We know the power of social media is something unheard of, especially when trying to find investors. But what can you actually do? Join Mauricio Rauld, a KenMcElroy.com advisor, in a video about the limitations of social media advertising when trying to use the 506B exemption.
Mauricio Rauld:
Hey everybody, Mauricio Rauld here, Ken McElroy legal advisor. And today I wanted to hit a really important topic, which is how to you social media in your syndications. Now there’s a lot of controversy about this, uh, because there’s a lot of syndicators that would like to go on social media, whether it’s Facebook or Instagram, or what have you, go on a podcast or just, you know, just generally advertise their specific deal. And they want to know how to do it because they see a lot of people doing it. So the purpose of this video is to show you how to properly use social media in your syndications. Now, before I start, I want to make clear that if you remember from one of the prior videos, this has to do with a particular exemption for registration. So remember, this is a quick recap when you’re doing a syndication, there’s really three things we have to think about: either registering that syndication, or finding an exemption, or it’s illegal.
Mauricio Rauld:
That’s kind of the third one, but when you’re looking for exemptions, some exemptions allow you to advertise and some do not by far the most common exemption that people use is rule 506B, which is an amazing exemption, except you are prohibited for advertising or generally soliciting your investors. So what we’re going to talk about today is everything is in the context of a 506B, because if you’re doing another exemption, like a 506C or regulation a or whatever, you can do all of these things, we’re specifically focusing on 506B where putting stuff on social media or advertising your deal is prohibited. So the way I like to think about social media, just like I like to think about a lot of things. I tend to compartmentalize things. And so I typically think of three buckets or three areas where this will come in.
Mauricio Rauld:
One is the stuff that you can absolutely do on social media. No questions about it. Things you definitely cannot do on social media. And then there’s that gray area in between. So one of the things that’s important to understand is I generally recommend my clients that if you’re in an active deal, I would just stay off of social media period. There’s just too much gray area. There’s too, too many ways people can slip up. And I just think you’re playing with fire. So what I’m about to talk about today is more about what, what you should do when you’re either before you start a syndication or maybe in between deals, these are the kinds of things and strategies you can think through and use, uh, in your syndication. So I’m actually gonna start with the things you cannot do, because that’s kind of what people are really concerned about.
Mauricio Rauld:
So you obviously can not pitch your deal directly, but I think that almost goes without saying, but certainly you cannot go on social media on a podcast and by the way, your website, as well as part of this as well, because your website is a public medium, but you obviously can’t go on social media and say, Hey, look, I’ve got a hundred unit apartment building under contract, and I’m looking to raise a million dollars if you’re interested, call me okay. That’s I think that’s relatively obvious. Well, I do… I do see that every so often, but let’s not dwell on that one. I think where most people get caught up is this idea of conditioning the market, because the SEC considered anything that’s quote unquote conditioning, the market as an offer of securities. And that’s what the, that’s what the sec regulates. And so what is conditioning?
Mauricio Rauld:
The market it’s anything that drums up interest about your deal without necessarily specifically referencing to it. So for example, if you’re on a podcast or on social media, and you’re bragging about the type of returns that you typically get to your investors, Hey, you know, you should invest with me because I, you know, I can get you 20, 25, 30% returns that will likely be considered a conditioning the market because you’re getting people excited about maybe the next time they see your offer, pick up the phone and give you a call. So you’re kind of preparing the audience for your next race. So that’s conditioning the market. The other thing that I see all the time, which would fall into this category is when people go on their due diligence trips, right? They do a video on their due diligence and they say, Hey, here I am at a, you know, at so-and-so properties.
Mauricio Rauld:
And you know, we’re doing our due diligence a day. Uh, and inevitably they can’t help themselves, but they say, Hey, look, this is going to be a great deal. And if you’re interested in giving me a call or whatever, so anything that drums up interest about the deal is going to be considered conditioning the market. And it’s like, you can see just from the way I’m explaining things, it’s very, very gray and nebulous. It’s not like a black and white definition. And so that’s one of the reasons we want to stay away from doing this kind of stuff when you have an active deal, because it’s very, very easy to categorize any of these posts as conditioned the market. So those are the things you cannot do. Let’s talk about things you can do, because there are some things that you can definitely do and use social media.
