Understanding the Private Placement Memorandum
John Larson and the Real Estate Cowboys talk passive income real estate investing.
Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about the Private Placement Memorandum, what it means to investors, and what to look for within.
Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.
Keith Weinhold: Hey, this is Keith Weinhold from the Get Rich Education podcast. You are listening to my friend John Larson and the Real Estate Cowboys. Don’t quit your daydream.
Robert Helms: Hey everybody, it’s Robert Helms, host of the Real Estate Guys radio show, and you are listening to the Real Estate Cowboys.
Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.
John Larson: Welcome back to another edition of the real estate cowboys. It’s your host, John Larson. Today we are keeping up with the theme of private lending. You know, here at American Real Estate Investments, we’ve been doing a lot of private lending opportunities, whether it’s through real estate investments, commercial properties, multifamily properties here in the Dallas Fort Worth area or on our CBD equipment raises, which I believe are very fruitful and really safe investment opportunities because of the amount of positive cash flow, predictable cash flow that these machines are generating right now with the gold rush that is CBD. So we really love the opportunities that we have on the private lending side with raising for CBD equipment, extraction equipment, refinement equipment, whatever it may be. There’s a huge, huge opportunity in cannabis right now and specifically with CBD. So you know, we love those opportunities and those opportunities also pay our investors a higher rate of return; up to 12% on your money, 12% annual, and you know that these payments go back to you in the form of a monthly dividend. The terms on these deals are also a little bit shorter. So the investors like that and then we can just continue to roll the money into new deals. And if you’re the IRA 401k investor who has self-directed your funds, you know you at that point can do private lending through your IRA or 401k and those monthly dividends are going to go back into your retirement account tax for your tax-deferred. So it’s a very, very popular option. But what I want to talk about today is understanding the private placement memorandum. So if you are a lender on a specific deal and there’s a group of lenders on a project, it at that point becomes a security. Okay. Money’s crossing over state lines. More than six lenders on one deed. Many different reasons. Any sort of debt syndication is going to require you to be an accredited investor, in most cases, to be a part of that deal. And also since we’re publicly soliciting these opportunities through our email blast and things of that nature, me going on other people’s podcasts and talking about our opportunities, obviously my podcast, talking about these opportunities, uh, we’re flying under the 506-c rule, which means if you want to be a part of our opportunities, uh, you must be accredited to take part in them.
So you know, a private placement memorandum or PPM is a legal document provided to interested investors of a certain deal. Okay. Private placement memorandums are dubbed private because they are only made available to accredited investors or those who meet pre-established criteria. So if you come to our website and you’re interested in taking advantage of one of our private lending opportunities, we will send you out a marketing package unless you are accredited. If you are accredited, then we can send you out the PPM and you can go ahead and review the PPM, review the PPM with your attorney, whatever it may be.
But we also have a marketing package available first for you to just kind of get the high-level notes on the deal. And then like I said, once you prove that you’re accredited, we can move forward, get you the PPM and get you locked into the deal. In order to read the private placement memorandum of any offering, you may need to have an existing relationship with the company or be able to prove that you meet the criteria of an accredited investor. Okay. Uh, the PPM will then be mailed or emailed to you for your review as a possible investment. And so you might be sitting here thinking, you know, well, what is included in a private placement memorandum? Well, PPMs may vary slightly between different deals and among different companies, but in general, you can expect to find the following sections in a private placement memorandum.
One is a summary of an offering, the summary of an offering is an overall broad picture of what the PPM is about. Typically this section is going to tell you what the minimum investment amount is. A summary of the offering also goes into detail about when the offer commenced and the deadline to reach the raise goal. It may also detail what the maximum investment amount is per investor, uh, as well as the minimum or maximum number of investors in that particular raise. Okay. You’re also going to receive a disclosure statement and in that disclosure statement there will be a lengthy basically boilerplate section, which is the legal language required by law to inform investors of the risks involved with PPMs. Like I said, this is usually boilerplate, but it definitely behooves you or your attorney to read through it at least once, so you are fully aware of the risks involved.
From there, you’re going to see an executive summary. This section basically outlines the facts about the company that is sponsoring the offer. If you work with the same company each time, which many of our investors become repeat clients and want to continue to roll into deals as deals payback or they spread money over around multiple projects, you know, so you’re pretty much going to see the same information there if you’re working with the same company on the sponsor. Okay. Any time that you are with a company or a sponsor for the first time, you should carefully read through the executive summary, right? If you’re working with the same group, you’ve read the executive summary, you don’t got to keep going through that. But if you’re working from company to company to company, definitely make sure you’re reading through that executive summary because that’s going to give you the background information on the group that is sponsoring that offer.
Uh, you’re also going to look at the suitability standards. So the sponsor needs to ensure that each of the investors is duly suited for the investment opportunity. Uh, the suitability standard section outlines what the investor criteria is. This will include requirements about financial capabilities of the investor and may include language about how long the investor will be keeping their money in the deal, tax implications and how the company or sponsor intends to use the funds raised for the project. Okay. That’s where all that will be detailed out. That’s also very important. This section will go into detail about the investor qualifications to be accepted into the deal as well. We also have to outline in all the PBMs the use of proceeds. Earlier sections may have touched on the basics of how the funds that are raised will be used, right, in the use of proceeds section, or I’m sorry, but the use of proceeds section will go into detail about how the money will be spent and it may include a general breakdown of use of proceeds including minimum and spending. This will basically tell you where your money’s going to be going, what your money’s going to be used for, where your money’s going to be allocated. This is this very, very important to read.
