[00:00:03]Mike: Hey, it’s Mike with insider secrets and welcome to the show today. My guest is Amy Wan with Bootstrap Legal. Amy, why don’t you tell our listeners a couple of things that they’re going to be able to hear today on the show?

[00:00:16] Amy: Yeah, sure. So one is we’ll be covering the basic legal aspects of real estate syndications and the laws behind them and how they work.

[00:00:24]Number two is we’ll be talking about options for people who are just getting started out or getting smaller deals. And number three is just my knowledge or observations of what I’ve seen over the years makes for successful syndicators.

[00:00:38] Mike: Awesome. Yep. And the show is going to be great. I can testify to that. And you’re going to have to listen in at noon today. Talk to you soon. 

[00:00:46] Kristen: Welcome to this week’s edition of insider secrets. The show that turns multifamily investing into reality. Each show we interview guests who are seasoned professionals, actively closing and managing real estate deals. Your host Mike Morawski has more than 30 years of multifamily, real estate investing and property management experience.

[00:01:09] Mike is the founder of my core intentions. And he’s been involved in over $285 million of transactions. Focuses on helping you create short term cashflow and long-term wealth. Here’s your host, Mike.

[00:01:24] Mike: Hey, good morning. It’s Mike with my core intentions and we’re bringing you insider secrets today. Hey, have you been thinking lately about what your intentions are and where you want to go and what you want to accomplish? Now let me ask you this. What matters most in your life? You know at MCI we invest in our client’s future through an educational platform. Teaching you how to create short-term cashflow and long-term wealth. And empowering you to create sound real estate investing and property management principles while living a balanced lifestyle.

[00:01:58]We develop this all on a strong foundation of practical principles. You know what, and I bring guests to the show every week that help us execute that and help us teach those core principles. Today, my guest and I’m really excited is Amy Wan, founder and CEO of Bootstrap Legal. Amy, would you say hi real quick.

[00:02:18] Amy: Hi, thanks so much for having me.

[00:02:20] Mike: You bet. I’m glad you’re here. And let me tell you guys a little bit about Amy, right? So Amy at Bootstrap Legal automates real estate syndication legal documents. Amy hosts a podcast called law and blockchain podcast, on a show Bitcoin podcast. And has authored the Bloomberg Law practice guide to ICO’s and Lexus Nexus Private Equity Practice Group.

[00:02:45]Previously, Amy’s been a partner at a boutique securities law firm and general counsel at a real estate crowdfunding platform. Amy founded legal hackers LA, which programs around the intersection of law and technology. And was named one of the top 10 women to watch in legal technology by the American bar association in 2014. And is one of 18 millennials changing legal tech by law.com in 2018. She was nominated as a finalist for the corporate council of the year award in 2015. And Amy also worked in the international regulatory and trade policy at the US department of commerce, and was a presidential management fellow to the US department of state and US department of transportation.

[00:03:39]Amy, that is extremely impressive. And with all of that background, all of that history and everything that you’ve done. I always ask people this, but explain to us in one word, what really drives you and who you are personally and professionally.

[00:03:56] Amy: Yeah, I think I am just super pragmatic.

[00:04:00] Mike: Pragmatic. I have to say I’m probably 38 or 40 episodes into this podcast. And I don’t think anybody’s ever said pragmatic, so that’s good. I’m going to let you explain a lot about that today so. Hey, you know what your bio is fine, and we really get a lot out of that, but talk about your backstory. Tell us, how you got to where you’re at today?

[00:04:22] Amy: Yeah. So it’s really interesting. Like you said, I started my career out in DC doing work for the federal government. And then when I moved back to the West coast, that’s really when I got into real estate and securities law.

[00:04:35]And I just fell in love with it. The entire way, everything worked made a lot of sense to me. But when I was partner at a boutique syndication law firm, I almost never represented a deal that was raising less than a million dollars. And one day, I had a friend who I met at one of these many real estate syndication events.

[00:04:58] And he was a beginning syndicator. Now he’s pretty well known. But at the time he was the beginner and he came to me, he was like, Hey Amy, I want to do my first deal. I need to raise $300,000. And I was like, Okay, great. We’ll all tell you how much our firm will charge. And if you decide not to use me, I’m not going to be offended.

