launch real estate fund Archives

Raising Capital For Real Estate In 6 Steps

December 28, 2022February 18, 2022 by devteam

For investors in the real estate industry, raising investment capital is one of the first challenges that you will face. You need to be able to raise sufficient funds to cover the down payment on your real estate property, closing costs and brokerage fees and construction. Because you may be relying on other individuals and investors for a significant portion of the cash needed for your projects it is important to create an investor profile that will help you to attract investors. And it is critical that you are raising capital through legitimate vehicles, whether that be JVs, partnerships or syndications and/ real estate funds. You should not take money from investors without the proper legal structure so you protect the investment, yourself and most importantly your investors. Improving the performance of your real estate business has a lot to do with how much you spend on it and what your budget or strategy is to take it to its highest and best use. For example, how much money you can afford to buy property will determine how quickly you can reach your volume goals. And if you want to start spending money on advertising, you first need to make sure it pays off by having the funds. There are many different ways to raise capital for real estate investing. We focus on JVs. partnerships and syndication. Once you know the vehicle you will use to raise capital you need to focus on your plan. There are certain things you should do first to ensure your success. The following steps will help you not only attract investors. Step 1 – Always be Improving Your Credit The first step is to improve your credit score. It’s not that potential investors will run a credit report on you– but it does give you power with your structure to work with financial institutions to get more money to use towards the projects, like construction loans. Your investment vehicle will stand as one score, as will yours. The better your credit the bigger the opportunity to get inexpensive money and leverage the deal. This can be done by paying off any outstanding bills and not applying for any new loans until you are at a 720+. It may seem counter-intuitive, but raising your credit score is necessary in order to find banks and lenders for a loan at a great rate. Having a good credit score shows lenders that you can be financially responsible and that you have a good chance of repaying their loan. And having lenders who will loan you for the construction allows you to use the money you raise with you JV, partnership or syndication for scaling the portfolio. Step 2 – Save up Money Once your credit score has improved, it is time to save up some money. You should have enough saved up to pay back the loan, with some extra cash left over as profit. You will need this money to put down on the property as well as pay closing costs and other fees associated with the purchase of a property. Step 3 – Find Investors Once you have saved up enough money and your credit score is high enough, it’s time to find some investors. You can put ads out on the Internet or approach people face-to-face. What Is Investment Capital? Investment capital is money your business uses to grow. You can use it to buy supplies, inventory, rent space and employees, launch new products, or expand your business. You may need up to several million dollars for an initial outlay and ongoing financing for your operation. Your goal as a business owner should be to get the most capital for your business at the lowest cost possible. An investor gives money to an entrepreneur in exchange for a financial stake in the business. The most common type of investment is equity financing, where the business issues stock that investors purchase as part of a company offering. Revenue-based financing is another form of investment, whereby a company receives monthly payments based on its monthly revenue. Another popular form of financing is debt financing, which allows entrepreneurs to borrow money from investors for a set period of time at an agreed upon interest rate. Contingent promissory notes are another option, where investors can receive returns on their investment if the business achieves profitability or meets other goals established by investors. Sources Of Private Money In order to raise money, you will have to borrow from other sources. First, you will look for private money sources. Private money is the funding that comes from either an individual or group of private individuals. The best place to find private money is through your network of friends, family, and business contacts that know you well and trust your abilities. You should be prepared to show that you have thought out how you plan on using their investment and how they will get their money back plus some profit with enough left over to buy the next property if they choose to do so. What Are Money Partners? Money partners, also known as capital partners or investment partners, are people and organizations that provide the primary capital for a real estate investment deal. Money partners function as the financial backer of the deal and are responsible for financing, funding and paying back any debt that’s created by it. Real estate investing often relies on money partners to supply a portion of the investor capital for a property to be acquired, developed or redeveloped through a loan or by equity investment. How To Raise Private Capital For Real Estate Raising capital for real estate can be a challenging feat. Few people think about the fact that real estate investments are always capital-intensive. While there are several ways to finance your property, you may opt to raise money on your own. Here are some tips to help you raise private capital for real estate: 1) Make sure you have a great … Read more

