Raising Capital with other investors - How to structure?

Question

Hello All - Love BP and everything it has to offer.

A question that I have is about structuring your business when you are raising capital. Right now I have 5 units, with a couple of different investors. Because the percentage of ownership in these properties is different, I have three LLC's created for the properties. Come tax time, this takes extra time for my accountant to file and cost me money.

I am trying to organize myself and structure myself the correct way moving forward. I have a few other deals in the mix right now that if I can get under contract will need to call a few private investors I have to help fund the deal.

My question is: How do you structure your business when you are raising capital like this? Do you just continue to create more and more LLC's? Is there another way to go about this? I know a ton of people are raising capital out there for their business, but how is it strucutured.

Thanks in advance!!

Chris Levarek · Answer

@Grant Pope Definitely asking the right questions but what is the end goal? What are you aiming for? Two things if looking to scale, (which it sounds like you are):

• If you are looking to scale, then understanding the cost of scaling a business simply means division of labor and building those costs into the model. As long as the costs are built in at acquisition and the deal makes sense, then is there really an issue with additional administrative cost?

• If you are looking to scale, recommend also aligning also with the right partners that enable your goals. If your accountant says simplify, perhaps that is all he/she is familiar with, maybe time to move up to an accountant specializing with capital raising, syndication or bigger acquisitions. This is a constant process. Not all partners will grow at same pace as you will.

Change is constant and all businesses feel the growing pains. In response to your question, most capital raisers or syndicators or businesses will create multiple LLCs, bank accounts, documents, etc for each venture. Asset protection, legal implications and business organization are paramount the larger you go.

Ryan Daigle · Answer

@Grant Pope if you think creating an LLC for each property is a lot of administrative overhead, then I have bad news for you about creating your own fund! :)

If your investment partners are equity holders, then an LLC for each is the best route, sorry. If they're debt providers, then you might be able to get a securitized loan from each, personally guaranteed by you, but I wouldn't recommend that either.

Grant Pope · Answer

@Chris Levarek - Thanks for the great information!

To answer your question about what my goal is. My goal is to scale into bigger apartment complexes. The number of them, the sky is the limit after that for me. I just have always dreamed of making deals on these complexes and owning them into the future. As I drool over some of the complexes in my area and look forward to the day I own one as well. :)

You make good points about the cost of scaling and business and baking that into the cost of acquisition etc. All things I am okay with doing, at this early stage in my investing career I just want to know that I am structuring things in the appropriate order so that over time I am not running into problems as I scale. But as I am hearing from this forum, the way I am doing things now are correct. Just need to learn to build these things in as we move forward.

@Roni Elias - Also thanks for the response. Helpful informaiton as well.

Alina Trigub · Answer

@Grant Pope

You're asking the right questions. However, ideally the answers to legal structure questions should be coming from an attorney. See if your accountant can recommend someone, ideally an attorney they know and work with to ensure the smooth communications between the two. But I'd ask an attorney all these questions about the legal structures.

Roni E. · Answer

You could 4, fourplexes(16 units) into 1 LLC this would make sense if just 1 loan, 1 insurance policy and same partners. The only issue which you should speak to your attorney about is liability setup. To setup a LLC it is usually under $200 for first year then $100 usually from unless Delaware or Nevada LLC.

Grant Pope · Answer

@Ryan Daigle

Thanks for the advice. I thought that maybe the case, but my accountant continues to tell me to simplify things if possible. But when each property is owned differently, I don't know if there is a better way. Just does become an accounting nightmare. I do all my bookkeeping right now on QuickBooks. I already have 4 LLC's created and can see the difficulty as I work on scaling.

But taking your advice, this seems to be the best way.

Grant Pope · Answer

@Jaysen Medhurst thanks for your response.

This may be a little over my head at this time, but I have been doing some research about Private equity real estate funds. Is this also an option, or at this time not worth doing?

Jaysen Medhurst · Answer

Yup, @Grant Pope. A different LLC for each one. That's the cost of doing business, brother. The only exception would be if you were working with the same partners on several deals (same positions). You could do one LLC. Of course, you have greater risk that way. All the properties under that LLC would potentially be exposed.

Raising Capital with other investors - How to structure?

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