Contractor · Atlanta, GA · Member since 2016 · 49 posts · 26 votes
Looking for advice on how to structure a JV or partnership on a couple spec builds in the Atlanta Area. I have funding lined up for at least 80% LTC of the project but I want to raise an equity ticket. I've always self funded so I'm not familiar with how these deals are typically structured.
Real Estate Broker · Omaha, NE · Member since 2020 · 329 posts · 203 votes
3y
If you plan to raise capital, always start by consulting an SEC attorney, it's not an area you want to mess around with. The most advantageous way to raise capital for you would be debt. You raise money at a fixed interest rate, when the investor's get their return any profits on top are yours, and then when the investor get's their initial investment back it's all yours.
Development is a speculative investment, and limited partners typically will want a much higher upside potential, so you might be better off starting a fund where you agree to share the profits with the investors even after they recover their initial investment.
If you are going to be doing all the legwork, guaranteeing notes and have the expertise to execute and all you need is capital, one of the first two options might be your best bet. If you need to partner with experience, net worth, or legwork, a JV might make more sense. I wouldn't cheap out on this part and hire an attorney to help set up a bulletproof partnership.
Real Estate Broker · Omaha, NE · Member since 2020 · 329 posts · 203 votes
3y
If you plan to raise capital, always start by consulting an SEC attorney, it's not an area you want to mess around with. The most advantageous way to raise capital for you would be debt. You raise money at a fixed interest rate, when the investor's get their return any profits on top are yours, and then when the investor get's their initial investment back it's all yours.
Development is a speculative investment, and limited partners typically will want a much higher upside potential, so you might be better off starting a fund where you agree to share the profits with the investors even after they recover their initial investment.
If you are going to be doing all the legwork, guaranteeing notes and have the expertise to execute and all you need is capital, one of the first two options might be your best bet. If you need to partner with experience, net worth, or legwork, a JV might make more sense. I wouldn't cheap out on this part and hire an attorney to help set up a bulletproof partnership.
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
3y
I just did three loans up in the Jasper/Big Canoe area near you and we have a real estate investment arm that has JV'd a lot over the past decade+. We've typically either structured them with a new LLC with a solid operating agreement laying out everyone's duties, contributions, percentage of risk, and percentage of profit. If you have the 80% LTC loan, keep in mind that the lender will likely require anyone with a 20% or more interest (that's going to vary from program to program/lender to lender) to guaranty that loan along with you. We've also simply created a separate debt instrument to our own LLC with a fixed return and fixed time frame (18 - 24 months) to keep 100% of the equity and not tie that money to the property, but to a UCC on our entity. If you ever want to schedule a call to shoot the breeze and talk through it, I'm happy to do so. Good luck with your project.
Contractor · Atlanta, GA · Member since 2016 · 49 posts · 26 votes
3y
@Doug Smith thanks for that detailed explanation. I will give you call this week as I clearly have a lot I need to wrap my head around when it comes to raising capital.
I work with contractors building their own projects, both setting up the financing and bringing in external equity investors, although this will be more in place in a few months when I plan to start bringing investors from Sweden. I'd be happy to hear more about your projects and potentially look at the financing side. Message me and we can have a call.