May 3, 2023

JF3163: How to Create a Fund of Funds ft. Elijah Brown



Elijah Brown is co-founder and managing partner of GoldHawk Capital, which operates a fund of funds structure where they pool capital to invest in sponsors. In this episode, Elijah discusses what a fund of funds is, what skills are needed to be a great fund of funds manager, and how he vets sponsors to make the most of his money.


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Elijah Brown | Real Estate Background

  • Co-founder and managing partner of GoldHawk Capital 
  • Portfolio:
    • 870 multifamily units
    • 100 short-term rentals
  • Based in: Phoenix, AZ
  • Say hi to him at: 
  • Best Ever Book: E-Myth Mastery by Michael E. Gerber
  • Greatest Lesson: I released a contractor to proceed on a deal that I wouldn’t be able to check in on for a month. When I finally got to check on it again, it was a disaster. I should have waited to pull the trigger on the deal or hired someone to be present while I was away.


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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and today I'm here with Elijah Brown. Elijah is based in Phoenix, Arizona, but traveling full-time in his Mercedes Sprinter van, currently in Mexico. He is the managing partner of Goldhawk Capital, which operates a fund of funds structure, where they pool capital to invest in sponsors. Elijah's current real estate portfolio consists of 870 units of multifamily and 100 short-term rentals through a wide variety of ownership structures. Elijah, can you tell us a little bit more about your background and what you're currently focused on?

Elijah Brown: Yeah, sure. I appreciate you having me on. I actually got started in single family, bought four of those, and then quickly scaled into multifamily, started acquiring a lot of five to 20 unit properties, and then I was the lead GP on those deals, and then decided that I wanted to scale the portfolio, and at that point started coming into much larger deals as the co-GP, and with a fund of funds structure as well. And at this point I'm solely focused on the fund of funds structure, where I pool capital in a separate entity, and then deploy that capital into deals that I like.

Slocomb Reed: Awesome. So primarily right now you're operating the fund of funds, and you have this GP portfolio, but the focus is pooling investor capital and finding other operators?

Elijah Brown: Right. So I did the active syndication business for about seven years, and we were in a great market, and a lot of those deals went full-cycle. And I decided to make a lifestyle change. The whole thing about traveling full-time - we're in Mexico right now in our converted Mercedes Sprinter van, and we decided that this is what we want to do with our time. We want to travel. And because of that, I can't be actively-managing, I can't be in a market to guide the contractors or the property managers, so I had to change the strategy. So right now I'm mostly focused on being a passive investor, but doing it alongside other people within a fund structure.

Slocomb Reed: Logistical question - this kind of informs where I think the conversation is going to go, Elijah... When Goldhawk invests in a deal, are you going into the general partnership as a capital raiser, or are you purely an LP?

Elijah Brown: It depends on the deal; it could be both. But right now, I'm focused on buying into the deal as a limited partner, but doing it through an LLC that I allow others to join. And here's the reason why we do that, why I let other people in... Because I could go out and write a $100,000 check for a deal, and get a 50/50 profit split and an 8% pref. However, when I can write a $2 million check for that deal, or a $5 million check for that deal with other people's money involved, then I can negotiate a much better profit split and a higher preferred return. So I end up much better off when I partner with other people to invest passively.

Slocomb Reed: Intuitively, Elijah, I can guess why it works that way, and I personally have had conversations with other funds of funds managers... Can you explain why it works out that way? Why is it that you're getting better returns from operators who are bringing in more money?

Elijah Brown: Sure. So one of the most difficult things to do as an operator is raise significant amounts of capital. So people like me, who have access to capital and friends with capital can solve that problem for them. So instead of going to 100 investors with $25,000 or $50,000 checks, that sponsor can come to me and get one $5 million check in one shot, by just having a relationship with me. So that removes a lot of the work that they have to do. And in exchange, they're willing to be flexible on the terms. So instead of going out to a whole bunch of people, they can just come to me. However, I'm going to want a higher percentage of the profits at the end of the deal.

Slocomb Reed: I'd like to dive have a deeper into this, ideally get into some real numbers; not necessarily tell me the property's address and who all the people are involved, but you've been on the general partner side of these transactions before and went full-cycle a series of times. What market was that?

Elijah Brown: A number of different markets. So I've done deals in Vermont, Phoenix, Arizona, which is my main market now, Colorado, Georgia, California, and a few others.