How to Setup Your Own Real Estate Fund: Key Strategies and Structures

December 28, 2022February 3, 2022 by devteam

In its simplest form, a real estate fund is a structure established to raise equity for real estate projects. It can be set up as a debt or equity investment vehicle with multiple investors who jointly contribute capital to the fund in exchange for limited liability company (LLC) interests or as a limited partnership (LP) with a single general partner and several usually passive limited partners. In some cases, the fund may be established as an additional layer of ownership, but not a separate legal entity, where investors contribute capital directly to the underlying properties. Real estate funds have been growing rapidly in recent years as investors are looking for uncorrelated asset classes offering handsome returns. The increase in availability started with the JOBS Act for small business, but the structure also allowed real estate investors to use the strategy to get into bigger deals and provide a safe vehicle to protect their investors. Essentially, a real estate fund is a partnership, established by experienced investors, to raise money (also known as “equity”) for real estate projects. Similar to other pooled investments such as mutual funds and exchange-traded funds, private real estate funds provide investors with the opportunity to spread their risk by investing in a variety of different real estate assets rather than single properties. However, unlike investing in publicly traded securities, private equity funds are not required to disclose their holdings or financial performance so long as they raise under a specific amount of capital. These types of funds are focused on marketing to accredited investors. How does one go about creating a structure, blessed by the Securities and Exchange Commission (SEC) to raise equity for ongoing real estate investment? Funds are a reality in the world of real estate investing for those who find the right people to work with and to legally structure and file or register the structure. In its simplest form, a fund is a legal entity formed by people coming together with the desire to earn money through real estate investments. The purpose of this post is to go over some of the key strategies and structures you can use when forming a partnership to fundraise or raise equity for ongoing deals. Entity Types Private equity or debt real estate funds are investment vehicles that are created and organized to invest in a single specific sector or industry. The two most common private equity real estate funds and the structures that they utilize include a limited liability company (LLC) or a limited partnership (LP). Only IRS regulations can accurately dictate which structure is required by your specific situation, but in both cases, it is best to work with a CPA who can guide you through the entities that are best for you. A proper fund is also filed or registered with the SEC, and the sponsor or fund manager is responsible to follow strict guidelines enforced by the SEC. These rules and regulations protect the investor, the fund manager and the investment itself. A private equity/debt real estate fund can be structured as a portfolio of income-producing real estate that is owned by a fund OR it can be structured for one project at a time. The purpose of these funds is to yield returns for investors, typically through the purchase of distressed properties, affordable housing or other income-producing properties, like stand alone commercial buildings, land or even industrial. When establishing a private equity/debt real estate fund, there are several strategies and structures to consider before making a final decision. Admission and Withdrawal of Investors One of the basic considerations with private real estate funds is whether the fund should be an open- or closed-end fund structure. Both of these structures have their advantages, and the right choice will depend on multiple factors (such as liquidity needed, investor base, etc.). The open-end structure of a real estate fund allows investors to enter and exit the fund at regular intervals which also allows the sponsor to raise capital from a broad base of investors. It doesn’t allow investors to reimburse the fund or invest additional funds if they want to increase their exposure. it also exposes investors to greater tax risk. The closed-end structure, on the other hand, allows investors to increase their exposure by reinvesting distributions as well as receive returns of capital, which reduces an investor’s overall equity in the fund, which is a tax advantage. The third option is to create “side pockets” for the fund. This structure can also help manage some of the conflicts investors may have with one another by allowing them to participate in investments according to their preferences for risk or return. What is the difference between General Partners and Limited Partners? A general partner (GP), often called “Sponsor” limited partners (LPs) referred to as “Investors”. General Partners are responsible for managing and controlling the risks, taking care of day-to-day matters and approving decisions while Limited Partners make all investment decisions but usually have no responsibility for the management of the partnership. What roles do sponsors and investors play in the real estate private fund? The first step in forming a real estate private equity/debt fund is identifying the key roles to be played by all the participants involved. These include the sponsors or fund managers and their investors. You can structure your real estate fund as complicated or as simple as you like. Sponsors: The sponsor is a person/company that provides the legal structure of the fund, hiring an investment manager to run it, raising capital from investors, and providing ongoing support and project management. Investors: Investors provide capital to the fund, expecting that they will get their money back (plus interest) when they sell their shares. The sponsor is a firm/or individual which set up the fund. It is also known as an investment adviser, or a fund manager. The sponsor looks for potential deals and performs due diligence on them to determine if they are worth investing in. The sponsor has the … Read more