Real Estate Investment Fund Help

[Wryland Reed]

I am working on a new construction project to build a new home or two on our first project together as a group of 3-4. 3 partners have a quite a bit of experience on their own real estate projects and have portfolios.

I am bringing everyone together for this and also have several investors that may be part of the project or part of the next, so I am starting a fund to build 10 of the same model home in the same target market. Initially it is about 450k cost with 850k sale price. Building 10 of these with 20% down + a buffer puts an initial raise at $1million for a fund.

The question is- if you have been a part of a real estate fund, what is the best way to structure something like this? I prefer to package 10 new construction homes to build and sell in one fund raise, and then begin when the fund matures because I may already have it funded, or can within 6 months or less if some interested parties don't find it to be the right fit. I assume this is better than raising for 10 single projects. Can anyone with experience or part of a fund like this, or anyone that has raised a fund like this offer advice on the best structure for new construction build and sale?

[Lance Pederson]

For something like this a fund would make some sense. If you are building 10 homes same target, that should be pretty easy for investors to get their minds wrapped around. You would typically determine some type of Preferred Return (e.g., 8%, 10%, etc.) and then a split above that (e.g., 60/40, 70/30, 80/20). You would set the Maximum Offering size of $1M and a Minimum Investment amount (e.g., $25k, $50k, etc.). 

You could set a Minimum Offering amount of $200k and once you received commitments of at least that amount you can call the capital in and start making investments. You give yourself a set window of time (aka Fundraising Period) to get the remaining $800k. For something like this 12 months is probably the appropriate amount of time. 

There are other structures you could explore but this would be one of the more aligned structures.