Equity investors. How to structure?

1 Reply

Newbie here, Just starting out and have general questions about equity investors I particular. But first a tidbit on what my business is all about. Well, future business. I plan to start a real estate investment business to create wealth for my investors and, of course, myself. I have a business plan in the works but is not complete at this time. Right now I am in the process of finding multi-unit properties to create a good base of cash flow for which to operate my business on. I have some prospects but most of my proposed investors are looking for equity.

This brings me to my question. First off, I have not hired an attorney yet to guide me into what type of business structure I will need. But I am leaning toward llc. I do believe that the attorney will answer most of my questions but I wanted to check here first. So, my question to you is this. How do I structure a deal using money from an equity investor? I am not talking the deal between me(buyer) and the seller. I am inquiring about my company and the investor. Do I set up a Limited Partnership with EVERY deal, naming my company as general partner? If so, how do I protect my investor from law suits and the like? How do I separate his/her other assets form this investment? How would this type of arrangement be typically set up?

I may be thinking way off base here. But these are thoughts that I have. I don't want this venture to be like a blind man walking through a maze. I want to be as thorough as possible. I want to instill trust and confidence in my investors and any other relationships I have regarding my business.

I’d say it depends on how many investors and how much money. If you want to raise millions from doZens of people that’s going to be securities and a lot harder and expensive (legal fees) than say if you and your buddy each contribute money and go buy something.

Traditionally if it’s the latter you can probably use a LLc with an operating agreement and then the LLC owns the property.

I’m not a lawyer so I can’t give more info, but if yo get into securities law that gets expensive (think 20k) very fast in legal bills. My LLC (single member) cost 900 to set up and if you have an operating agreement it’ll probably be more like 1500-2000. Hope this helps.

No legal advice given

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you