How Stella Han Raises Millions Without Banks to Fund Real Estate Deals

Mike Hambright (00:00.654)
Hey everybody, welcome back to the show. I’m here with Stella Han. Today we’re going to be talking about raising money, something that pretty much all real estate investors need to do eventually. And it’s not just for real estate investors. There’s a lot of opportunities to raise money if you’re buying businesses or you’re growing in any way. So we’re to talk all about raising money today with Stella. Stella, welcome to the show. Great to see you. Yeah, we just had a little conversation ahead of time and I’m super jazzed about.

Stella Han (00:19.213)
Thanks, Mike. Excited to be here.

Mike Hambright (00:27.66)
what you’re building and what you’ve built and the opportunity for people to raise money. And it’s kind of funny. A lot of real estate investors either try to bootstrap everything themselves or they know right away that there’s a lot of people that want to invest in real estate deals and they have money but they don’t have the knowledge or they don’t have the time, quite frankly. And so they’re willing to be more passive. so there’s a lot of ways that real estate investors can, you know, kind of quote, partner with people. And one of those that’s the most common is money.

partners essentially. But you’re doing some really cool things that I think are going to open up a lot of opportunities for folks that maybe didn’t exist before.

So Stella, tell us a little bit about your background, about kind how you got here.

Stella Han (01:12.437)
Yeah, so I’m a real estate investor myself. Started out being a software engineer full-time and then, you know, grew up basically in a real estate investing family where my parents were flipping houses and I was the cheap family laborer, but I think it definitely impacted how I thought about my personal finances. So the moment I started making money, I was like, well, you know, I need to go buy real estate and build my wealth, something that, you know, holds equity and will grow long-term. So got into real estate investing.

primarily out of state out in Atlanta because you know, didn’t have money to buy a shack in San Francisco, which is where I’m based out of. So started, you know, just as you mentioned Mike, right? Like with my own money, doing stuff that was pretty simple, straightforward, just doing single family long-term rentals. And then that started stacking up really nicely for me. And I was like, well, I want to go bigger. I want to scale up. I think the next step is, you know, looking at bigger portfolios, maybe multifamily and

I came across actually this portfolio of 22 duplexes out in Atlanta and I needed roughly a million dollars down. It was a $3.5 million portfolio and opened up my own Bank of America and I was like, boy, I don’t have a million dollars sitting in here. How do I buy this? The numbers work. I’m really excited about it. And I’m generally a pretty vocal person. So this whole time I’ve been just sharing on my Facebook, Instagram.

about all these properties I’ve been buying on the side. So I had a lot of family, friends, coworkers that were really intrigued by what I was doing. And I knew that if I offered them an opportunity to partner with me where we can pour our money together to go buy this thing, I would get a lot of interest. So started basically dialing up everyone in my phone book. And I rounded up with around a million dollars in stock commitments, which was exactly what I needed.

So I’m like, okay, you I have the interest, now I just need to raise this capital. And that was actually, unfortunately, where the whole shit went down. People told me, you know, you probably need to start a syndication. So I called up these lawyers and then, you know, I was so inexperienced, I didn’t know what I was doing. So I already put the property under contract and then I find the lawyer and it took four weeks to draft up all the paperwork. And by the time the filings, my syndication was done.

Stella Han (03:35.833)
I two weeks left before my close of escrow and a rookie definitely cannot raise a million dollars in two weeks. So that just completely fell apart. I actually lost 55 grand on that deal, 35 to 30K to the attorneys and 25K on my EMD. So that was my first attempt at going bigger, totally learned my lesson and that actually allowed me to create Fractional as a company, which I’m sure we’ll go about in just a bit.

But yeah, that’s really how I got started in the real estate game, started out with the simple and then rolling up now. And my portfolio is primarily still out in Atlanta, Georgia today.

Mike Hambright (04:13.004)
Yep. So a lot of real estate investors kind of get stuck because they run out of capital and maybe they go to friends and family and most, unless they’re, you know, a lot don’t go to the point of like raising a fund or

Something else, in fact, a lot of newer real estate investors give up a lot of times maybe half of their deal just for the financing, which as you know, as you get a little more experience, you don’t have to give up that much. Maybe early on, and especially if that money partner also has a level of expertise. But let’s talk about kind of different legal structures that people, that would be, that they would typically use. You’ve created something kind of different, but let’s talk about the typical legal structures people would use to raise money.

Stella Han (04:52.141)
Yeah, of course. So I would say on the smaller end, your traditional structures would be a joint venture or a promissory note, right? A joint venture, would be, you know, maybe you’re bringing in, let’s say three to four different partners, right? You’re buying something that’s an equity play or holding at long-term and everyone, you know, takes on some sort of more active role, right? So that would be what I would recommend for something on the smaller side.

