Multifamily LLC Structuring Questions

[Account Closed]

• Hi BP community! 
• For a little background, I’m a Houston oil and gas investment professional working for a venture capital firm that has ~$11 billion in AUM. I'm familiar with the underwriting acquisitions and am interested in pursuing real estate investment opportunities on the side parallel to my current role. I'm looking for some guidance regarding the best way to do so. A few helpful notes below that explain my situation and questions.
  
  I currently do not have a deal in hand, nor do I have immediate line of site to such. There's no near term time pressure, but I would like to start wrapping my head around the process. Assuming that i'm successful and find an actionable transaction down the road:
• • When should I begin the process of formation of the parent entity [Multifamily Investment Vehicle, LLC] (now vs when I find a deal)? The plan would be to create sub-entities under this parent entity to hold individual assets.
    
  • How long does it take to create an LLC? (30,60,180 days?)
  • Is it worth it to establish a parent entity LLC early to create "legitimacy" while hunting for a deal? Does this help when negotiating transactions and/or getting the attention of brokers/sellers?
    
• • Would this be required to legally create professional letterhead/email domain/etc? (not that I'll do either immediately, I just don't know if it's legal to send, for example, an LOI/etc. as "[Executive Title] of Multifamily LLC" if I haven't yet created that entity/know that the entity name is available) I know this isn't "required", but is it helpful? I personally feel like I would just delete most any inquiry I received coming from someone's personal gmail account asking to purchase my ~$[5] MM building...
    
    Given the targeted investments would be real estate, is entity ownership anonymity suggested? 
  • Anyone know how easy this is to do in Texas? Best to consider other states Nevada/Delaware/etc.?
  • If an acquisition target isn’t identified and/or transacted upon, could the parent business entity just sit idle for an extended period of time?
    
• • Other than the ongoing maintenance expense (annual fees, etc.), is there other downside to this situation?
  • I assume being the only involved party at the moment would mean formation of a single-member entity. How easy is it to add/remove members in the future?
  • Are there minimum capital requirements involved in the initial funding of the parent entity?
• • Is future capital infusion as easy as issuing additional units for purchase by desired capital provider? For example, say the initial business is capitalized with $100k, but an acquisition target is identified and requires $500k down. Can myself and/or others purchase units from the LLC to meet the capital requirement?
  • My guess is that this would fall under 506(b) assuming a mix of friends and family and/or accredited investors, correct?

I understand that anything said here doesn't substitute legal advice from an attorney, but I figured I'd ping this group first before seeking confirmation from counsel. Thanks in advance for all the thoughts and suggestions! You guys are great!

[Amy Wan]

• • When should I begin the process of formation of the parent entity [Multifamily Investment Vehicle, LLC] (now vs when I find a deal)? The plan would be to create sub-entities under this parent entity to hold individual assets. It can be helpful to create the Manager entity beforehand, but oftentimes people just create the the holding entity once under contract so they can name it after the property. I believe the service around entity creation is usually included in the cost of a syndication attorney, but you should ask. Also, if you set up the initial entity incorrectly, it takes a lot longer and is more expensive to change.
    
  • How long does it take to create an LLC? (30,60,180 days?) Expediting is our friend here. A couple days at most to get governing docs back if you expedite.
  • Is it worth it to establish a parent entity LLC early to create "legitimacy" while hunting for a deal? It depends on whether you plan to recycle the Manager entity.
• Would this be required to legally create professional letterhead/email domain/etc? (not that I'll do either immediately, I just don't know if it's legal to send, for example, an LOI/etc. as "[Executive Title] of Multifamily LLC" if I haven't yet created that entity/know that the entity name is available) I know this isn't "required", but is it helpful? I personally feel like I would just delete most any inquiry I received coming from someone's personal gmail account asking to purchase my ~$[5] MM building... not required
  
  Given the targeted investments would be real estate, is entity ownership anonymity suggested? Depends on your personal preference
• Anyone know how easy this is to do in Texas? Best to consider other states Nevada/Delaware/etc.? I think you need to talk to your syndication attorney about the overarching deal first and your goals first...
• If an acquisition target isn’t identified and/or transacted upon, could the parent business entity just sit idle for an extended period of time? yes but you'll have to pay annual fees on it
  
• • Other than the ongoing maintenance expense (annual fees, etc.), is there other downside to this situation? no
  • I assume being the only involved party at the moment would mean formation of a single-member entity. How easy is it to add/remove members in the future? Its not hard, but the hard part for the Manager entity is making changes if it needs to change between manager-managed or member-managed, which is a pain
  • Are there minimum capital requirements involved in the initial funding of the parent entity? no
• • Is future capital infusion as easy as issuing additional units for purchase by desired capital provider? For example, say the initial business is capitalized with $100k, but an acquisition target is identified and requires $500k down. Can myself and/or others purchase units from the LLC to meet the capital requirement? I think you're overthinking this. It would be easier to just explain this by phone.
  • My guess is that this would fall under 506(b) assuming a mix of friends and family and/or accredited investors, correct? Probably, but it depends on your plan.