I have an opportunity to invest in individual projects through my work. We develop turnkey properties that we sell to rich people for cash flow. The invest period for these projects are 200-280 days. I have great visibility to all projects because it is my primary role to source debt/equity for each project.

Some of my coworkers have set up LLCs so that they can have their friends/family invest with them into these projects.

I have minimal liquidity (I am applying for revolving debt), but my father, and grandfather have significant liquidity. Thinking about how I might be able to charge a small origination fee for each deal in order to do the grunt work for them in providing DD, but I would also be injecting my own cash.

My question to you is: How would you structure the entity? How would you set it up where I get a flat fee or percentage of each deal for supplying access to these types of returns and doing all of the money movement, as well as signing docs. Obviously, I am close to my father/grandfather, but I don't think it's unreasonable to charge something for them to be able to get a 20% return over 250 days when I am doing all of the work.

Do you view each other as partners? If so, it should probably be an equity like split. Not necessarily 50/50, but maybe. It seems odd you would only get say 20% of the return if they otherwise don't have access to deals like this and you provide oversight/expertise too.

If they are simply providing funds (liquidity), they should get some fixed income like return appropriate for the inherent level of risk associated with these deals.

Meeting with a qualified, experienced attorney is a very good idea.

I agree with both posts. Do either of you guys have a contact or lead in the DFW area?

He is not an Aggie, but I would recommend Adam Plunk based on the limited info you shared. In addition to his practice/firm, he also owns a title company which could be a useful relationship for you.

I appreciate the responses. I will look into both.

It appears Bill Stone may be a bit over qualified and expensive for what I need help with.

quote:

---

Ask him for one of his younger attorneys. Bill is really good, as are most of the attorneys in his firm.

---

Ahh good point. I'm class of 2014, so I can hardly afford the namesake guys. Their office is closer to my home than the other attorneys listed here.

I am a (retiring) CPA and, like others have suggested, you need to have sit down, face-to-face, discussions with both a CPA and an attorney. Good luck to you in your venture!

I entered into a similar venture with family and friends. The easiest route for me at that time was an LLC and an operating agreement (which can be altered at any time). Very simple solution to organizing and defining structure, responsibilities, liabilities, profit, etc.

If average annual returns are 34%, what do you guys think is a fair cut for me per deal?

There are a large volume of deals and the smallest investment that will done is $10,000. I had some push back from family when I proposed to them giving them a guaranteed 15% return, then the next 10% is mine, any return over that they can also have.

They responded emotionally, that I was sticking it to my family. I responded with: "if this was not a family deal, I think most people would jump at the opportunity to make 24% on average."

Obviously, I am close with my family and no amount of money is worth losing that relationship, but I don't really want to broker these deals for free. I am the one that took the risk to get this job, leaving security, I am helping to shape the way the firm documents data, and helping shape the financing side of things. Any work I will be doing for the family as far as providing documentation and taking care of all the doc sign, ect, will be basically my normal job.

I just want to find a middle ground where it makes sense for all parties involved. I believe I should be paid for providing the opportunity to make above market returns, doing the diligence, and creating a situation where it's hands off for them. In addition, these deals will be turning faster than 12 months with high volume.

What do you guys think?

FriendlyAg said:

---

If average annual returns are 34%, what do you guys think is a fair cut for me per deal?

There are a large volume of deals and the smallest investment that will done is $10,000. I had some push back from family when I proposed to them giving them a guaranteed 15% return, then the next 10% is mine, any return over that they can also have.

They responded emotionally, that I was sticking it to my family. I responded with: "if this was not a family deal, I think most people would jump at the opportunity to make 24% on average."

Obviously, I am close with my family and no amount of money is worth losing that relationship, but I don't really want to broker these deals for free. I am the one that took the risk to get this job, leaving security, I am helping to shape the way the firm documents data, and helping shape the financing side of things. Any work I will be doing for the family as far as providing documentation and taking care of all the doc sign, ect, will be basically my normal job.

I just want to find a middle ground where it makes sense for all parties involved. I believe I should be paid for providing the opportunity to make above market returns, doing the diligence, and creating a situation where it's hands off for them. In addition, these deals will be turning faster than 12 months with high volume.

What do you guys think?

---

I have very little to add to this thread but the only way to mitigate this risk, in my experience, is to not do business with family. What happens when they get a less than projected return on their investment?

Just my 2c. Good luck.

Make them the offer you have already made and if they are not happy with it as structured, then seek outside investors that you mention would jump at the chance.

Edit to agree with BoilerAg. Best not to be in business with family. Especially if one does the work or puts the deal together, while the others are not involved at all. Over time that will likely be a problem.

I have had only two clients who had much family involved in the business. Both have worked out well, but in each instance everyone had a job to do, nobody was just an investor. Since all were involved from a work standpoint they could see, firsthand, the amount of effort everyone put in.

FriendlyAg said:

---

If average annual returns are 34%, what do you guys think is a fair cut for me per deal?

There are a large volume of deals and the smallest investment that will done is $10,000. I had some push back from family when I proposed to them giving them a guaranteed 15% return, then the next 10% is mine, any return over that they can also have.

---

What you are offering is likely fair, but has potentially a very bad tone... How about this: They get first 10%, split the rest evenly. You are partners, but you make sure they are taken care of with a preferred return first. The upshot of this is the lower the realized return the higher % of profits they get. If you truly get them into home run deals, you benefit more in relative terms. The pitch on that probably sounds a little better than what you outlined even if not materially different at the target return.

If they balk at 10%, then a split, I would ask what up front % sounds right, with the rest split evenly. If the number they pick doesn't work for you, don't do it, save your pennies and invest when you can without them.

Another piece you may want to address is downside risk. They likely see that they are on the hook for all losses. Maybe offer to have an even up in future deals so that they aren't taking all the losses. I would also plan to use your return in the early deals to invest along side them as true partners once you are able (no preferred return). The benefit there is getting you both into more deals, providing a bit of deal diversification to both of you.

Obviously I'm suggesting all of this on the internet, in a vacuum, to and about people I don't know. All that said to emphasize no deal/situation is the same and you need to use judgement and tact above all else on how to approach this.

Does anyone know anyone in the Aggie network that might be interested in this type of structure? I am open to having dialogue. Preferably someone or a few people in the DFW area? Or someone that goes to Aggie games that I can talk to in person at least a few times.

I would comment but I want nothing to do with this ****$how.

Might want to talk to a lawyer and make sure he understands the criminal aspects of securities law.

knoxtom said:

---

I would comment but I want nothing to do with this ****$how.

Might want to talk to a lawyer and make sure he understands the criminal aspects of securities law.

---

You think I'm doing this without anyone knowing? We are a private company. Everyone in the firm is allowed to participate. It's encouraged because it creates buy in.

I never said anything about others knowledge or lack thereof.

Based on your answer I would definitely suggest you run your plan by a criminal securities lawyer

I never said anything about others knowledge or lack thereof.

Based on your answer I would definitely suggest you run your plan by a criminal securities lawyer

knoxtom said:

---

I never said anything about others knowledge or lack thereof.

Based on your answer I would definitely suggest you run your plan by a criminal securities lawyer

---

Answer to what?