Looking to invest in real estate but finding yourself short in funds? Crowdfunding can be a great option for you, but it can cause you serious problems if not done properly. Joining Monick Halm is Jillian Sidoti, a crowdfunding and syndication attorney and a founding partner at Crowdfunding Lawyers. Jillian explains the concept of crowdfunding in syndications and how to do it legally. She introduces some good crowdfunding platforms for both accredited and unaccredited investors. She also emphasizes the importance of hiring a competent securities attorney to sort your paperwork and help you avoid legal problems as you enter into crowdfunding deals.
Listen to the podcast here:
Crowdfunding And Real Estate – Interview With Jillian Sidoti, Esq.
I’m excited to have our guest. She’s an expert in the real estate investor herself and an expert on bringing groups of investors together to purchase property for crowdfunding. For many real estate investors, there comes a time when we find ourselves limited by our capital and credit, and we want to leverage other people’s money in win-win ways to purchase properties. Our guest is an expert on how to do that legally. Jillian Sidoti is one of the country’s leading experts on crowdfunding. Her firm, CrowdfundingLawyers.net, focuses on securities transactions with an emphasis on servicing the small business and entrepreneurs providing PPM or Private Placement Memorandum, Regulation A filings, and small public offerings. Prior to her legal career, she owned and operated a record label enabling her to tour worldwide with artists who worked in commercial development and held various positions in the financial field in manufacturing, real estate, and financial services. She has also taught finance and accounting for the Bachelor of Science and MBA programs at the University of Redlands. I’m excited to have her. Welcome, Jillian.
Thank you for having me. I appreciate it.
The pleasure is all ours. You help real estate investors when they’re doing their vacation, but you’re also a real estate investor yourself. How did you get started in real estate investing?
This is a true story. I was touring with a band and we’d broken down. To me, that was the last time. I wasn’t having it anymore. We’re sitting on the side of the road in Nebraska and I determined I didn’t want to live that life anymore. I kept thinking there’s got to be a better way. I looked around to see what was out there and it was real estate. Around 2003, I had this epiphany and thought that I have to get into real estate. I got myself back into law school because, at the time, I had dropped out. I went around to every real estate investment firm in Southern California and asked them for jobs until one gave me one. That’s how I got into real estate investing. I didn’t know this world of real estate education existed out there at the time. Even if it did or I knew about it, it wouldn’t have made a difference.
I wouldn’t have been able to afford any of it because I was in law school at the time. I went a different route and tried to get a job, and I did. I went in headfirst and because I have a background in finance, I started doing books and records for a real estate firm here in San Diego. We did condo conversions, and that’s like drinking from a firehose when it comes to real estate investing. You’re not only buying an existing multifamily building, but you are also bringing it down to the studs, so you’re demoing it. You’re remapping it, so you have to do a whole thing with the government, county, and city. You then have to rehab it and sell it, but you’re not selling it as one whole unit as you bought it. You’re instead selling it as individual units. It truly was the best education I could possibly ask for when it came to real estate investing.
You got a graduate-level education in real estate investing. What was the first real estate property you bought?
We were buying big apartment buildings and things, but the first thing I bought outside of the firm itself was my primary residence. After that, I started looking around for a variety of things. I started buying into limited liability companies that were buying apartment buildings because they knew apartment buildings and where it’s at. I bought a bunch of townhomes and a duplex in Ohio. I bought notes. I’ve invested in mobile home parks and self-storage facilities. I’ve invested in some other commercial real estate assets through some syndications that were out there that I thought was worthwhile, and then a couple of other single-family homes. I’ve done what I can to get my hands into in terms of real estate.
You have a wide variety of asset classes that you’re investing in. Are you managing any of them or have them as part of crowdfunding or syndication? How have you invested?
I’m in escrow for another property that I’m buying myself. The properties I referenced are in Ohio. There are four of those. I own those on my own, and then I have management in Ohio. Truth be told, I have realized that I am not a great active real estate entrepreneur. I am a better passive entrepreneur. Since I have this law firm that is paying my bills and gives me an opportunity to see all kinds of deals, I’m not willing to give that up to be an active investor. I found that being a passive investor is where it’s at for me despite the fact that I am buying a small duplex here in town. I’m only buying that because it’s close by. I can see it, touch it, go over there, and bang heads if I have to, but overall, I prefer to be passive in my investing.
You’ve come at it from many different angles. I love how you have this expertise that’s buried in real estate. You’re talking about passive and active investing. For the person who may not quite understand those terms, can you describe that?
A passive investor is somebody who finds the deals that they want to get into but somebody else is at the helm of taking care of what’s going on. They’re in the day-to-day management and the position to manage, rehab, sell, and acquire the property. Everything that has to do with doing something to make the property cashflow, work, or what have you. As a passive investor, I don’t do any of that. I write a check and wait. The disadvantage of that is that I have no control. I’m not good at having control, so I might as well go to somebody that knows what to do.
