How To Start A Real Estate Investment Fund

How To Start A Real Estate Investment Fund

Real Estate Investment Fund
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Marissa Somers


Jan 21, 2021

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The real estate market offers several investment opportunities that can be an excellent addition to your portfolio. You can join the call individually or as a group to spread the risks depending on your interests and risk appetite.

However, investing in the real estate market requires thorough research and an analytical approach to protect your portfolio. Understanding the underlying considerations of real estate funds and the payout, should you decide to sell off the properties, is crucial.

Therefore, consulting and getting critical advice from Moschetti or other real estate firms, you’ll learn about the dos and don’ts of your venture and the laws governing the real estate landscape.

Here’s how to start a real estate investment fund:

1. Create An Entity

Savvy investors can only invest in entities with the structure to handle their portfolios. It reassures them of the safety of their investments and guarantees payouts.

A limited liability company or limited partnership are the existing structures you can use as entities in the real estate market. The fund can run through either of the two options and ensure transparency to all stakeholders. You can approach a real estate lawyer to guide you through the entity registration process.

2. Identify A Prospective Project

It’s crucial to have a project outline to present to prospective investors when looking to raise equity. It gives them an idea of your proposal and how you plan to execute it once you get the funds. 

In addition, it’s an opportunity for your investors to brainstorm ideas and compare these with their investment goals. For instance, some investors might be looking to earn passive income by buying, managing, and renting properties, which differs from the real estate investment fund ideology. 

You can also communicate the potential return on investment to manage their expectations from the project. It helps clear out gray areas about the project and shows that you understand the business.

3. Decide How To Source Funds

The real estate market is open to a blind pool and identified fund mode of contribution by like-minded investors. A blind pool is an investor’s participation in an entity with no clear investment goals to raise funds. On the other hand, an identified fund is a pool of money with a specific purpose in the real estate landscape.

You must decide how you’ll source the funds for your project by looking at the real estate market demands and how fast you can secure investors’ confidence. Also, look at the underlying features of the contribution options. For instance, a blind pool has fewer restrictions due to unclear goals compared to an identified fund. So, analyze your opportunities according to your entity’s objectives.

4. Define Your Terms Of Engagement

It’s normal for investors to back out of a project and demand a payout from your entity. Therefore, you must create a system to handle how investors join and leave the projects. It helps control your project output and completes it as planned.

You’ll also define the terms of engagement and decide the timeline by considering open-ended or closed-ended tenures. Jack Robers from loan company Hard Money Lenders IO says it’s crucial to present the significance of exits and entries into ongoing projects to help investors decide the best course of action.

5. Strategize Your Investments

Having a sustainable plan to safeguard investors’ portfolios is crucial. Fortunately, real estate has several options that can bring great returns over time.

Being a real estate fund entity, you can venture into REITs, structured notes, and mortgage securities to spread your risks. Apart from this, assets in the real estate market appreciate and can attract more capital gains for the period invested. So, research the best options to grow the investors’ funds.

6. Have A Lawyer Seal The Deal

Real estate investment funds are sensitive, and these require accountability and transparency. You must ensure crucial details appear in the agreements you send to prospective investors. It’ll eliminate doubts and increase your chances of getting more people to join your project.

So, seeking guidance from a real estate lawyer is vital to help you prepare and certify all the necessary documents. It’ll simplify the paperwork needed to start your real estate investment fund. Also, it contributes to boosting investor confidence in your projects.

Final Thoughts

Starting a real estate investment fund can be challenging if you don’t know what to do. Investors need a comprehensive outline of the projects they intend to venture in and the possibility of recouping great returns. So, you must establish an entity with well-planned structures to handle investors’ contributions. After consulting a lawyer specializing in real estate ecosystems, you can then decide on the best approach to business ventures.

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