The structure comes first. Before you sign a contract, before you send an EMD, you need to know whether the money is coming in through a joint venture, a promissory note, a 506(b) or 506(c) offering, or an investment club — because the paperwork takes weeks and escrow does not wait. That sequencing error is the single most expensive mistake in how to raise capital for real estate deals, and it has a price tag: Stella Han lost $55,000 learning it.
Han is a Bay Area investor with a rental portfolio in Atlanta and the founder of Fractional, a platform that sets up investment clubs. She has raised as a rookie, blown a raise, and now watches other operators structure raises across debt, equity, and business acquisitions.
What follows is the decision organized the way an operator actually faces it: match the structure to deal size, understand the marketing tradeoff between the two common exemptions, know where the club model fits, decide when to start raising, and get clear on how you get paid.
Key takeaways
- Set up the legal structure before you go under contract. Attorney drafting for a syndication ran four weeks in Han’s case, which left two weeks to raise $1M and killed the deal.
- Under roughly $1 million, a joint venture with three to four active partners or a promissory note with a private lender in first or second position usually covers it. Above that, you need more people than a JV supports.
- 506(b) lets you take accredited plus up to 35 unaccredited investors but bars marketing; 506(c) lets you advertise but limits you to accredited investors only.
- An investment club is not property-specific — if the deal dies in due diligence, the club stays intact, unlike 506 docs drafted around one address that must be redone.
- Money in a club bank account earns nothing until it’s deployed on a note or project, so match your raise timing to your actual deal flow.
From the Investor Fuel Show
This article draws on an interview with Stella Han of Fractional on the Investor Fuel Show, hosted by Mike Hambright. Watch or listen to the full interview.
The $55,000 Lesson: Why Structure Comes Before Contract
Han found a 22-duplex portfolio in Atlanta at $3.5 million and needed roughly $1 million down. She had been posting her deals on Facebook and Instagram for years, so when she started calling through her phone book, she rounded up about $1 million in soft commitments — exactly what she needed.
Then she did it in the wrong order. She put the property under contract first, then went looking for a securities attorney. Drafting the syndication paperwork took four weeks. By the time the filings were done, she had two weeks left before close of escrow.
A first-time sponsor does not convert $1 million in soft commitments to wired funds in two weeks. The raise collapsed. She lost about $30,000 to the attorneys and $25,000 on the earnest money deposit — $55,000 for a deal she never owned, with the demand fully in hand.
The lesson is not “raise more.” She had the interest. The lesson is that legal structure has its own timeline that runs independent of your contract timeline, and soft commitments are not capital. Money moves at the speed of documents, and documents move at the speed of your attorney.
Practically, that means the structure question — JV, note, 506(b), 506(c), club — gets answered before you write an offer, not after. If you are shopping a category of deal you have never bought before, get the entity and the docs at least started while you are still underwriting, so the only variable left when you go under contract is the money itself.
Matching the Structure to the Deal Size
Han’s dividing line sits at roughly $1 million. Below it, you can do the deal with two to four people and simple documents. Above it, the math forces you toward structures built for many investors.
At or under about $1 million:
- Joint venture. Three to four partners, each taking on some genuinely active role. This fits equity plays and long-term holds where partners are contributing more than a check.
- Promissory note. For short-term fix and flips, what you actually need is a private money lender, not a partnership. Put a note in place with the lender in first or second position, pay them off at exit, and keep the equity.
The distinction matters because investors sort themselves the same way. Someone who wants to argue about contractor bids belongs in a JV. Someone who wants a fixed return and no phone calls belongs on a note.
Above roughly $1 million: the capital is unlikely to come from two to four people. Now you need what Han calls the scalability of the masses — pooling from many investors at smaller check sizes. That is where syndications and funds enter, and with them the securities framework that governs raising private money for real estate from a group.
One more filter cuts across deal size: how passive your investors want to be. If someone genuinely wants to hand over money and hear nothing but distributions, they belong in a syndication or a fund. Structures that depend on member participation do not work for a truly passive check writer, and pretending otherwise creates a problem you do not want.
I already put the property under contract and then I found the lawyer, and it took four weeks to draft up all the paperwork. By the time my syndication was done, I had two weeks left before close of escrow — and a rookie definitely cannot raise a million dollars in two weeks.
— Stella Han, founder of Fractional
506(b) vs 506(c): The Marketing Tradeoff
The two common exemptions trade the same thing against each other: who you can take money from versus who you can talk to.
506(b) lets you raise from accredited investors plus up to 35 unaccredited investors. The catch is no general solicitation. You are raising only from people you already have a relationship with — no ads, no public posts about the offering. For an operator with a deep personal network and no audience, this is usually the fit.
506(c) flips it. You can market openly, run ads, and talk about the raise publicly. In exchange, every investor must be accredited and verified. Han notes this is what she sees large-scale operators using when they are running paid acquisition and targeting people they have never met.
The practical consequence for a growing operator is that 506(c) filters out most of your audience. As Han puts it, a marketing-driven sponsor might only be able to take about 10% of the people responding to their content. The other 90% have money and interest but do not clear the accreditation bar.
That gap is why she is now seeing traditional fund managers run a second, non-accredited-friendly vehicle in parallel with their 506(c) fund — capturing investors at $100K or $250K who may become accredited fund LPs later.
This is a description of how operators use these exemptions, not legal advice. Which exemption applies to your raise, and what verification you owe, is a question for securities counsel before you talk to a single investor.
The Investment Club Model and Where It Fits
The investment club sits between a JV and a fund. It borrows the scale of a fund and the active participation of a joint venture, and Han’s position is that the participation is what keeps it outside securities treatment.
The mechanics run in this order:
- Set the criteria up front. This is your buy box or lending box, defined before anyone commits. Han’s example: RV parks in Texas at 15% cash on cash.