Mauricio Rauld:
I think in a very effective way that a lot of my clients are doing. First of all, you can always post things about you and your company kind of informational stuff. Now, I know that sounds a little bit boring, you know, putting your resume on there, but, but the SEC has always recognized that, Hey, you’ve got a business to run, you’ve got to continue running the business. So talking about your company, your company’s values, your experience, just kind of factual information about you or your company is going to be fine. One of my favorites, examples of these are a lot of my clients like to do sort of the before and after pictures when they, when they take over a property. So maybe they’re, you know, maybe they’re fixing up the pool and they say, Hey, look at the progress of our, our pool installation.
Mauricio Rauld:
Here’s a picture of how it was when we bought it. Here’s a picture of it. Now you’re literally describing factual information about how the businesses do and, and that’s going to be just fine. Uh, but my favorite way to use social media is one of the great marketing techniques of all time anyway. And that’s just adding value. If you can add value to your audience, there’s nothing wrong with that. And that’s a way for you to actually get additional people on your mailing list. So for example, there’s nothing wrong with putting together a report about why real estate is the greatest asset class of all time, and has created more millionaires than effort, nothing wrong with that, nothing wrong with putting a report on, you know, why Phoenix, Arizona is the greatest market right now. Um, nothing wrong with putting together a webinar or doing a podcast or any like anything like that that actually provides value to your end user.
Mauricio Rauld:
And you get some sort of email capture or some information that you’re able to get from them in exchange for that valuable information. Or maybe you’re just driving into a website and they’re signing up. That’s a legitimate way for you to get a contact information from that person. And then you have to put them through the process. You still can’t, you know, you can’t offer them a deal because that would be considered advertising. If you’re just taking them from that and then offer them a good deal. But if you can then go through the process of establishing a substantive relationship with them. And we talked about that in one of the prior videos. So just, you know, you can find it, I think at the top or the team we’ll put it somewhere, but you go through the seven or eight steps to taking that complete stranger that just, you know, that you’ve got their information from some value, add content, and you put them through this, through those steps that you’ve taken from a complete stranger to somebody, you have a substantive relationship and then you offer them a future deal.
Mauricio Rauld:
Well, now you’ve done a, a, a legitimate way of using social media to capture people, put them through the process, get to know them, make sure you establish that substance relationship and then be in a position to offer them a legitimate deal under a 506B again, there’s only deals with 506B. If we’re talking 506C, you can ignore most of this stuff. Cause you can do all the advertising you want with a firewall succeed, which is one of the benefits of it. And the last one that I want to talk about is gray area. A lot of this stuff is gray area. Even the conditioning, the market thing we talked about at the beginning, that’s definitely a gray area, but there’s things like, you know, one of my favorite gray areas is this post that most of my clients and everybody else really does when they actually close on a property or close on a deal, you’ll see that post the congratulatory posts where they’re high-fiving everyone and congratulating the team and thanking their investors.
Mauricio Rauld:
And that potentially could be considered conditioning the market, right? It’s not black or white, but certainly if you have a deal right around the corner, that could be viewed as somebody just trying to get people excited about your next deal. And so there’s just a lot of areas that are gray, which again is one of the main reasons I like to advise, just stay off of social media. If you’ve got an active deal. I mean, posts about your kids, posts about your cats, all good stuff, but try not to get too cute with posting about real estate and stuff during an active deal. When you don’t have an active deal, just provide some value to your customers and that’ll get you new contacts and then put them through the process and you should just be okay. Um, hopefully this was valuable for you guys. You’ve got any questions, just drop something in the comments. I’m happy to answer them and looking forward to the next one.
