Hi! I need some help planning the entities to hold my upcoming apartment purchase. I have an accepted LOI and we are working on the contract. it is 90 units in Arizona. The planned financing is 75% first mortgage bank loan, 20% private investor lender position (1-8 private investors; refi buy out in three years), 5% sponsor cash. I plan to aquire with an LLC. do I establish another LLC for the investors and that LLC has a second position lien on the property ? any advice about entities would be helpful. thank you all very very much. Jay
This is definitely a more conservative approach, but I would recommend forming one LLC to take down and hold the property, and two additional LLC's to serve as MM and IM of the property level LLC. The "Sponsor" would be the managing member and would be responsible for the day to day operations and the investors would make up the IM LLC and would not be at all responsible for managing the property. You could certainly make do with less, but I like to err on the side of caution in case anything starts getting dicey. A good lawyer or accountant could walk you through this pretty easily.
You could set up one LLC with a Reg D syndication to own and manage the property, secure financing, raise investor capital and distribute profits. The sole and managing member of the syndication LLC would be your LLC as the operator (sponsor). The investors would be A shareholders within the syndication LLC. You, as the manager, would be B shareholders. This is relatively safe and secure while giving you, the manager, full management of the project and the syndication LLC. When done correctly, it clearly outlines the manager's duties, investors' risks and the syndication's projections. Go very cautiously when you are commingling funds. There are strict laws. I would consult with an attorney.
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