[00:05:17] So I told him the price and he did not engage me. And I was like, you know what? This is actually very strange because it’s almost unfair for beginners and people who are just starting out and people who are doing small deals. Because they can’t afford the transactional cost of being client compliant with securities law, because it just doesn’t make sense.

[00:05:40] I always had a background in technology. So I started fiddling around with some document automation software, and then basically left the firm I was at. Spent a whole summer pouring through 20 years of legal docs to basically standardize and create some sort of architecture around.

[00:05:59]Is there a way to make drafting a lot simpler and that’s basically what created bootstrap legal. And so what used to take me what 20, 25 hours to do a first draft, now takes about five hours of drafting. It’s more so just review for the attorney and drafting anything that’s very unique to deal.

[00:06:22] And so we are now able to do things faster and cheaper and more accurately than other law firms. Which, now I regularly represent people who are raising less than a million dollars because they can’t afford anywhere else.

[00:06:39] Mike: Yeah. That’s pretty interesting. I know I was shocked the first time I ever did a set of documents for a syndication and the cost that it was.

[00:06:47] And I remember the attorney saying, Hey, you know what. You can only pay that one time after that you’re going to really be able to use those documents again and just change a few things. But still it was a lot of money. You want to talk about pricing at all a little bit?

[00:07:00]Amy: Sure. He,

[00:07:02] Mike: Let me just ask this real quick, I don’t mean to interrupt you. I just want to ask real quick. What was the price that you gave that syndicator that first time when he was only going to raise 300,000?

[00:07:14] Amy: I think it was going to be like $12,000 or something like that.

[00:07:18] Mike: Yeah.

[00:07:19] Amy: Yeah.

[00:07:19] Mike: Pretty expensive. And where do you think that pricing is at today for those types of documents?

[00:07:24]Amy: I having been a general counsel before and having worked with other attorneys, I hate the billable hour. I hate, being nickeled and dimed and like them giving you a quote for one thing, and then you get an invoice and it’s for twice as much. And you’re like, what the heck?

[00:07:39]This is not, what you told me. So I like to make things very predictable. We do flat fee pricing. It’s just based on however much you’re raising. So if you’re raising less than a million dollars today, it’s about 8,500 which is significantly cheaper. I tell people like if you’re raising less than 200,000 or 250,000, it’s really hard to do syndication.

[00:08:00] I still can’t serve people like under that price point, just because, the transactional cost isn’t going to make sense. But now we will I think have at least a lot more optionality.

[00:08:10]Mike: I have always found it though. If you’re raising under 200, $250,000, it’s really fit. Friends and family money. Anyhow.

[00:08:18]Amy: That is true. But friends and family money is still a security.

[00:08:22] Mike: Yeah, no, I understand. Yeah, you’re right about that. So let me ask you this, and maybe we get off script here a little bit, but where does blue sky law come into play and where does a non-registered security come into play? Where it is okay to Hey, you still need a contract and I understand that. You still need some type of a PPM and an LLC agreement to handle that, but where does that fine lion come in? Or is it a fine line even?

[00:08:53]Amy: So basically this all falls on what is the definition of a security, right? And that basically is answered by this legal test we have. It’s called the Howey test.

[00:09:04]And it’s too long to go over here, but basically what you can think of it is if you have two or more passive investors, not active investors, two guys doing the deal together, that’s really joint venture. And they’re both putting money in, but really a passive investor who is not making critical decisions, not part of the day-to-day operations.

[00:09:27]That’s really when you have a security. Most Things that you see out in the real estate syndication road, those are unregistered securities, right? So the difference between a registered and unregistered. Registered is when you’re going public or you’re doing a direct listing, that’s like all the stuff on the stock market, that’s traded on the New York stock exchange or the NASDAQ, right?

[00:09:49] So those are all public companies. And when you’re public, you have to register. But you do not have to register if you’re doing a private security. Instead, what you have to do is you have to do notice filings, and over 95% of all the money raised in the private markets is raised under, regulation D rule 506 B,right?

