I've got 5-6 individuals who want to invest in real estate, but don't have a lot of cash to do so. I'm thinking of creating an entity (LLC) where they all make an initial contribution of $20-50K. Purpose is to buy foreclosures, fix and sell.
I'm going to be the managing member. As the manager, I will get paid a management fee from the proceeds of investment returns. All others will be paid out based upon their contribution amount.
Does anyone see if any issues or problems with this concept? anybody have experience doing this?
Probably want to look into a limited partnership. Although, the amount of money you're talking might be too little to make it worth it. It also depends how well you know these people.
You also have to be careful about fund raising for money. As you might violate security laws.
I agree with Steve that the total capital under management maybe too little to make it worthwhile. A management fee for real estate funds can vary but they are generally less than 10% per year.
With less than $300k under management, I would think it may not be worthwhile because that entails quite a bit of work for less than $30K /yr.
However, if you intend to manage the fund and are an agent, you might be able to arrange to keep your commissions representing the buyer. This could help subsidize your salary.
The biggest issue I see is you are violating your state's blue sky laws by advocating the formation of a fund and then raising capital. Most people in trouble with breaking securities laws when things go bad, but a few actually get turned in during the organization of the fund so you should be very careful and bone up on your state's laws.
If you are indeed an agent, your broker may not like your activities either and disclosure is mandatory as a licensee.
We do this. 5-6 folks at 50K each is plenty to do some damage. You'll end up with a 20-30 unit building, depending on where you are looking.
You might look at the stuff that Dave Lindahl puts out or buy Samuel Freshman's Principles of Real Estate Syndication. Given your proposed structure, you will need to do an offering memorandum and get a securities attorney involved.
You need to check on securities laws in your state as well as with the SEC concerning "Investment Clubs" or organizations.....look to the classifications of investors and what size of group you can have. Another issue is advertising for investments.
Advertising in any manner whatsoever for investors can lead to problems.
We have a BiggerPockets Real Estate Syndication Group that has many posts on this subject. You may need a securities attorney to keep yourself out of trouble.
Bryan Hancock, Bullseye Capital Real Property Opportunity Fund E-Mail: b.hancock@bullseyecap.com Telephone: 1-800-577-0401 Website:http://www.bullseyecapfund.com I help busy people profit from real estate
1. Secuity attorney with experience in real estate dealings
2. Any association parties/federal or state lincenses you hold and see if they would be affected by any other dealings.
3. Corporate Attonery specializing in partnerships and legal structure
4. IRS attorney specializing in structure for partnership investments in real estate
1. Secuity attorney with experience in real estate dealings
2. Any association parties/federal or state lincenses you hold and see if they would be affected by any other dealings.
3. Corporate Attonery specializing in partnerships and legal structure
4. IRS attorney specializing in structure for partnership investments in real estate
I'd also be sure to know what everyone's short term and long term goals may be. There needs to be an exit strategy just in case someone wants to get out early. Hope that helps!
ok... this seems like it could be a bit more complicated. I'm not out soliciting for money, but just mentioned the concept to a few and they said they would go for it.
Thanks for all the responses... lots to think about!
I'm Rory Richard and I help run a mastermind group where we meet with local Business Builders in Louisiana and work on each other's companies.
I think you need to contact securities attorney to keep yourself out of trouble.
If you want to buy and sell real estate and companies, network with others and meet with others so we can share and grow together, you're at the right page.
Thanks,
Rory
Edited: 12/13/2010 at 11:31PM
by Administrator
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Greg, what is your roll in the deals and profit share? It's not that complicated, if your doing what I think you are doing. You will need a lawyer to set it up but it's fairly common.
Greg, what is your roll in the deals and profit share? It's not that complicated, if your doing what I think you are doing. You will need a lawyer to set it up but it's fairly common.
Greg, what is your roll in the deals and profit share? It's not that complicated, if your doing what I think you are doing. You will need a lawyer to set it up but it's fairly common.
I'm going to manage the group's activities. I will locate, evaluate and make offers on property. I will then oversee the renovation, but a couple of the partners will also help out here.
As a licensed real estate broker, I will be compensated with any real estate commissions offered on the buy side and then on the listing side.
I may be compensated for a management fee, as well as a part of the overall profit share.
1. Your buddies create an LLC with out you.
2. You create an LLC without your buddies.
3. You create a JV agreement between the two LLCs defining your role, their role, payout structure, whose on title, fees, how money is secured, etc.
This would protect both your interests and avoid any securities issues (I think).
