7: Well, you’ve put me at ease. I was getting panicky as I was

listening to you talk. Gene: Okay. No, you’re fine, Les, but get on this right away. And the

one really good thing you’ve done is you’ve given yourself plenty of time.

Dave: All right, excellent. Operator, we’ve got about five minutes left.

Can you push us into the next question? I think she’s watching America’s Most Talented – she’s gotta be getting the name.

Gene: Are we on mute right now? Dave: No. Gene: No, okay. Operator: Okay, our next question is coming from Kim. Kim, please go

ahead. Question 8: Hi, Gene?



Gene: Yes, Kim. Question 8: Hi, I have a question about – Dave: Oh, this isn’t the Kim that’s Gene’s assistant? Question 8: No. Gene: Oh, different Kim – okay. Question 8: This is Kim from Los Angeles. Dave: I was gonna say, “How did she get in front of the line again?” [Laughter] Gene: Hi, Kim from Los Angeles. You’re my neighbor, I guess, huh? Question 8: Yes, yes – I’m calling about what kind of information that you can

put on a website if you’re referring people to a website. I’m wondering if you can put like percentage of return or if you shouldn’t even give out your website information until you’ve developed a relationship. We were planning on sending out a letter to our friends and family letting them know kind of what we’re doing and referring them to the website, and it is a public website actually that probably could be accessed by anybody if they wanted to at this point.

Dave: Gene, let me answer that real quick – Gene: Yes. Dave: – so we can get as many questions in as we can. The – this is –

you cannot mention on a public website an interest rate, a property address, previous deals that you’ve done. What you wanna do is on your website is you need to qualify anybody that goes on there. So if you wanna see how I do it, go to ConfidentialInvestments.com.

Question 8: Okay. Dave: ConfidentialInvestments.com, and basically that site is – you’ll see

it’s one page. It talks about my company and what we do, and then it says, “If you’d like to get more information about our properties, click here for our qualification form.” And when they click – _________ qualification form and the password to get in to see our



properties. So when they click they get the qualification form, and it’s the accredited investor form – they fill it out. That comes directly to me in an email, and there is no password.

I don’t send them a password so they can get into the site. There are no properties on that site. What I do do is I then call them, and I talk to them about what they’re interested in and their investment criteria and all of that. And even then I don’t make them an offer. I wait until the next one. But that’s what you wanna do.

Question 8: Okay. Dave: Does that sound all right, Gene? Gene: That sounds good. Dave: Yeah. Okay, operator, next question? Operator: I believe there are no questions pending. Dave: Oh, there aren’t. Okay. Well, Gene, I wanna thank you very much

for taking time off from your vacation and coming on the call and answering all of our questions. I appreciate that very much.

Dave: Okay, Gene, you have a good time on that vacation. Gene: I’m going to. Dave: You be thinking of me when you’re out there in your Speedo – Gene: Who is this? Dave: – looking at all the beautiful women? Gene: Who is this? Who is this? [Laughter] Gene: Thank you, Dave. Dave: See you, Gene. Gene: Thank you, everyone. Bye. Dave: Goodnight. Goodnight, everybody!

Secrets To Syndicating A Deal Dave Lindahl – 100...

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