[00:10:11] And roll five or six B specifically has what we call a federal preemption. Which means, federal law applies. So you can use one rule for all 50 States. You don’t have to look at state by state law. But that law also says that while state law doesn’t really apply, you still have to do the blue sky notice filing for each state.

[00:10:38] So what that all means is from a practical point of view, do you have to have a PPM? Technically the answer is only if you’re taking at least one non-accredited investor. The minute you have non-accredited investor money, you must have a disclosure document that discloses all the risks of the deal.

[00:11:02] However, even if you look at institutional deals, they will always have a PPM because it’s considered best practice. And quite frankly, because real estate securities is super litigious. And if you don’t have that document in the future, people can come back when deals go sour or things are not expected, or even if they’ve made money, the distribution is not as they expected. And people will Sue cause people in the US love to Sue.

[00:11:29] Mike: Crazy.

[00:11:31] Amy: And you’ve got those documents, but then what you have to do is what we call a form D filing with the SEC. That’s free. The SEC just wants to know that you are raising money, right? You don’t even have to ask them permission.

[00:11:45]You just have to tell them after the fact. Up to 15 days after the fact. And then you do have to do a notice filing with each state from which you take an investor. So the way that works is, if you have 10 investors from 10 different States, you’re going to have to do 10 different filings with 10 different fees.

[00:12:01] If you have 10 investors from one state, you only do one filing and pay one fee and every state has different fee. And this is their way of making a little bit of money. So just pay the fees because if you don’t do it, they might come back in the future and penalize you or worse, do investigations or something like that.

[00:12:21] Mike: Yeah. So I just want to go back and just clarify something. A lot of our listeners might be brand new syndicators or people just getting into the syndication space. A PPM is a Private Placement Memorandum, and that really spells out all of the direction of how you’re raising money and how the money’s going to be used and how it’s going to be returned. And it’s really the directions of how you’re going to use that money.

[00:12:46] Amy: Exactly. So the PPM is the risk disclosure documents. It lays out all the terms of the deal and all the risks. Then you’ve got the subscription agreement, which is the agreement that investors actually signed to subscribe into the deal.

[00:13:02] And then depending on what your legal structure is, most smaller syndicators or people who aren’t doing this professionally with a team of 15 people under them, they’re going to do like a two LLC structure. And  they’re also going to need operating agreements for each of the LLCs, the holding company and the manager company.

[00:13:23] The operating agreement is a governance document and each investor still does need to sign that one because they are actually investing into the holding companies. So they have to sign the governance document of the holding company. Some people do a GP or LP structure. That one is more professional.

[00:13:41] It is, if you are really doing this at a very professional work or even institutional level. And so they would be signing an LP agreement.

[00:13:51] Mike: Okay.

[00:13:52] Amy: Or limited partner agreement. Yeah.

[00:13:53] Mike: All right. Good. Thanks for that clarifying. So I want to ask what should a real estate investor or a syndicator be looking at and asking someone in your industry about helping them when they’re starting their first syndication. So you’ve got a new syndicator coming into the business. What kind of questions should they be asking an attorney to make sure that the attorney’s qualified to help them?

[00:14:19]Amy: They should definitely ask the attorney if they a) have experience in not just securities transactions, but specifically real estate syndications or real estate securities transactions.

[00:14:31]They should definitely ask the pricing because at the end of the day, these are all transactional costs and you do want to keep that as low as possible. They should ask the law firm do they have a securities writer or securities malpractice insurance specifically for real estate securities?

[00:14:48]Real estate securities malpractice insurance is I’m told the second most expensive malpractice insurance for attorneys. Second to just patent prosecution. Just because, litigation risk is very high. And so if your attorney is not specifically insured for that, first of all, it means they’re probably not doing that much of it. And secondly the whole thing also leaves you open to risk.

[00:15:16] Mike: Yeah. Boy litigation is crazy too. Isn’t it? It’s just like people want to litigate to do crazy things these days. I don’t understand it sometimes, but.

[00:15:28] Amy: Yeah.

[00:15:29]Mike: What should investors and syndicators be aware of today and in the marketplace, as they’re walking into this as a new arena or a new venture for them, what types of things should they watch out for? Make sure that they have ducks in a row and they’re doing things properly.

