The Mistakes Investors Need to Avoid When Raising Capital with Jeff Lerman – EP 335

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The most successful real estate investors portfolio all tend to have one thing in common–they’re great at raising capital. But if you’re not careful, mistakes you make at that critical stage can turn into deal killers.

With that in mind, today’s episode is all about the mistakes investors make when raising capital and how to avoid them. And my guest is Jeff Lerman.

Jeff  is recognized nationwide as “The Real Estate Investor’s Lawyer”®. He’s an attorney who uses his real estate and law licenses to both serve as general counsel to investment firms and do real estate fundraising and investments of his own. His law firm helps investors across the country with their transactions such as entity formations, syndications, joint ventures, purchase and sale agreements and more.

In our conversation, we dig into those deal-killer mistakes that investors often make, the pros and cons of different fundraising options, and why Jeff is such a big fan of joint ventures.

You’ll also get access to two special reports–7 Steps for a Successful JV and 12 Warning Signs You’re Headed for a Lawsuit with Your Partner–that could save you a ton of time and money as you learn to put deals together.

The Forever Passive Income Live Virtual Event

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Key Takeaways with Jeff Lerman

  • Why Jeff finds his best deals in bad economic times.
  • The key differences between joint ventures and syndications and how you can do both in the same deal.
  • The characteristics of a great limited partner or passive investor.
  • How to use the restrictions of SEC Reg D Rule 506(b) to build trust and protect yourself (and your investors) before fundraising for a syndication.
  • Why Jeff believes that JVs are the cheapest, easiest, fastest, and safest way to raise money.
  • How to connect with Jeff and get FREE access to his two special reports.

Jeff Lerman Tweetables

“When it comes to syndication, you need to know this stuff before you start pitching people on deals because once you start pitching people, the deals are already tainted.”


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Josh Cantwell: So, hey there, guys. Welcome back to Accelerated Investor. Hey, I’m your host, Josh Cantwell. And today, I have a great show. Today, we’re going to be talking about syndications and joint ventures and the difference between the two, and the benefits of each. My guest today is an attorney. His name is Jeff Lerman. Jeff is an operating attorney. And what I mean by that is that not only is he using his real estate license and his law license to work with both large firms and prominent firms as their general counsel, but he’s also an active investor in syndication, sponsoring his own deal, sponsoring his own investments, raising his own capital.


And so, today, we’re going have a great discussion around raising money. So, the first thing we’re going to talk about, number one, is what every investor must know about the mistakes and problems that they make in raising money that could kill that deal. And specifically, when you have to have a preexisting substantial relationship in order to recruit somebody into your deal. That’s number one.


Number two, we’re going to talk about the right way to raise money for your deal, the right team that you have to have, the right partners, the right investors, the right attorney. Number three, we’re going to talk about the two options for raising money for your deal and the pros and cons of each. We’ll talk about syndications, which is just passive investors, and then joint ventures where you have two or more people for a common purpose coming in who have equal rights and equal control over that deal, and why Jeff is such a huge fan of joint ventures, why he’s done his biggest deals and his most profitable deals with joint venture partners.


And finally, we’re going to give away a couple of free reports that you’ll be able to get access to on this show, two special reports that Jeff has authored, one called the 17 Steps for a Successful JV, and the second one, the 12 Warning Signs You’re Headed for a Lawsuit with Your Partner. So, I’m excited to have Jeff Lerman as an attorney on our show today. You’re going to learn a ton. Here we go.




Josh Cantwell: So, hey, Jeff, listen, thanks so much for joining me today on Accelerated Investor. I’m so excited to have you on the show, talk a little bit about JVs and syndications and some of the things for our investors to look out for when they’re structuring those deals. So, thanks for being on.


Jeff Lerman: Thank you for having me.


Josh Cantwell: So, Jeff, listen, as we get to know you and kind of introduce you to the audience, one of the things I would love to hear from you is things that you’re personally working on right now as we kind of wrap up 2022. Obviously, the economy has changed a lot, the cost of debt has changed a lot, our underwriting has changed a lot in just the past four to six months. But for you personally, as you introduce yourself to our audience, tell us about some of the projects that you’re passionate about.


