What are my options here? OPM

Question

Situation: Father and son looking to potentially set up LLC or some other sort of private structure wherein we can pool money for different real estate investments. Family and friends looking for better use of their money.

Questions: What are our options here? Is anyone a real estate attorney in Oregon or Colorado that would be willing to chat?

Some of our thoughts/goals:

*Loans from our partners for down payment, secured by property at a rate higher than they could earn in the market or CD and calculate that into total debt service.

*Borrowing on deal by deal basis, or finding ways to have a pool to act quickly on

*Looking primarily at Buy, Rent, Refinance, Repeat (BRRR) single family homes in Colorado, Oregon, Kansas City with most ease for getting partners a rate or return on the down payment used and getting their interests removed in less than 5 years.

*Understanding our options with working with properties on the market (conventional financing) and other properties (seller financing)

Any help would be great!

Best,Dakota

Kim Tucker · Answer

Not an attorney here . .

As Account Closed points out if you are pooling money in an LLC depending on what you do you could be creating a security.

I would think you would want to form the company first and get it funded.  If you have a hot deal you need to buy you would need corporate documents to be able to actually purchase the property.

However if you are getting a loan from a bank or mortgage company, you will probably have to buy in your own name because the new company does not have any credit.

Dakota Mivshek · Answer

Thanks for the help thus far!

Account Closed Thanks for your help! We can get close to $100k to begin with and use that on 1 - 2 properties to start. Max 2-3 investors.

Say we find a property that we need $50k for to start. Do we pool the money before finding the property or do we pull it once property is found?

GoFundMe sounds very intersting, i'll look into that.

Account Closed · Answer

A couple of questions you need to clarify:

1. who owns what? Does a legal entity own the real estate? Who owns those entities?

2. When people add their funds into the mix, what do they receive? LLC units? A loan document to an LLC, guaranteed by primaries, or guaranteed only by real estate? If you are selling units of something (such as an LLC) backed by real estate, in some states you are selling something that State would consider a security and need registration (or meet an exception to registration).

You did specifically ask for an attorney in CO or OR, and I am neither as an attorney in WA. Just thought this might be helpful along the way.

Kim Tucker · Answer

Depends on how much funds you are going to pool.

If you and your son form the LLC and pool your funds, that is your funds.

Then say Aunt Lucy wants to lend the rest for the deal - she could make your entity a loan secured by a Deed of Trust or Mortgage on the property - 1st position.

And then say you need just another $20k from Cousin Bob, he could make your entity a loan secured by a Deed of trust or Mortgage on the property - 2nd position.

I am not an attorney in those states so please do confirm, but most investors use this formula.

Now if you have to pool funds from 20 different people to buy and renovate the house, then you need to consult an attorney because even forming an entity, once you get over 4 or 5 it starts getting more complicated.

Not sure, but you might be able to use a gofundme account for everyone to pool the funds to - but I have never tried that.