All Forum Posts by: Travis Doyle

I probably should have mentioned this, but my partner is the RE expert, and I am only here to help praise his efforts because multiple close friends of ours have expressed interest. He simply doesn't have the time to focus on this, and here is where I come in.

We currently have a series LLC setup with both of us as managers, and we will be pooling funds through members to each series LLC.

In summary, my partner is doing all of the RE work, and I will be handling 100% of anything related to the pooling of funds. I think at this point, we will probably just cut ourselves some of the cash flows from the asset, and 70/30 or 80/20 seems to be normal. What do you think of this example?

We do an 80/20 cash flow split with members getting 80%, and us 20%. How much do people like me normally demand from that 20% split?

@Joseph Gozlan I just bought the book! Can't wait to read.

How do you guys like to structure your operating agreement to participate in cash flow during the hold, outside of general equity us managers already have in the deal? What numbers have you seen or used yourself, and how have investors reacted?

Thanks Joseph,I have spoken to our lawyers and have a series LLC already established, but was just seeing how other people started funds like this. Everyone has to start somewhere, but there doesn't seem to be much literature about this. Many times I see, "there are thousands of way to do it, just do what works for you." I just really wanted to see what my left and right lanes were, and hopefully find something that works for everyone.

Maybe I should have asked, how do people structure their operating agreements? Will probably be looking to pool money from about 10-15 family and friends on the first one.

Hey guys,

Just wanted to hear what everyone has done with their deals. My partner is an expert in RE, and I want to help grow his business. I wanted to raise some money through friends and family. I am looking to raise 500k in our first fund, and wanted advice on how to structure the operating agreement. I really, really want to keep things easy, with no preferred returns or anything like that. I feel like simpler is better at this point. What have you guys had success with? I saw an article about a 95/5 split, where the investors are entitled to 95% of distributable cash, and the sponsor gets 5%.

Please share structures you have had success with for friends and family! If you have a few minutes to share wisdom, don't hesitate to PM me!

Thanks!

 Ahhh, so in your example, let's assume instead of a sale, we refi and returned 100% of principal invested. In year 3, after debt service, we would just split profits 50/50 in perpetuity?

Thank you to all for the responses!

Two questions:

1) Is the sponsor usually getting nothing outside of asset management fee the norm?

2) let's say the investors are paid off in full during the refi, what happens to the pref return after that if we choose to hold? is this usually removed after a 100% payback of principal? what is it now based from, the remaining equity in the deal?

@Robert Shaw

Thanks Robert! So is this sort of what happens in your example?

Let's say we start with a 100k investment that gives us 12K NOI for the year. You would:

1) pay 8,000 in your pref

2) pay 4,000 towards payback of principal

The above would happen until a sale/refi? Outside of an asset management fee, acquisition/disposition fee, how does the sponsor get paid during the holding period of the deal? Do you only get paid through a sale or refi?

*also, after a refi, what happens to the pref return, and how is it usually calculated? 

I genuinely don't know what the norm is for a liquidity event, whether or not that closes the investment, that's why I asked! I am not sure the investors want to be stuck in for more than 5 years in this scenario. I was just looking for an exit strategy for the investors. In your experience, do they want to stay?

isn't a pref return just a fancy way of saying we will try to give you at least x% of your principal back each year? It is not an interest payment, right?

@Nick B.

So as a 30% equity stake holder, am I not entitled to cash flow until the refi? Isn't the cash flow we get each year also considered a return of capital?