One Lawsuit Could End Your Real Estate Career

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0:00 Introduction and Guest Background
3:29 The Most Common Lawsuit in Real Estate Syndications
7:42 What Keeps GPs Up at Night (And Why You Must Disclose It)
10:07 Step-by-Step Guide to Setting Up Your First Syndication
13:03 506B vs 506C: Which Path Is Right For Your Raise?
18:18 The Accredited Investor Debate: Should You Even Accept Non-Accredited Money?
22:10 Quick Question Round: Education, Advice, and Market Picks
27:49 The Most Effective Way to Raise Capital (According to a Securities Attorney)

PROTECT YOUR REAL ESTATE EMPIRE WITH PROPER LEGAL STRUCTURE 🏢⚖️
Getting sued in real estate isn't a matter of if, it's when! In this critical episode, I sit down with Nick McGrew from Polymath Legal, a securities attorney who specializes in real estate syndications and also invests in multifamily himself. Nick reveals the insider secrets that could save you from devastating lawsuits and regulatory nightmares as you scale your portfolio through syndications.

UNDERSTANDING THE BIGGEST LEGAL THREAT TO YOUR SYNDICATION 💼

Nick drops a bombshell early in our conversation about the number one reason real estate syndicators get sued by their investors. It's not property damage or tenant issues, it's disclosure failures! When deals go sideways and investors lose money, they immediately start looking for someone to blame. Nick explains how operators who fail to properly disclose risks in their Private Placement Memorandum become easy targets for litigation. The solution? His PPM documents are designed to scare away investors who can't handle the risk, which might sound counterintuitive but actually protects both parties in the long run.

THE SYNDICATION SETUP PROCESS DEMYSTIFIED 🔐

For investors ready to make the leap from solo deals to raising capital, Nick walks through the entire syndication setup process. He explains why you're selling a security when taking passive capital and the critical difference between 506B and 506C exemptions under Regulation D. The 506C route allows unlimited advertising to accredited investors only, while 506B permits up to 35 non-accredited investors but requires pre-existing relationships and no general solicitation. Understanding which exemption fits your investor network and capital raise goals is absolutely crucial before you start taking checks!

VERIFICATION REQUIREMENTS AND LIABILITY PROTECTION 📋

One of the most valuable insights Nick shares involves accredited investor verification for 506C offerings. Self-certification isn't enough under SEC rules! The operator must either personally verify financial documents or use a third-party verification service. Nick strongly recommends the third-party route because it significantly reduces your liability exposure. If the verification company makes an error, you've still taken reasonable steps to verify status, which is the SEC standard. This simple decision could save you from regulatory penalties down the road.

THE DISCLOSURE PHILOSOPHY THAT PREVENTS LAWSUITS ⚠️

Nick's approach to PPM creation is fascinating and counterintuitive. He actively asks his clients "what keeps you up at night?" about their deals, then ensures those exact fears are disclosed in the offering documents. Whether it's dependence on major employers in a market, global warming impacts, or even pandemic risks, everything goes in the disclosure section. His philosophy is that documents should inform investors so thoroughly that risk-averse people self-select out of the deal. Better to lose a potential investor upfront than face a lawsuit later when an undisclosed risk materializes!

The episode wraps with Nick's recommendation for Regulation D 506C as the most flexible and efficient capital raising structure for most situations. The ability to raise unlimited capital from unlimited accredited investors with internal compliance requirements (no SEC pre-approval needed) makes it incredibly powerful for scaling your real estate business quickly!
#RealEstateInvesting #Syndication #RealEstateLegal #CapitalRaising #RealEstateInvestor

Want to learn more about our guest? Connect here: https://www.polymathlegals.com or follow @NicTheLawyer on social media
Want to learn more about the REI Club Podcast, how to invest with Gabe at Kaizen, or join our community of active real estate investors on Skool? Visit the podcast website at https://www.therealestateinvestingclub.com or click here: https://linktr.ee/gabepetersen