Securities Mistakes Syndicators are Making Today with Kim Lisa Taylor

Full Transcript

SUMMARY KEYWORDS

people, investors, deals, money, exemption, property, raise, investing, buy, sec, syndication, market, multifamily, securities, offering, attorneys, promissory notes, relationships, question, investment

SPEAKERS

Taylor , Kim Lisa Taylor

Taylor   00:02

What's going on guys? Thank you for tuning in. This is passive wealth strategies for busy professionals. And today our guest is Kim Lisa Taylor from syndication attorneys.com. Today we are discussing a lot of the legal issues that syndicators and syndication investors need to be aware of the mistakes that they're making today, and a lot of other very important information that you need to know if you're going to be in the world of real estate syndication. For those of you who do not know, I'm your host Taylor load, I am a real estate investor real estate syndicator, a busy professional and I love talking about investing and learning about investing alongside you with all of these great industry professionals that we bring on the show. As a general comment, we talked about the state of the market in this episode, this episode was recorded before some of the recent drops in the stock market, but I wanted to take the opportunity to make a comment on that that We need to be as investors, we need to not panic when, you know the stock market is on its way down. Or there's fear in the market, we need to remain level headed. And like Warren Buffett says the most important thing is to not lose money. So we need to be looking for good deals, and not just panicking when the general economic you know, the news stations, all those people are telling us to panic and freak out. We need to look too good to do good deals at all times. And not just sit out of whatever the market is, we need to remain level headed. So I wanted to take the opportunity to comment on that, you know, the coronavirus fears, at least that at the time that I'm recording this are real, I understand that. But there are good investments out there and we need to remain level headed and keep looking for those good deals. So once again, our guest is Kim Lisa Taylor from syndication attorneys calm Here we go. Kim, thank you for Joining us today.

Kim Lisa Taylor  02:01

Thank you for having me. Happy to be a guest today.

Taylor   02:05

It's great to talk with you. We first met at ultimate partnering. You had a table this past year, and now we're catching back up. And since then, you launched a book, what is the name of that book?

Kim Lisa Taylor  02:19

I did, it's how to legally raise private money. subtitle is Definitive Guide to syndication and raising money for real estate and small business.

Taylor   02:29

Perfect topic for this podcast. And before we get into the topic of the book, can you tell us about your background so that we and the listeners know why you're uniquely uniquely qualified to teach us about this?

Kim Lisa Taylor  02:43

Yeah, so I've been exclusively practicing securities law since till I started practicing in 2008. Exclusively practicing since 2009. So 10 years prior to that I was a real estate litigator and also in Law litigator even before that I was an environmental consultant. So just an interesting bit of trivia. I'm licensed as a professional geologist in California. Cool. Yeah. Um, but I looked into my future when I was doing that I was doing a lot of soil and groundwater samples, standing behind drill rigs with the steel toed boots, and hard hat looked into my future and said, Yeah, I think I want to keep doing this forever. And so what can I do different decided to go to law school, and didn't really know what I wanted to do, what kind of area of practice but having come from an environmental background, that was kind of my first stop, always liked real estate started doing some real estate litigation, but then I learned that I don't like litigation. I don't like fighting. And I like going to court and fighting about things. Everybody's always mad. And I just thought, you know, I really would like to get into a more of a transactional type practice. I met a mentor And started working with him. And I really liked this area of the law was really you know, helping people put deals together and figuring out how to split money with investors and structure deals. And at the same time, the reason that I met my mentor was because my husband and I were actually learning how to buy multifamily. We went to our mentor real estate training event. I think that was their multifamily millions and then decided, well, gee, I should, you know, we should really learn how to do this. Well, we got into the coaching program, and we ended up buying and syndicating our own multifamily property with some friends. And so then I just, you know, started doing this area of the law and decided that I really liked it. I started working with a lot of syndicators and had a lot of clients that became returning clients and, you know, gaining ever more success. So I just thought it was really cool. And decided to make it my practice.

Taylor   05:02

Cool. You really took it full circle there with the mentor folks. And first you started attending and now you're exhibiting so you know,

Kim Lisa Taylor  05:10

yeah, yeah well that and i and i do some training for them in their private money boot camp. That's

Taylor   05:16

awesome. That's awesome. That's great when you can make that happen. So let's get into the topic of how to legally raise private money we're mainly talking about syndications. Right and what people can do. So I suppose let's just get into what are the biggest mistakes that people are making today that you're seeing happen?

