Equity Financing an LLC for RE Investing

2 Replies

Hey Guys, 

So I've been trying to discover a way to raise capital for real estate investing using other peoples money. And after consulting with multiple lenders I now know that most banks wont lend on a property if there are also 2nd Position Gap lenders providing funds to the property as well as this might be considered money laundering. (Did I mention I hate banks). However if the people lending the money have a stake in the business itself then it would fine. So I have constructed what I hope to be a sound business model that may be a solution. I ask that anyone with sufficient knowledge of LLC's and business in general and take a look at this business models.

Essentially this business model relies on me and my business partner (who did not want to be named) making the key decisions for the LLC and be the main ones representing the company and be the actual ones investing in real estate. The other members would more less be silent cash Partners.

Responsibilities of Main Members (The Two Of Us)

- Run the LLC

- Choose which properties to invest in

- Apply For Loans

- Inspect Properties

- Conduct Rehab 

- Divvy out Payments to all other memebers

- Etc.

Responsibilities of Silent Cash Partners

- Almost none really

Equity Financing Outline:

Approach Potential Silent Cash Members of the LLC and ask for them to become members of the LLC.

Requirements for S.C. members:

- Minimum $1000 Cash buy in Per Member into the LLC

Benefits of being S.C. Member:

- Return of the Initial Investment plus percentage of profits for first completed project after joining. (profits would be proportional to initial investment amounts)

- Plus a small percentage of profits from subsequent completed projects (Have chosen a percentage yet somewhere between .5% and 2.5%)

So basically this business model would be greatly similar to that of a publicly traded company with shareholders.

I know that i would need to be careful of how many partners I would invite into the LLC otherwise I meant end up owing more than %100 of profits to the S.C. members may main concerns are...

1. Legality of this business model ( I assume that business can choose their requirements for members of their LLC and as well as have different claims to profits of the business among the members but I may be wrong)

2. Credit check for applying for loans ( I know either me or my business partner would be the main borrower on a loan but would banks still run credit checks on all members of the LLC, and if so would a potential members bad credit jeopardize a deal, and could having too many members complicate things as well?) If so I could probably just set a credit check requirement for membership as well.

3. Profit distribution - I would have to consult with a business attorney probably but I Imagine to would be quite complicated to arrange the specific type of payment structure I have in mind with a LLC with a lot of owners.

You're considering offering securities. They either need to be registered or they need to be exempt from registration. You'll want to research the concept of blue sky laws. Either way... $.

@Tom Gimer if @Joshua Manning pared down his investor pool to people he had a prior relationship with and/or didn't try and go down the syndication route would an LLP be better than an LLC?

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