Jeff Lerman: Well, so I’m an investor, again, like most of the people who are listening to this. And so, we actually just sold one of our projects. It’s a multifamily in Tennessee. And so, we’re still just wrapping that one up and looking for our next deal. I think even though the economy is different today than it was last year or the year before that, there are always opportunities, and so, that we’re always looking.


Josh Cantwell: Absolutely, yeah. It will keep looking. Probably all of us, like you and me both, probably being just a little bit more selective and making sure that we…


Jeff Lerman: That’s it. Yeah, I’ve been doing this for 40 years. And good times, bad times, there are always deals.


Josh Cantwell: No doubt.


Jeff Lerman: Actually, so my best deals, I have gotten in bad times.


Josh Cantwell: Yeah, and to that point, Jeff, because you’ve seen a lot of deal flow and been through a lot of different economies. One of the things that I think is going to happen and what’s going to shake out over the next 18 to 24 months is you’ve got some investors that over the last, let’s say, one year to four years that have bought deals with some sort of bridge financing, some sort of SOFR loan, some sort of floating rate loan with the anticipation that they were going to be able to sell it or refi it.


And if they were going to refi, they were going to refi maybe in the fives or the high fours. And now, the rates look like they’re going closer to seven, tougher for them to refi because the debt service coverage is not there. And then you have people looking to sell, but now, I’m already seeing even on some deals that I’ve offered on where I’ve hit the pause button or even on my second round of offers, actually offered less than my first offer. And so, you’re going to see some of those guys start to default, right? And I’d have a good deal or maybe even a good operator who just gets in a cash crunch and maybe needs equity.


So, one of the things I think we’re going to see when we talk about joint ventures, like we’re going to talk about on this podcast, is that investors need cash. They’re willing to accept an injection of capital from new partners. They can still operate the real estate, they can still handle the deal, but they might be willing to dilute their equity in order to take a fresh round of investment. And so, we may be able to invest in deals where we’re not having to actually buy the real estate but to actually just invest in a new partnership. I’m curious to hear your take on that as people try to refi or sell, and maybe not be able to accomplish that and need an injection of capital over the next 24 months.


Jeff Lerman: Yeah. Well, so, and this kind of goes to the heart of what I wanted to talk about in terms of, there’s syndications and there are joint ventures. And I think since we’re going to be talking about, I mean, you just teed it up very nicely, I think that I’d like to take a minute to explain to people what the difference is between a syndication and a joint venture because a lot of people may have heard of joint ventures, but they don’t really understand what it means when it comes to real estate.


So, a joint venture is the coming together of two or more people for a common business purpose, but that’s just the beginning. For real estate, what a joint venture is, is you need two things. In order for it to be a joint venture, you need to have people. All the partners in the joint venture have to be actively engaged in the deal. And when I say that, I think the best way for me to explain it is to give you an example of a deal that I did.


I did a residential development deal, and we had four partners in that deal, and we were all in different cities. And so, we had the developer, we had the guy who found the deal and got the money, we had a real estate agent who was involved with creating the deal itself, the residential development, and then we had me. I brought the money to the deal and I also did the legal work. So, that’s four of us. But each one of us was doing something different in that deal, and we were all actively engaged in making that deal happen.


Josh Cantwell: That’s like a limited partner, you were actively involved.


Jeff Lerman: Right. And so, as opposed to a syndication where the people who are in syndication, people you’re bringing in are going to be passive investors, that’s it. That’s all they’re going to be doing is bringing money to the deal.


This is different. This is, with our people, we brought some money to the deal, but we did a lot of other things. And the second thing that makes that essential for a joint venture is to know that all of the members have a comparable experience in real estate so that each member can take care of themselves in the deal. Those are the only two requirements for it to be a joint venture as opposed to a syndication.