That’s an advantage for some. My readers know I do a lot of syndications. I’m an active syndicator. I bring groups of investors together to invest in different properties. I also have passively invested in a variety of other syndications. There are benefits and minuses for both. You’re a crowdfunding lawyer. Tell us a little bit about crowdfunding in the context of vacations or maybe even those crowdfunding sites or syndications. How would you describe crowdfunding when it comes to real estate?
Here’s the thing about crowdfunding. It can mean many different things. The concept of crowdfunding is going to the crowd, getting money from them, and saying, “Do you want to invest with me, crowd?” A huge thing about that is that you have to understand that you can crowdfund a syndication. As a matter of fact, I’ve invested in some syndications that were crowdfunded. For example, in the early stages of a big crowdfunding company called Fundrise, I invested in some of their early syndications. RealtyMogul did some of those as well.Doing your own private placement memorandum is like giving yourself an appendectomy. It’s a bad idea. Click To Tweet
A lot of those are moving towards fund formations where they’re buying multiple properties in one crowdfund or one company, so I invest in those as well. If you have never invested in real estate before and you’re looking to get into real estate investing, these crowdfunding websites offer an amazing opportunity for you to do it. The crowdfunding platform is vetting these companies for you ahead of time and doing a lot of the work for you to make sure that it’s something worth pursuing. If you don’t want to be an active investor, such as myself, then that’s another great way to get into real estate investing.
There are these crowdfunding sites that some of them require you to be an accredited investor. Are there some that are open for non-accredited as well?
Absolutely. You have to find the right website. For example, if you go to a website called SmallChange.co or DreamFunded.com, those are both websites that take in unaccredited investors for their deals. I don’t know if any of the other websites are starting towards that, but those particular websites have opportunities. RealtyMogul also has a Regulation A+ that I have invested in as well. Fundrise has several Reg A+ that I’ve invested in. For everybody out there, Regulation A+ filing is a mini-IPO or mini public offering. They’re open to everybody. If you wanted to check those out and you’re not an accredited investor, that would be where I would start.
I forgot to explain the term accredited investor because not everyone understands that either. Do you want to tell what that means?
An accredited investor is somebody who makes $200,000 a year as an individual, $300,000 a year as a married couple, or has a minimum net worth of $1 million, exclusive of their primary residence. It’s an either/or situation. You don’t have to have all of those components. Those are the things that you have to have in order to invest in some of these crowdfunding platforms, but not all of them.
That’s the crowdfunding side. Let’s talk about more of the private placements and other syndication sides. Explain a little bit about how those work.
Syndication is when you’re taking one single property and saying, “I need money for this.” Let’s take a $5 million deal. If you’re purchasing a $5 million building, you’re more likely than not going to need at least $1 million to put down, and 9 times out of 10, you’re not going to have that $1 million down. Most of us don’t have $1 million lying around, so where are you going to get it? You’re going to have to go out and raise that money from private investors. What you need to do is have what’s called a private placement memorandum, which tells the investors exactly what it is that they’re getting into. It provides what I refer to as the three Ds, Disclosure, Disclaimers, and Details. It provides those things as a means to fully inform the investor as to what they’re getting into. This is a huge blank I’m about to make here, but anytime you’re investing or somebody says to you, “Can I invest? Will you invest with me? I want you to invest in this real estate deal with me.” The thing you should be asking them for is a private placement memorandum.
If you’re the active investor in this situation or the one putting together the deal and then you go to your friends, family, and your network and you say, “I found this great $5 million building. It’s going to be bringing back 10% a year,” and they want to invest. As an active investor, what do they need to do from a legal standpoint?
That is exactly what they need to do. They need to go to a security attorney and don’t try to do this yourself. By the way, I’m a cheap person. I don’t like to pay for anything. I prefer to do things myself, but there are some things that I should not do myself. For example, give myself an appendectomy. That’s a bad idea. I liken that to doing your private placement memorandum. It’s a bad idea. Don’t do it. Who do you want to turn to? You want to turn to a securities attorney, like myself, to help you out with it. Another thing I want to say is I’ve talked about a lot of the investing I’ve done. I’ve not just done investing, but I’ve also received my CCIM, which designates me as an expert in commercial real estate.
Your best bet is to find someone like me or me, that is not just somebody who knows securities but also knows the real estate market so that they can hold your hand through the whole process, especially if this is your first time. That’s what we specialize in, the first-time people who have never done this before and don’t know how to chart the waters, in terms of raising private capital. I want to encourage you to find someone who is an expert in securities and real estate. That attorney will help you put together your documents, which will probably include that private placement memorandum.
It will probably include an operating agreement. Most likely, you’re going to be operating under an LLC. It will include a subscription agreement and that’s the agreement between you and the investor that says, “I understand what I’m getting into. I have read the private placement memorandum. I’m agreeing to invest under those terms and conditions.” Finally, you’re going to also have to file what’s called a Form D, and the Form D is most likely going to be filed by that securities attorney as well to help you move in the right direction.
