How To Structure A Real Estate Syndication That Can Legally Raise Money

Comments are off for this post.
by PPM LAWYERS
How To Structure A Real Estate Syndication That Can Legally Raise Money

Discover the legal foundation behind real estate syndications that attract investors and stay compliant with SEC regulations.

Real estate syndication is one of the most powerful ways to raise capital for large property deals. Whether you’re acquiring a multifamily property, launching a development project, or scaling a real estate portfolio, syndication allows you to pool investor money legally—if it’s structured properly.

In this guide, we’ll walk you through the legal framework of syndications, how to protect yourself and your investors, and the essential documents and securities laws that apply. If you’re planning to raise money for your next deal, this is your roadmap to do it right and legally.

What Is A Real Estate Syndication?

A real estate syndication is a partnership between a sponsor (or general partner) and multiple passive investors (limited partners) to purchase and manage a real estate asset.

  • The sponsor finds the deal, structures it, raises capital, and manages the project.
  • The investors contribute capital in exchange for ownership and a share of the profits—without day-to-day responsibilities.

While this model creates opportunity, it also creates legal obligations. When you raise money from investors, you’re selling securities—even if the investment is in real estate. That means securities laws apply.

Step 1: Choose The Right Legal Entity

The foundation of a compliant syndication starts with choosing the right entity. Most syndications use:

  • LLC (Limited Liability Company): Common for flexibility and pass-through taxation.
  • LP (Limited Partnership): Useful when there are multiple GPs or institutional investors.

Typically, the structure looks like this:

  • The sponsor forms a manager-managed LLC.
  • The sponsor is the manager or general partner (GP).
  • Investors are members or limited partners (LPs) who own membership interests.

Why this matters: The entity structure defines liability, profit-sharing, and control—and forms the legal wrapper for your offering.

Step 2: Understand You’re Selling Securities

This is where many syndicators go wrong. Even though you’re dealing in real estate, the moment you raise passive money from investors, you’re offering a security under U.S. law.

The key definition from the SEC:

A security includes “an investment of money in a common enterprise with an expectation of profits from the efforts of others.”

That’s exactly what a syndication is. So if you’re selling securities, you must either register with the SEC or rely on an exemption.

Step 3: Use Regulation D For A Legal Exemption

Most real estate syndications rely on Regulation D (Reg D) exemptions—typically:

  • Rule 506(b): No advertising, can accept up to 35 non-accredited investors.
  • Rule 506(c): Advertising allowed, but only accredited investors (with verification).

Using one of these exemptions allows you to avoid SEC registration while raising capital legally. But you must follow the rules:

  • File Form D with the SEC within 15 days of your first sale.
  • Comply with Blue Sky Laws in each state where investors reside.
  • Provide proper disclosures and investor documents.

Bottom line: Reg D is your best friend—but it’s not a free pass. Get legal help to do it right.

Step 4: Draft A Private Placement Memorandum (PPM)

A Private Placement Memorandum (PPM) is a legal document that discloses everything about your deal to investors. It protects both sides:

  • You: By disclosing risks, you reduce liability if the deal doesn’t perform.
  • Investors: They get full transparency before investing.

A typical PPM includes:

  • Business plan and use of proceeds
  • Risk factors
  • Investor qualifications
  • Offering terms and profit splits
  • Management background
  • Legal disclosures

Even if your raise is “friends and family,” skipping the PPM is risky. It’s the cornerstone of a legally compliant offering.

Step 5: Use A Legally Sound Subscription Agreement

The Subscription Agreement is the contract between you and your investors. It outlines how much they’re investing, confirms they understand the risks, and certifies whether they’re accredited.

This document should always include:

  • Investor representations and warranties
  • Capital commitment amount
  • Acceptance terms
  • Dispute resolution provisions
  • Acknowledgment of the PPM (if applicable)

Tip: Don’t rely on templates. Every deal is unique, and your agreements should reflect the specific terms of your syndication.

Step 6: Create An Operating Agreement Or Limited Partnership Agreement

Once investors commit, your deal is governed by your Operating Agreement (LLC) or Limited Partnership Agreement (LP). This document covers:

  • Voting rights (or lack thereof)
  • Waterfall distributions and profit splits
  • Management powers and fees
  • Exit strategies and dissolutions
  • Investor protections

This is the rulebook for your syndication. It needs to be clear, detailed, and enforceable—because when things go sideways, this is what everyone will reference.

Key Legal Pitfalls To Avoid In Real Estate Syndications

Raising capital without proper legal structure can result in:

  • SEC enforcement or penalties
  • Investor lawsuits or rescission demands
  • Loss of future credibility

Avoid these common mistakes:

  • Advertising a 506(b) deal (which prohibits general solicitation)
  • Accepting non-accredited investors under 506(c)
  • Not filing Form D or complying with state laws
  • Using generic PPM templates
  • Failing to clearly define roles, rights, and profit splits

The cost of doing it wrong far exceeds the cost of doing it right.

Raise Capital The Right Way—With The Right Legal Partner

A real estate syndication is both an investment opportunity and a legal offering. You wouldn’t close on a property without a title company—so don’t raise capital without a securities attorney.

Here’s what a PPM lawyer helps you with:

  • Structuring your syndication entity
  • Drafting a compliant PPM and investor documents
  • Choosing the right Reg D exemption
  • Filing Form D and state notices
  • Reviewing your marketing for legal compliance

When you raise money the right way, you not only stay out of trouble—you gain trust, raise more capital, and build a long-term business.

Need help structuring your real estate syndication the legal way? Book a Free Strategy Call