And so, I think that right now and I want to make sure that the listeners understand this, it’s possible that in a particular deal, you can do both a syndication and a joint venture in the same deal. Another example, I had a partner that she had a deal and she was looking for money. And so, I said, I’ll bring in the money, but I wanted to bring in some– so, when I was going to be bringing in the money for her, that in itself was a joint venture. It was her, it was me, we were both actively engaged and we both had the same level of understanding for real estate.


But I also wanted to bring in other people on my side of the deal. I brought some money in, but I wanted to bring in more money. And so, I got together a bunch of people, friends, family, other clients, whatever. And so, I brought those in. And so, my relationship in that scenario with those people was a syndication. What I did with them was a syndication because all they did was brought the money. They came in as passive investors. And so, that’s an example of how you could have a joint venture and a syndication in the same deal. So, those are two things that are possible, you can either do one deal that’s solely joint ventures, or you could do a joint venture and a syndication because– does that make sense?


Josh Cantwell: Absolutely. And I’ve done both. I’ve had my own deals. I have two main partners, Glenn and Tyler. So, we go into every deal together. We have been investing, we’ve done nine or ten syndications together. And then we collectively manage the real estate, raise the capital, do the CapEx, property management, all that stuff.


Then I have some other deals that were being JVs where I had my good friend Jack Petrick. Jack’s got a lot of real estate experience. I have a lot of real estate experience. Jack found the deal and wanted to operate. The real estate needed help sponsoring the loan, raising the money, introductions to the contractors, introductions to insurance, just the day-to-day management of it. And we went into a joint venture together. And then we also syndicated the private capital to limited partners that came in, and they just wrote checks. So, we’ve done a lot of both.


Now, when you think, Jeff, about mistakes or problems that can come from raising money for a deal. Let’s talk about the syndication process first. If they’re going to do a syndication, what are some of the mistakes or problems that could kill their deal, that could be a real problem for the deal when they do it?


And then we also want to talk about some of the successful steps that people need to take to make a successful joint venture because often, from the people that I coach, mentor, other people I see at live events, people that listen to our podcast, they’re doing a combination of both. A lot of them are looking for JV partners, and then they’re also looking for a limited partner. So, they’re doing the JV and the syndication in the same deal. But what are some mistakes or problems that you’ve seen when people go to raise money that could kill the deal from the start?


Jeff Lerman: Sure. And by the way, before we finish, I want to also explain to the listeners why, even though our law firm does syndications and joint ventures, my personal plan A when I’m doing the deal is to do a joint venture as opposed to a syndication. And I want to explain to everybody why that is so because it’s really important. And I think it’s something that I think a lot of investors don’t understand.


But so, yeah, for syndication, I teach a private money bootcamp. And so, what I do at these bootcamps is the one thing that I tell the people that they really need to know is that the most common exemption, which is Reg D Rule 506(b) of the securities laws that you’re required by the Securities and Exchange Commission to have a pre-existing substantive relationship with the person you’re trying to raise money from before you put your deal under contract, and that includes a substantive relationship.


And so, if you don’t have that, a lot of these people who are at this event that I teach, they came there because they have a deal and they’re trying to get additional investment from people at this event. And when I tell them what I just said to you that in order for you to be in compliance with the securities laws, you need to have a pre-existing substantive relationship that, here they are in a room full of a bunch of people, usually, it’s about, I don’t know, 50, 100 people, and they’re thinking that they’re going to be going to hit everybody up.


And once they hear that, at the break, they say, “Wait a second, you just told me that if I don’t have a pre-existing substantive relationship with somebody before I pitch them on my deal, then that’s going to be a violation of the securities laws.” And they said, “I’m here because I am trying, I need to raise money for my deal. I already have money in there. And I need to get that additional money. Otherwise, I’m going to lose everything.”


And so, when they hear that, when they come to me and say that “I got a problem, I need the money, and you just told me basically that I can’t get it here.” That’s something that everybody needs to understand because I guarantee you, having done this as long as I have, that that kind of scenario happens every day throughout the country where they don’t know what they don’t know, especially when it comes to securities laws.