Kim Lisa Taylor  05:39

Well, you know, when people are first starting out, they have a tendency to, you know, unless you come from a background where you've been dealing with investors in the past, and certainly some people have that background, but unless you come from that background, it's uncomfortable so you start looking for the easy way out. You know, we all want to sit in our basements in our pajamas and search. The internet and find that perfect investor. But you know that that doesn't pan out more often than not doesn't doesn't work out. You know, you might find some real folks that have a lot of money that say they would be interested if, but there's a whole lot of ifs and usually the final if comes down right before closing and they often disappear. So you know, don't do that you can raise a whole lot of money from people 50 or $100,000 at a time, if you take the time to get to know them and talk to them about their investment goals and what you're doing and find some compatibility stay in touch. And then, you know, when you got deals, share your deals with them. That's the best tried and true method of finding and keeping investors.

Taylor   06:50

Okay, so I go to a lot of events like ultimate partnering and frequently I would say I come home to find myself on a couple of people's deal list pretty quickly after talking with them for, you know, 10 minutes at whatever the event might be. And suddenly, you know, they consider us to have a substantive pre existing relationship, when they might not really know anything about me. And we've never had any kind of interaction outside of meeting at this event. Granted, they didn't hit me up about their and their investment opportunity at the event, but they didn't follow up after that. Where do you think that falls? Does that put up any red flags for you?

Kim Lisa Taylor  07:35

Well, you know, as an attorney, we're always retrained to say it depends, right? It depends, right. And so, it just depends, it depends on two things. One, you know, there are the securities exemptions that do allow people to freely advertise their deals. The only people that can invest in those deals are verified accredited investors, but they can advertise them to anybody. So They wouldn't necessarily have to know you and have had a conversation with you before they started advertising those deals with you. However, the flip side of that is how likely are you to invest with them after a 10 minute conversation? And they'll follow up? You know, but probably not.

Taylor   08:15

Not very.

Kim Lisa Taylor  08:16

Yeah. But most people at those events are trying to meet people that they can put into deals that don't allow advertising. So, you know, maybe we should just talk a little bit about what those exemptions are and the differences.

Taylor   08:32

Yeah, absolutely. I'm really pointing that question I probably should have specified at 506 b syndications which cannot be publicly advertised. Right.

Kim Lisa Taylor  08:43

Right. So just to give you every your audience the 32nd primer on, you know, when they have to follow securities laws. Basically, if you're raising money from passive investors, then you're selling something called an investment contract that applies whenever you're selling interest in a company notes if you're doing repeated sales of promissory notes to people in order to raise money that also are securities. So in both those instances, you know, most of the people at the events you're talking about are going to be selling off interest in a company and raising cash that way. When you're doing that you have passive investors, you're selling securities. When you're selling securities, you have to follow securities laws. That means you either have to register your offering by getting pre approval from regulatory agencies before you can make offers to anybody, or you have to qualify for an exemption from registration. And every exemption has its own set of rules and restrictions. So these are self executing exemptions, meaning that you have to keep track and keep records on how you comply with the rules of the exemption that you're going to claim. So I mentioned just a minute ago that there was an exemption that would allow you to freely advertise. But you can only sell to verified accredited investors. That's the regulation D rule 506. c exemption, the one that most people are doing still, according to sec statistics, and also our you know, from our own client base is regulation D rule 506 B. And it certainly people that are starting out, should be looking at the regulation D rule 506 B. Why, because that's the one that allows you to invite your friends and family or people whom you have substantive pre existing relationships, you get to invite those people to invest with you. But so the 506 b rules are that you can raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 non accredited investors, all investors must be sophisticated. So you have to actually know, ask them about their Investing experience and the way and you're not allowed to find them through any means of general advertising or solicitation. So therein lies the problem with meeting someone for 10 minutes at an event, and then having them start email blasting you. The SEC has defined what that pre existing substance substantive relationship means. So pre existing means that it predates your offering. So it predates the time at which your offering was current or contemplated. So certainly by the time you have your securities attorney drafting your offering documents, you have a contemplated deal. On the timeline, you have your offering documents in your hand, you have a current offering. So if you're still meeting people, when you have a current or contemplated offering, you probably shouldn't be putting them into that deal. You should be meeting them getting to know them, putting them maybe in a future deal if they're suitable, but the substantive part of the relationship was defined by the SEC in 2016. And they said that It's more about the quality of the relationship than the quantity of time that you've known somebody, or the fact that you've just met them casually at an event and exchanged contact information. So the quality of the relationship that they want to see is that you actually know enough about that investor to understand their financial situation, and to have asked about some of their previous investing history and their investing goals to determine whether they're suitable to be in your offering. And so that's where you have to be Oh, that's

12:39

no worries.