Slocomb Reed: Okay, so please feel free to correct me where I'm wrong, Elijah; I like to make a lot of assumptions, and then have you work off of those assumptions to explain why your deals work the way that they do. Typically, within a general partnership, especially for like a value-add multifamily deal, a portion of the general partnership is delegated specifically to capital raising. So call it 30%. 30% of ownership of the GP is for capital raisers, which means that 30% of the returns that the GP would see would go to those capital raisers. So what I'm imagining in my head, Elijah - and I want your feedback; tell me I'm wrong if I'm wrong, fill in the details where you can... What I'm imagining is as an operator who has found a deal, who doesn't want to go get $50,000, $100,000 checks, I want to get one $5 million check... When I'm looking at giving up some of my returns to a fund of funds, what I'm thinking is that what I really get to do is keep more of the general partnership. So instead of giving someone like you, Elijah, the 30% for bringing the money, I just increase the returns that you're getting as an LP, and keep 100% of the GP. And as a 100% General Partner, I'll see higher returns as well than I would have as a 70% owner with a general partnership.

Elijah Brown: So let me jump in there for a second.

Slocomb Reed: Go ahead.

Elijah Brown: So the difference between fund of funds and a co-GP model is that in a co-GP model you're actually coming in as a manager in the deal; you are a co-general partner, and you typically become entitled to some percentage of the sponsor's fees, that 30% you're talking about, or whatever it is; it depends on the deal. I've done that, I've had co-GPs on my deal. I did the 30% thing, I've been co-GP on other people's deals, I got my portion of 30%. The difference between that and a fund to fund is that a fund of funds is a completely separate entity and structure from the deal. You are not a manager in the deal. Fund of funds will typically come into the deal as a limited partner, as a passive investor, and you're not getting management decision rights. Essentially, you're just a limited partner; you're a completely separate entity that's coming into the deal.

So the fund, or actually the deal's sponsor, the operator is not actually allocating any of their sponsor fees to you as the fund of funds manager. They're keeping it all to themselves. However, they're giving you better terms. So they're gonna give you a better profit split, and a better preferred return, and then as the fund of funds manager, you then take your own fees at your funds level, which is completely separate from the deal. So you take your fees out, and what's left is the net, net return to the investors in your fund. And if you structure it properly, your investors on a net-net basis will have a higher rate of return or a better projection than what people who go direct into the fund into the actual deal get. So that benefit that you're negotiating with your $5 million check should be significant enough that you can take your fees out of it, and still deliver higher returns to your fund to funds investors on a net-net basis. Does that make sense?

Slocomb Reed: It does, Elijah. I think we're saying the same thing. You're just saying it better than me, and coming from a different perspective. So let me pose this as a hypothetical.

Elijah Brown: Sure.

Slocomb Reed: I'm an operator. I just got my hands on a sweet deal. I'm under contract. My earnest money has gone hard. I'm in the throes of due diligence or I'm out. I know I want this deal, no retrading. I also don't think I can raise the money myself. So I will either be looking to co-GP with capital raisers and give up a part of the general partnership on this sweet deal that I am putting together, or I can come to someone like you and get a $5 million check instead of a series of $100,000 checks. You require a higher return as a limited partner than I was originally intending to offer. Why does it make sense for me to go with you, instead of going and getting other co-GPs and just giving them a piece of the general partnership?

Elijah Brown: It depends. A lot of sponsors either don't like to give away sponsor shares in the deal, or it can be a number of different reasons. Perhaps I'm the only option and they're not able to find co-GPs to come in and raise that capital. Typically, if you're a fund of funds manager and you can raise enough capital to bring a significant portion to the deal, you're probably going to ask for GP interest, because you want those voting rights, those manager rights. I think the SEC is starting to get a bit squirrely with the number of co-GPs that are in deals, and the reason is because a lot of people end up joining deals just to raise capital. And as you know, just raising capital for a fee is not very favorable in the eyes of the SEC; they consider you to be broker-dealer... So you have to provide some other type of value, some material participation in the actual deal to be a legit co-GP. And when you have 10, or 15, or 20, co-GPs in on a deal, it's very hard to make the argument that you are really playing a part in the management of the deal, other than bringing some capital.

I wanted to bring up that there's a third option for the sponsor... And that's to use an equity broker, like a broker-dealer. So you can bring people in as a co-GP onto your deal that will help you raise money in exchange for sponsor shares. You can go to a fund of funds or an institution or a family office that will write a larger check in exchange for better terms, or you can contract with a broker-dealer, an equity broker who will connect you with the right people in exchange for a percentage fee. Usually, it's 3% of the money that is raised for your deal. So there are a few different options for raising equity.

Slocomb Reed: Elijah, that makes a lot of sense.

Break: [00:12:16.17]

Slocomb Reed: I'll transition the conversation here... I'm gonna take myself out of the general partnership, the operator role. I want to ask you... New hypothetical - I want to do what you do. And wanting to do what you do, I imagine there's not that much that you know about me. So I want to ask, Elijah - I want to create a fund of funds and live in a van, not down by the river unless that river is in Mexico. It's kind of two questions. What are the background experiences, network that would make me a natural fit for starting a fund of funds? And I want to get beyond the success as a GP. So I've done it before, I'm really good... Let's set that aside, because that answer is very good and very obvious. What are the other things that would lead naturally into starting a fund of funds? And the other question is, what skills do I need to start developing now?

