BRRRR Fund (Taking Investor Money to Execute the BRRRR Strategy)
Rental Property Investor · Des Moines, IA · Member since 2018 · 40 posts · 16 votes
BRRRR Fund (Taking Investor Money to Execute the BRRRR Strategy)
3 Replies
- 7yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes@Chad Daniel To cover yourself from both a legal, i.e. SEC or state securities regulatory side and potential lawsuits side, you will need an experienced securities attorney to create the following documents 1. Private Placement Memorandum 2. Organizational Entity Agreement 3. Subscription Agreement 4. Accredited Investor Letter I have seen some law firms advertise that they will do this for as little as $8500.00. Reg D filing fee would be extra, as well as specific state notice fees. I have also seen some online sites advertise pre packaged programs where you fill in many of the blanks for around $4500.00, but with legal work cut rate can cost you big in the long run. In actuality, you can rely on the general exemption from registration for private placement, and forgo all of the above ( doing the above is complying with the Reg D ‘safe harbor’, in other words do it right and your safe from the regulatory authorities deciding that your offering is not exempt and that you have committed criminal acts by raising capital without a securities registration ( which costs a minimum of $150,000.00). An additional area of risk in raising capital or selling securities with either a registration or without complying with the Reg D safe harbor exemption is that if you are sued by an investor, who say, lost money, you do not have any statuatory defense. In other words, correctly complying with Reg D is an affirmative defense by itself, as long as you did not commit a fraudulent act. Without the Reg D compliance your at the mercy of the ‘more likely than not’ weight, and juries don’t look kindly on people who lose other people’s money and don’t have a statuatory defense. Now all this does not take into account the probability of having a successful offering. Having some experience and expertise in the field as you do is a good start. If you can produce proof of a successful track record doing the kind of investing as you purpose for your fund, you are much further along. One of the problems you will run into in selling the fund concept is that most investors now want more transparency than a fund allows. Fund usually refers to a blind pool where the passive investor allows the fund manager to invest his money in any deal the fund manager chooses. Other than quarterly distributions and perhaps an asset list, the passive investor may know little about where his money has been put to work. To increase the investor pool and serve the need for transparency, many of us in the sponsor/syndication field now have a separate ‘series’ of an LLC for each investment, so investors can choose which properties they want to invest in and wish they want to avoid. Your competition is all passive real estate investments being offered in the market. Potential investors will evaluate the anticipated return in your offering and balance it against the perceived risk, which will then be compared with other real property offerings. As a final note, the $10,000.00 paid to a securities attorney only gets you so far. Investors today won’t give you a second look unless you have an informative professional looking website. To satisfy investor requirements for accessing information and documents about your offering, as well as handling their actual investment in compliance with financial industry regulations, you will need a secure crowdfunding platform. Figure $2500.00 at a minimum for the website, and either $20,000 upfront or $7500.00 per year for the crowdfunding platform. Then it will probably be necessary to spend $2,000 to $3000 per month to drive investor prospects to your site and hopefully submit their accreditation letter. So probably a minimum of $35,000 capital invested just to see if it works.
- Rental Property Investor · Des Moines, IA · Member since 2018 · 40 posts · 16 votes7y@Don Konipol, thank you for reply! There is certainly a lot to consider when beginning a fund or syndication. The individual properties that we’d target have an ARV of less than $100,000 so it’s not practical to make an LLC with individual investors for each, but we could package 5-10 together and have basically a turnkey investment offering. I’m expecting our initial capital raise to be primarily from our existing network and be in the $500,000-750,000 range. It’s still a must that we offer a competitive investment vs. other passive investments these individuals could be part of. With this, we probably don’t need the website for marketing purposes from the start. Do you have any recommended resources for the legal work? We have an up-front review/question about what amount of investor involvement is needed to make this an exempt offering (I think that’s the right term) and then we’ll need to move forward with executing the appropriate paperwork. Thanks again for the ideas you’ve provided - you’re clearly more experienced in using OPM that we are!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.