Kim Lisa Taylor  12:45

But, but anyways, so is suitable the substantive relationship, you have to be able to prove that by a record keeping system, showing that you not only met that person, but you had further conversation with them about their suitability. Being your offering. And then after you've had that suitability conversation, it would be appropriate for you to start making offers to them, you know, preferably after a little bit of passage of time. So it is, you know, there is a process that you have to go through if people want to know more about it. We actually have an article on our website at syndication attorneys called determining suitability or determining investors suitability that actually explains the SEC rationale, and how they arrived at it and what kind of questions you might want to ask some investors and keep some records of those conversations.

Taylor   13:39

Great determining suitability, what do they consider an acceptable record keeping? I mean, a lot of people have maybe a CRM that they might be using, or, you know, I don't know some people use Google sheets that never had never worked for me. I couldn't make it work. But you know, are there any examples given of what a record keeping system can do?

Kim Lisa Taylor  14:02

You can use whatever you want. I mean, people for years have used Excel spreadsheets before CRM became so popular. But you know, there's a variety of CRM out there. You know, the good starter one that I used for a long time was Insightly, which is a Google app. And at that time when I was using it, it was free for two people. So it allows you to keep track of people, keep track, keep notes about conversations, keep track of when you send things to them. And just to show all the steps you took in developing that relationship.

Taylor   14:36

You touched on something during that last little segment, that it's a question that comes up on bigger pockets occasionally, where if I have and it actually I was on a thread about this just before we got on the call this very topic. So if I'm buying this example from the thread, buying a $2 billion property and I have a handful of investors That would invest 50 to $100,000 a piece. So I probably need maybe a total of 500 grand to close this deal just to put a number on it, I need to raise $500,000. At what point? Can I no longer do promissory notes to each of my investors and I don't have to do a private placement memorandum? And it will kind of where's the line between that? Do you have to do one? So

Kim Lisa Taylor  15:29

I would argue that there is no point that even doing those promissory notes to your investors as a securities offering so the minute that your business starts to depend on raising money from private investors, you know, if you want to borrow some money from your parents to go put a down payment on a house, nobody cares, right that regulators are going to regulate that. But when you start going to your real estate investment association meetings and you're talking to everybody there about, you know, loaning money to you for all these fixin flip houses that you're buying and things like that. You're selling securities there too, and you really shouldn't be following the same securities laws. And the same exemptions that you would if you were selling interest in a company. The determining factor for when promissory notes are not going to work in a deal is if you're going to be using an institutional loan to buy a property. If you're buying a loan that's going to be guaranteed by Fannie Mae, Freddie Mac, or most commercial lenders, they're going to have prohibitions in the loan agreement that says that you will not allow any subordinate debt. And they're going to be asking you where all the money came from, to buy the property, and they're going to want to see the list of investors and their percentage interest and you're going to review the operating agreement to make sure that they are bona fide percentage interest in your company. They will allow that but they will not allow you to show them a pile of promissory notes and say, Well, I borrowed it from all these people because now you got seven people standing in line behind them. with potential liens against that property, and they won't allow that, you know, if you're dealing with single family residential properties, those lenders aren't as, you know, either savvy or picky about it. And so they don't really, you know, seem to enforce it. But if you're dealing with institutional loans, you'll never be able to do it.

Taylor   17:22

Yeah, great. And those seven people are all in line behind the bank. And each of the seven, one is behind the other, right at each position.

Kim Lisa Taylor  17:33

Well, or or you could issue I mean, you can technically you can issue notes of equal priority. And, you know, then it becomes a race to the bank to see who gets there first if you stop paying, you know, or another choice would be to do us a fractional note where you have, you know, those seven people all buy a piece of a note to equal the whole amount that you need, and they each have their right Is that percentage interest? Okay,

Taylor   18:02

Yeah, I didn't know that I'm not. I'm not a note expert. So I'd like to go back to kind of a question from the top and focus on some of the mistakes that you see people making today. In the syndication world. I'm sure that the topic of your book, How to legally raise private money is a bit. It's a bit predicated upon all right, well, there are obviously people doing it illegally. So I'm going to write the guide of how to do it legally. So what do you see happening?

