A structure we have for raising fund recently for comparation

We just sucessfully raised 2 funds each at 2 millions recently. I put it here for sharing. We only dealing commercial properties such the TX multi-unit one posted here.

We have gereral partners and preferred partners to form a LLC for each fund. The preferred partners are investors who put in the 2 millions. The general partners are people like va-Landlord who has the established credential for real estate business (This is a tricky part and requires someone extradinary both in experinece and extremely strong credit). The general partners are responsible for finding the deal, sign the contract, perform due diligence, secure finance from banks or private owners, hire manage for the properties, develop strategies for property management, budget the cost and reserve fund for improvement, provide book keeping, calling for quarterly meeting, posting income and expense, prepare income tax for all members etc. They also decide when to sell and refinance. A five year plan for each properties are developed immediately after the contract is signed and the financial detail for the projection for the property will be sent to all members so as everyone can raise concerns or suggestion during due diligence. A general guideline is to sell the property within 5 years. The general partners get 3% commission for each properties they closed. They also get about 2.5% property management fee each year.

All members will get subscription agreement for the LLC and operation agreement and detail responsibilities and profit sharing information will be included.


Now is the profit sharing part:
1. The investors (preferred partners) get 10% interest first. Interest is accumulated but not compounded. If the fisrt year investors only get 5% interest due to the higher expense or property stablization, they will get 15% in the next year. Interest are paid quarterly.
2. Only after investors get 10% interest, if there are any profit left, the general partners get 75% and the rest 25% goes to investors.
3. At the time of refinance or sell, the investor will be refunded for their principal first. After that, if there are any profit left, the general partner will get 75% and the investors get 25% of the profit sharing.

All of the properties are purchased at least 10% cap and usually at 20% cash on cash. So investors usually get about 12% interest or higher each eyar. A 2 million fund usually get us 5-7 properties value at 5-7 millions assuming 30-35% down (most of the bank nowaday asks for that kind of downpay, yet private owner may ask for only 10% down). The general partners have to secure the loan, most of the time they have to sign a recourse loan, but if we can get a conduit loan, we will try. Preferred share holder (investors) don't have to sign the loan and will not be expose to potential liabilities. Since all of these are commerical loans, we can get as many loan as we can without worrying the situation that va_lanlord facing. It is extremly hard to get a commerical loan now so the general partners must be able to demonstrate their credibility.

所有跟帖： 

• ding! -jjj7- ♂ (0 bytes) () 08/30/2010 postreply 12:51:43

• I like this structure. -planotx- ♂ (81 bytes) () 08/30/2010 postreply 13:44:23

• 回复：I like this structure. -superblue- ♂ (1105 bytes) () 08/30/2010 postreply 14:04:49

• structure a self-directed IRA for investors may also help. -superblue- ♂ (2582 bytes) () 08/30/2010 postreply 13:49:41

• Which part of the country are your properties located? i mean wh -havingfun- ♀ (0 bytes) () 08/30/2010 postreply 14:40:11

• 回复：Which part of the country are your properties located? i mean -superblue- ♂ (263 bytes) () 08/30/2010 postreply 18:13:28