THE FRAMEWORK

It was developed to solve the problem described at the beginning.

Active investors identify solid opportunities but lack a funding structure that supports responsible execution.

Passive investors want to place money into projects that can realistically be completed and where their money has the potential to earn higher returns than traditional fixed investments.

The Core Structure

• The opportunity
• The money
• The implementation

The opportunity is the property and its acquisition terms.
The money allows the project to proceed.
The implementation carries the project from acquisition through completion.

For each project, a single purpose LLC entity is formed to hold the property.

The passive investor, typically providing most or all of the money, loans funds to that LLC.

The active investor may or may not loan money to the LLC. If they do, their money earns interest under the same agreed terms as the passive investor.

Both receive interest on the money they loan.

Contributions

That may include:

• Bringing the property opportunity
• Loaning money
• Performing defined services
• Managing construction
• Securing favorable pricing
• Bringing experience that improves execution

In most cases, the active investor performs many of these contributions.

If a participant brings additional measurable value beyond the basic structure, that value is defined in the agreement and compensated before profits are divided.

Compensation and Profit

Services performed in connection with the project are compensated at fair market value.

After interest and agreed service compensation are paid and the project is complete, the remaining net profits are divided, typically on a fifty fifty basis.

Why the Structure Works

The active investor evaluates the deal, structures the acquisition, manages construction, and executes the exit.

The passive investor participates through a defined lending structure while relying on a process that addresses deal selection, budgeting, and oversight.

The fairness test is simple.

Would each party trade places under the same structure?

If yes, the structure is balanced.