🧑‍🎄🎄4th Day of Christmas - Real Estate Deal Structure Simplified

Happy fourth day of Real Estate Christmas!

We’re rolling through 12 simple, easy to digest real estate investing lessons to help you get started building your portfolio.

So far we’ve covered a few foundational topics. Today I want to talk about something that can be confusing early on.

How do you actually structure a real estate deal?

When you find a deal, what are your real options?

Let’s break it down simply.

Option one: Go solo

This is the most straightforward option.

You buy the property yourself. You bring the cash, you qualify for the loan, you do the work. No partners. No investors. No complicated structure.

If you can qualify for the loan and you have the down payment, this can be clean and simple.

But for a lot of people, that’s not realistic. Maybe the down payment feels impossible. Maybe you can’t qualify for the loan on your own. Or maybe you just don’t want to tie up all your own capital.

That’s where partners come in.

Option two: Joint venture (JV)

A joint venture is one of the most common partner structures for smaller deals.

In a JV, everyone involved has an active role. That’s the key rule to remember.

If every partner is actively involved in the deal, a joint venture may be a good fit.

Usually this looks like forming an LLC where each partner is a member. One person might bring the cash. Another brings the sweat equity. Responsibilities are clearly defined, and ownership is split based on contribution.

These deals are often simpler, smaller, and very relationship driven.

Jennings did his very first deal this way. One partner brought capital and stayed actively involved. Jennings handled the operations. They split the deal and both worked it.

Simple and effective.

But what if not everyone is active?

That brings us to the next structure.

Option three: Syndication

In a syndication, you separate active operators from passive investors.

You have general partners who run the deal and limited partners who invest capital.

The limited partners’ risk is limited to the money they invest. If the deal fails, they lose their investment, but that’s it.

The general partners take on more risk. They are the ones signing on the loan and guaranteeing it. Even if they invest cash, their risk is not capped at that amount.

Within syndications, there are two main structures.

506(b) syndication

With a 506(b), you can accept accredited investors and non accredited but sophisticated investors.

The tradeoff is that you must have a preexisting relationship with every investor. You cannot publicly advertise the deal.

This limits how you raise capital, but it expands who can invest.

506(c) syndication

With a 506(c), you can advertise publicly. You can market the deal online and attract new investors.

The tradeoff is that every investor must be accredited. No exceptions.

As you’re getting started, these are the main structures you need to understand. Solo. Joint venture. Syndication.

Once you know these buckets, structuring a deal becomes much less intimidating.

Stay tuned for the 5th Day...