Kim Lisa Taylor  18:36

Well, you know, and we talked about the fact that you're looking for the single investors that usually don't come through, or if they do come through them, they changed the terms on you right at the 11th hour, and you don't want to do the deal anymore. I've just seen that happen so many times over the years when whenever someone comes to me and says, you know, I've got a single investor that's going to take on the whole deal. My advice is keep raising money, because the more money you raise the Unless you need that person, and when you get around to the point where you're saying, you know, you're going to invest or not, you know, doesn't really matter whether they do. And you know, don't count somebody as an investor until their money's in your bank in your company's bank account. And so once you have your securities offering documents in hand, and you've set up your company's bank account, you can legally start raising money. Now, it's first come first serve. And so you just tell those people, you know, well, that's nice. So as soon as you want to, you know, deposit your money, then we'll count you in as an investor and tell them we're raising money. That's, that's, you know, the biggest mistake. there's clearly a lot of other mistakes. You know, one of them is waiting too long to hire your securities attorney. You know, we get a lot of people who are, you know, they're reluctant to hire an attorney and to begin to incur fees until they're 100% certain that they're going forward with the property. So they'll wait until they're completely done with their due diligence. They've got you know, maybe Too short of a closing time. That's another mistake that they make. And also they come to us well, the first time drafting documents that you know, you're going to get your documents within a week or so, but you still have to review them, you have to make sure they're correct. It's 140 pages of legal documents, then we have to incorporate comments. And it's very common to go through two rounds of revisions before you get final documents. So you know, that whole process can take, you know, two to four weeks, for your first offering, it's going to be probably three to four weeks. So you want to make sure that you have enough time for your securities attorneys to draft your documents. And, you know, so you usually want to do that during the due diligence process. So you know, I always say, hire us when you have a property under contract. So you gotta have a signed purchase and sale agreement if you or someone from your team has physically been to the site and journey through the neighborhood, surrounding saying Yeah, okay, we could buy this. And you reviewed the financials. So you know, I say contact us, when you've got the sign purchase and sale agreement, pull the trigger, get us going, as soon as you've done those three things, because those are the three things that are most likely to kill the deal. Most other things that you might find during your inspection of the property and things like that, or maybe your lease audits, those are going to be things that you can use to negotiate the price, but not necessarily going to kill the deal. So that you know, there's always a balance between getting us going and, and waiting too long. But you know, waiting too long to start raising the money will kill your deal, because your investors will feel rushed. And I've seen I've had recently had known people that have not been able to close on deals, because they weren't able to raise the money.

21:52

Wow.

Kim Lisa Taylor  21:53

Yeah. And then the other big mistake is not taking time to get to know investors and to develop those relationships. You really have to do that, you know, you've got to do the legwork. There's no shortcuts. You know, the only shortcut is maybe bringing in some rock star that's got experience, raising money onto your team. You know, and then delegating the duties amongst your management team. So, you know, some of the people are doing due diligence. Some people are finding deals, some people are, you know, talking to investors, you know, that might work to try to accelerate your money raising process, but there's no substitute for developing healthy face to face investor relationships. So I always say, you know, find investors locally, but find your properties where they make sense. If you know, and it may not be in your local market, if you live in Southern California or New York City, you know, you may not be able to find a deal that's going to make sense right now. But, you know, you gotta, you gotta just figure out where you can meet investors locally. start showing up at those places again and again, taking the time to have some conversations, have that difficult suitability conversation early on and just you know, tell people look, you know, this is not i'm not finding your information I don't really care about I've got to ask these questions before I can invite you to my deals.

Taylor   23:19

Nice. I mean, at least in those markets, Southern California, New York City, some of the higher end markets, you should definitely be able to forge those relationships over time that you can get the money piece and then in other areas, you should be looking for the properties. I don't know how people are doing it. In investing in those areas, it seems like probably not super profitable.

Kim Lisa Taylor  23:44

Well, you got a lot of you got a lot of foreign money that comes in and they don't care so much about the return they want the investment a you know, maybe you get a green card or get their kid to get a green card or you know, or they just want to get it out of their country. Yeah, we

Taylor   23:58

can get a much better return in other markets. So absolutely. It absolutely makes sense now, you've been practicing syndication law throughout this, this current market cycle that we've had and things have changed over the last few years. I'm curious how things have changed from your perspective, not necessarily based on sec, the SEC putting out opinions, but at least from observing your clients in the changes that they've had to make in order to raise money, at least in an execution sense. What are your thoughts there? Or, you know, maybe I should leave the question open to the SEC, his opinions on this. I don't know. Maybe I shouldn't.