Then we’ll go through the distribution schedule, the distribution schedule, details how the investors will be paid for their financial contributions. This will include details about the timing, the amount of interest to be paid on the investment, so on and so forth. So you know, if it’s a deal that’s going to pay you 12% annual on your money, then that means, and you put in a 100k, you’re going to be making $1,000 a month, right? This is where this is going to detail your return in the form of a dividend.
Um, management fees, this section in the disclosure statement of the management fees or the sponsor fees to be paid for handling the private placement offering. Um, that’s basically, you know, in, in most cases the sponsor may be taking some sort of project management fee to see the deal through, right? That will be detailed in the PPM as well. Also, very important, you need to spell out all the risks, factors, specific risk factors will be outlined in this section as they pertain to the specific project. This section should be carefully read so you fully understand the risks involved with investing in any project. Okay. You definitely don’t want to know what risks your could potentially be available or brought about in any private placement memorandum, any deal. We all know with investments there’s risk on everything. This is going to spell out your risks so you are clearly understand the risks are involved in the project before you obviously invest any money.
Okay. This section’s also going to outline what detriments are involved in the deal being a success and what roles are core to the overall likelihood of the investor recouping their capital. The section may also go into detail about the investor’s position in the event of a loan default. Okay? And we all know with these debt syndications, you’re going to hold the first lien position, just like any bank, just like Chase Bank loaning on your private residence, personal residence, you pay Chase Bank a monthly dividend, which is in the form of your principal interest, taxes, insurance, whatever it may be, right? You make that payment every month. Same thing with these debt syndications and you taking the role as the lender, you will be paid that monthly dividend. Okay.
Um, investment objectives. This section is basically going to explain what the goal of the raise is and sets the benchmark for successful completion of the deal. The investment objectives will be different for each project. So it’s very important to read thoroughly and review this section for each PPM you assess and the more private placement memorandums you read, the easier they’ll be to understand and the faster you’ll be able to glean through the information and be able to decide whether or not the investment aligns with your financial goals, right? You see a lot of these PPMs, you start to understand what language is boilerplate, where is the really meat and potatoes in the PPM, where to read to make sure quickly, hey, do I want to act on this deal or not? And when you work with the same company, again and again, you can also learn to trust the company and just go to the sections that apply to this specific project, right? You don’t have to keep looking at the executive summary and information about the sponsors. You’ve worked with them before, you just kind of want to know the high-level details on the deal and where the money’s being allocated. That’s the most important part. But at American Real Estate Investments and the Real Estate Cowboys, we offer PPMs to accredited investors interested in earning double-digit returns. We offer anywhere from 10 and a half to 12% on all of our deals. So if 10 and a half to 12% sounds attractive to you as an investor in a truly, truly passive manner, you’re just sitting back and collecting a check each month and you know exactly what you’re going to be bringing in each month to the penny. And a lot of investors really, really like that. You know, with single-family homes, not to say I don’t like those as an investment, they’re just not very passive. Even if you have a property management company looking after the asset, you know there’s going to be vacancies, there’s going to be repairs, there’s going to be unforeseen things that happen, right? And it can cause a lot of headache and heartache for you who’s just trying to, you know, spend time with your family, work the nine to five job and you just want to get your money working for you and working for you in the most passive manner as possible. And that’s what we pitch here at the Real Estate cowboys and American Real Estate Investments. We don’t want you to have to do a lot of work. We just want your money to be working for you. So even when you go to bed at night, those dollars are still accruing interest. Those dollars are still working for you. Okay? So if you’re interested in getting in this kind of lucrative offer, contact us for more details. You can go to AREIUSA.com, you can go to RealEstateCowboysDFW.com put in your information. A member of our team will reach out with a marketing package that will tell you about the deal that we currently have available.
If you’re an accredited investor, you’ll then receive the PPM and you can make a decision if you want to take part in the opportunity. But I will tell you we’ve raised at to date about $17 million since last year. So our private money lending program has been taking off like wildfire and we have a lot of happy investors out there right now earning double-digit returns on their money. So if you are interested in finding out more about that, like I said, go to our websites, AREIUSA.com, the Real Estate Cowboys are just RealEstateCowboysDFW.com put in your information and a member of our team will reach out. Um, if you’re still not sure what you want to do just yet or what type of investor you are, we have a great quiz on the Real Estate Cowboys DFW website where basically you just answer 10 simple questions and based on the answers that we get, we kind of point you in the right direction of what investment opportunity we think might be best for you. At that point, you might want to do more due diligence and figure out if that is the option that makes sense. But it’s a fun quiz to take and it kind of points you in the right direction of what might work best for you. Okay. My book, the Passive Income Guide: What’s Your Return on Life? You can get that book on Amazon, you can download the ebook. It’s a very affordable book, tons of information, quick, easy read. Um, that will give you more insight on how to earn passive income and real estate and how to earn passive income through private lending. How to self direct your IRA and 401k. What are the pros and cons between taking your money out of Main Street or leaving it in Wall Street? Uh, I have a questionnaire up to 89 questions that you should ask any property manager before you hire them. Just a ton of great, great info in there. So if you’re still kinda on the fence, still looking for research, go to the Real Estate Cowboys, DFW website, listen to past episodes. You can subscribe to us on iTunes and all the other options that are out there that are, that are available to listen to podcasts. We’re on everything. I suggest going back and listening to some previous episodes. We’ve got great, great info on there. Or you know, if you just want to get the book and just read through that quickly and decide, hey, what’s best for me? Pick up the Passive Income Guide: What’s Your Return on Life? You can get that on Amazon, but that’s all we have for this week. Folks. This is your host, John Larson signing off. Always remember what’s your return on life. Have a great week, everybody.
Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.