[00:15:50] Amy: Yeah. You definitely want to make sure that they’re actually following securities laws. So you know that they have proper documentation, that it’s not just handshake deals, that they’re actually doing their filings at the end of the day.

[00:16:01] The reason you want to ensure that is because if you don’t plan to Sue them, if they’re not compliant, another investor might plan to Sue them if you’re not compliant. And if another investor sues them, guess who is paying the legal bill? You are, right? Because most of these operating agreements, they have an indemnification clause and the legal bills are paid by the holding company.

[00:16:26] So that’s basically coming out of your distributions. So you want to make sure they’re doing everything above board. Other than that from a legal perspective, just making sure that you go through the PPM, you truly feel like you understand the terms of what are my distributions. When do I get my money back?

[00:16:44]Do I get it back after a refinance or the actual sale? I always hear a lot of questions about 10 30 ones. And for the most part syndications don’t work well with 10 30 ones. You want to fully understand that whether you’re going into or exiting out of the deal in a 10 31 format, what else is there? And, you also just want to know even after refinance, when you get your principal back, are you still in the deal or are you not, right?

[00:17:13] Standard case is you’re probably still in the deal. You still have your equity piece and you’re still going to at least get distributions until the property is sold. But there are some geographic locations or some syndicators who basically their purpose is to use your money to acquire the property, and then basically refinance you out.

[00:17:35] So once you’re refinanced out, you actually are not part of the deal anymore. You’re not gonna get any more money back. So that’s, I think a pretty important term to understand.

[00:17:44] Mike: And those types of things too should be laid out up front, right? In that PPM. And how the direction of where the LLC is going to go or where that whole syndication is going to go.

[00:17:57] Amy: Right.

[00:17:57] Mike: So wouldn’t you want to know okay, so if we do a financial event and we refinance this property, am I still going to be up? An equity position in the property if I get my capital back. So that should all be laid out upfront.

[00:18:12] Amy: Right.

[00:18:12] Mike: So that’s a great question that a passive investor coming into a syndication should ask the syndicator.

[00:18:20] Amy: Definitely.

[00:18:21]Mike: So it sounds like, you’ve been at this a while and it sounds like you’re faced with times of having to have to make some decisions, either tougher or easy decisions. But one thing I always like to ask is how do you go about making high stake decisions in your own life, in your own business?

[00:18:39] Amy: Oh, that’s an interesting question. I think what I and most other entrepreneurs do, including real estate entrepreneurs is very similar. We’re just very creative and very flexible, and we roll with the punches and we just keep charging forward. I think that’s just the DNA of any entrepreneur.

[00:19:00] And it’s inevitable in business. That adversity will pop up or situations will pop up and you just got to go with the flow and make the best decisions you can. Sometimes they’re right, sometimes you’re not. But, I will say that when it comes to clients as opposed to my personal life and my personal business, I am more conservative.

[00:19:22]And heartening back to me saying that I’m very programmatic. I feel like a lot of times when my clients are in sticky situations and they call me, sometimes they’re not even looking for legal advice, they’re just looking for business advice. And I’ll always tell my clients, I’ll give you my advice from putting my legal hat on and then I’ll take it off for a second.

[00:19:42]And the answers might be different. But I think that’s what was really valuable because sometimes people don’t want to hear a legal mumbo jumbo. They just want to know what are the risks of proceeding forward, or what are the risks of not proceeding forward. And as an attorney, we are legally obligated to always  counsel our clients in a certain way.

[00:20:02] But the real reward is very complex and complicated place. I think any part of being a good attorney is a couple of things. One is understanding the clients goal and helping them get there. As opposed to, I know there’s a lot of attorneys out there because I’ve worked with them who will say, no, you can’t do that. That’s legal. The answer is how can you do this in the most legal way possible. And then, the second thing is let’s see, the first one was just, how can I get to the score? And the second thing is just Oh, goodness. Now I’ve forgotten.

[00:20:35] Mike: Hey, that’s okay. You said something interesting. You alluded to the fact of being an entrepreneur, but being an entrepreneur in the real estate space. And in your opinion, do you think that there is a difference or is there really being an entrepreneur in the real estate space and being creative is a little bit different.

