Hos should I structure an Real Estate Investment Group

3 Replies

I have a few friends that are interested in purchasing Real Estate together. We are all having a problem putting together the funds to complete our next deal by ourselves, so we are planning on buying together. Two of the guys have never invested in Real Estate but will like to invest there funds. The vision is to become a large company in NJ and throughout the country.

Is this a good idea to invest as a group? I'm used to doing this by myself but my funds are currently limited.

Can someone give me suggestions on how we should structure these deals?

What type of deals should we go after single family/ multi/ commercial?

Will we be able to get a traditional loan from a traditional bank? Chase, Wells Fargo and etc.? If not what is our option?

How many people is too many?

Hi Gerald,

I'll give you my two cents! It's worth one penny :P

Is this a good idea to invest as a group? I'm used to doing this by myself but my funds are currently limited.

SURE...why not??? If you can find people who will pool their funds, you can absolutely do that. It's actually something I am looking to do as well, because paying cash for a property and rehab is way more profitable than securing loans. You have already surmounted that obstacle!! Good for you!! (Hit me up if you coming to Ocean County, NJ....)

Can someone give me suggestions on how we should structure these deals?

Define deals? Are you looking on how to structure your partnership? If that's the question, a LLP (Limited Liability Partnership) is the go to formation for me, however, you may want to consult an attorney and/or your accountant for their input.

Also take into consideration the amount of EQUITY each person will contribute. Let's say that you have 3 partners:

Partner one gives 30,000
Partner two gives 47,000
Partner three gives 82,000
Total equity is 30+47+82=159,000

How do you divvy how much each person has in equity?

Partner one has (30/159)% or 18.9%
Partner two has 29.6%
Partner three has 51.5%

When you are ready to form the LLC, I actually use LEGALZOOM and it's very easy and affordable. Yeah you can do it yourself, but I prefer to have the formation independently done to avoid issues.

What type of deals should we go after single family/ multi/ commercial?

That depends on your goals. If you have never done anything like this before, I would advise against anything big. Start small, and move from there. It's also important to gauge how well your partners will work together. If you can get through your first deal and not be at each other's throats, continue. If not, dissolving the partnership will be much easier.

Will we be able to get a traditional loan from a traditional bank? Chase, Wells Fargo and etc.? If not what is our option?

Yes, you can, as a partnership.

How many people is too many?

The more the merrier. But here's the MOST IMPORTANT THING TO CONSIDER>>>>

DEFINE each partner's role in the partnership. GO INTO AS MUCH DETAIL AS POSSIBLE and put it into your formation documents. Who is going to pay the bills? Who is handling the books? Who is responsible for getting insurance? Who is meeting the subcontractors? Who will create and handle your website and social media? Who is making calls to find subs? Who will deal with the realtor? Who is doing to deal with the accountant, lawyer, architect? Who will create the design? I mean, think about all that is going to happen, and divvy up the responsibilities.

It's the BEST and EASIEST way to resolve issues with who is responsible for what. 

Your partners may also want to remain "silent" while ONE partner becomes a MANAGING PARTNER....responsible for the daily day to day operations and has the ability to make decisions without approval of everyone. Then that person can report to the other partners on a monthly basis. Keep in mind a silent partner means SILENT....they DON'T tell you HOW to run YOUR BUSINESS.

It's true that too many cooks can spoil the soup, but with the right recipe, you can make some delicious ratatouille!

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@Gerald Boone you should consult with a Real Estate attorney for guidence here, but make sure you clearly define everyones role in the organization not just in terms of the money they bring to the table and how much profit they receive but consider how much involvement you'd like them to have in the deal, are they silent partners? Do they have rights to refusal etc.