Fund structures for Family and Friends as Investors

2 Replies

BP universe!

I'm currently in escrow on a 16 unit multi-family property and am reaching out to family and friends to see who'd like to participate with me on this opportunity.

Is there any advice on how to structure the funds for my family and friends who may be interested in this deal?

I know that investors are offered a preferred interest on the money they invest. Some are also offered an equity share, but how much?

Any insight on this topic would be greatly appreciated!

Thanks in advance!

@Sherwin Gonzales If you are running the deal and they are passive, this is a syndication. Your relationship to the investors is irrelevant.  They have to be accredited or sophisticated if you structure it this way.  

Passive investors typically get equity unless they are loaning you the money.  You typically pay a preferred return on their equity.  If you put in money too, it’s treated the same way. If you want to collect a fee or other compensation for running the deal beyond the equity you put in, then that’s fine but you would sit behind the preferred return and not get paid for that’s until the pref is fully paid for the year.  Then, the next year, the pref clock starts ticking all over again.  

Oh, and you ABSOLUTELY need a securities lawyer to structure this for you or you risk getting in a lot of trouble with the SEC and your state securities department.  You need someone like @Jillian Sidoti.  

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