If you finally want to do it, you know a lot about real
estate, and you think it's time to start a Real Estate Fund? How
do you go about it? And what's the process? Let's talk about
it.
So just how do you go about starting a Real Estate Fund, you
know a lot about real estate, and maybe you've invested quite
a bit yourself, but everything's owned by you already. And you
want to grow, you want to make more money, you want to own more
properties, or be a piece of that. How do you start a Real
Estate Fund? Well, it always starts with two things that you
are always always doing as a syndicator, you are always
looking for investors, and you're always looking for deals,
those two things are never gonna go away, those are the most
important. Those are the fuel for the fire, right? without
either of those, there is no deal, there is no real estate
fund, no real estate, no fun. No investors, no fun, it just as
simple as that. So you've are always looking for investors and
deals, I like to think of it as a funnel, because you're working
on these things all the time. And you're sifting out to see
what exactly you're going to be working on. As deals come in,
you need to be start identifying and start choosing while these,
this is a possibility, this is a possibility. This is a
possibility. And at the same time, you get investors who are
thinking, hmm.
I'd invest in that. Right. So investors are starting to think
that I'll invest in that and you get an idea of who those people
are. Those are your prime candidates for being in future
investors with you. As soon as you think you have those best
properties, you now go into this phase called underwriting. This
is the financial analysis model. But more than that, because
underwriting is financial analysis, but also with the
component of Do you personally want to take this project on?
Does that meet your criteria of what would be worthwhile? And
are you willing to put your name on it? So underwriting becomes
the key thing. At some point, a deal is found. And you've
identified that one deal that you want to work on, you put the
deal under contract. And you're done. Right? Wish it was so
well, you've got two things going on. Now at the same time,
right, you've got this deal that just went under contract. But
you've also got the security to worry about this, so you've got
to do a contract, you need to close and you've got a security
that you need to fund. So you've got two things happening. You're
always going to be have the same process. And in order to get the
deal done. As it relates to the contract, right? You've got your
due diligence, you might have some additional financing like a
loan. And then ultimately, you have a closing. But your
question for being here as probably more on the security
side, what exactly do you need to do in order to do this
security? You've got people who are raising their hands, right?
Have those people who are raising their hands saying
they're interested, but how do you get them from here, all the
way down to here? Well, it starts with you need the proper
documentation now that you've already identified those people
and you've got those soft commitments. Soft commitments.
Now you need the paperwork that lets you do this legally. You
need a PPM the ppm is what does what you give to your investors.
It describes the entire investment it describes the
terms that that are going to be taking place. It lets your
investors know what the risks are, what the conflicts of
interest that naturally exist in your DLR. It gives them a firm
basis so that they understand what they're going into. And
lets them know also wow if they have additional questions, how
they can get a hold of you and ask those questions. You also
need the operating agreement. The operating agreement is the
rules for the road, it's what tells the LLC that probably is
the basis of your syndication or fun. Exactly what what it can
do. And what it can't do. It is the manual, it is the law. It is
what it is what takes place, the PPM explains the operating
agreement, but the operating agreement itself is what
actually rules the day. But your investors don't sign the
operating agreement, almost all never. So they sign another
agreement called a subscription agreement. So they sign a
subscription agreement. And what that does, it binds them to the
operating agreement. It says in exchange for this money that I'm
about to give you, I am entering into this operating agreement as
a member of this LLC. And that's what that does. So now you've
got your all of your legal documents together, but you're
still not at the closing window yet. Because this down here, you
still don't have any money, you don't have their money. Yeah. So
you've got the documents in place, this really now becomes a
process of I call latching. So you've got the people that have
raised their hands, you've got the documents, you need them to
latch on to your investment and commit in order to do it. And
that's a lot of the work that takes place in this whole phase
here. Your syndication attorney is going to take care of the
documents and make sure that those are all to getting done.
But this latching period is what really kind of takes takes place
to make sure that we latch properly, get your investors
lined up, get that money in, get those signs, subscription
agreements, if you're doing a 506 C offering, get the
verification that they're an accredited investor, and then
get their dollars so that at the end of the day, you can go to
the closing table as well with that money that you have that
you need. This is the broad picture on exactly how you start
a real estate syndication. Now under a Real Estate Fund, what
you're necessarily doing is you're just not doing this part
quite yet. Right. So here your underwrite, you're still
underwriting deals. And you're coming up with your founder
investment theory. But you're not necessarily doing that. But
you still need to do those other things, you need to get these
the the documents in place to latch those investors. The end
of the day, now you have this big pool of money. And I
apologize that I don't know how to draw a pool. But this big
pool of money as you're closing. When that happens, as soon as
you start making sales, you're filing your form D with the SEC,
and you're notifying the states
of where your investors are coming from. And that's how you
start a Real Estate Fund. As you've got this pool of money to
now you're putting it into deals. Right, you're buying
different different assets for them. And then you're just using
the money as as you need to, you're using that money in order
to make those investments. And the returns are going to your
investors in the way that you promised them. Right. So they're
getting that money back. And they then you it's just a matter
of keeping constant communication, making sure
they're happy and know what their money is doing for them so
that they keep investing with you in the future. And this is
how you start a real estate fund. I thought it was helpful
to draw this out. And I thought it was helpful to also draw it
out as a syndication versus have fun, because the only difference
really is you may not have a transaction going at that time.
My name is Tilden Moschetti. I am a syndication attorney with
the Moschetti syndication Law Group. If we can help you put
together a syndication or a fund, be happy to talk to you
about it. We specialize only in Regulation D and in rules 506 B
and 506 C. We'd be happy to work with Few we've worked with
people of all levels, people who are just starting out who've
never put a deal together before but know that they want to and
are committed to the process, as well as large private equity
funds with over a billion dollars under management. So we
service everybody in between. We can help you please don't
hesitate to give us a call.