On this episode of The Mobile Home Park Lawyer, Ferd finishes up his mini-series on syndication by explaining reporting. Ferd talks about what goes into a report and why it is important to have good communication with investors. Enjoy!
0:00 – Intro
1:37 – You have to be prepared and know what the reporting is going to look like, Ferd shares a story about a deal he currently is in
3:01 – Ask the syndicator what kind of reporting they do and get some references
3:17 – You need to do investor calls
3:53 – The Key is the investor reports
4:06 – Typically there’s a narrative
4:21 – Ferd includes maps
4:30 – Ferd includes the rent roll, the trial balance and the profit and loss
4:59 – He also includes a monthly balance sheet
5:05 – You have to report your tax returns too
6:08 – Reporting is important but not complex
Welcome back mobile home park nation. Here today covering syndication one more time. This is going to wrap up our little mini-series here on syndication. Again, syndication in short, it’s a promote, a sponsor, syndicate. It’s basically you’re raising funds for real estate investment, and there’s two types of people. There’s the general partner people or entities. And then there’s the limited partner. If you’re the syndicator, you’re the general partner and basically you got to watch out, you got to know the basics. You got to understand the financial metrics. You got to make sure you’re following the law properly, SEC regs. We’ve covered that.
And then you need to know how to operate the spreadsheets and do the math, or at least somebody in your team needs to. And if you’re a limited partner, you need to really dig into who your syndicator is, make sure he or she is credible and make sure they have experience. Make sure they have skin in the game that your interests are aligned. Make sure you, and they understand how the investment supposed to work. And the one last thing for today is you want to understand what the reporting is going to look like and reporting meaning after the assets purchased, you know, what kind of communications are going to be between the promoter, the syndicator and the limited partners. I sold a mobile home park to a fund, I don’t know, three years ago. And I’m part of the fund. I had to be part of the fund as part of the sales. I left like 65 grand in the deal. And you know, we own five more parks there, but I’m not the managing partner on that. In the limited part, the man, the managing partner is a group of three guys in that are just horrible.
Two of them in particular and they’re breaking all kinds of rules, SEC rules, IRS rules, loan covenants, operating agreement rules, local rules, there’s huge pain. But for me as limited partner, the downside and even more so, they have zero communication and I don’t know what any of them are doing, you know, when I get a little free time, maybe I’m going to Sue them and bust their balls a little bit. But in the meantime, it’s not enough money. The juicing in order to squeeze for me to stop what I’m doing to go pursue that at this juncture.
But I don’t have a choice in that example, but you guys limited partners, you have a choice and who you invest with and you want to ask the syndicators, what kind of reporting you do and you want to talk to there, some references, some other investors. You want to get a sample report from another project. And that’s just a key responsibility in my opinion, as a syndicator.
And what do you have to do? I mean, you got regular things like investor calls. I think Sam Hills was telling us on our podcast weeks back, they do an investor call weekly. That’s really impressive. Some other groups I know like Worcester fund, who I’ve done some business with, they, I think do monthly for their group. That’s good. Sometimes you just have individual. If you can have individual PPMS, you probably don’t have a weekly call or a monthly call. You’d probably just answer the phone when your investors call. And that’s how most of us kind of start out as you just do a one-off project and you fund it with two, three, five, ten people, people or entities. So, you got the calls. Then the key, I think is the investor reports. We do these monthly. I mean, we do our bank recs twice a month and our P and L’s once a month. So, we might as well in our mind do the reports monthly, but the industry standards probably quarterly.
And what’s in the invest report? Typically there’s a narrative telling the story, what’s up, highlights, low lights, you know, financial summary paragraph, maybe a leasing status update if you’ve got a heavy infill or maybe a construction update, if you’ve got some construction. So, there’s a narrative. We include maps, you know, cause typically we do a lot of heavy infill and the map tells the story, you know, colors and changes and things like that. We submit the rent roll, which shows the occupancy and then also the delinquency. And then we submit the trial balance and then we do a profit and loss. If you got more than one entity, typically in a syndication, I’ve got the investors entity, which is the parent of the two subsidiaries, the homes entity, and the land entity, the investors entity really doesn’t have much from a transactional standpoint. It’s the two subsidiaries to do. So, we turn into monthly P and L for all three of those entities. And then similarly these turn in a monthly balance sheet for all three of those. So, the financial statements are really the key.
And then the other thing you got a report is, you know, your tax returns. So, you know, I try to get the tax returns out as fast as I can, cause I’ve got other properties I’m a silent investor in, or I was an active investor in some of them on the retail side in years past, but I was the minority partner. So, I didn’t have control over when the tax has got done and my partner had 50 entities. So, he was always, you know, pushing up on that October 15th deadline. So, you know, it’s supposed to be April 15, but you can get an extension to October 15. I try to get the K1’s out the door in January. Just fast we canceled it. I’m not the bottleneck slowing down the team. Obviously, my CPA firm is going to be, you know, part of that as well and their timelines, but typically tax returns and LLC, most of the LLCs are taxed and formed as partnership taxation status. You can also do Scorp, but that’s pretty rare other than like a management LLC or something.
So, from a syndicator standpoint, you probably do a form 1065 tax return. And then you’re sending K1s to every individual investor. And that’s really it. I mean, the reporting is important, but it’s not that complex. There’s a lot that goes into it, but ultimately, I mean to be a good syndicator, I think you need to understand the basics, understand the math, understand how to work the math and the formulas in your spreadsheets. So, you can better audit your financial team or be the financial guru on your team. And you got to make sure you’re navigating on the laws properly, which means proper disclosures, proper documentation, make sure you’re only letting in sophisticated and or accredited investors depending on the type of the fund offering. And then ultimately that you’re going to have strong reporting. That’s pretty much it. It’s been nice to talk to you all on this syndication. Be safe, have fun. God bless.