Our Process
Our Process
Our Investment Methodology
By raising capital to invest in multiple real estate structures, we have analyzed the structures’ advantages and disadvantages and the optimal investing method. The following information will increase your knowledge of investing, but legal advice is best attained from our attorneys.
Real Estate Debt Instruments
A private debt instrument is the simplest method of increasing capital. It is like a personal loan between two people where the collateral can be any item as long as there is mutual agreement. Many lenders prefer collateral to be an item of stature like hard assets (assets that are valuable and physical). Private debt instruments are convenient for temporary investments; however, other suitable options have greater advantages.
For example, a hotel owner finds an investment opportunity: a duplex for sale. A lender will provide the money to buy the property at an interest rate of 6%. The hotel owner will renovate the duplex and sell it for an 18% annual rate of return. There is a yearly difference of 12% between the gross profit and loan interest. Therefore, there is a net profit of 12% annually due to the raising capital as debt. This method is called arbitrage, where an item is bought and sold for a slightly higher price, so profit is derived from slight price differences.
Advantages
Utilizing private debt as a primary investment vehicle offers distinct operational benefits, particularly for those seeking streamlined execution and predictable income. By bypassing traditional institutional hurdles, investors can deploy capital more effectively and maintain better control over their financial timelines.For example, a hotel owner finds an investment opportunity: a duplex for sale. A lender will provide the money to buy the property at an interest rate of 6%. The hotel owner will renovate the duplex and sell it for an 18% annual rate of return. There is a yearly difference of 12% between the gross profit and loan interest. Therefore, there is a net profit of 12% annually due to the raising capital as debt. This method is called arbitrage, where an item is bought and sold for a slightly higher price, so profit is derived from slight price differences.
Private loans tend to have low initial costs. Due to the simplicity of the transaction, an attorney can create the terms of the loan at a low fee.
Private debt instruments are fast and easy since the lender will not ask for explanations of the investment.
Lenders incline toward the fixed interest rates because there is a guaranteed return that does not change with market conditions.
Key Considerations and Constraints
While private lending offers speed and simplicity, it also presents specific structural and regulatory challenges. Understanding these limitations is essential for maintaining compliance and ensuring the long-term scalability of your investment portfolio.
The method works best with a single investor for each debt instrument. Having multiple investors can mirror a "security" with more federal and state regulations.
Having multiple private debt instruments lowers efficiency and heightens the burdens of maintaining it.
In most cases, a single investor can only provide money for real estate in the single-family sector.
Debt using real estate as collateral usually must be paid back within six to eighteen months. It can be challenging to seek out new projects frequently.
The investor providing the money cannot claim any tax benefits like depreciation. They will be taxed on any earnings they collect at their individual income tax rate.
Joint Ventures
For example, a hotel owner finds an investment opportunity: a duplex for sale. A lender will provide the money to buy the property at an interest rate of 6%. The hotel owner will renovate the duplex and sell it for an 18% annual rate of return. There is a yearly difference of 12% between the gross profit and loan interest. Therefore, there is a net profit of 12% annually due to the raising capital as debt. This method is called arbitrage, where an item is bought and sold for a slightly higher price, so profit is derived from slight price differences.
Advantages
Initial expenses consist of forming a limited liability company and drafting an operating agreement.
Multiple investors are possible with this arrangement.
The popularity and simplicity of this investment structure shorten the learning curve for prospective investors and partners.
Disadvantages
Non-securitized investments prevent substantial expansion. A joint venture may have multiple partners, but each must actively participate.
All partners will be held liable for legal or monetary consequences due to the active participation requirement.
Inefficiency and internal disputes may arise with many active investors.
Real Estate Syndications
Real estate syndication is an investment structure where multiple investors pool their capital to acquire larger, more lucrative assets than they could afford individually. This collaborative approach allows passive investors to participate in institutional-quality real estate deals.
Core Structure and Legal Framework
A typical syndication is organized as a Limited Liability Company (LLC) consisting of two primary groups:
General Partners (GP):
The "operators" or "sponsors" who manage the daily operations, find the deals, and oversee the asset.
Limited Partners (LP):
The passive investors who provide the majority of the capital but have no management responsibilities.
Because LPs are passive, these investments are classified as securities. This means they fall under the jurisdiction of the U.S. Securities and Exchange Commission (SEC) and must comply with both federal and individual state laws (“Blue Sky laws”). To navigate these complexities, professional legal counsel is essential.
The Howey Test
The SEC uses the Howey Test to determine if an investment qualifies as a security. It consists of four criteria:
Investment of Money:
Capital is committed to the venture.
Expectation of Profit:
The investor expects a financial return.
Common Enterprise:
The fortunes of the investor are interwoven with those of the sponsor or other investors.
Efforts of Others:
Profits are derived primarily from the labor and management of the promoter/sponsor.
Regulation D Exemptions
Rule 506(b): The "Private" Offering
Investor Mix:
Unlimited accredited investors and up to 35 non-accredited investors.
Solicitation:
No general solicitation or advertising is allowed.
Pre-existing Relationship:
Issuers must have a substantive relationship with the investor (typically established at least 30 days prior) before presenting an offering.
Verification:
Investors can generally self-verify their accredited status.
Disclosure:
If non-accredited investors are included, they must receive the same detailed information as accredited participants.
Choosing a Legal Structure
While it is possible to file these entities yourself, improper formation can lead to the company being declared “null” in legal proceedings. Consulting with professionals ensures the entity is duly established and maintained according to current state laws.
Comparison: Delaware vs. Wyoming
Currently, Delaware and Wyoming are considered the most advantageous states for filing a Limited Liability Company (LLC).
Criteria
Delaware
Wyoming
Protection from Personal Liability
Yes, by significantly reducing fiduciary duties
Yes, by significantly reducing fiduciary duties
Price
More expensive due to the multiple state taxes
Less expensive due to no income or franchise tax
Allows Series LLCs
Yes, provides a very
Yes, but a single-member
After confirming all the entity details with our business professionals, you will have to create an Operating Agreement or a Private Placement Memorandum. To appear knowledgeable to your potential investors, you should comprehend the significant portions of the Operating Agreement. The agreement should be planned and reviewed with a reliable attorney to prevent any complications, and it should cover these main topics:
Advantages
Overview of the company model
Waterfall: the precise manner in which the LLC's members are compensated
Process of making or withholding distributions
Depreciation Tax Write-off: operating income from real estate investments is tax deferred until the end of the holding period due to depreciation. Appropriately allocating depreciation among investors can maximize your tax savings.
Voting rights
Rules on additional capital from investors
Shares transfer guidelines
Communication schedule
Liquidation process of assets
A Private Placement Memorandum (PPM) is a document that describes the content and risks of the investment in intricate detail, and it can include the Operating Agreement. However, hiring an attorney to create one can cost around 25,000 dollars which is not ideal for beginners in this industry. It is acceptable to have an Operating Agreement if the investors are close friends or family or if the total investment is more than 500,000 dollars. There is a greater chance for legal troubles when either increase, in which case a PPM should be drafted. Double-check with an attorney to confirm according to your circumstances.
Our Running Projects
3012 Texoma Parkway, Sherman, TX 75090
600 Rowlett Rd, Garland, TX 75043
3012 Texoma Parkway, Sherman, TX 75090
Past Performance
Avant Plus Capital has valuable experience in this field of investment. Please review our portfolio to see our past projects.
Avant Plus Capital is one of many businesses under Avant Group of Companies. We provide specialty services for taxes, insurance, and investments.
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