Elijah Brown: It's funny, because the business of fund of funds and capital raising is completely different from the business of buying and managing and renovating and dealing with an actual property yourself. I did that; we got through it, we made a bunch of money, and it wasn't a ton of fun. I'm not gonna lie, I'm gonna be straight up honest. My main skill was developing relationships with people, and underwriting deals. So I think in a new business, it's mostly about establishing relationships, it's a lot of marketing, and networking, and LinkedIn... And essentially, it's mostly you're just focusing on how to be the best capital raiser and due diligence guy. But not specifically due diligence on the properties, more due diligence on the actual sponsor. Because everybody does their underwriting differently. I can go through an underwriting model in 30 minutes and know everything I need to know about if the numbers make sense. But it really comes down to when things go wrong, can I trust that the sponsor is going to be able to solve the problem and see it through? And if it's a big problem, will the sponsor save the day, either with a check from himself or herself, or some type of creative strategy that will get the deal out of trouble?

So you have to be very good - going back to the skills that you were referencing; you have to be very good at vetting sponsors, so learning how to ask the right questions to establish trust with a sponsor. And then you also have to be very good at making relationships with new people who may become investors in the deal.

Slocomb Reed: When did you start Goldhawk Capital?

Elijah Brown: Goldhawk has been around for a few years. However, I have been doing deals for seven years, and I consider Goldhawk to essentially be my entire track record. So Goldhawk has always been there, but we officially did the branding, and the name, and the website reveal a few years ago.

Slocomb Reed: We're recording in 2023, so a few years ago was a very different market for multifamily than we are experiencing now.

Elijah Brown: Oh, yeah.

Slocomb Reed: Are you looking for new operators to work with currently? Or are you sticking with the operators that you've seen success with for the last few years?

Elijah Brown: No, I'm really open to all different types of operators. It really comes down to what my pool of investors are looking for. For example, in multifamily in Arizona, year one cash on cash on a value-add deal is only going to be around 4% or 5%, just because cap rates are low and interest rates are high, and there's not a ton of cash flow. So my investors have been asking for higher yield. So I've been on a search to find sponsors who offer higher-yielding portfolios or products, and that is ultimately what led me to acquiring interest in this Airbnb fund, where we're going out and we're buying 100 single-family homes and operating them as Airbnbs. The yield is going to be three times what we get in multifamily; albeit with higher risk, but higher cash flow.

Our strategy has changed significantly. We were originally only interested in small to mid-size multifamily, with heavy renovation, and then we moved to only being interested in large multifamily with a medium renovation. And now we're exclusively focused on just raising capital for higher-yielding opportunities within residential real estate.

Slocomb Reed: Higher yield within residential real estate, going to short-term rentals - it makes a lot of sense... Especially considering, Elijah, that you are sort of changing asset classes right now, but likely definitely changing business plan, at least from the operator's perspective, how is it that you're vetting operators in this new space for your fund?

Elijah Brown: You have to adapt to the changing market, but the basic principles of how to establish trust and an understanding of another person is pretty much the same. It's the same in any industry. You really have to know if this person that you're writing a million dollar check to is going to do right by your money, and execute on the business strategy that they've presented. And as we all know, as soon as you buy the property, everything goes wrong, and nothing actually ends up like it is in the underwriting. So I need to find a sponsor who's got a track record and essentially knows what to do in those situations. Someone who's done it before. So I'm looking for someone who has their head on a swivel and can make the deal work in many different environments.

Slocomb Reed: Do you require from your operators a certain level of experience with their business plan before you'll invest with them?

Elijah Brown: Oh, definitely. I like to see multiple full-cycle deals already completed. It's a big plus if they've invested through a recessionary period. I know that's more rare these days, because it's been so long since the 2008 crisis... But I want someone who's at least gone full-cycle and has a sizable portfolio.

Slocomb Reed: I have to ask before we transition the show - someone who is putting together a short-term rental portfolio, how do they demonstrate to you they've gone full-cycle?

Elijah Brown: The one that we're currently invested in, the managers themselves have been investing in Airbnb properties for many years. However, they got together and raised a $37 million fund last year, which is already cash-flowing above the pref, and they've had eight successful exits already, at over 40% IRR. That tells me that they have done this before, they know what they're doing, they're able to execute full cycle on the business plan, and it's something with a good shot of success in the future.

Slocomb Reed: That makes a lot of sense. Elijah, are you ready for the Best Ever lightning round?

Elijah Brown: Let's do it.