And so, that is, and if, by the way, they do go ahead and they say, “Well, I’m not going to really pay attention to what you say, I’m going to try and get somebody anyway.” Well, if that happens and if your deal ends up not going the way you wanted it to, then it’s entirely possible that the investors that you took their money from are going to call their attorney and say, “Look, the deal went sideways and I’m not getting my money. What can I do?” If I’m that lawyer, I’m going to say, “Well, let me see the documents that they gave you.” And I see that they did not comply with the securities laws.


Then you, as the issuer, that’s what you are, the issuer, then you could get sued. And if you get sued, then the consequences are significant that the SEC could force you to return all the money back to your investors, even though that money is already gone. The money went…


Josh Cantwell: It should be performing at some level. Let’s say it’s not performing or they’re getting their entire pref return. Maybe you promised them an 8 pref, you’re only paying on a 4. Somebody gets upset, and you’re like, “Well, the deal’s performing and I’m only into this thing for, let’s say, $15 million, it’s worth 22 million.” And the SEC comes calling and says, “Well, no,” you must return all of their capital back to them with what you promised to them. In order to do that, now, you’ve got to unwind the deal, sell the deal, do something to get the money back to them, even though it’s maybe the worst time to sell, like right now might not be the best time to sell with rates where they’re at or refi with the rates where they’re at. It doesn’t matter. The SEC doesn’t care what the interest rates are.


Jeff Lerman: Not only that, but there are no do-overs when it comes– you think, okay, well, if that’s what my investor says, then I’ll just change it up or whatever. I mean, it doesn’t work that way. Once you violate the securities laws, the SEC is going to go after you. And there’s potential for jail. I mean, it wouldn’t be the SEC who does it. They would send it to somebody else. But that happens.


So, to me, that is after having gone through that, every time I do this class, I want to make sure that the listeners understand what I just said, that, when it comes to syndication, you really need to, first of all, if you’re not a lawyer, you probably don’t know what you don’t know, number one. But number two, you need to know this stuff before you start pitching people on deals because once you start pitching people, the deals are already tainted.


Josh Cantwell: Jeff, and so, what I heard you say in using a very old phrase that people have been using in this business for ages, which is find the deal and the money will follow. What I heard you just say is not only is that not true, but it actually could be a violation of securities laws if you do it that way.


Jeff Lerman: If you do it that way and when you…


Josh Cantwell: And then I went to find the money, then I went to create relationships with investors, then I went to my 506(b), I did my federal securities exemption, but I did it after I created relationships with investors after I had it under contract. What you’re saying is the reverse, which is make the relationships with investors first, find out if they’re sophisticated, if they’re accredited, non-accredited, what their goals and objectives are, get to know them on a substantial basis first, and then maybe you show them hypothetical deal like, hey, if I found a deal that looked like this, this is the type of structure that we would put together. You have all that done first, then you go find the deal and get it under contract. That’s the proper way.


Jeff Lerman: Yeah, yeah. Once you put the deal under contract, it’s too late for you to start trying to find investors in that deal because you’ve already put it under contract. So, to take it one step further, people who are going to these, wherever they go to try to meet people, they should be doing that all the time, trying to build the potential new investors. And you need to, again, not just meet them, but you have to have a substantive relationship, which is something that we can discuss after this with the investors, what that means. But yeah, you essentially do need to not only meet people, but understand what they do, what they don’t do, and make sure that they are the right people that the SEC is not going to have a problem with.


Josh Cantwell: Yeah, I love it. So, the right way to raise money is do it before you need it, build the relationships before you need it. And not only that, from a legal perspective, to follow the rules and to go with that 506(b), then you can have both accredited and non-accredited investors who are sophisticated.


But not only that, from a real execution perspective, Jeff, I found that I love to go tell investors, “Hey, the SEC requires that we have this prior existing relationship.” So, I can’t even show you what if you wanted to run me, write me a check today for half a million dollars, I can’t take it, number one. So, what it allows me to do is tell that investors that, essentially, I can slow-roll them. I don’t need your money. I’m not desperate for your money. And that allows us to focus on building the relationship first. And then they realize that because I’m not desperate for it, I can’t take their money, we can go slow. They respect the fact that you’re going slow as a syndicator, and now, they build more trust. And I find that they write larger checks faster because slow rolled creating the relationship first versus the opposite, which is, oh, crap, I have this deal. I’ve got to get it syndicated. I got to do a 506(b). I need the money in 30 days. Even if you get money under that scenario, not only could you be violating the rules, but investors can smell the desperation. And if they write a check, they’re going to write a smaller check and they’re going to spew out.