If you’re doing a fix and flip, for example, it’s short term. What you really need is like a private money lender, right? You can put a promissory note in place. They could be in first or second position. You know, that those are the two structures that I see on pretty much anything that is, I would say a million dollars or less is pretty common. And then once you start going in the millions, right? Now it’s like you’re talking in a volume where the money likely won’t just come from.

Mike Hambright (05:40.407)
Mm-hmm.

Stella Han (05:49.261)
two to four people, right? Now it’s like you really need the scalability of the masses where you can raise capital and pull together capital from a lot of different people. And that’s where your traditional syndication and funds come into play, where you could do a five or six B, which would allow you to raise money from both accredited and 35 unaccredited investors.

The trap and caveat here is that there’s no marketing allowed, so you can only really raise money from people that you know. So that’s a five of six B. And then a five of six C, you could do marketing, which is great, but then that is limited to accredited investors only. So five of six C, usually I’m seeing really large scale operators do that for their fund. They’re trying to run ads. They’re trying to target a lot of people just out there in the masses. So those are your traditional kind of structures.

And then what I’m working on is a legal structure called an investment club. It’s actually kind of marrying the idea a little bit between a fund and syndication and a JV. So the way that it works is similar to a fund. You start out with some sort of investment criteria, right? So this would be your buy box, your lending criteria, whatever it is you’re working on. Let’s say, you know, I’m looking to buy RV parks in Texas at 15 % cash on cash.

right? So that’s your criteria. Then you bring in all the investors in your network who believe in that thesis. They pull the money together. Now where this becomes different is you as the leader, you bring back deals that fit the criteria and your members, they will actually vote and approve whether or not they think the club’s capital should be deployed on those deals. And because they’re doing that, they’re also actively participating similar to a JV.

but now you get the scalability of running something like a fund. And what’s really great about this is because people are actively participating, it’s actually not considered a security at all by the SEC. So you actually get a lot of the benefits of being able to raise from both accredited and unaccredited. There’s a lot more marketing flexibility. You can tell your friends about it on Facebook, on social media. So those are the different structures, I think, depending on.

Stella Han (08:06.263)
the type of deals, the type of investors you’re working with, right? Like some investors just want to be passive in which case they need to be in a syndication or a fund, right? That really helps you decide what structure is the best setup for what you’re doing.

Mike Hambright (08:20.652)
Yeah, and so if you had it, let’s say you were a real estate investor, a couple different use case. If you’re a real estate investor and you were just using, it’s almost like you pool together some, it could be friends and family, I guess it could be anybody, that is kind of like your financial board and you’re like, they pledge money and they get to vote on whether they should do a deal or not. You know what I’ve said, I’ve talked to, have a lot of friends that are like large hard money lenders and I’d say when I first started, I always thought lenders were kind of like evil, like, they’re just trying to like nickel and

me right and as I matured I was like these are like if they won’t if they won’t approve my deal like that should tell me something so in many ways they’re a partner but this is a unique approach to having maybe a committee almost if you will that is approving your deals and trying also you know they’re trying to keep their money safe but they’re also trying to keep you safe as well right

Stella Han (09:12.451)
Yeah, absolutely. I love the committee analogy because in my mind, it’s exactly like having a board of directors, right? Like they help keep the club more intact, make smarter decisions, and everyone is on the same side of the table. So people are aligned to make smarter decisions together.

Mike Hambright (09:29.366)
Yeah, that’s great.

When is the right timing to raise money? Because I think a lot of people, as you said in your example, you waited too long to raise money. A lot of folks really, know, sometimes people have a syndication and they have a very specific deal. And sometimes people raise money and they’re out searching for deals, but the criteria is already set and I guess the money partners are already set. So what does the timing look like for, when should investors start to raise money?