I want to underscore what Jillian has said because I am not just a real estate syndicator, I’m also an attorney myself. I was a corporate litigator for many years. I would never ever do my syndication paperwork. I’m not a securities attorney. It’s more like doing brain surgery by yourself. If you go to an attorney, it needs to be the type of attorney that knows this. It’s like going to the podiatrist for your brain surgery. You don’t want to have a foot doctor doing your brain surgery. You want somebody who knows exactly what they’re doing. You do want to go to somebody like Jillian, who knows securities and real estate and can help you put together these filings. Otherwise, you could end up owing lots of money to the government or jail.
Jail is the worst part, but no one wants to owe money to the government.
Instead of making the money you wanted on your real estate investment, it can be an expensive and painful thing if you don’t do it correctly.Ask people what their successes are. You’d be surprised how much free advice people are willing to give. Click To Tweet
You want to take a look at those documents. If you’re an active investor and you’re looking to raise money, you want to call a securities attorney. A good securities attorney is going to give you some time. They’re going to understand that if this is your first time doing it, they’ll give you a chance to ask some questions before you dive into it, figure out and navigate what you’re going to do, and also help you form that deal for the investors. It’s important to make sure you come out of the gate with that. Not just with it correct, but also with a level of confidence that you know what it is that you, the active investor, are selling. That way, you don’t get taken aback by questions that perhaps a potential investor asks you and that you don’t know how to answer it or you lose confidence. You don’t want to do that. Find a securities attorney that will help navigate those things with you and guide you, in that regard.
Back to your personal real estate investing. I love to ask this question because I feel like we learn more from our mistakes than when things go super well. What was your biggest mistake in your real estate investing career and what did you learn from it?
My biggest mistake in my real estate investing career would have to be lacking patience, not understanding market cycles, and that the market will come back. As a matter of fact, there are three properties I purchased in the state of Ohio. After I bought them, I almost immediately regretted buying them. There were all kinds of problems. There were issues and I had issues with management. This goes back to me being a better passive investor. In hindsight, I did have some level of patience, fortunately, but there was a lot of personal angst where I got incredibly stressed out about those particular properties. It was all for naught because I bought it when the market was low. Those properties are worth three times what I purchased them for, each one. It’s a matter of understanding, “The market will come back. You have to be patient. You have to prepare. You got to know your numbers.” That was probably one of the more stressful times in real estate that I’ve had, which was the lack of patience and not understanding that I had to be patient.
That’s a great lesson and good advice. Be patient and know your numbers. What other advice would you give to a woman just starting out in real estate investing?
The big thing would be to ask questions of people who you know that might have the answer. You’d be surprised what people are willing to provide you in terms of free advice. People love to talk about their successes. Ask people what their successes are and what to do. Don’t waste and take advantage of people’s time either. Be mindful of that. I feel that as a lawyer. Lawyers and doctors are always getting asked for advice and real estate entrepreneurs are no different. You’d be surprised at the people out there who will give you free advice. One great place to go and find that free advice is BiggerPockets, Facebook, and LinkedIn. There are all kinds of people who are happy to answer any questions that you have. I would not hesitate to ask questions and converse to that. Also, don’t hesitate to answer people’s questions. No one’s going to steal your amazing ideas. Keep that in mind. Be a giver when it comes to information and help as much as you can. It will come back to you, I promise.
Thank you for being such a giver and giving great information. For people who want to find you, what’s the best way to get in touch?
Check her out, especially if you are thinking of syndicating. We have time for a quick trinity, which is a brag, gratitude, and desire. What’s one thing you’re celebrating?
I got to be honest. My kids are amazing. They’re awesome. I have three of them. I have three boys. They bring me joy and they’re fun, so that’s my brag. My kids are cool.
What’s one thing you’re grateful for?
My husband, who stays home with those kids, so I can work and invest in real estate.
Lastly, what’s one thing you desire?
I want to learn to manage my own time better and become a more focused and meditative person. I try to meditate every day. I pray and hope that it centers me, kicks in, and shows me what life is all about, what’s worth, and not worth my time. Time is the one thing you can never get back.
So shall your desire be or so much better than you can imagine. Thank you for this great interview. You can find Jillian Sidoti at CrowdfundingLawyers.net. If you want to connect with me, you can find me at RealEstateInvestorGoddesses.com or on our Facebook page, Real Estate Investor Goddesses. Check us out. We have a free eBook that’s available on the website. It’s called The Real Estate Success Blueprint: 7 Crucial Steps Every Woman Must Take to Be a Successful Real Estate Investor. That’s there for you and lots of other goodies. Thanks again, Jillian. You can check our next episode for another great Real Estate Investor Goddess interview. Bye.
- [email protected]
- Real Estate Investor Goddesses – Facebook page
- The Real Estate Success Blueprint: 7 Crucial Steps Every Woman Must Take to Be a Successful Real Estate Investor
Love the show? Subscribe, rate, review, and share!
Join the Real Estate Investor Goddesses Community today: