Where do I go to start a 506 (B) fund?
I think I want to start my own 506 (B) does anyone have any advice on who to reach out to so that I can start one?
I work as a real estate agent in central Iowa and because of the marketing I do, I am constantly getting listing leads. Some of the leads have homes that need work. I want to start a fund so that I can come back to the sellers with a listing proposal and a cash offer.
Most sellers will probably list their home which is fine but I just want to provide a convenient option for them if that is what is more important to them.
Why do a fund rather than work with 1-2 established private money lenders?
The fund is only as good as the people that back it. Do you have a good source of investors along with other people looking to list their home? Starting a fund isn't cheap. There are companies online that help with creating a fund but you might want to start with talking with a local attorney that would be able to do this type of work for you. I think it will show you the complexity of it as you learn more and you may figure out that it's not your best option. Have a good source of lenders would be the cost of doing business here and you can get the show on the road right away. Creating a fund is a long process as well.
As suggested, you can use debt or form an LLC where all members are active.
If you bring in passive investors, you will need to talk to a securities attorney who can help you draft a PPM.
Getting the purchase funding is just the start. What is the plan to fix and flip (or rent) the properties?
@Thomas Mineart, I think you're jumping the gun here. Why not start in your network and see if anyone would be interested in these types of deals as one offs. They can fund the projects as they come along. Starting a fund, and not deploying capital would be a bad situation to be in.
Originally posted by @Taylor L.:Why do a fund rather than work with 1-2 established private money lenders?
Honestly, I wanted to do a fund as a way to involve my friends and family members. It may be a better option for me to start with hard money to establish proof of concept.
Originally posted by @Percy N.:As suggested, you can use debt or form an LLC where all members are active.
If you bring in passive investors, you will need to talk to a securities attorney who can help you draft a PPM.
Getting the purchase funding is just the start. What is the plan to fix and flip (or rent) the properties?
Mostly fix and flip at first and then buy and hold
@Thomas Mineart talk to a securities attorney. You need to draft a term sheet to “shop” and ppm, they will walk you through most of what you need and will guide you to keep you out of trouble. 506(b) allows up to 35 non accredited investors and unlimited accredited investors but you can’t advertise, they all need to be prior relationships.
@Thomas Mineart You call a securities attorney. Call is usually free for these kind of discussions and will be better advice then a forum. Many flippers resort to deed of trusts with promissory notes as it provides collateral. A fund will need a established network and a good securities attorney. Unless you buy the property outright with the fund, does it have ownership...and thus collateral?
But it all starts with a call...
@Thomas Mineart managing a fund is more complicated than just taking people’s money, you need to have a plan in place and execute that plan to provide the returns you promise the investors.
You should give Mauricio a call - setting up syndications is his specialty: http://www.premierlawgroup.net