Stella Han (10:00.067)
Yeah, that is such a great question because in my mind, I honestly think everyone should constantly be raising capital, right? If you’re at that scale and you’re growing, I think the mindset is like, always be raising, know, regardless of if you have an actual deal or not, if you’re close to that, the mindset is, it’s a process, right? Capital raising doesn’t happen overnight because a lot of trust is required for someone to want to partner with you.

be a hand over their money, be a part of that, right? You can’t build trust overnight. So I think if you really lean on the know, like and trust, that’s gonna be just a constant process where you’re sharing your story, you’re sharing your win, your losses, you’re being vocal and building your investor network. And I almost feel like capital raising is, it’s pretty much like a sales funnel, right? It’s like, you’ve got to always stay active on your top of funnel.

then you bring them into your investor list and you keep nurturing them, building up that rapport, right? So I feel like that, those stages, they have to always be happening. And then, you know, in terms of like when you would actually set up the structure and get that going, I think it depends on, you know, really your deal flow, right? If you are someone that sees deal flow all the time, then I think a club structure, a fund structure, that’s perfect because you could raise the money upfront.

just based off of your criteria, right? And people understand that good deals don’t know for, don’t wait for anyone, right? So they know that it’s competitive if as a group, everyone can raise the money upfront and actually have buying power to act really quickly on those things. So if you’ve got strong deal flow, I think raise the money just off of the criteria, whether it’s a club or a fund. But if, if you’re working in an asset, right? Like let’s say a hotel, maybe you only come across one of those, you know, once a year, right? Then

Maybe it might not make sense to raise the money upfront because then everyone would be kind of sitting there for some longer period of time, not knowing when the money would be deployed. So for something like that, it could be, let’s say, two months out when you feel like you’re getting very close, maybe you just submitted the LOI. You could start a club, start a syndication depending on who you’re working with and set up the structure that way. And something that I really like about the club model is

Stella Han (12:22.081)
It’s not property specific. So let’s say I’ve actually worked with some clients where they traditionally had a five or six B or C done and those docs were formed around a specific property. But then during due diligence, that property actually didn’t pan out. And then all of a sudden it was like they had investors, they already committed, but the deal doesn’t work. So if they find a new deal, they have to redo all the documents again and then go figure from there, which is just not scalable. Right. So.

Mike Hambright (12:38.646)
Mm-hmm.

Stella Han (12:51.521)
With a club, it’s like you could have the criteria, the buy box, you could have a first potential deal, but in case that doesn’t pan out, hey, your club still stays intact. Everyone is still here for the same buy box. You just go find another deal without having to redo all of the setup.

Mike Hambright (13:07.586)
So when the money is idle, like let’s just say if you raise, let’s just say I raised a million dollars or let’s say just hypothetically a million dollars for fix and flips. And I’m an investor that has fix and flips and I want to, know, sometimes the money’s idle. So, you I know investors that have private lenders and the lender will just come into the deal. They’ll just wire money to the title company and they’re only paying for the money while they’re using it. Then I know people that have raised money and they’re paying interest on that whether they’re using it or not. The burden is on the

investor to keep that money busy. How does it work in this fund if people have money that’s sitting idle? Do the investors take that back out or does it sit in the fund in escrow until the end of the the end of the I guess the end of the club or how does that work?

Stella Han (13:53.433)
Yeah, I would say the most common case is to only have the money be working once it’s deployed, right? It’s just like you’re running any sort of hard money or private money lending business. Like the money isn’t actually working until it’s being deployed on a project. So that’s how I would say most clubs are structured. It’s just as if, you know, 20 people came together and wanted to run a hard money lending shop together, right? So they would have the money ready so that it could be deployed. And then only once

is deployed, there’s a note in place, the borrower is actually working on that, does the club get those returns?

Mike Hambright (14:30.542)
Yeah, and so the money sits in, I guess, in an escrow account when it’s idle, is that how it works?

Stella Han (14:36.237)
Yeah, so we actually create a bank account for the investment club. So that’s essentially like the escrow account, right? That’s the account that essentially the club owns. So the money is sitting there until it gets deployed on specific deals.

Mike Hambright (14:49.484)
Yeah, that’s fascinating. how do operators make money from doing this? Obviously, it’s a source of capital, but in some syndications, there’s an acquisition fee for finding deals, and there’s all sorts of ways they make money. Of course, they make money on the investment overall. But is there anything that’s unique about the way you do it?

Stella Han (15:10.871)
Yeah, the deal structure, it’s really decided by the operator. So that’s super flexible. You can be super creative in all sorts of things, right? So as you mentioned, right, acquisition fee, you can definitely do that as long as it’s market, right? You always want to make sure however you’re compensating yourself, it’s market to what standard. In, you know, longer term projects, we see a sweat equity position as another really great way for the operators to be able to ride along on the upside too.

And investors are happy to pay for that, right? Because you as the club leader, you’re bringing in deal flow, you’re bringing in your expertise, you’re helping the club choose the right property management company, for example, right? So you could take a sweat equity position for doing that. On the lending side, what I’ve seen as really cool is essentially doing interest arbitrage and profit sharing on the returns that you’re making on the loan. So say for example, Pace Morby, who’s one of the…

one of our club leaders that we work with, he runs a debt club where as a club, they might be lending to a borrower at let’s say 18 or 20%. Right. And Pace would have a profit sharing agreement in place where he may be able to make, let’s say a six to 8 % cut and the investors, get their 10 to 12%. Right. And everyone is happy. Similarly, you can add points, right, that you charge the borrower and you can make those points. So as long as it’s structured in a win-win,

There’s all sorts of different ways that you can get compensated as the club leader just from the deal structure.

