BiggerPockets

I read a thread on here the other day about the Idea of group investing and selling shares in a property to raise the money to invest. does anyone nows if it is legal to solicate for investors. If you are a corporation it is illegal but what other ways can you structure your investment to make this happen. I think there is a huge market for group investors(people with bad credit or unable to come up with a down payment.) Let me know if you have done this or know of anyone that has as well as your opions.

I'm not going to answer your question regarding the legality, structure or how to structure your deals. I'm just going to talk about doing ANY KIND of investing through a "group". IMO, most people that are successful at REI do not have the "mental make-up" that leads them to do ANYTHING in a group format.

Read some of the posts about bird dogs, who think they can make $15K fees on deals that are sub $100K. To me there are only two ways to invest, HANDS OFF-that's why a lot of my money is in mutual funds, and HANDS ON-which is the way I invest in RE.

When I say HANDS ON, I mean MY hands on. I've owned about 10 houses with others, 6 with out of towners who only put in 50% of the cash, never questioned my "take-out" (which was always pretty small) for the work that I did, and in the case of one investor they never minded flying in (schedule permitting) to help on bigger jobs, roofing, big kitchen projects, etc.

My in-town investros never worked out as well. Either they were not as gung ho about getting in and painting and cleaning on turnovers, or they wanted to save a couple of $$ by doing stupid/cheapie stuff to homes whose market niche required a better grade of whatever.

It may be that I'm a bit of a TYPE A personality because in the two (other than REI) businesses that I've had partners it has not been a great experience. But, like I said above, the most successful RE investors that I've met have been more like me, the less successful ones are more of the "let's get a group together and put on a play" type.

Everyone has to decide for themself if they're more like MikeOH and me, or more of a "big band" type. Look hard at your own personality type before going in with others.

Frank

There are millions of people out there that want to invest in re. Thats why guru's make millions not investing but selling their idea on how to invest. They sell them to people for hundreds of dollars. So why not spend a little bit more and actually own a piece of re. The deals I have been looking at are relativly small with about $50k invested total on purchase and rehab. I would find 50 people to invest $1k. with some of the deals I have looked at I expect to be able to return about 15-20% on ones investment in about 6 months. I guess what I am saying is that people that dont have 20% to put down for their own deal could still be able to come up with $1000 for a group investment. Once a couple deals get done even if the return is 10-15% I think alot of people would be willing to invest in that kind of return in that time frame. The investors would not be making any decisions those would all be up to myself. As it would be to hard and time consuming to please the entire group. maybe im wrong........

Sounds like a huge pain in the butt, frankly. Fifty investors kicking in $1K each is fifty people to deal with. Even a 20% return is only $200. A hard money lender would only cost you about 10% of the loan amount for a fix and flip over a six month period. That's $5000 for a deal like you describe. If you can buy and rehab for $50K, you should be able to sell for around $72K. That would net you about a 7-10K profit with the hard money. If you pay out 20% to these 50 investors on their $50K investment, that's $5K out of your pocket. That's going to leave you with $5K, at best. Since you're a broker, I assume you would list yourself, and get that 3% (assuming no split, since you say broker, not agent.) That's another $2K or so.

With 50 investors, you'll need a rock solid operating agreement that covers every contingency like death, divorce, and marriage. With that many people involved, you'll run into every one of these.

Be careful not to guarantee any specific return. You'll quickly run afoul of securities law.

I just think you're thinking too small. It will be a big effort to round up 50 investors without doing some sort of public advertising. Dealing with all the legalities around a public offering with easily eat up all your profit on several deals. I'm sure their are people you know who could fund a $50K deal all by themselves. Many hard money lenders are just individuals who have money in CDs, bank accounts or IRAs and aren't happy with the returns. Finding one person who can fund such a deal with a straightforward 10% loan is almost certainly easier than finding 50 people to invest $1,000 each.

If you're really thinking of putting together a 50 person syndication, find 50 people to put in $50K each and buy a $5million apartment complex. Like Somerset at 2029 N Woodlawn St. Listed at $6.84M for 192 units. A little high at $35,625 per unit with average rents of $482. But if you could buy this for about $4 million, you'd have a very nice investment.

A REIA is your best bet. Unfortunately, the Kansas page shows only two in KC. Nevertheless, driving to KC and visiting one or both of these clubs would probably be worthwhile.

Look in your local paper and see if there are any ads of the form "money to lend for RE". Try to KC paper, too.

Call all the mortgage brokers in your area. Most will not know what you're talking about, but a few might.

Not sure about advertising. I sure would not say anything about the rate. Maybe just "Earn better than CD rates secured by real estate. Call xxx". Not a lawyer and not at all fluent in securities law. There are a could of guru courses on raising private money. Alan Cowgill for one. Don't know anything about him other than having heard his free pitch.