HOW TO INVEST WITH 10 FAMILY MEMBERS IN REAL ESTATE?
Hello all,
I will try to keep this short and sweet, i have many questions but one main concern, first off a little background about me. i live in pittsburgh, pa my wife and kids lived in our first house for 4 years. we just moved out i have never done a real estate deal before as far as investing but have been through the buy / sell side of a single family house. we sold our house to get some funds to start in real estate investing but mainly to payoff our bad debts. Now i have 10 family members who are all contributing to investing in real estate with us, however i am going to keep that seperate from me and my wifes real estate business. the family decided to call the gruop FAMILY INVESTMENT FUND and we are not sure how to setup the entity? do we all need to be part owners and start a 10 person LLC. how do we get financing from a bank with 10 people? i have alot of questions but my main concern is how to set the investment group? thank you all who will give us some ideas or direction.
The SEC really frowns on this kind of setup unless it's done via an SEC attorney. I would take a look at Syndication Attorneys and have a free 30 minute consultation to see how this should be structured legally. It's not cheap, but it is well worth it in the long run.
Alan, thank you so much for your response i will look into it
@Joseph Guidry Check out Tribevest. They are a platform for doing exactly what you want. They have helped thousands do group investing through LLCs.
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also you need robust provisions for exiting and selling the assets.. there is more buggered up titles in the us that you can imagine over family members giving other family members interest in real property with NO clear cut exit or how to sell the property
If you value your family relationship don't get involved in this. Eventually misunderstandings and hard feeling will occur and you don't want to lose family over money
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Whoa the holidays are about to get a lot more interesting. Be a good reality show!
If we weren't toxic, I'd probably go with an LLC lending entity. The family members become members and are lenders, their membership % based on their contribution. They get a note and deed of trust on the property. You and your wife are the owners.
As it goes and grows, consider sharing title with the cream of the crop as TIC or an entity like an LLC later, but have them start out as lenders.
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as an only child this sounds like my ultimate nightmare :)
in order for this to have a chance in hell of ending well:
1) you must write down every part of the agreement and have everyone understand and sign off. Anything left off the paper will be subject to at least 11 different assumptions
2) A qualified and unaffiliated attorney must draft it--no brother in laws, cousins or what have you.
3) Everyone must be clear on who makes the decisions and what power they have to acquire and dispose
My father was an attorney and had clients that hired him over divisions of a collectively family owned bunch of real estate....the cases collectively lasted over 15 years and spanned 3 generations.
Can you take two family members you think you will be most compatible with people start something and allow others to join under your terms after some success?
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I wouldn't do this. Who will be the boss? Are you going to have everyone vote on every decision, from which property you buy to what color you paint it? Everyone is an expert nowadays thanks to the HG channel etc....This will 100% be a disaster.
You and your wife keep to yourselves on this one.
Just my .02
@Joseph Guidry
May God Bless your heart.
The short answer is DONT!
RUN AWAY! FAR FAR AWAY!
But if you do two words,
FAMILY TRUST.
Good luck!
@Joseph Guidry don’t do this. Don’t do this. Don’t do this.
LOL! Thank you all for your feed back I really appreciate the responses.
@Joseph Guidry, I gotta disagree with the first comment. No need to register with the SEC when investing with family.
That being said tread very lightly and if you do decide to move forward, make sure EVERYTHING IS IN WRITING. This could be an absolute minefield.
There are different ways you can structure it. If everyone plans to be active in the deal, you can set it up as a JV by simply creating and entity with an operating agreement. If you are going to set it up as a syndication structure where someone is charging fees/equity for doing all the work then you will need to work with a syndication attorney to set it up and the structure gets a little more complicated. Setting up the entity is not the hardest part, the hardest part is determining who is going to do what on the deal.
@Joseph Guidry I have to say that I’ve rarely heard a deal like this go well. But if you do it, I would avoid the SEC route. But I think I would structure it as a general partnership where you have 100% control and they have to trust you as passive investors. They can only vote to remove you with say 70% or more agreeing, and you continue to get your ownership stake even if they remove you as manager. It would be structured similar to a syndication.
Good luck!
Thank you all for your responses
Do NOT start any business with FAMILY members. It sounds a bit harsh to say BUT trust me. You will regret. Thanksgiving dinner will NOT taste the same if things go south!! Do not mix FAMILY and Business!!
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Originally posted by @Steve Vaughan:Whoa the holidays are about to get a lot more interesting. Be a good reality show!
I'd probably go with an LLC lending entity.
Who would you recommend?
I get a kick out of these responses and there are truths in all. Working with a group can be a great way to invest in deals you wouldn't or couldn't on your own. The key is you set it the right way. You can work with an attorney and/or there are systems/platforms that step you through how to set these groups up safely. www.tribevest.com is definitely leading the way here. I'm happy to answer any questions you might have about the company.