Mike Hambright (16:41.292)
That’s great. And for investors in the club, is the only way to get their money back is when the term of the club ends. Is that how that works?

Stella Han (16:50.201)
So it really depends on the deal you’re doing. I would say on the debt side, right? Because you could be lending to someone with monthly or quarterly payments. So those things can come back faster where, you know, let’s say the club is, we’re gonna stick around and lend to Fix and Flippers for two years, right? So the club is gonna keep doing that, but every month or every quarter, you already get the interest payment back. So people are making those, you know, on a recurring cashflow basis.

Similar to equity deals too, right? Like if you’ve got a casual positive strategy, can make those and you ride the equity for a longer three to seven years depending on how long your hold is.

Mike Hambright (17:31.598)
Okay, so my mind goes straight to real estate investors because I’ve been a real estate investor for 18 years now, but let’s talk about other use cases outside of real estate. I mean, I know folks are using these for buying businesses and maybe many other things.

Stella Han (17:46.647)
Yeah, business acquisitions, that’s definitely been the next thing that we’re starting to see people really pick up on the platform. And I think it makes sense, right? It’s definitely a very close adjacent to real estate. That’s where we started. But now we’re seeing people go operate laundromats, car washes. We even had a club that recently bought 10 candy stores together because they’re really…

bullish on Warren Buffett’s like, cease candy strategy, right? And they eventually want to roll that up to private equity. So all sorts of really fascinating things. And we’re also seeing like really savvy investors want to form angel investing clubs where they get to go back startups. Right now there’s actually a group that’s coming in together and actually investing in Steve train’s objection proof AI as angel investors. So yeah, it’s really, really just fascinating to see people take.

Mike Hambright (18:36.013)
Yeah.

Stella Han (18:40.247)
the model and really apply it to anything that they’re passionate about and their network of people are passionate about.

Mike Hambright (18:45.89)
Has anybody used this as a way to, obviously in lieu of going public, of just saying, I have a company, here’s what it is, I wanna bring in investors into my company and I’m willing to give up profit. Has anybody kind of helped pull equity out of their business by doing that?

Stella Han (19:04.107)
not out of their business quite yet. I would say right now it’s still more so pulling the capital together to go acquire a business that’s out there rather than out of your existing business, but certainly could be a use case for later.

Mike Hambright (19:18.008)
Yeah, yeah, awesome. So who should you invest with? Like I know most people go raise money from friends and family. Of course, it depends on how much they can broadcast it to strangers. But who are the best people to bring into communities like this or into clubs like this? Or even if it’s like a traditional fund like…

Is it better to stay closer to home and find people that you know that are in your inner circle that maybe give you some level of grace? Or is it better to just go completely broad and try to find anybody you can?

Stella Han (19:52.375)
Yeah, I really think it goes back to the know, like and trust, right? So for someone starting out, I definitely recommend going closer to home because that level of trust, that’s honestly the hardest thing to build up. So when you’re just starting, you want to find people that already have that relationship with you. So I think, you know, the family and friends or people who’ve seen you do your work for a very long time, those are the people that know your work ethic would…

want to be a part of something that you’re doing. And that’s going to be, I think, the fastest win to success. And overall, as you’re scaling, I think it’s and that’s why I think it’s so important that everyone builds their personal brand. And that’s also why I love that, you know, within Investor Fuel, we’re helping people do that to you, right, with, you know, their content, you know, bringing them on the podcast, all those things, right, because it really speaks volumes.

to who you are as an operator and that also helps you then find like-minded investors who believe in the same thing, right? So something that I love doing when I was actively raising capital is like being very vocal about how I underwrite my deals because that I think is very different per person and I’m more on the conservative side. If I saw someone’s underwriting sheet and it looked very different from mine, I would not really feel comfortable investing with that person, right?

And there’s no right or wrong necessarily. It’s just a personal preference, how you run your business and how you communicate even. That’s another really big thing. know, some people, they like to have really, really close communication where maybe they want to hear from you every week, right? But for me, that’s a little bit too much, right? Like I want to be transparent, but I also don’t have the bandwidth to tell you what’s going on every week. I maybe want a monthly kind of communication style, right? So when you’re talking to investors,

You can kind of get a gauge of those things just by how they’re interacting with you in that process. And I think that gut feeling of like, do you actually vibe and, you know, jive with that person? Those would be the people you want to prioritize as, you know, who you want to bring in because not all money is equal, right? I do think that fit and synergy is really, really important.