Kim Lisa Taylor  24:40

Well, no, I mean, I think there's absolutely been some changes in the market. You know, the people that jumped in and bought right after the last market correction, have done really, really well. You know, some of our clients have, you know, doubled and tripled their money in certain properties. They've done extremely well. They bought when the prices took a downturn, you know, when they lost value. And so you know what happened during that time is that Fannie Mae and Freddie Mac never stopped lending money on multifamily. And so there might have been some other asset classes that slowed down a little bit more than the multifamily, but the multifamily kept going. And as long as people were able to get loans, they were getting lower loan to value loans. So they were maybe getting, you know, 65-70% loans for a little while. And then it started to creep up again to the, you know, at 75 and 80% loans that you're seeing again today. But now they're starting to be a tightening up of the market again. So, you know, it's it's harder right now for people to find good deals, I see more deals falling out and I see less deals happening, then we're happening in 2009 to the 10 2011 but, you know, as far as you know, for our business it was it was good, you know, because we had, you know, people kept buying deals people kept raising money.

Taylor   26:13

Interesting. Okay, another topic I wanted to touch on with you was I feel like this isn't brought up too often. And I'm not sure people really understand conditioning the market for syndicators and what that really means for people who are out there, you know, generating content or or kind of putting the word out there. It seems to me there's a pretty I don't want to say fine line, but there's some spectrum in there between talking about your business in a compliant sense, and then blowing your exemption by conditioning the market. So can you define that for us? And then, you know, Help Help me understand that a little bit better.

Kim Lisa Taylor  26:54

Yeah, I don't think you know, I think I like to speak from more practical terms. And so I think you do have to do some conditioning of your market to explain to people what kind of a market we're in right now. You know, I think it's important. One of the ways that you can meet people four or 506. b offerings, and get to know them well enough that you can invite them into your future deals is by holding generic educational events, I think it would be completely appropriate to hold a generic educational event that talks about how preferred returns have changed over time, you know, where, you know, they may be a few years ago, people were offering, you know, nine and 10%, preferred returns on certain deals. And now, you're seeing people, it's contracting a little bit and I'm seeing some people who are doing, you know, 565 or 6%, in the early years, and, you know, going up to seven or eight in later years of a deal. So I think it is important to train your investors that the markets change. There were times when people were projecting overall annual returns in the 20% range, and they were getting them on certain properties. Now we're not in that market, we're in the mid teens but if you compare and contrast that to what you might earn on stock market investment, it's still a good investment. So you just have to tell people, hey, the those days aren't here, they may come back, but you still want to do deals and you still want to get a good return. It's still a good time to invest. We just have to, you know, wait for the you know, the really great deals to come back again, they're not out there right now. Not in the multifamily space. There are some other spaces I think are under under maybe performing a little bit better and they're, you know, maybe under marketed, you know, people aren't, are the maybe under saturated is the right word to say, you know, in the multifamily space right now, I think that there's a lot of saturation in the market of you know, there's a lot of trainers teaching people how to buy multifamily and You know, they're they're flooding the market. And in some ways, maybe in the you know, just by having that many people out there looking, they're driving the prices up, in addition to the fact that prices are just, you know, generally going up, because that's the part of the market cycle we're in right now. If there's a correction, you know, those that poise themselves now, and do a few deals now and get some experience so that when there is a correction that they can hit the ground running, will be well poised to take advantage of any corrections in the near future.

Taylor   29:33

Yeah, it's hard to say, I think in in many sense, kind of what you alluded to, I mean, how much is our current state of the market due to kind of uh, I don't want to say irrational exuberance, because I'm still an investor myself, but an exuberance about where the economy is versus just the fact that the economy is, at least as we talk right now might change by the time this is published, but the economy is pretty good. People are still working things and still have it up. And I mean, the Fed is, again, as we talk, they've recently cut rates a little bit. So there could be signs of some negative things on their horizon. But it doesn't look like we're at the door of the next, you know, 2008 style, great recession.

Kim Lisa Taylor  30:16

Well, and I think a lot of that hinges on what happens in the next presidential election. may know, and that is, you know, one way or another, it will change things. So, you know, I think everybody has to be prepared, because we don't know and we can't predict.

Taylor   30:32

Yeah, that's definitely true. I don't want to touch that with a 10 foot.

Kim Lisa Taylor  30:36

And I don't want to get into philosophical discussion about that, either. But it's just a reality of the world we're in right now. But it will have an impact one way or another.

Taylor   30:45

Yeah. Yeah, absolutely. Are there any other important lessons that we should get to before we move on to the second part of the show? I mean, it's hard to get time with well qualified attorneys. We've got you right now I definitely want to just ask You What's on your mind? And what do you want to get out there for? I don't know how to legally raise private money.

