Partnership with per unit investors

8 Replies

Hi BP,

My partner and I are working through what structure we should set up and I'd be very grateful for suggestions and advice from anyone who has set up a similar plan. We will be buying, rehabbing and holding 2-4 unit houses and eventually plan to add small multi-family to the portfolio.

We have multiple family and friends who are interested in investing. We are consulting with an experienced RE attorney and CPA, but would love feedback from those who have done it in the arena, so to speak.

We are planning to set up an LLC as the "mothership" and then have per unit LLC's with separate bank accounts set up for each property. We would then sell shares to investors per property. This is the part I am not totally clear on and would love suggestions or resources to learn more on this type of structure, or advice on a better way to structure this type of business plan.

Thanks!

- Mike

@Mike Curley

If you will have passive investors and will be selling them shares, then you're referring to syndication structure as you'll be selling securities. You need to speak with securities attorney. Feel free to PM me if you need a recommendation. Also keep in mind syndications are pricey, so typically it makes sense to syndicate when your capital raise is closer to $1MM, or at least above $500K. The alternate route (when the investment amount is lower) is to give all partners in a JV some sort of active role and keep accurate records of it.

Best!

@Alina Trigub is correct--you need to talk to a securities attorney. On the transactional cost front, I would add that when I have folks wanting to syndicate residential or small multi-family, I usually advise them to do a blind pool and put all the properties into one offering so as the spread the legal and other transactional costs around all the properties. It's not worth it to syndicate raises that are too small. Happy to chat if you need.

@Amy Wan @Alina Trigub  Thank you both for the helpful responses. 

I thought syndication might be right for what we're planning. I'll follow up with you both in a private message. Also, do either of you, or anyone else reading this, have good suggestions for where to learn more about syndication. 

Thanks again

It sounds like what you are trying to do is a fund. Perhaps a blind fund. You are not very clear with the description. Regardless, if this is an LP-type structure where you and your partner run the deal while family and friends simply bring the funding to the deal, you need an SEC attorney, not a RE attorney. You might try, when you ae ready, to reach out to @Jillian Sidoti .

Good luck!

Mike,
Here're a couple of books on syndications: "best ever syndication book" by Joe Fearless and @Theo Hicks ; "It's a whole new business" by Gene Trowbridge. 
Keep in mind, you still need to speak with both: RE and securities attorneys to determine what is the best structure for your specific deal!

My best!

Originally posted by @Mike Curley :

@Amy Wan @Alina Trigub  Thank you both for the helpful responses. 

I thought syndication might be right for what we're planning. I'll follow up with you both in a private message. Also, do either of you, or anyone else reading this, have good suggestions for where to learn more about syndication. 

Thanks again

@Ben Leybovich @Alina Trigub thank you both! We have some reading and professional consultations ahead of us to get more clarity on how we choose to move forward. Accepting the fact that the answer to this question is dependent on specific circumstances, do either of you have general thoughts on pros and cons of syndication vs. blind fund? 

Thanks again 

Mike,
One doesn't actually rule out the other. On the contrary, if you chose to do a blind fund (more known as a blind pool) it may still lead you to syndication. Syndication is simply a method of pulling money together. In other words, you may decide to syndicate for a specific property (aka single address) or may decide to pull the funds together to buy multiple properties. The reason it's called "blind" is cause you may not know/have your properties for the fund lined up upfront, rather you may have some upfront and others may come later. 



Originally posted by @Mike Curley :

@Ben Leybovich @Alina Trigub thank you both! We have some reading and professional consultations ahead of us to get more clarity on how we choose to move forward. Accepting the fact that the answer to this question is dependent on specific circumstances, do either of you have general thoughts on pros and cons of syndication vs. blind fund? 

Thanks again 

correct. syndication just means group investment. group investment means you're selling a security. there are tons of different types of securities--single asset syndications, semi-specified, blind pools, etc.

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