How Do I Raise Capital Without Forming a Complicated Real Estate Fund?

If you spend any time around real-estate meetups or peruse the #CRE side of Twitter, you’ll notice a familiar refrain: “Set up a fund.” The advice is well-intentioned—funds are great for some sponsors—but they’re hardly the only game in town. Plenty of small-to-mid-size operators want to close on one attractive property at a time, not manage a blind pool of investor cash for five or ten years.

So how do you bring outside money into a single deal without wrapping yourself in the red tape that comes with traditional funds? Enter the Special Purpose Vehicle, or SPV. Think of an SPV as a one-deal “capsule,” built to hold a specific asset, raise money for that asset only, and then dissolve when the project has run its course. 

Below is a plain-English guide—no Wall Street jargon—on how to leverage SPVs and related strategies to raise capital while keeping your business structure refreshingly simple.

Ditch the “Fund or Bust” Mindset

The first hurdle is mental. New sponsors often assume they must launch a multi-asset fund to be taken seriously. Not true. In fact, savvy investors appreciate the clarity of a single-asset play. They see exactly where their dollars are going, rather than betting on a manager’s pipeline.

If you’ve identified a compelling 30-unit value-add complex in a gentrifying submarket, an SPV can package that single opportunity neatly—no grand promises about the next four acquisitions you haven’t even sourced yet.

SPV, Demystified

Picture a legal entity—usually an LLC—that sits between your operating company (the sponsor) and the target property. The SPV raises equity from a handful (or a couple dozen) passive investors, then uses that equity, alongside debt, to acquire the property.

Revenue flows from the property to the SPV, and then to investors, following whatever waterfall you set: preferred return, profit split, promote—your call. When the property sells, the SPV distributes proceeds and then can be wound down. Clean entry, clean exit.

Why investors like it:

• Transparency: They can study one deal’s numbers instead of a blended portfolio.
• Limited cross-contamination: If Deal A goes sideways, it can’t drag down Deal B because each lives in its own box.
• Shorter time horizon: Many SPVs run three to five years, appealing to investors who dislike the decade-long lockups typical of larger funds.

Why sponsors like it: 

• Lower legal overhead than a full fund (though still get professional counsel—more on that shortly).
• Relatively quick launch: You can spin up an SPV in a few weeks once you have a deal under contract.
• Storytelling: It’s easier to pitch a real address, real photos, real pro-forma than a theoretical pipeline.

The Nuts and Bolts of Setting Up an SPV

• Choose your entity type. In the U.S., an LLC is the go-to. It offers pass-through taxation and flexible operating agreements.
• Draft the Operating Agreement and Private Placement Memorandum (PPM). These documents spell out voting rights, distribution waterfalls, management fees, and risk factors. Hire a securities attorney to get this right; templated documents pulled from the internet are a lawsuit waiting to happen.
• Pick a securities exemption. Most SPVs raise under Reg D 506(b) or 506(c). If you plan to advertise the deal beyond friends-and-family, 506(c) is your path but requires accredited-investor verification.
• Open a dedicated bank or escrow account. Keep investor funds separate from your personal or operating accounts.
• Collect subscriptions and close. Once equity commitments are signed and wired, the SPV can acquire the property.
• Manage investor relations. Send quarterly updates, K-1s at tax time, and keep communication open. Bundling 15 investors into one LLC is only painless if they know what’s happening.

Cost snapshot:

• Legal: $7K–$15K, depending on your attorney and deal complexity.
• State filings & registered agent: $500–$1,500.
• Accreditation service (if 506(c)): $60–$80 per investor.
• Cap table & distribution software (optional but helpful): $100–$300 per month.

Yes, those costs sting, but compare them with the six-figure legal budget and annual audits a regulated fund often requires.

Alternatives That Keep Things Simple (and Legal)

Joint Ventures (JVs)

If you need just one or two equity partners, set up a JV LLC where all members vote on major decisions. JVs fall outside securities law because everyone is “actively” involved—though be careful; passive money starts looking like a security quickly.

Tenancy-In-Common (TIC)

Multiple investors each own an undivided interest in the property itself, not in an entity. Attractive for 1031-exchange dollars but cumbersome for bank financing.

Convertible Debt

Issue a promissory note that converts to equity once certain milestones occur (e.g., stabilization). Lenders may perceive it as second-position debt, so clear it with your senior lender first.

Finding Capital for an SPV When You’re Not a Household Name

Investor confidence rarely rests on structure alone; it’s mostly about trust. Here’s where to focus:

• Track record, however small. Closed one duplex reposition last year? Package the before-and-after photos, rent roll improvement, and actual vs. projected IRR. People fund people, not spreadsheets.
• Skin in the game. Investors sleep better when they know you’re investing your own cash—5–10% of the equity stack is a healthy signal.
• Plain-English marketing deck. Skip the rainbow gradient charts. A simple 12-slide deck covering the market story, business plan, pro-forma, risks, and upside is enough.
• Social proof. A short testimonial from a previous investor beats ten pages of glossy renderings.
• Webinars. Host a 30-minute Zoom walk-through of the deal. Record it so latecomers can watch on their schedule. Leave 15 minutes for Q&A; transparency sells.

Don’t Let Compliance Kill the Deal

Securities law violation is the fastest way to torpedo your career. Three quick guardrails:

• Verify investor status (accredited or sophisticated) according to your Reg D exemption.
• Never promise “guaranteed” returns. Real estate carries risk; say so in every communication.
• Get professional counsel. If the legal bill feels painful today, imagine the cost of an SEC investigation tomorrow.

A Mini-Case Study: The 42-Unit Turnaround

Kelly, a first-time sponsor based in Phoenix, locked up a 1980s-vintage garden-style apartment for $6.5 million. She needed $2 million of equity, had $200K of her own cash, and didn’t want to run a fund. She created “Desert Bloom Apartments LLC” as an SPV, targeted a 7% preferred return with a 70/30 split over an 8% IRR hurdle, and opened the offering under Reg D 506(c). 

Using a combination of former coworkers, a podcast interview, and two lunchtime webinars, Kelly filled the raise with 18 investors in 28 days. Legal and set-up fees totaled $11K; the sponsor fee and promote will more than cover those costs. The kicker: because the SPV holds only one asset, Kelly can exit in year four without worrying about redeploying capital or extending a fund term.

When a Fund Might Make More Sense

Just because you can sidestep a fund doesn’t mean you always should. If you’re chasing a pipeline of small self-storage facilities, intend to recycle equity for a decade, or want to write multiple offers each quarter without raising fresh equity every time, a traditional fund or “rolling close” evergreen vehicle can smooth operations. In other words, use the right tool for the job, not the tool everyone on Twitter is talking about.

Closing Thoughts

Raising capital doesn’t have to involve a 100-page limited partnership agreement, six-figure audits, and a ten-year lockup. For many rising sponsors, an SPV offers a targeted, investor-friendly alternative that keeps overhead manageable and storytelling crisp. Structure it properly, communicate clearly, and you’ll discover that sophisticated capital is more than willing to back a well-defined, single-asset play.