I am a relatively new REI. I have completed one SFR flip and have 4 flips under construction. I have zero landlord or property management experience. A very close friend of mine is funding some of my deals. We are both fans of people like Joe Fairless, Grant Cardone and other commercial syndicator. My friend has a fairly sizable network of high net worth individuals and wants to invest in commercial real estate. My question is, what would be the first step in starting a fund? How hard is it to get financing for a first timer?
The first step is to find a lawyer who can do all of the paperwork that will keep you out of jail. Start there. Find a lawyer who has SEC experience and who knows all of the legalities of a private placement memorandum. After that, then you can start presenting your deals to funders. The quality of your presentation and the numbers on your deals will have a lot to do with your ability to raise funds. With all of that being said, it would be a lot easier to just raise private money or get hard money.
Two very different questions.
To start, I would talk with an SEC attorney. To create a fund you will need up-front legal work, which won't be cheap.
If the property income supports, it is fairly easy to get bridge loan debt. However, to get agency debt, you will likely need to have a partner that has had prior agency debt experience.
@Mike Cordova I agree with @Josh Caldwell . You'll want to make sure you understand the rules and regulations for starting a fund so you don't violate any of them. That way, you can raise capital the right way, and scale from there.
Here's a good resource for starting a fund: https://www.capitalfundlaw.com...
thank you everyone for the responses. Sounds to me like I need to contact a lawyer for a consultation before I do anything else.
With this being your first syndication I would try and find an experienced deal sponsor to partner with. This will allow you to get the best terms on debt and also give you the opportunity to learn from them. As far as the fund I would suggest starting with a single deal specific syndication first before starting a fund. Definitely reach out to an sec attorney to find out the differences and which route would be best for you.
If you've never syndicated, I'd recommend syndicating a deal not a fund. A single deal is simpler for an investor to evaluate and a smart choice when investing with a new syndicator.
Go out and find an experienced partner to bring onto the team, who has the experience and networth required to get agency debt (Fannie/Freddie).
@Mike Cordova congratulations on your first deal! As for first time syndication it is easier to focus on one deal instead of going the fund route directly. Then once you build up a portfolio then switching over to a fund. As for finding investors, investors are mostly investing in yourself and not just a particular deal. It is like what Brian Burke states in his book. Good luck!
@Mike Cordova Partner with other syndication groups. This is leveraging other's experience and credibility to jumpstart your own. Look into a fund of funds approach to maintain investor relations with your investors or simply partner into the main syndication by bringing in investors or playing a role. Many ways to structure. As mentioned, consult an attorney specialized in the area :)
@Mike Cordova I also recommend doing a series of single deals first. Then consider a fund.
Many believe a fund is just a group of single syndications and uses the same attorneys and paperwork. That can be true. But there are cases where the fund requires entirely different paperwork and attorneys. Just be careful.
@Mike Cordova , as others noted, single assets are easier to raise for than a Fund. While I don't think you need to partner with another sponsor, you will have an uphill battle in selling your experience, when you don't have any. But having a property management partner lined up, can be a big help, as you can sell their track record of operations, and deals they have been able to execute on.
From the legal standpoint, a contract lawyer and a securities lawyer are two different specialties. You need a securities attorney.
Financing, with a proven property manager lined up, and having the financial wherewithal to secure a loan is not challenging. Typical loan terms are 1:1 net worth to loan balance and 10% of the loan balance in liquid assets. So, if you are looking at a $5mm loan, you and your partner(s) will need a $5mm net worth and $500k in liquid assets.
First off, I would not start a fund. I would raise money on a specific property that you put under contract.
Get educated. There are several books and many podcasts on raising money, multifamily syndication, etc. Look into hiring a mentor or finding others that have experience. I would suggest really gaining good knowledge before approaching potential investors.
Once the roots are there, then you need to really get clear on the exact type and location of property. Next, start forming a team, which includes a property management company, lenders, real estate brokers, accountant, securities attorney, real estate attorney, contractor, etc.