Group Deals- Is there a way for several people to invest at once?

Question

If I have a group of people looking to invest into one deal, how would we go about setting that up? Should there be a trust? What if the group can only come up with part of the money? Then we would go to a hard money lender but who signs the paperwork?

John Thedford · Answer

Yes as Account Closed stated. However, that doesn't mean there won't be unhappy members. A friend of mine has a minority stake in a few large shopping centers. They have been extremely unhappy with the managing member and their decisions. A partnership, investing in an LLC, JV..are all like a marriage-easier to get into than get out of. This is why I prefer to do solo deals. My success or failures are solely dependent on myself.

Account Closed · Answer

Yes that is true but you can set up the Operating Agreement as to exactly how you want to set up the decision making. The group decides those details.

Account Closed · Answer

You can set up a LLC and have the people as members. You can be the 'managing member'. This is less costly than the above recommendations. The operating agreement spells out all the methods of making decisions about a property.

Noel Felix III · Answer

Thanks for all the good information. I agree that doing deals solo is the best way but getting started in anything is hard and sometimes it takes a village. I also agree that everything needs to be talked through first with the best attempt to predict any problems that may come up. Does anyone know what kind of lawyer to talk to (real estate, corporate or trust) and were to find the one that would work best for what I'm trying to do.

John Thedford · Answer

There can be so many things that happen in any partnership. Death. Divorce. Change of investing ideas. Change of mind for how long the investment is held, etc. We just had an attorney cover many of the possible scenarios. I believe fewer people can be better but more importantly, I would have an attorney draft up the agreement. I can refer you to the attorney here in Florida that gave the presentation if that would help.

Stephen Preston · Answer

Hi Noel:

@Mindy Jensen is bang on.

I spent over $130,000 to put together an "Offering Memorandum" to legally raise registered retired funds in Canada with the idea of buying apartment buildings in Dallas. It was a long and painful process but it was done by the book and in full accordance with the securities regulators. You can have these documents done for much cheaper in the USA but I dont recommend exploring this route unless you are going to raise at a minimum $1M or more (probably closer to $5m+).

Now I work with accredited investors only and only have one investor per deal. Once you get into mixing investor funds you are a security and must abide by the rules set out by the SEC.

As for crowdfunding - it is a very interesting idea for real estate investors. I have not tried it yet but I have started to look into it. My concern is this: Its much easier to raise $150,000 for example from one person then it is to raise $15,000 from 10 people. The administrative headaches that come with multiple small investors cannot be understated. Accredited investors, while generally harder to find, are much easier to work with and are usually successful people themselves who "get it". This makes the admin side of raising capital much easier.

Mindy Jensen · Answer

@Noel Felix III, I agree with what @Stephen Preston said, and I'll go a little further. If there is more than one person in the group, that means you'll have more than one version of any story that happens along the way.

NOW, before the group has purchased anything, NOW is the time to sit down with everyone, and hash it all out. Write it down, get an attorney to review the documents, and everyone signs it.

In a year, you will all remember it just slightly differently. If it's important to you, write it down and agree now, before any money is spent.

Noel Felix III · Answer

Thanks Stephen

Have you ever done a deal like this? I also hear crowd funding is legal do you know anything about that?

Stephen Preston · Answer

Hi Noel:

Anytime you are looking at pooling together funds you become a security and as such are regulated by the SEC. I would get good legal advice on the best way to put together and structure the deal.

Also, who will have control of the deal and who will make the decisions? It is imperative to get this figured out from the start to avoid potential problems down the road. Make sure that all parties are clear on the expectations and that you have a written agreement that covers all "what if" scenarios (IE what if a partner wants out, what if one parter wants to sell and the other doesn't etc.)

Stephen