Building a fund

[Kendall Bond]

I am looking for advice on building a small to medium fund for real estate. We have access to deals that range from 25 to 50% of CMV and would like to start with about $500,000.00. I need advice on types of funds and best ways to make sure an investor is happy but not taking all of the profit either.

The goal is to buy and hold. building a portfolio of real estate rentals.

Any advice would be greatly apprciated.

[Brian Burke]

The first step, if you haven't done this already, is to begin networking for investors. Meet people and find out what their appetite is for the type of thing that you are seeking to do. There's no use going through all of the expense of creating a fund if you have no one to invest in it. Have some casual discussion as to what profit split your potential investors would tolerate, and what their expectations are in terms of return and how long they are willing to tie up their capital.

Assuming that you find some suitable investors, your next step is to have a securities attorney draft your operating and offering documents. Typically an LLC or LP structure is created that is exempt from registration under Reg D 506, but there are other options that your securities attorney can propose for you if the circumstances warrant it.

The next step is to go back to your prospects with a formal offering and take subscriptions to the fund.

The most important, and often overlooked step is the first one. This isn't a "build it and they will come" business. People won't invest in your fund just because you created one, they will invest because they believe in you and trust you to do the right thing. This takes a track record and relationships. You'll do yourself a big favor by working on both of those way before putting pen to paper on a fund offering.

Good luck!