Raising money from family and friends

[Benton Moss]

Hello BiggerPockets Community!

I wanted to reach out to the community because I am mulling over raising some outside investor money from family and friends to invest on their behalf. I have had several of my family members who have asked me to invest money on their behalf, but I wanted to do it the right way. In general, I want to align my incentives with my family's, avoid situations where I have a deal and could take it down myself instead of passing it to my investors, and have some skin in the game alongside my family. So, I wanted to ask this very broad, general question - how do I structure a fund (or family of funds) that gives me the following:

- a profit split on excess equity and cashflow created

- has a long dated term on the money invested (preferably 10-15 years+)

- allows me to scale without mixing deals/money and allows me to coinvest (to put my money where my mouth is)

- allows for refinancing/rolling funds into new deals/properties

- helps me easily deal with partners who wish to withdraw funds at the end of a designated term

- broad flexibility in property type (SFR, MF, SS, and others)

- easily accommodates raising new investment capital as time passes

I am thinking of some sort of LLC or GP/LP structure (almost private partnership/hedge fund like, except with no asset management fee, just a profit split), but want to figure out those 'unknown unknowns' from folks like you! It would be especially helpful if you could provide examples of how you structured your fund or how funds you are invested in are structured.

Thanks and I look forward to discussing!

Benton

[Jason Hirko]

@Benton Moss Short answer to your long question, but when I started taking money from family and friends, I was sure to give them right of first refusal on everything. That is a big ask once you really get going that you may not feel costs very much when you;re starting out. But without that, I worried every deal I did without them would leave an opportunity for them to feel like I was cherry picking the deals.