Kim Lisa Taylor  31:11

You know, Volume Two is how to develop relationships with investors. That is the least understood skill of all of the syndicators that I've met. You know, I think that the trainers that are out there and doing a really great job of teaching people, the mechanics of finding deals and doing analyzing deals and getting them to the closing table, but then you know, the elusive part is how do I get those investors so they're ready when I need them. And the only way you do that is to dedicate yourself to meeting as many people as you can, and developing relationships with those people. And if you're not the kind of person that wants to do that, then you have to team with somebody who is you know, so creating a team of people that have the right skill sets in and realizing that this is a bifurcated business. You know, one part of the business is finding and getting the deals and overseeing the deals. The other part of the business is finding and developing relationships and, and dealing with your investors. And once you master that, those that do master that and create, you know, the marketing systems that are necessary to sustain those relationships, those are the people that really do well for the long term. But those that don't take the time and they in, you know, create the databases and figure out a way to keep in contact with people through newsletters, and drip systems and all of that stuff. Those people are left behind because they get to a point where they, they don't have enough investors, and then they start making kind of dumb decisions. You know, some of the decisions that I hear a lot of people talking about, oh, well, I just bring in these capital raisers. And you know, when you start bringing in people whose job is to raise money for you, then you start treading into Very dangerous waters, from a security perspective, because it's illegal to pay finders who are outside of your group to or outside of your company to raise money for you, unless they have a securities license. And it endangers not just them, it doesn't insure them because they're technically acting as an unlicensed broker, but it also endangers the syndicator, who pays them because they're in danger of losing their exemption for paying unlicensed brokers. And in both cases, you know, the penalties can be dire, you know, there can be huge fines, there can be litigation, there can be investor lawsuits, there can be forced recisions where you're forced to give everybody's money back. You could be banned from ever raising money again. So whatever job you had before, you know, dust it off and go back into it, whether you like it or not, because you still got to make a living and you can't do this anymore. So you know, it's not worth taking a chance, you know, read the book We actually created a spin off division from our law firm called investor marketing materials. com that creates investor marketing materials so that you know these, you know, syndicators and people who are wanting to get in this business people who've been in the business and just need to step up their game, have professionally edited and designed marketing materials to hand to their investors when they need them face to face so that they can compete with some of the bigger private equity funds and hedge funds and the other people who are out there with big marketing budgets.

Taylor   34:36

Interesting so investor marketing materials com that'll be in the show notes for anybody who doesn't feel like punching that ended. So one something to to click on. So have you seen or or is there anything on the horizon with regard to the SEC taking action on this? I mean, one example right now in my mind of Richmond, Virginia. There's a gentleman in being taken to court by the SEC for now, he was allegedly committing fraud, which is very different from a registered broker dealer type of situation. But the point of that statement is that the SEC is out there taking action and acting on investor complaints. Are you seeing them taking action or looking at or I mean, you don't have a crystal ball, right. But are they looking at this right now? What do you see? Well,

Kim Lisa Taylor  35:36

you know, it's interesting, because it seems like every year the SEC determines kind of towards the beginning of the year what's going to be their focus for the year, you know, fury A few years ago, it was insider trading, and, you know, so they, they pick what's going to be their passion for the year and then they start to really dig into it. And, you know, I haven't seen him pick this as their target. You know, I don't know that they will in the near future, but it's always a possibility. But it's not just the SEC that you have to worry about, you know, the SEC usually goes after the big fish, you know, people that really steal a lot of money. Just watch American greed, right? It seems like they only get after people to raise 15 of those still $15 million or more or some, you know, some crazy number. But you know, that goes after the little guys are the state securities regulators. Every single state has its own securities agency, and they will go after people for small stuff. I've seen them send letters to people, they're like, Hey, you borrowed money from two people in our state. Tell us what exemption you use to do that and show us all the paperwork that shows you have the right to do that. We don't have any record of you filing or say, you know, so along with having the right securities offering documents, you also have to do filing so you know, be careful if there's any do it yourselfers out there are people who are you I'll just grab somebody else's documents and change them for my deal. That's, that's a minefield. There are securities, notice filings, they have very strict deadlines, you have to file notices with the SEC, and then also in the states where your investors claim residency and you have 15 days from when their funds become irrevocably committed to do that. And if you don't, then they can, you know, say, hey, well, you didn't follow our rules, which required you to file this notice with us within 15 days. So therefore, you don't get the exemption in our state and now we're going to do an enforcement action.

Taylor   37:35

Wow, what is considered to be funds being irrevocably committed? Is that closing on the property?

