I am trying to learn how to raise capital. More so, I am trying to learn how to structure a deal so that I am not married to another investor for 15-30 years. I am a military man and many of my friends out here in San Diego have a respectable amount of capital saved up ($50k-$100K range) and they tell me "Ramsey, hopefully one day you will let us get in on a real estate deal with you." I do want to involve them however I am unsure of how to put THIER capital to work without being on a long term mortgage with them. I understand the broad stroke differences between a Joint Venture (Partners own a percentage of the property) and a General Partnership (Investors provide private money loans at a locked in rate of return) however I am looking for exit strategies. What is common for either strategy.
Surely investors do not want to lock in their capital for 15-30 years. Should I be raising capital only to fund MY deals and eventually refinance to provide my investors an Exit - leaving me with the property.
Should I raise capital to buy a performing asset in which I provide partners with a long term investment in which they own completely and I am compensated for structuring the deal as a general partner?
Please post replies below however I want to jump on a call with someone who has done this before.
Thanks in advance!
What are you looking to do? For a fix n flip usually the loans are 1 yr term 8-12% interest only. So, you’re in an you’re out of the project in - let’s say - 6 months. Your friends will have gotten 6 months of interest plus their initial investment back and perhaps a point or two upfront.
What you are describing sounds more like syndication. Be careful as this treads into SEC issues.
A typical syndication deal has the initial investment, a refi before year 3 to pay investors back a majority of their investment, and usually a sale of the property at year 5. This way, the investor's commitment is short term, so they are more likely to invest.
If you don't want to get into syndication (it's an expensive set up process), then the only way I see you involving your friends is for debt by allowing them to fund your deals as the lender, and you pay them interest.
Or potentially going in on an LLC together and pooling funds, but I think there stipulations on this too, like having equal profit % to the amount invested.
So, you will definitely want to speak with an attorney about the legal ways to accomplish your goal of investing with your friends.
At the moment I am not interested in fix and flips Of single family homes, however I like the idea of pooling together investor money to purchase an apartment complex of 10-30 units, raising the tenant class through renovations and amenaties. Increasing the NOI, and refinancing to pull out the initial invesment. EssentIlly doing a BRRRR on apartments. My goal would be to own the asset outright after the project is complete and have investors paid back with interest and a kicker if possible. I have experience doing this to an apartment however I completely funded the down payment, renovation expenses, and did the work myself. I want to raise capital to do larger projects and hire professionals to do the renovations.
Me funding the projects myself limits my buying power, which limits the number of units, ultimately limiting the projects return.
It's hard to say exactly what you should do, but the easiest way and probably the best way to start is to simply borrow the money at an agreed rate of interest (say 8 or 9%) as a first position trust deed (or mortgage depending on the state you're in) and then just pay them off when you refinance with a bank. Hopefully then, you can have them lend to you on the next property you want to buy.
There is an experienced fund manager in California who creates Co-sponsorship syndications that get you going with full training etc in a few weeks
This saves you time, money and effort and you could start raising capital under the SEC exemption rules in no time.
He also helps you organize the entire process and maintains the regulatory requirements. He does commercial investing as well as residential built and hold turnkey in the Midwest for homes at less than $100k each and buy fix and flips in California for luxury homes at around $10mil
Private message me if you want to get in touch with him - I do not want to broadcast his info as I am not sure if this is allowed
@Ramsey Blankenship Having investors that trust you and want to invest money in your deals is a great problem to have. I would seek out legal counsel from a real estate attorney who has experience structuring entities with investors. It is worth the cost and effort to ensure that you and your investors are setup for success.
@Pat Marco there is a company in Oregon that does this called Fairway.. I think they charge 50 large or about that.
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