- Joined
- Aug 30, 2007
- Messages
- 13,879
OPM .. Other People's Money is a great way to build a real estate portfolio .. once you have proven to yourself [and your small team of cheeerleaders standing on the sideline without cash invested .. say your spouse, your parents, your kids or some of your best friends or work colleagues] that you can actually execute your own deals with your own money, i.e. after you built a small track record.
But there are rules to follow.
The line between a real estate JV and a security is poorly defined. I have heard 50 investors. I have heard 12. I have heard: "If not all cash is raised at once". I have heard "if you use shares in a corporation even if only 3 guys do it".
If you have up to 12 people (or so) the most common form is a USA (unanimous shareholder agreement). All parties unanimously agree on certain terms and off they go. It is HARD to get 12 people to agree to one document and all sign it. But it is VERY DOABLE !
Terms of the Unanimous Shareholder Agreement (USA) should include what happens if someone dies, if someone wants out, what the fees are for the active person/syndicator/RE expert .. it can be very nebolous and extremely lopsided to the syndicator .. or it can be very balanced .. whatever the parties agree to !
A USA can be based on an LP, a trust, a corporation or a simple undivided interest in a piece of real estate.
Once you're using many people or not a USA, in Alberta and most Western Provinces, there are five "exemptions" you can use to raise money as a so called "exempt security". They are called exempt securities because you do not have to issue a prospectus and certain financial filings on a quarterly basis like a publicly traded (non exempt if you will) firm.
1) from friends or family
2) from close business associates
3) from accredited investors ( those are investors with over $1M in net asset to invest [excl. their house] or an income of $200,000 alone or $300,000 with a spouse)
4) aggregate acquisition cost (over $150,000)
5) using an offering memorandum (OM) for eligible investors [People with $400,000 or more to invest and incomes over $70,000 .. or in BC: up to $10,000 .. note: OM route for eligible investors is not available in Ontario right now !!]
We use all 5 options .. and have done so for 6+ years .. and raise the most through the OM route these days as we have a template and our cost are now lower per new OM. An OM costs about 20-30K .. or up to 50K initially if you have the wrong lawyer or need many iterations .. and if RRSP eligible another 12-15K. There are initial and ongoing filing and accounting requirements. I know have a staff of 3 to administer 6 LPs with 500+ investors with $35M of cash invested for assets approaching $100M. [but I did start with my own money and small JVs .. like anyone else ..]
Consider using the OM route if you need/want to raise $1M or more .. as otherwise costs are too prohibitive.
Much havoc, for yourself and investors, can be created without following those rules.
4 related posts:
8 mistakes to avoid in real estate syndications: http://myreinspace.com/public_forums1/Real_Estate_Discussion/62-13817-Real_Estate_Syndications_-_A_Good_Idea_.html
50/50 in a JV ` is this fair ?
http://myreinspace.com/threads/50-50-is-this-fair.1983/
Pro`s and Con`s of creating a company for real estate holding:
http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10292-54272-To_create_a_company_or_not.html#54272
JV options: Pro`s and Con`s of LP vs. Corporation
http://myreinspace.com/search/public_forums/General_Discussion/61-10979-57096-JV_vs_Limited_Partnership.html
But there are rules to follow.
The line between a real estate JV and a security is poorly defined. I have heard 50 investors. I have heard 12. I have heard: "If not all cash is raised at once". I have heard "if you use shares in a corporation even if only 3 guys do it".
If you have up to 12 people (or so) the most common form is a USA (unanimous shareholder agreement). All parties unanimously agree on certain terms and off they go. It is HARD to get 12 people to agree to one document and all sign it. But it is VERY DOABLE !
Terms of the Unanimous Shareholder Agreement (USA) should include what happens if someone dies, if someone wants out, what the fees are for the active person/syndicator/RE expert .. it can be very nebolous and extremely lopsided to the syndicator .. or it can be very balanced .. whatever the parties agree to !
A USA can be based on an LP, a trust, a corporation or a simple undivided interest in a piece of real estate.
Once you're using many people or not a USA, in Alberta and most Western Provinces, there are five "exemptions" you can use to raise money as a so called "exempt security". They are called exempt securities because you do not have to issue a prospectus and certain financial filings on a quarterly basis like a publicly traded (non exempt if you will) firm.
1) from friends or family
2) from close business associates
3) from accredited investors ( those are investors with over $1M in net asset to invest [excl. their house] or an income of $200,000 alone or $300,000 with a spouse)
4) aggregate acquisition cost (over $150,000)
5) using an offering memorandum (OM) for eligible investors [People with $400,000 or more to invest and incomes over $70,000 .. or in BC: up to $10,000 .. note: OM route for eligible investors is not available in Ontario right now !!]
We use all 5 options .. and have done so for 6+ years .. and raise the most through the OM route these days as we have a template and our cost are now lower per new OM. An OM costs about 20-30K .. or up to 50K initially if you have the wrong lawyer or need many iterations .. and if RRSP eligible another 12-15K. There are initial and ongoing filing and accounting requirements. I know have a staff of 3 to administer 6 LPs with 500+ investors with $35M of cash invested for assets approaching $100M. [but I did start with my own money and small JVs .. like anyone else ..]
Consider using the OM route if you need/want to raise $1M or more .. as otherwise costs are too prohibitive.
Much havoc, for yourself and investors, can be created without following those rules.
4 related posts:
8 mistakes to avoid in real estate syndications: http://myreinspace.com/public_forums1/Real_Estate_Discussion/62-13817-Real_Estate_Syndications_-_A_Good_Idea_.html
50/50 in a JV ` is this fair ?
http://myreinspace.com/threads/50-50-is-this-fair.1983/
Pro`s and Con`s of creating a company for real estate holding:
http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10292-54272-To_create_a_company_or_not.html#54272
JV options: Pro`s and Con`s of LP vs. Corporation
http://myreinspace.com/search/public_forums/General_Discussion/61-10979-57096-JV_vs_Limited_Partnership.html
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