Investor Fund Structure

[Charles Hammon]

Hello... I'm a Professional Civil Engineer and Real Estate Broker in Southern Utah and am ready to move from consulting to managing investor funds.  I'm thinking of the best way to structure a real estate investment company.  The company would operate similar to a real estate investment trust.  My professional expertise is in planning and entitlements.  I need to raise capital and use the capital to place land under contract, plan and design, obtain city approvals, then sell or develop.

Does anyone have experience in similar startups? And do you have suggestions for investment return structure; i.e., offer rates of retain, percent profit of future gains, dividends, etc?

Thank you,

Charles Hammon

[Bryan Hancock]

A REIT would require you to distribute the bulk of your earnings as dividends. REITs are not normally used for smaller investment vehicles like what you're describing. The common way to avoid registering the securities is to use a Reg. D, Rule 506 offering. There is a new (c) type of this offering for "accredited crowdfunding" if you wish to advertise.

There really isn't enough information in the OP to give a great answer so some questions you should consider are:

1.  Will you be taking money from investors in multiple states?  If so or you wish to maintain the flexibility to do so you'll need an interstate exemption like Reg. D, Rule 506

2.  How will you structure your buy-side contracts?  The perfect way for owner/operators to raise money is for it to come as quickly as possible at the lowest cost of capital on demand.  In practice this is very hard to do unless you've been operating for a very long time and have an established relationship with many investors.  Thus some people use funds as opposed to raising money on demand in a syndication.  Funds have a number of tradeoffs, but the major ones are that you pay for the juice while sourcing projects and they're harder to raise money into as opposed to a syndicated project

3.  How will you get access to investors?  Will you advertise or do you have a preexisting and substantive relationship with a sufficient number of investors to capitalize your projects without advertising?

Item 2 will determine the basic form of the entity, the timing, and how you structure your contracts.  Items 1 and 3 will determine the correct exemptions to use.  

There is MUCH more to it than this, but this should get you started.  You should be speaking with a securities attorney, but you need some guidance from an experienced syndicator first to give you an idea of how to direct the attorney.