Creating a Real Estate Fund
Private Placement Memorandum.
Consulting and Preparation.
No Charge 30-Minute Consultation.
PPM Preparation Fee $4,800 - No Hidden Charges.
Financing of Fee Available w/ no interest if repaid within 6 months.
No Charge 30-Minute Consultation.
PPM Preparation Fee $4,800 - No Hidden Charges.
Financing of Fee Available w/ no interest if repaid within 6 months.
The Advantage to Real Estate Brokers/Agents of Creating a $5,000,000 Real Estate Fund is that you control the decisions as to what to purchase, when to buy, and when to sell.
If this is your first fund, I suggest you limit the raise from $1,000,000 to $5,000,000. All the financial examples are based on raising $5,000,000.
(If you have been a realtor for several years, your company’s client list would be an excellent source of investor leads.) Real Estate Funds can be the easiest of all ventures to raise capital from investors.
As a licensed Realtor and the Managing Member of the company, you will receive both the purchasing commission when the property is acquired (usually) 3% and when liquidating the property, a listing commission of 3%.
On a $5,000,000 fund, that’s $150,000 for the initial purchases and $150,000 for the sale listings. Additionally, upon liquidation, you must reinvest the sale proceeds by purchasing other properties to replace those sold. Another possible 3% ($150,000). Of course, if you represent both sides of the transactions, the commission is 6% ($300,000 / $300,000) / $300,000.
You may also create a property management company that will contract with the real estate fund entitling your management company to an annual management fee that is typically 2%. A 2% management fee on a $5,000,000 fund is an additional $100,000 that would be paid to your management company annually.
The Offering Documents can also be structured to provide you with a 30% ownership interest as the Member Manager. This is usually referred to as “sweat equity participation.” You do not need to invest your own money.
The company’s Operating Agreement will require a minimum of 75% to a maximum of 100% of the annual profit or free cash flow to be distributed to its member investors. This distribution will be from the Airbnb Rental income and the Fix & Flip business activities from the properties fixed and flipped during the year. The profit distributions would be based on each investor’s ownership percentage. Example: If the company earned an annual 20% return on $5,000,000, that would represent a maximum of $1,000,000 available for annual profit distribution. If your ownership interest is 30%, your annual distribution share would be $300,000.