I’m not only following the rules like Jeff is talking about, but from a real execution perspective, you actually raised more money I found by actually creating the relationship first, and then telling people, hey, I don’t have a deal for you, but as soon as I get one, now, we have this relationship. Are you ready to invest if we have a structure similar to this? And then they’re like, okay, now they’re kind of foaming at the mouth a little bit like, okay, Josh, when are you going to find a deal? When’s the deal coming? I’m ready, right? So, the posturing, the positioning is totally different.


Jeff Lerman: Right. And the time that we have yet, the only other thing that I would say to investors, especially people who are just getting started in this is I got nothing against non-accredited investors. However, for me, personally, and for my clients, I always said, “Look, if you’re going to bring in investors, go with the accredited investors instead,” just because in general, they’re a lot easier to deal with, number one. Number two, each of those investors will give you more money than probably what a non-accredited investor can afford.


And so, again, nothing against non-accredited investors, but from the standpoint of the issuer, I always say let’s do just it’s going to be an accredited investor-only deal. I don’t know what your thoughts are on that, but that’s just my…


Josh Cantwell: We’ve done both and we have to be very diligent about not mixing our 506(c), at least with our 506(b) leads, but we typically go 506(b) because I am so fanatical about creating the relationship first. And I try to teach our audience, go create little relationships because even if you go 506(c) and you just want to go accredited only and you want to blast your deal out all over social media and billboards and direct mail, whatever you want to do for marketing because you can do anything you want when it’s 506(c), you’re going to actually create more money, more interest by developing the relationships first, regardless if it’s B or C. It’s very, very important.


I want to make sure our audience is aware. Not only is Jeff teaching us this on this podcast, but he’s made two very special reports available that he’s written and authored. One is called 17 Steps to a Successful JV. The other one is called 12 Warning Signs That You’re About to Be Sued by Your JV Partner. Both of those are available if you just email Jeff. We’ll have him throw out his email here in a minute. It’s also going to be available in the show notes because I do feel like there are opportunities to do both joint ventures and syndication sometimes at the same time. And Jeff is really a leader on this idea. Jeff, let’s talk a little bit more about JVs. Why do you think JVs are easier, simpler, cheaper, faster versus those investors that are just trying to do syndications where they do all the work and they’re just looking for money only?


Jeff Lerman: Yeah. I believe JVs actually are the cheapest, easiest, fastest, and safest way to raise money. And I’ll just explain briefly why. Cheapest because JVs, first of all, are less expensive than syndications. I mean, when we do deals to do a syndication, to do everything that we need to do for syndication, it is more expensive than a joint venture.


So, I’m telling you, if you come to me, I’m going to tell you the same thing I just said right now, which is we can do the syndication but first consider just doing a joint venture. The easiest, why do I think it’s the easiest way to do a deal? Because when you think about it, if you’re doing the deal by yourself, so you’re not a joint venture, you’re doing a syndication, then you think about everything that you have to do if you’re doing it yourself, you got to sift through dozens of deals to find one that makes sense. You have to analyze the deals, do the due diligence. You’ve got to find the loan, deal with the lender, find the money, manage the asset, manage the manager, sell the property, all that. And it’s so much easier if you have a partner, not only a partner but a partner who is at the same level as you are to help get through that.


So, I think it’s so much easier to get it done if you have one or two or three partners that are really going to be good people that you’re going to do okay with. And that’s part of if you ever come to me, well, I’ll talk to you about how to make sure that you get the right partner because that’s another big part of this, is to make sure that you have a partner that is not going to end up putting you into another lawsuit. So, that’s important for you to understand.