Slocomb Reed: What is the Best Ever book you've recently read?

Elijah Brown: The E-Myth, real estate version of the E-Myth. Great book. It's about essentially how to build and scale a business by using systems and processes and technology.

Slocomb Reed: I have to ask, is the E-myth written by Michael Gerber? And he often dives into individual industries and finds a co-author specifically within that industry.

Elijah Brown: Yeah.

Slocomb Reed: I know the E-Myth real estate brokerage. Is there another E-Myth real estate book?

Elijah Brown: I don't think I read one about brokerage. It was specifically about investing. I would look into that. I know there's a lot of different E-Myth books...

Slocomb Reed: I'm definitely going to have to find that one. What is your Best Ever way to give back?

Elijah Brown: I think education is awesome. What's interesting is that within our small multifamily value-add circles it feels like everybody has heard the broken record of passive income, and financial independence, and multifamily value-add... But once you take one step outside that circle, 99.9% of the world has never heard of it, and does not understand, and they think that the best way to freedom is by working a job for 40 or 50 years.

So I wrote an eBook that people can download at, which essentially explains how you can generate passive income with minimal effort, through investing in real estate as a passive investor. I also contribute to LinkedIn typically three times per week with something that's valuable, something that will provide some kind of advice in the real estate realm. And then I'm always doing free phone calls with people all the time, to provide my mentorship and advice.

Slocomb Reed: That's awesome. Back to the best ever book - I just looked it up. It's "The E-Myth real estate investor", co-authored by Michael Gerber and Dan Merrill. It was released in October of 2020, which is why I hadn't heard of it, because I read the E-Myth back in like 2015-2016. But good stuff. Elijah, I want to ask specifically about your fund of funds... What is the biggest mistake you've made with it, and the Best Ever lesson that has resulted from that mistake?

Elijah Brown: Okay, I'd like to actually pivot that a little bit from the fund to fund and give something a little bit different. So while I was still an active manager, I had to go away -- so I'm in the Army Reserves, and I had to go away to a school for a little while. And I made the decision to move full-steam ahead on a project where I would not be able to check in on the work for at least a month at a time. So I released the general contractor to do the work, and was not able to physically inspect the work for over a month. And when I finally got back, it was a disaster. So that was a big mistake. I should have at least hired or had someone checking in, or I should have just figured out how to get back to see the project. So that that was probably the biggest mistake.
Within the fund of funds, what's great is that I'm not the one who is actually syndicating the property. So all the issues that occur on the property level, someone else who is more seasoned and has more resources and is very professional, with a large team, is handling that problem for me. So I don't really have to deal with that. So I would say at this point, there haven't really been any large mistakes within the fund of funds model, other than not starting sooner. So I should have started this passive investment model five years ago, rather than just doing all active deals.

Slocomb Reed: Difficult question here... Any of the deals that you've invested in currently - are you experiencing capital calls?

Elijah Brown: No. Thankfully, we are not in a position where we need to do any capital calls to our investors. And thankfully, I'm not getting capital called on any of the deals I've invested in. I purposely invest in sponsors that are not able to do capital calls. I like sponsors who are independently wealthy, and can essentially write a check or source the capital from somewhere else rather than coming to investors.

Slocomb Reed: That's awesome. That makes a lot of sense. On that note, Elijah, what is your Best Ever advice?

Elijah Brown: Okay, I've got two. So if you're just getting started and you want to do a real estate thing, do the house hack live and flip BRRRR. So essentially, you're going to find a property that needs renovation, you're going to move in, you're going to renovate it while you live there, and then you're going to go and rent out all the rooms, except for one where you're going to sleep. Preferably do this with a duplex or a fourplex, and you rent the other rooms out. The tenants help you pay the mortgage; you then go and refinance the property and pull most of your original cash out, and you can do this with a very low downpayment, since it's a primary residence. You can do it with 3% down; you could probably borrow that 3% from somewhere. So that's the best way, I think, when you're getting started, to get rich quick, so that you can at least have a little pot of cash to then start really investing in deals with. That's the first one.

The second one is more of just life advice, figuring out what you really want to do. For us, that's traveling; we're going beach to beach in Baja, Mexico, and we'll be heading up toward Canada in a little bit. We just want to really see the world and spend our time... The money is great, but it really doesn't matter. You've got to figure out what you want to do that's going to make you happy in your life, and make sure you're making really good memories and having

a great time.

Slocomb Reed: Last question, where can people get in touch with you?

Elijah Brown: LinkedIn is the best. Add me on LinkedIn. Shoot me a message. It's

Slocomb Reed: That link is in the show notes, as well as the link to his website where you can get his eBook. Elijah, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five-star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a Best Ever day.

Elijah Brown: Thanks so much, Slocomb, for having me on. I appreciate it.

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