After some critical thinking and planning, you have decided to ramp up your real estate investing. Now is the perfect time to increase your portfolio, acquire assets, get involved in development projects, and even create a real estate investing pool. But, what goes into putting together such a venture? And, what are the requisite legal pieces to the puzzle that must be put in place first?
Well, first and foremost, if you decide that real estate is the right option for you, and you want to raise private capital as a way of accessing it, you'll need to create a private placement memorandum or PPM that directly relates to the property or fund that you'd like other people to back on your behalf. Just as private placement memorandums exist for startup equity, and other opportunities, there are PPMs for specific purposes such as real estate ventures as well. These solutions allow investors to back the particular assets in question, and give you the opportunity to raise the funds that you need for your real estate venture.
So how does it all work?
What Is A Real Estate PPM?
A private placement memorandum, or PPM, is a form of documentation that discloses everything an investor should know when making a decision on whether to provide funding. Separate and distinct from the conventional business plan, a PPM will detail the various aspects of the investment option, disclaiming legal liabilities, and providing the underlying risk factors that may be associated with the venture.
Real estate PPMs may include data about:
- the offering structure;
- expected location of the real estate assets;
- the type of real estate, such as residential or commercial;
- the criteria used to identify the real estate assets;
- the bios of the people involved;
- and other information about the intended real estate asset mix.
The PPM should also include a subscription agreement, investor questionnaire, and, in the event you intend to issue debt rather than equity, the form of debt or note to be purchased by investors.
Private placement memorandums are crucial because they offer the vital information an investor needs to make a crucial decision about their involvement with the future of a real estate enterprise. What's more, because they are "stand alone" documents, individuals only need to have a professionally drafted PPM as the self-contained instrument to help the investor make an informed decision.
Benefits of a Real Estate PPM
Having a PPM in place can be a huge benefit for people looking to take part in a real estate venture. Perhaps the biggest advantage of dealing with a private placement memorandum is that it helps to limit liability for the companies or entrepreneurs operating the real estate venture by assisting investors in understanding clearly the risks involved. What's more, depending on the set of REG D rules a sponsor chooses, a real estate PPM can raise up to $1 million with a small number of investors, or tens or even hundreds of millions of dollars with many investors.
Because investing is a stressful situation for every party involved, PPMs can help to facilitate trust between real estate venture and investor by demonstrating thorough disclosure with a professional presentation. This can allow for peace of mind, and be the beginning of a very valuable relationship.