- Recruit members who believe the thesis. They are buying into the criteria, not a specific address.
- Pool capital into a club bank account. The club owns the account; it functions like escrow until deployment.
- Bring deals back for a vote. The leader sources deals that fit the criteria. Members vote on whether the club’s capital gets deployed. That vote is the active participation.
Mike Hambright’s framing on the show — that this is essentially a board of directors — is the right one. Members are on the same side of the table as the operator, and they are screening deals with their own money at risk.
The structural advantage over a 506 offering is that the club is not property-specific. Han has worked with clients who had 506(b) or 506(c) docs drafted around a single property, watched due diligence kill the deal, and then had to redo the entire document set with committed investors waiting. With a club, a dead deal costs you the deal. The club stays intact, the buy box stays the same, and you go find the next one.
The limit is the one already named: a member who does not want to vote, read a deal package, or participate is not a club member. They are a fund investor, and they should be in a fund.
Timing: Raise Against Criteria or Against a Deal
Han’s baseline is “always be raising.” Not because you always need money, but because trust does not compress. Someone handing you six figures is making a judgment about your work ethic and your underwriting that they cannot form in three weeks.
Treat it as a sales funnel with three stages that run continuously:
- Top of funnel: public content — your wins, your losses, your process. Han specifically recommends being vocal about how you underwrite, because that is where like-minded investors self-select. Conservative underwriters find each other.
- Investor list: capture interest before there is a deal.
- Nurture: ongoing contact so that when a deal shows up, you are calling warm relationships rather than starting cold.
When you actually stand up the legal structure depends on your deal flow, and the split is clean.
Repeatable deal flow: raise up front against criteria. If you see qualifying deals regularly, a club or fund structure with capital already committed gives the group real buying power. Good deals do not wait, and investors understand that speed is the point.
Once-a-year assets: raise closer in. If you find one hotel a year, capital raised eighteen months early just sits, and members lose patience not knowing when it deploys. Han’s guidance is roughly two months out — around the time you submit the LOI — which is enough runway for documents without stranding money.
Note how far that sits from what she did with the Atlanta duplexes. Two months at LOI is early. Under contract with six weeks to close is not.
How the Organizer Gets Paid — and When Investors Get Paid Back
Compensation is set by the operator and is flexible, with one rule Han repeats: whatever you take, keep it at market. Above-market fees are how you burn a repeat investor base.
The common structures:
- Acquisition fee. Standard, as long as it is priced to what comparable sponsors charge.
- Sweat equity. Best on longer holds. You are being paid for bringing deal flow, applying expertise, and managing vendors — selecting and riding the property management company, for example. Investors are generally fine paying for this because they are not doing it.
- Interest arbitrage plus points. On the debt side, the club lends at one rate and the leader takes a spread. Han’s example is Pace Morby, who runs a debt club on the platform: the club lends to a borrower at 18–20%, the leader takes roughly a 6–8% cut through a profit-sharing agreement, and investors receive 10–12%. Points charged to the borrower can go to the leader as well.
On the investor side, two things determine when money comes back. First, deployment: funds sitting in the club bank account are not working. As Han frames it, it is the same as running a hard money shop — the capital is ready, but returns start when a note is written or a project funded.
Second, the asset. Debt deals pay monthly or quarterly interest, so a club lending to fix-and-flippers for two years distributes throughout the term. Equity deals hold three to seven years depending on the business plan, with cash flow along the way if the strategy supports it.
Frequently asked questions
Do I need a syndication to raise money from more than one investor?
No. Under roughly $1 million, most raises get done with a joint venture among three to four partners who each take an active role, or with a promissory note if you just need short-term money for a flip. A syndication becomes necessary when the check size means the capital has to come from more people than a JV can practically hold.
The other variable is investor posture. If your partners want to participate in decisions, a JV or club can work. If they want to be genuinely passive, that points to a syndication or fund, and you should have securities counsel confirm the structure.
What happens to investor money in an investment club while it’s waiting to be deployed?
It sits in a bank account owned by the club, functioning much like an escrow account, and it does not earn a return until it is deployed. Han describes it the same way a hard money lending business works: the capital is staged so the group can move fast, but returns only begin when a note is written or a project is funded.
That is exactly why timing your raise to your deal flow matters. Capital raised long before you have anything to buy creates idle money and impatient members.
Can I advertise a capital raise on social media?
It depends entirely on the structure. A 506(b) offering prohibits general solicitation, so you can only raise from people you already know. A 506(c) offering permits marketing but restricts you to verified accredited investors. Han also notes that the investment club model, because members actively vote on deals, carries more marketing flexibility.
Get this confirmed by securities counsel before you post. Advertising an offering under the wrong exemption is not a paperwork error you can fix later.
How far in advance of a closing should I set up the legal structure?
Earlier than feels necessary. Han’s syndication docs took four weeks to draft, and starting after she went under contract left only two weeks to raise $1 million — which failed and cost her $55,000.
For an occasional asset like a hotel, she suggests standing up the structure around two months out, often at the LOI stage. If you have consistent deal flow, set up the club or fund ahead of any specific property so you can act on criteria rather than scramble.
Should I raise from friends and family or go broad to strangers?
Start close to home. Trust is the hardest input to manufacture, and people who have watched you work for years already have it. Han’s first raise came almost entirely from family, friends, and coworkers who had been following her deals on social media.
As you scale, a public track record does the filtering. Han recommends being explicit about how you underwrite, because investors who see a very different approach will self-select out — which is a feature. Not all money is equal, and communication style and fit matter more than the size of the check.
The bottom line
Before your next offer, decide which structure the deal requires and get counsel started on the documents while you are still underwriting — the raise itself is the easy part compared to fixing a timeline you already lost.
