Reading Offering Documents

The exact set depends on the platform and the country, but most offerings include some version of these. Offering Circular or Memorandum: The main document. It describes the property, the business plan, the sponsor, the fees, the risks and the terms of the shares. Under US Regulation A+ it is called an offering circular and has been reviewed by the SEC. For private offerings it is a private placement memorandum, or PPM. Either way, this is the one to read. Operating Agreement: The rules of the company that owns the property. It covers how decisions are made, what rights shareholders have, how distributions are calculated and what happens at sale. This is where you find out whether you get a vote on selling. Subscription Agreement: The contract you sign to buy. It states the price, the number of shares, your representations about eligibility, and your acknowledgement of the risks. Read it, but there is rarely anything to negotiate. Property Report or Appraisal: Inspection findings, a valuation, rent comparables and sometimes photos of problems. Platforms that include this are showing their work. Whitepaper or Token Terms: On tokenized platforms, a document explaining what the token represents, on which blockchain, how income is paid and how transfers work. It matters because the token is your proof of ownership. Platforms link these from the listing, usually behind a documents tab. On Threeworld, follow the link to the listing on its platform and look for that tab.

Skip the cover letter and the glossy summary. Go to these, in this order. Risk Factors: A long list of everything that could go wrong, written by lawyers who want to be able to say they warned you. It reads as alarming and it is the most honest section in the document. Read it fully once. Then note which risks are generic, present in every deal, and which are specific to this property, this market or this sponsor. The specific ones are the real disclosure. Use of Proceeds: Where your money goes. The property price, closing costs, renovation budget, reserves, and the fees taken at the start. If $1 million is raised and $920,000 buys the property, the other $80,000 is going somewhere and this section says where. Fees and Compensation: Every payment to the sponsor, the manager and their affiliates, at purchase, each year, and at sale. Add them up over the stated hold period to see the total cost of the deal. Distributions: How income is calculated, how often it is paid, what can be withheld for reserves, and whether the sponsor gets a share before or after you. This section, sometimes called the waterfall, is covered next. Business Plan and Exit: What the sponsor intends to do with the property and when it expects to sell. A specific plan with a timeline is a commitment. 'At the manager's discretion' means you have no idea. Conflicts of Interest: Whether the sponsor sold the property to the offering, manages it through an affiliate, or earns fees that rise regardless of your return. Disclosed conflicts are normal. Undisclosed ones are why you read this section. Management and Track Record: Who runs this, what have they done before, and what did previous investors receive. Vague biographies without numbers tell you something.

Fees rarely appear in one place. Building the full picture takes a few minutes with the document open. Start with use of proceeds for the upfront fees, usually an acquisition or sourcing fee and organizational costs. Then find the management section for the annual asset management fee and any property management fee paid to an affiliate. Then find the sale or dissolution section for the disposition fee and any promote. Write them out as a list with the percentage and what it is a percentage of, because the base matters. 1% of the property value is a bigger number than 1% of the money raised when there is a mortgage. 2% of gross rent is smaller than 2% of the property value. The waterfall is the order in which cash is paid out. A simple one reads: operating expenses first, then loan payments, then reserves, then investors. A more complex one adds a preferred return, meaning investors receive, say, 7% a year before the sponsor takes any profit share, and then splits everything above that, for example 80% to investors and 20% to the sponsor. A preferred return protects you. A promote without one means the sponsor shares in gains from the first dollar. Whether the preferred return is cumulative, so that a shortfall in one year is made up in the next, is worth checking too. Finally, look for anything the sponsor can charge that is not a fixed percentage. Reimbursed expenses, refinancing fees, construction management fees and loan guarantee fees are legitimate but add up. If the list is long, the projected return should be read as before those costs.

Offering documents use precise language, and a handful of words carry more weight than they appear to. 'Targeted' or 'Projected': The return is a forecast, not a measurement. Every growth listing uses this language, and it is fine, as long as you treat the number accordingly. 'Up to': The maximum, not the expected. 'Distributions of up to 8%' means anything from zero to 8%. 'May' and 'Intends to': The sponsor has the option, not the obligation. 'The manager may distribute available cash quarterly' is not a promise of quarterly payments. 'At the sponsor's sole discretion': Whatever follows is entirely up to them. When this phrase attaches to distributions, reserves, the sale date or fees, you have no say and no recourse. 'Affiliate': A company related to the sponsor. Fees paid to affiliates are money the sponsor keeps. Count them in with the sponsor's compensation. 'Subject to available cash': Distributions happen only if there is cash after everything else. This is standard, and it means income is not guaranteed. 'Cumulative' vs. 'Non-cumulative': For a preferred return, cumulative means missed payments are owed later. Non-cumulative means they are gone. 'Capital call': The sponsor can ask investors for more money. Check whether you are obligated to pay and what happens if you do not. 'Lock-up' or 'Transfer restrictions': How long before you can sell, and whether the sponsor must approve a buyer. None of these words means a deal is bad. They tell you where the flexibility lies, and it is nearly always with the sponsor. Knowing that is the point.

You will not read a 120-page circular cover to cover, and you do not need to. Here is a plan that gets you what matters. Minutes 1 to 5, Risk Factors: Skim the generic ones, read the specific ones. Note anything about the property, the tenant, the market, debt or the sponsor that you did not see on the listing page. Minutes 6 to 9, Use of Proceeds: Find what share of the money raised actually buys the property. Note the upfront fees and the reserve. Minutes 10 to 14, Fees and Distributions: Build the fee list. Find the waterfall. Check for a preferred return and whether it is cumulative. Note how often distributions are paid and what can pause them. Minutes 15 to 17, Business Plan and Exit: Find the stated hold period and how the sale is decided. Find any lock-up or transfer restriction. Minutes 18 to 20, Conflicts and Track Record: Read the conflicts section in full. Check whether the sponsor's prior deals are described with numbers. Then compare what you found with the listing page. If the documents show higher fees, a longer hold, more debt or a more discretionary structure than the listing suggested, that gap is the platform's marketing, and it tells you how much to trust the rest of its summaries. Keep a note of what you found for each investment. After three or four you will read these in ten minutes, and you will have your own view of which platforms describe their deals plainly. The transparency pillar of the Threeworld Score is a shortcut to the same judgment across the whole market. Next step: with the documents read, go back to choosing your first investment and make the decision with everything in front of you.