[00:20:57] I think that being an entrepreneur period, just overall, because in the real estate space, there’s so much more opportunity. So many other things that you can do, do you have an opinion around that?

[00:21:09]Amy: Every industry has its ups and downs and its things that make it easier or things that make it more difficult.

[00:21:17]I think that, real estate seems a lot more approachable to a lot of people. You definitely have to know your numbers a lot better. Not to say in other areas, you don’t have to know your numbers as much. It’s just people somehow get by without knowing their numbers. And hence they struggle more. I think in real estate, you can’t not know your numbers.

[00:21:39]But at the end of the day, I think what makes things successful is, what makes people successful in any industry is your human capital, your ability to network, your ability to broke with the punches, persistence all of those sorts of things.

[00:21:57] Mike: Yeah. Interesting. It’s been a very interesting space for the last 30 years, and I think it’s always changing. I was having a conversation with someone yesterday and we were talking about why real estate so interesting because no two deals are ever the same. And things are always changing and always different.

[00:22:15]And I think that makes it very intriguing and why I keep my passion about it, I should say.

[00:22:21]Amy: Yeah, definitely.

[00:22:23] Mike: What should investors be looking for in the market today? Here we are in the midst of this pandemic, we’ve talked about this a little bit before the call and the things are scary still, what should investors be looking for today? Do you see opportunity coming up? Do you see things are going to stay flat? Go ahead. What do you see?

[00:22:41] Amy: I think the most important thing is evaluating the sponsor, right? Because at the end of the day, everyone has different theories about what’s going to happen with the market.

[00:22:53]Some people are like, Oh, like it can only get better. Commercial real estate is taking a huge hit right now, so it can only get better once the virus is over. And then, the other half of people are like, this has been the longest bull run. Like it’s gotta go down, so I don’t know what the future holds. But what I will say is investing with a sponsor that you trust ensures a) communication, because believe it or not, some people when they get nervous, they will hole up and ghost you and disappear.

[00:23:23] And that is the opposite of what you want when you’re like what’s happening with my money. But secondly, if you can invest in someone who’s more experienced, or like I said someone who can really roll with the punches, they’ll be able to be resourceful and play things by ear as the future plays itself out.

[00:23:43] And I think that’s just super important. I’ve seen clients, there were deals that weren’t going to close because lenders said this and somehow in the end they got the deal to close. Because they were just so persistent and so good at just rolling with the punches. right?

[00:23:59] And so you definitely want personalities like that who are going to constantly be thinking, evaluating and thinking what’s going to be the best step.

[00:24:09]Mike:  Yeah. Great point. That’s for sure. Hey, so what do you know today that you wish you would have known at the beginning of your career? So when you started this journey, what do you know today that you wish you would have known then?

[00:24:24] Amy: Oh gosh. This is something I tell all my clients as well. But it’s not really something I knew until like several years into my career and I still don’t do it very well. But the answer is always be networking. Doesn’t matter if you’re networking for capital or networking for relationships or connections, but the reason why people are more valuable as time goes on is because they know more people they’ve seen more things.

[00:24:50]Everyone thinks, Oh, I will start going around networking with investors for money, once I have the deal. By that time it’s too late.

[00:24:59] Mike: You are right.

[00:25:00] Amy: You want to have networked before you get a deal under contract. And actually it’s really interesting. I feel like five years ago when I talked to beginners, some beginning syndicators, they didn’t know this at all.

[00:25:14] And I feel like now, because there’s so many resources available to beginning syndicators, they’ve wised up to this fact. And I would say this year I’ve had a lot. Maybe it’s also because of COVID, but I’ve had a lot of people by the time they call me and they just get something under contract, they already have verbal commitments to fill the entire deal up.

[00:25:36] And I’m like, wow, like people are really evolving. And that’s not necessarily experienced people. Those are people with either zero or just a couple of deals under their belt.

[00:25:45] Mike: Yeah. That’s trying to make sure that they’re secure in what they’re going to go do, you know? I think it’s good though.

