Entity Structure for Real Estate and Investors

This afternoon, I was discussing real estate investing with a current client. He concentrates in the construction industry and wants to recruit investors to purchase foreclosure properties.

This gentleman is an experienced entrepreneur but inexperienced with working with investors. There are two (2) ways this can be achieved. The first way is through creation of an LLC where there are two types of membership interests. The first type of membership interests is voting interests and the second type of membership interests is through non-voting interests. The investor either with good credit or cash typically will own shares or membership interests through the non-voting membership interests. This gives the real estate investor a preferential position in getting paid back. Thus, the investor or cash investor gets membership interests as security in the LLC and gets paid back first in case of a dispute or problem. This is a good strategy for a construction or real estate investor because they can entice an investor that may be worried about their investment.

The second and preferred method of investment is through a loan through the LLC coupled with a security interest similar to a mortgage. Thus, the real estate investor takes a security interests against the property and may foreclose if their investment is at jeopardy. This also is good for real estate investors because the more secured a investor feels and is the more likely to secure their investment. With this second strategy, the property becomes the collateral.

Sean Robertson is an experienced corporate and business attorney that assists real estate owners and developers, small business owners, and physicians in their asset, corporate, and estate planning legal needs. Sean Robertson can be reached at 312-498-6080 or 630-364-2318.