Legal Question in Real Estate Law in California

An LLC with the investors as members is a common structure for that kind of deal. You run serious risks as the promoter of such an enterprise, however, if you do not consult with an attorney about the details and obtain their assistance with the necessary documents. A substantial part of my current practice is suing and defending people who have gotten involved in creating and/or investing in real estate LLCs without the proper legal advice and assistance.

Another viable form is a limited partnership, but the same issue or risk is present, no matter the form of organization you chose. Yes, you need to have impeccable documentation for any investment vehicle, with full risk disclosure, and you must be willing to deal with market value losses in any investment. If serious about doing this right, feel free to contact me to discuss your needs, and the costs you face in organizing and running such enterprise.

The organizational and operating flexibility possible with an LLC gives them distinct advantages for real-estate investment and syndication. Yes, the investors should probably be members, rather than managers, provided there is otherwise adequate management in place. A possible drawback to use of an LLC is the additional tax based on revenues that kicks in and may become a significant factor in larger operations.

In any business-investment promotion, the promoter(s) need(s) to proceed with caution and due regard for the laws (state and federal) relating to securities issuance and handling of investor money. I don't know how much experience and education you have in either real estate finance and investment, on the one hand, or sale of securities, on the other, but a strong and deep familiarity with both areas will be very helpful. You can self-educate yourself to a certain extent by reading a bunch of the "how to" (largely paperback) books on the subjects of real-estate syndication, forming and running your own LLC, small-business finance, securities laws, and so forth. I just checked Amazon's Web site and they have dozens of how-to books on real estate syndication, for example.

I would certainly prefer an arrangement whereby member/investor funds were held in individual, segregated trust accounts until invested in the target properties. Of course, under proper circumstances and disclosures, some limited portion of invested funds could be used for general LLC purposes.

Again, keep in mind that your proposed business involves issuing securities, an activity that is highly regulated at both the state and federal levels, and that civil and criminal penalties await the promoter who makes a misstep.