[00:25:50]Hey, so this show’s called insider secrets. And what secrets would you share? One tip that you’d give an investor?

[00:26:00] Amy: Yeah. I think having represented many sponsors and seen many deals, what I’ve realized over the years is that people primarily invest in two things. One is the property that’s being underwritten. And two is the sponsor. As I’ve learned more about underwriting though, I’ve learned that, Hey, you can fudge the numbers, however you want sometimes. And so really to me so much depends on the sponsor and feeling like they are a trustworthy, communicative person who is persistent and entrepreneurial and, just very trustworthy.

[00:26:40] Mike: Yeah. Very good point. This has been some really good information that’s for sure. And I always find it how fast the time goes, especially when you’re really ingrained in the conversation. But let’s talk about a couple of things on a lighter note.

[00:26:55] Amy: Yeah.

[00:26:55] Mike: I know you’re out there in LA and what’s your favorite tourist attraction and you can’t say Disney, right?

[00:27:02]Amy: Disneyland is closed now, so that wouldn’t be an option. I live in long beach and I really love bringing people to walk around the Naples canal in the long beach area, because it’s very picturesque. It’s very pretty, and it’s something a little bit more off the beaten path.

[00:27:19] Mike: Nice. Yeah, I’ve been there, so it’s cool. I like it, yeah.

[00:27:22] Amy: Oh Awesome.

[00:27:23] Mike: Yeah. Hey how about your favorite restaurant?

[00:27:26] Amy: Oh gosh. Oh, so during COVID it would be Providence because they’re still open and doing takeout. That’s usually where my husband brings me for my birthday. But we’ve become much more plant-based and vegan over the past several years. And so sad that Les Comtois is not really open anymore.

[00:27:46] Cause they were plant-based, fine dining pop-up thing, but the doors are closed at least during COVID.

[00:27:53] Mike: Yeah. Interesting, all these small businesses that are getting hit. That’s the other thing about real estate, right? Is that it’s still an essential business and we can still be operating so. How about the best book you’ve ever read?

[00:28:08] Amy: Woof, the hard thing about hard things.

[00:28:11] Mike: The hard thing about, wow. Is that a business book or is it a?

[00:28:15] Amy: It is a business book. It’s more of a textured up book. But it’s basically about there’s a venture capital firm in Silicon Valley called Andreessen Horowitz or a 16 Z, but before they were venture capital, they were startup operating companies themselves. And it talks about, how they basically built and exited their business in the middle of the.com crash and how they had raised all this money. And then basically had to fire everybody overnight, because tech crashed and they had to make really hard decisions and rally their people and find a business.

[00:28:54] Mike: Wow. That sounds like a good book. I’m going to have to ask you to email me the author and the name of that if you would.

[00:29:01] Amy: Yeah.

[00:29:01] Mike: And that’ll be in the show notes. Hey Amy, thanks for being here today. And I really appreciate the insight, the information. How do people get ahold of you? If they have more questions or they want to engage your services?

[00:29:14] Amy: Sure. Our website is simple. It’s just bootstrap legal.com. And if they just want to email me, it’s Amy@bootstraplegal.com.

[00:29:24] Mike: Awesome. And I would highly recommend Amy as based on her knowledge and the things that she gives forward. And you’re going to have to go feed Ziggy. I think so. Oh,

[00:29:36] Amy: Wow. He’s sparking at the street cleaning trucks going by.

[00:29:40] Mike: It’s funny. Hey everybody. Thanks for being here today. And remember insider secrets every Tuesday at 12 o’clock. Like us on Facebook, go and subscribe to us on YouTube and listen to us on Apple. Like us, subscribe to us and help us grow this.

[00:29:57] I look forward to seeing everybody next week, Amy. Thanks for being here and we will talk soon.

[00:30:02] Amy: Thanks so much for having me.

[00:30:04] Mike: Bye.

[00:30:04]Kristen: Thank you Mike, and thank you for joining us for another great episode of insider secrets. As always, insider secrets is brought to you by my core intensions. Join us on social media and visit mycoreintentions.com where you can get expert coaching on all things, multifamily investing and property management.

[00:30:22] We’re looking forward to having you back again next week for more insider secrets.