Kim Lisa Taylor  37:43

Well, it depends on what you say in the what's said in the offering documents because the offering is this is from the SEC they said it, you know, the offering documents, if they are silent on the issue, and I'm best cc is going to take the most conservative approach and they're going to say when you receive the funds, right But if you, you know, write it into your documents that say, or you know, it's written in your documents that say that, you know, the funds aren't considered or vocally committed until we close on the property, because up until that point, if somebody came to us and said, We need our money back, something's happened, then you would give it, you know, and you'd find another investor. And, you know, as long as that's the case, those funds are not irrevocably committed, and to close on the deal, but certainly the point at which you've used them, and if somebody came to you and said, I really need to get out, can you help me? And you have to say, I'm sorry, the money invested in the deal? It certainly has happened at that point.

Taylor   38:33

Wow. So that's definitely good to know. I did not, I did not know obviously it makes sense when people would say, Oh, I need to get my money back. When you could say in the documentation, your funds are committed the day we get them or the day the property is closed, or something else like that. It makes sense. Obviously, somebody says I need my money back then you have that on the paper. Sorry, no, this is what you agreed to. We can't do it. Didn't know that on the securities regulation. And so that's definitely good another but I also don't, you know, this is why we hire securities attorneys.

Kim Lisa Taylor  39:11

So we're not sitting next to you in your office. So we don't know what happens, you know, so, you know, we're trying to beat it out of people to have them send us their list of investors after closing and saying, look, you know, we've got to get these things filed, or you're going to lose the exemption and all the money and status and all the things that you've done to comply with the laws is going to be for not, you know, and and, you know, the rule 506 exemption is, is considered a safe harbor, you don't necessarily have to file the notice in with the SEC to be able to claim the exemption, but it just becomes a bigger burden, because it's like, well, you didn't do this, what else didn't get you? You know, so now you've got an uphill battle. Whereas if you did it in the first place, and you comply with the law, then you'd have an easier time and convincing them that you know, you compiled as well as you could in all respects. And again, the status Here's what the states want, they want the notice, but they also have fees associated with their filings, they want the fees. And so their rules say hey, we'll allow the rule five or six exemption in our state as long as you comply with all the rules of the Bible six exemption, and you file a notice with our in our state, whenever you sell him sell securities to investors in our state, and you do it within our timeframe. So as long as you do that, and and you know, they've made it fairly easy to do it. So you know, some states still require paper filings and the check the sand, but very few, most of them have gone to an electronic system where it's all in, in one place, we just go and check the box of you know, what the states are and, and they tell us what the fees are and then then then we are able to just follow the notes. I know but the other thing is realizing that you know, you can't raise money forever. you're offering usually has some stop deadlines, right? It's usually going to be written in and the SEC is going to require that if you're going to keep raising money for more than one year that you have to do an amended filing and let them know. It has to be filed before the anniversary of your offering. And that anniversary is going to start in a usually it's going to be the date on the front cover of your private placement memorandum.

Taylor   41:17

Just taking a note on that, that's definitely good to know for some specific reasons that are in my head. So great. We're going to take a quick break for our sponsor. All right, so I've got three questions we ask every guest on the show. Okay, ready? Yes. All right. First one, what is the best investment you ever made?

Kim Lisa Taylor  41:41

Um, certainly, I think the the mentor training that I got, you know, paved the way for me to come into this area of the law. So I would say that that was a really good investment for me.

Taylor   41:53

Yeah, it's a great organization. I mean, there were there, one of the biggest especially in the syndication space, and if you got in If I recall from what you said around 2009 I mean, that was kind of 7008. Wow, that was for my understanding pretty much the ground floor ish. Yeah, that. Yeah, that's great. On the other side of that, what is the worst investment you ever made?

Kim Lisa Taylor  42:19

I bought, I bought a rental house in Cleveland with the idea that my stepdaughter was going to manage it as a vacation rental

Taylor   42:30

that you still have it did not pan out.

Kim Lisa Taylor  42:34

It's actually in escrow right now. And it's supposed to close in December.

Taylor   42:40

You're about to be free of it. By the time this goes live, you'll absolutely.

Kim Lisa Taylor  42:44

But the other really weird and interesting thing about that is that one of the reasons we The reason that we actually even bought the house was because we had a property in Ohio that we needed to refinance and no lenders would talk to it. It was in Columbus, and so We, we bought this property just kind of out of the fluke. And then all of a sudden all these lenders are like, Oh, you have property, I will give you a loan. So we were able to get our other property refinanced because we own a different house. And we had to buy a house property refinance. Wow. Sorry.

Taylor   43:18

Sometimes the hoops you have to jump through can be onerous, or silly.

