Posted by D on October 03, 2002 at 10:09:03:
Contact Sage Intl. at www.sageintl.com. There is a number on the website. Hopefully they can help you.
LLC’s and Investors? Any help appreciated! - Posted by Cal
Posted by Cal on October 03, 2002 at 09:34:10:
Hello:
I am a investor who to this point has only bought and sold properties on a personal basis. I am interested in forming a LLC to purchase commercial real estate with the money of investors. Does anyone know where I could get a sample package of such a deal, maybe of a fictitous project? Something you would show to potential investors and a bank. Something to show me a legal/ professional format and covering the key points/items to be covered by this agreement such as equity shares, management, distribution to investors, etc…
This is what I know.
1-How to form LLC
2-Have copy of Operating Agreement from USLegalForms(link from this site)
3-Find profitable projects
This is what I don’t know
1-How deals of this nature are structured?
2-How financing for LLC’s work (i.e) If I go out and find investors to put up 30% down who signs the mortgage for the rest and is it on a personal garauntee. Ideally I would like a non recourse loan on a personal level but I hear they are almost impossible to find and usually reserved for buildings with a long rental history and expense reports. Most of my projects will be conversions or purchase/rehabs with increased rent roles after construction.
3-Do all members of the LLC have to sign on the mortgage?
4-Can I structure it so if a personal signature is necessary I would be the only one signing for the mortgage and increase my equity because of the added risk compared to other investors? Or would a different business entity form be necessary such as a LP compared to LLC?
Thanks in advance. Any resources,information or books on subject is appreciated?
Cal
Re: LLC’s and Investors? Any help appreciated! - Posted by dan
Posted by dan on October 03, 2002 at 13:18:12:
i’ll take a stab at helping you … it wouldn’t be a bad idea to sit down with an attorney who does this stuff everday.
your question -
1-How deals of this nature are structured?
my answer - you can structure a deal any way you want. whatever your investors will go for. they may get a “preferred return” and a 50/50 split of anything above that or you give them all of the return and you get paid an advisory fee. on large commercial deals that are syndicated this way … it is usually a combination of both. the organizer gets paid a fee on the front end … manages the property for a fee … then gets some “back-end” participation in the deal. the investor would get something annually and the organizer would get a portion of anything above that plus advisory fees.
your question -
2-How financing for LLC’s work (i.e) If I go out and find investors to put up 30% down who signs the mortgage for the rest and is it on a personal garauntee. Ideally I would like a non recourse loan on a personal level but I hear they are almost impossible to find and usually reserved for buildings with a long rental history and expense reports. Most of my projects will be conversions or purchase/rehabs with increased rent roles after construction.
my answer - you can get financing that is non-recourse with environmental and fraud “carve-outs.” meaning the property is the only source of recovery for the bank unless you steal money or somehow contaminate the property. whether the loan is non-recourse or not, the members of the llc are non liable for the loan. their liability is “limited” to their investment. your operating agreement that all of the members must sign must spell out that you, as managing member, can sign for the llc for the loan. the bank is going to want you to have a track record and management experience.
your question -
3-Do all members of the LLC have to sign on the mortgage?
my answer - no, again you will have the authority to sign for the llc as the managing member.
your question -
4-Can I structure it so if a personal signature is necessary I would be the only one signing for the mortgage and increase my equity because of the added risk compared to other investors? Or would a different business entity form be necessary such as a LP compared to LLC?
my answer - you can structure the deal however you want provided your investors go for it. you may waive your advisory fees for an equity stake in the deal.
if you are going to be dealing with investors that are beyond friends and family, you may have to put together a private placement memorandum … which can get sticky because you are dealing with the securities and exchange commission … your not selling interests in real estate - you are selling membership units of a company … therefore a security.
on something like this, i would seek advice from an attorney. i don’t know if “USLegalForms” is going to cut it.
it’s probably easiest if you are willing to be on the hook for the loan and you stick with the friends and family type of investors.
good luck