Using an LLC. to make deals with other peoples money?

Question

I have an idea in my head and I am wondering what legal hoops I need to jump through to make it work/how to get started.

How easy would it be to register for an LLC, seek out 50k-100k cash investors, have them transfer the money to the LLC (or wire it to an attorney to hold in escrow), then buy land and build a multi-unit OR purchase an existing multi-unit? I have access to tons of buy and hold, flippers, etc and I can think of 3 off the top of my head who trust me as a realtor and would want to get in on this if I pitched it properly.

The LLC. (me) would then hire a property manager, maintenance, lawn care, pay the insurance and taxes, etc. and pay out the investors monthly from the net proceeds.

1.) How common is this?

2.) Is there a name for it?

3.) What am I overlooking?

4.) As a realtor, non-investor partner of this, how could I benefit from this (get paid) other than on the initial transaction?

5.) And most importantly, what are the ACTUAL logistics of this (I've just made this idea up as I went)?

6.) Is there a step by step guide for setting this up?

Taylor L. · Answer

@Justin Kane if you're taking money from passive investors who will not be managing the deal, you're selling a security and must comply with SEC guidelines. Putting it in a JV structure doesn't dodge that.

Scott Morongell · Answer

@Eric Cady I would suggest speaking with an SEC attorney.  This is not an area to cut corners when it comes to raising capital.

Asa Hunt · Answer

I'm interested in the program. What are the details? I've officially rolled out the red carpet for some self-promotion. :)

Justin Kane · Answer

@Taylor L. that is incorrect sir, it is called a money partner. The money partner has direct involvement with the property itself usually in the form of equity as the property will be warranty deed to that partner or have 1st position.

Canesha Edwards · Answer

@Jillian Sidoti

Of course. It’s truly a great book with tons of information about the different regulations and how it affects raising money.  Thanks for sharing your knowledge.

Justin Kane · Answer

be better just to JV no transferring of money necessary

Jillian Sidoti · Answer

Hi Eric. Let me know what you need. I am also coming our with a new raising money program next month that might be beneficial. I dont want to say the name because I dont want to be self promoting (thank you Canesha for the book shout out.)

Canesha Edwards · Answer

@Eric Cady

Eric, my first advice would be to get educated. I would suggest reading @Jillian Sidoti book “The crowdfunding Myth”.  It does a good job is detailing different ways to raise money under the different regulations.

I would also suggest speaking with a Securities attorney. Hope this helps.

Best of luck.

Bryan Mitchell · Answer

Eric, you may also consider forming an LLP or LLC with the other investors as members. With an LLC, an investor could contribute xx dollars in owners capital for an equity position for instance while your articles in the formulation can stipulate the particulars of this individuals (I.e. control) in the organization. I’d advise seeking an attorney to look into this structure and compare it with a syndication.

Chase McArthur · Answer

@Eric Cady

As I am not an attorney, the following should not be considered legal advice:

So as stated above you are referring to a syndication. With this structure (under rule 506(b) of Regulation D) you are allowed to recieve capital from up to 35 "non-accredited" investors. However, these investors must be "sophisticated" either they themselves or through representation i.e. attorney, financial advisor ect. This simply means that they must possess efficient knowledge of finance or business to understand the risks involved with such a venture.

In order to do this you must simply create an LLC through your state, as well as create an offering memorandum that contains all the pertinent information in an enhanced manner as to adequately explain a full level of proper disclosure. This will require a significant amount of money in order to properly draft the necessary paperwork required to meet regulations.

Also, the amount of funds that can be recieved from non-accredited investors can not exceed $1M. The amount of money that each investor can contribute is also limited on the net worth of the individual.

Bear in mind that this process takes considerable time and money to develop the legally required structure that will allow you to proceed with a syndication.

It is very possible for you to do, but be prepared to take the long road to get there. The deal that you syndicate should be worth all the trouble it will take to successfully transact the deal.

I don't know how knowledgeable you are with CRE investments but you should consider drowning yourself in developing a very detailed understanding of CRE business and finance in order to successfully execute a deal.

Let me know if theres anything I can do to help you.

Using an LLC. to make deals with other peoples money?

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