Kim Lisa Taylor  43:25

Yeah, but you know, it did cost me dearly over the years. Blood, sweat and tears, trust me.

Taylor   43:33

Well, by the time this goes live, you will have sold that property. So if you come back and listen to this, congratulations, you're out of it. Thank you. So well done.

Kim Lisa Taylor  43:44

We also saw the other property in Ohio too. And that was pretty good to get rid of. So good. Yeah, that was an interesting lesson.

Taylor   43:54

Was it there related to buying in Ohio Do you think I mean, I'm a hesitant about that Ross by

Kim Lisa Taylor  43:58

myself. Hey, Was it timing? Well, first of all, I came from Michigan, so I was hesitant about investing. You know, the people, they're fantastic, but the opportunities are unique and interesting. But yeah, we learned a lot of lessons about investing in Ohio, but we happened to buy that property in 2008. So the timing was really bad. And, you know, we, we kept it for years and years and it did, okay, you know, at times required some, some funds from us that we were like, I don't want to do that again. But we did. And eventually, we all resolved it. And we made some money and we paid off for investors and they made some money. So everybody was happy. But yeah, my husband was the one who managed that for nine years. Wow. You know, it was an ordeal.

Taylor   44:52

Wow. And you invest investors in the deal too so that makes the ride even rougher because you're, you know, having a hard time. I don't know if you're, it's put it this way. But if you're losing your own money, it's one thing if you're losing somebody else's money, it's way worse.

Kim Lisa Taylor  45:10

Yeah, well, and these were really great friends, you know. So like, we don't and they were, they were wonderful, but, you know, wonderful and patient. So it all worked out. And we learned some important lessons about that property, as well.

Taylor   45:24

Well, that's good. That leads to my favorite question, the last one, what is the most important lesson that you've learned in business and investing?

Kim Lisa Taylor  45:35

You know, perseverance, you really you know, you need to spend a lot of time learning and continuing education and continuing to get out there and meet as many people as you can. You know, every time I meet somebody new I learned something new from them. Every time I read a new book, I learn something new and all of these things help, you know just invigorate you, keep your interest And keep moving forward. And I think all of that's very important, but I would say, also having a coach, you know, having a coach in different aspects of your life. I have a law firm coach. You know, it's been very important.

Taylor   46:15

Nice that I found that the most successful people I know, when they read a lot and two, they tend to have a lot of coaches. Not all of them, but most of them have a few coaches.

Kim Lisa Taylor  46:27

Yes. Yeah. And I can see that.

Taylor   46:30

Yeah. Something they don't teach you in school, that's for sure. As you need to keep learning.

Kim Lisa Taylor  46:34

Yes, absolutely.

Taylor   46:36

Yeah. Well, thank you for joining us today and all the lessons where people can get in touch with you to learn more, you know, pick up a copy of the book. All that

Kim Lisa Taylor  46:44

Oh, gosh. You know, our website at syndication attorneys calm has a library that is chock full of all kinds of articles, frequently asked questions, recorded, tell seminars, we do a free monthly teleseminar. In fact, we're going to be doing One on this Thursday. So we do these free monthly teleseminars you want information about that you can email info at syndication attorneys calm and we'll get you the invitation to that. But yeah, there's a lot of information there. There's also a way to get a free copy of the book. If you want a free digital copy of the book you can get that at syndication attorneys calm while you're there. Click on the link that says what is it called now it's the online store, click on the link for the online store and that's going to take you to the investor marketing materials. com if you don't have a deal right now, this is when you should start working on your investor marketing materials and developing your investor relationships. And we even have like a, you know, a very low cost program where you can become a client and we can start coaching you on developing those investor relationships through our Facebook Live group. So you know we've had a lot of opportunities. So most of it you can find through our website syndication attorney calm You can also make an appointment. That's

Taylor   48:03

cool. That's a lot. There's gonna be a lot of links in the show notes. So a lot of great options there. Thanks again for all the lessons today and taking some time with us. It's evening time that we're recording this. So thanks for burning the midnight oil with me.

Kim Lisa Taylor  48:17

All right. Thank you, Taylor. Hi, pleasure.

Taylor   48:20

happy to talk with you again. And to everybody out there. Thank you for tuning in. If you're enjoying the show, please leave us a rating and review on iTunes is a very big help you know anyone that could use a little bit more passive wealth in their lives if they want to learn more about real estate syndication. Please share the show with them and bring them into the vault. Once again, thank you for tuning in. I hope you have a great rest of your day and a great week and we will talk to you on the next episode. Bye