Real Estate Syndication Structure Explained with Premier Law Group

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So this is as you can see, very you know, I didn’t go to graphic designs looks phenomenal. Use three different colored markers Damn. So this example was a Georgia property. And this is only for a specific it’s not necessarily a fun so the fun has an extra step and let me just walk you through the basics. So the syndication LLC, it’s a fun so we’ll probably create this in Wyoming is not going to actually own the property it’s going to own the property LLC, but we have a syndication LLC, which is the main LLC that’s actually the security that you’re issuing, you’re selling shares, in this case membership units in this syndication LLC, right.

So that LLC is owned by your investors, typically we create a separate class from them. So Class A is typically what we do. So investors will own class a interest in that syndication LLC. And then you guys, the sponsors will own class B interest in that LLC. And this particular example is an 8020 split, but it could be infinite, right 7030. That could be perhaps it could be whatever the structure, we haven’t gotten that far.

But this in this example, it just happened to be an 8020 split, where the investors put in all the money got 80% of the ownership and the sponsors took their 20% is technically what we call a carried interest or what we you know, sweat equity are for putting the deal together. So the investors are going to hold their interest, however, they’re going to hold their interest, it’s not our concern. Of course, we were happy to help them if they have questions, but they may hold it in their individual name, they may hold it in their own LLC, they may hold it in an IRA.

Like who knows, right, then separately the the 20%. In this example, we typically we recommend everyone and if you haven’t already, we recommend everyone having some kind of an holding company just in general not not specific to the syndication theoretically, because the syndication LLC will already be in Wyoming, if you don’t have a holding company, now, it could be overkill, I would have no issues with pace individually in his personal name, owning some percentage of this syndication LLC, because he’s going to be owning a percentage of a Wyoming LLC anyway.

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But generally, you know, I have a holding company and most in my opinion, everyone should have a holding company as the mechanism how they hold assets, they shouldn’t really hold assets in their personal name. So that so those are the that’s the ownership right. And then to the side, which you know, if you notice it’s it’s broken line because there’s no ownership, you have this management LLC, every LLC needs a manager.

So we create a management entity, a management LLC, that is the manager of the syndication, also, it has no ownership. It just basically it gets hired to work as the manager and so it collects all the fees, right? So if there’s an acquisition fee, if there’s an asset management fee, there’s a disposition fee or refund Elissa 1000 fees, if you could do any fees would be paid to the management LLC for doing the work. But the 20% profit the profit piece, the equity piece would go to the show, is there a contract between the syndication LLC and the management LLC? hiring them?

Yes, yes, it’s part of we don’t because it’s the manager of that particular entity. We don’t need a separate agreement. It’s It’s part and parcel in the operating agreement. So the syndication LLC will have its own operating agreement, obviously. And in that operating agreement will be provisions that we’ve hired, the management LLC will obviously disclose the management LLC is you know, owned by the sponsors and controlled by the sponsors.

But that’s going to be in the operating agreement of the syndication LLC. And then the next level, which let’s leave that for a second later, but the ownership then of the management LLC versus the management of the holding might be a little different as well. But it’s ultimately still going to be you know, pace. I mean, Pacey in this structure, you personally would own you and your or your spouse, or your or a living trust, if you have one would own the holding company. But I don’t like you to personally own the management LLC as well.