The fastest, why do I think it’s the fastest way? Because, again, cheaper than syndications, faster than syndications, and your joint venture partner can help you make a better deal than if all you had was a passive investor. Let me give you an example just to make the point. So, I had a client back in 2012 who was doing a short sale of the property that he had. And the bank was about to grant them to be able to do the deal. And the client wasn’t sure how much longer the economy would go down and was thinking of passing on the deal and came to me and he said, “I don’t know what to do.” And I said, “Look, if you’re already considering passing on the deal, before you do it, first consider talking to another real estate investor that you can partner with to get a second opinion.” And he did that.


And by doing that, he got this other individual who said, “You know what? I think that the deal that you got is good. The price is good given where you are and the economy is going to come back. And I’m happy to split it with you 50/50 to get the deal done.” And my client, he went ahead and did it with the partner and they went 50/50, and fortunately, what happened is, in January of 2013, the economy turned around and the building doubled in value. The fact that that happened is it’s interesting, but it’s not the point.


The point is that one of the main benefits of working with a joint venture partner is you’re getting another individual who’s got another idea about what you’re doing. Now, one of the things– I have a risk tolerance level, but when I initially started doing this, as a lawyer, I’m always thinking of what can go wrong. And so, when I started, my risk level, I was pretty conservative. And over the years, I have had enough joint venture partners that had a different risk tolerance level than I did. And so, as a result, now, when I do deals, I have a higher risk tolerance level. And so, things like that would never happen if you didn’t do something like that.


And so, I think you get the benefit of another person’s opinion, plus really important, going back to how much time it takes to find a good deal, most of the deals that we’ve done have been joint ventures and we have done it, we have gotten most of the deals that we have gotten have come from our joint venture partners. So, here, if you just do a syndication, it’s just you. But if you’re doing a joint venture, you’re getting all these other additional benefits from working with these other people. So, that’s why I am so enthusiastic about this topic, but also to really, I encourage your listeners to come and do what I’m saying, which is if you can get a deal done with a few partners instead of syndication, I think that’s the better way to go.


Josh Cantwell: No doubt. No question about it. My own mastermind group that I run is really all about that ecosystem, creating partnerships, creating joint ventures, creating a safe place for people to meet other people. Jeff, it sounds like you’re doing a lot of the same things with your private money bootcamp, your free reports, and the deals that you’re doing. It’s great to hear as an active lawyer that you’re not just operating, I guess, behind the paperwork, but you’re actually a partner in a lot of deals, which is great.


So, Jeff, when people email you, were you going to give out your email address right now? Not only will they be able to make the connection with you to possibly joint venture with you, also possibly come to your private money bootcamp, but also get these two special reports, 17 Steps to a Successful JV and 12 Warning Signs That You’re Headed Toward a Lawsuit with Your Partner to try to obviously avoid those. Jeff, what’s the best place for the audience to reach out to you to get that stuff?


Jeff Lerman:


Josh Cantwell: Fantastic stuff. Jeff, listen, thanks so much for jumping on the show today, carving out some time to talk about syndications and JVs. We really enjoyed having you on the show.


Jeff Lerman: Thank you very much. I had fun.




Josh Cantwell: Well, there you have it, guys. I hope you enjoyed that show and learned a little bit more about syndications and joint ventures from Jeff Lerman. Definitely reach out to him at his email. You can also find him online on Facebook and LinkedIn, his website as well. We’ll put all that stuff in the show notes.


And listen, if you’re looking for your next joint venture, if you’re looking for more private investors, you’re looking for coaching to raise your awareness, your level, your scale, go from maybe 200 doors to a thousand, or from 50 doors to 500, you probably want to take a look at applying for our mastermind and coaching program. You can apply at There you’ll find out that we run and facilitate this ecosystem with about 100 investors, limited partners who were all actively investing in multifamily syndications and joint ventures. So, if you’re looking for more partners, looking for more capital, looking for more coaching, ready to build and scale your business, go visit, go ahead and apply right there to be part of our Forever Passive Income Mastermind. Also, don’t forget to smash down on the Subscribe button and leave us a five-star rating and review. We’ll see you next time. Take care.

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