How to create a group of investors locally (family and friends)?

Question

Hello all,

Me and my cousin started to save up money to purchase a rental property. We are starting off small saving about $100 a week each with the hopes of purchaing are first rental at the start of next year.

I was thinking of adding more people to our venture , but I wasn't sure how to structure it. Me and my cousin have a good understanding and we will be using my credit to purchase the property or should I be considering using business credit once i have my LLC up?

Just want to know how to create a family investment group in terms of structure.

Daniella Sanchez · Answer

I would try to include as few people as possible. The more people you have involved the more potential issues you can run into. Especially if this is your first time working with someone, you don't know how they will act as a partner. If you want to include more investors I suggest talking to an attorney that specializes in real estate. They will have the resources you need to cover all your bases.

Patrick Menefee · Answer

@Jim Coleman ok i can’t read. $100/week is definitely better than $100/month, especially if you’re both doing that. My point still remains though :D

Patrick Menefee · Answer

@Jim Coleman couple of things here. First, follow what everyone said about syndication. You don’t want to start there.

Second, your point about finding local investors is smart but not in the sense you’re thinking. Find local investors with money by networking, asking friends, etc. Add your location and a picture to your BP profile and start reaching out to people here. Gather a network near you, and find out what everyone brings to the table. They may not get you where you want at the moment, but you can learn from them and work with them in the future when the time is right.

Third, maybe you’re thinking about working with your cousin the wrong way. If neither of you have money and are saving a combined $200/mo, you’re looking at almost 20 years until you can afford a down payment on a $100k property (not accounting for closing costs, reserves, etc). Alternatively, if you both have the same drive go out and hustle. Learn how to find a good deal, analyze the hell out of them, and continue driving your network. Have your cousin do the same. Find some cash investors you can partner with, and rather than each of you trying to make a deal with no money, you each partner on a deal with someone who has the money. Share stories, lessons learned, and keep doing it until you have the money to partner with each other.

There are options, and partnerships are extremely powerful. But being broke and partnering with someone who is broke means you’ll just hang out as broke partners with no real estate. Build a network and leverage it!

Best of luck

Jamel Smith · Answer

I would suggest to keep the other people you choose to involve to a limit. Maybe asking the closestvfamilyvmemberveith thevmost access to cash to help out during the process as a silent investor with a small return on their investment would be better. Also, if you and your cousin can save enough cash together, once you find the right property talk to a hard money lender rather than use your credit. Using your credit on an investment property for the initial purchase can possibly destroy your credit on the off chance that things dont go as planned. You may end up keeping the house to ensure that your credit doesnt get ruined. A hard money lender will lend on a good deal if you have some cash (usually 10% or higher) especially for a good property.  Good luck.

Colton Fairchild · Answer

If you and your cousin have enough funds to purchase your first property then just do that. This way you will get experience before adding other people and their money into the mix. As @Taylor L. mentioned, creating a syndication fund for one property is going to be far too expensive. You could always create an LLC between you and your cousin... just determine ownership percentages (ex. 50/50). I'd reach out to a RE attorney or CPA though.

Taylor L. · Answer

If you're bringing on passive investors, you need to follow the syndication laws. Doesn't matter if they're family. Syndication typically doesn't make sense for small properties because of the high fixed costs. If they're open to it, you can take loans from them. Less paperwork but very different requirements.

How to create a group of investors locally (family and friends)?

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