Mike Hambright (22:02.008)
sure.

Yeah, and with your platform, even more so than probably other platforms, like certainly a fund, like if you raise money from a fund, the investors are not part of a community now. I mean, they are all investors, but they’re not generally collaborating or communicating to each other. If you effectively create a community, it’s by nature, it’s more social, right, is you don’t want to let those squeaky wheels into your club if you know it in advance, right?

Stella Han (22:32.747)
Yeah, exactly. It’s like while you’re building the club and you’re in that capital raising process, I think those are, it’s the perfect time to pick up a lot of those nuances on whether or not there’s a good fit between you and them and whether they should be in the club or not.

Mike Hambright (22:47.97)
Yeah. Well, this is a fascinating kind of platform and it’s a fascinating evolution in raising money. Anything you see in terms of the future? mean, it seems like this obviously is a little bit of a glimpse into the future of how people could raise money for real estate or for other business cases. But any other things you see coming down the pipe that would be interesting kind of in this vein?

Stella Han (23:11.417)
Yeah, what I’m seeing as really interesting is I’m now seeing a lot of traditional fund managers also, you know, want to run a club in parallel because everyone is looking to scale their business and people realize, right? they’re most of America is gate kept away from your fund and syndication. That doesn’t mean they’re not, you know, necessarily financially ready to go invest. You also have people that maybe do have a hundred K or two 50 K, but

they’re very new to the space, right? Like it’s kind of scary and intimidating to start out with a very large check size, but that doesn’t mean if they started with something a little bit smaller, they got to see at the table to kind of really see how it works, that they wouldn’t grow in to become an accredited investor in your fund later. So that’s a really fascinating trend that we’re seeing is even for your really big fund managers, they want to basically capture and have, you know, channels for every part of their audience where

you know, especially if you have a five or six C, right? It’s like, you’re already out there, you’re marketing, you’re telling everyone about yourself. And then your traditional funnel will be, okay, I can only take, let’s say 10 % of who I’m talking to. Well, now why don’t I take, you know, 85 % of the qualified individuals into the club? And then I still get my, you know, high net worth individuals into my fund. And then I can eventually nurture that audience into the other side as well. So that’s been something that’s super fascinating. And…

Another thing that I’m really excited about is really around that decision making process that a club gets to make together. I think a lot of times people come into the club because they love this learn and earn concept. That’s a phrase that we see a lot of club leaders use is like people actually care more than just being a blank check into a fund where they don’t really get to see the ins and outs of what’s going on. it’s like they want to have.

Mike Hambright (24:52.322)
Yeah.

Stella Han (25:04.803)
They want to be that board of directors, right? Like that committee, they want to learn about the process and actually contribute to the decision making. How do we actually make that more streamlined? How do we help people take away more about how the business runs start to finish? And you know, with AI now being in it, right? And we’re trying to figure out how to make decisioning at scale. I think that’s really going to be the future is, you know, how do you actually really run a business?

at a more granular level when you can have 99 people in a club.

Mike Hambright (25:37.484)
Yeah, yeah, it’s fascinating. So tell us a little bit more about you and about fulfillment. If folks wanted to connect or learn more, where can they go to learn more about this?

Stella Han (25:46.253)
Yeah, you can definitely find out more about Fractional on our website, fractional.app. We’ve got a whole breakdown and case study on www.learnfractional.com as well. And I am very active on social media, going back to being a vocal and building a public. So my Instagram handle is hella Stella, just to keep it California for everyone.

Mike Hambright (26:09.945)
Awesome. We’re going to add the links down below here for everybody to come learn more. So thanks so much for sharing. This is fascinating. As I’m kind of pausing here, as I’m talking, I’m like my wheels are turning on a few use cases that I’m interested in for myself. So really cool, really cool stuff. So thanks for sharing your story and thanks for sharing more about Fractional today.

Stella Han (26:29.869)
Thanks for having me, Mike.

Mike Hambright (26:31.246)
Great to see you, Stella. Have a great day. Everybody, thanks for joining us today. If you have use cases for raising money for either your real estate deals, for re-lending as a hard money lender, there’s a whole bunch of use cases that we can’t even think of right now. So if this resonates with you, and if you’re like me, you’re like, could it be used for X? You’re like, well, maybe you should talk to Stella. So hope you guys had a good time today. We’ll see you on the next show.