PPMs, Subscription Agreements & Fund Docs Explained (Listener Q&A)

This week, I received an email from a listener named Abel. Abel—if you’re listening—thank you for reaching out. He is in the lending space and is considering starting a fund and had a ton of smart questions, which I think will benefit a lot of other podcast listeners. We ended up hopping on a Zoom call, and it was great to meet him and talk things through. I always enjoy connecting with other private lenders to hear what they’re up to. So, like I said, Abel is thinking about launching a fund, and naturally, he had questions around how to structure and start one.

That’s completely understandable—it’s uncharted territory for many people. You don’t know what you don’t know. So in this episode, I’m going to walk through all the questions he asked. Hopefully, they’re just as helpful to you as they were to him. Quick legal note: I am not an attorney. I’m not a securities attorney either. I don’t know all the technical legal details inside and out. That said, I’ve done this myself, and I’ve spent a lot of time learning it. So take it for what it’s worth—but absolutely consult with a licensed attorney. What follows is simply our experience.

Who should write your PPM?

Question 1: In one of your episodes, you talked about setting up your own fund. Did you write the PPM yourself or hire an attorney? It’s expensive, and I’d like to save money if possible. Great question. And yep, that was episode 7 if you want to go back and listen to it.

Here’s what I did. Again, this might not be the best route for everyone, but it worked for us. Most attorneys I’ve talked to won’t let you draft your own PPM. Some don’t even want to see a template—they’ll say it’s more work to clean up someone else’s version than to draft it themselves. My attorney didn’t work that way, thankfully. I wanted to save money, so I did a lot of research and pulled examples of PPMs from other sources. I created a draft using the parts I liked, added the critical pieces I needed, and then sent it to my attorney for review.

All in, I spent about $1,200. That’s a fraction of what it would’ve cost if I’d had the attorney write the whole thing. Do I believe in using attorneys? Absolutely—100%. There’s a time and place. I’m just more comfortable than most taking on a bit of extra risk and doing the research myself. Would I recommend this to everyone? No. Most people probably shouldn’t go this route. But if you’re comfortable digging into the details and willing to take on a little liability, it can save you a decent amount. If anyone wants to see our PPM as an example, reach out. I’ll happily send it your way.

Is the subscription agreement part of the PPM?

Question 2: Is the subscription agreement part of the PPM, or is it a separate document? Technically, the PPM is just one part of your full fund document package. But when people say “PPM,” they’re usually referring to the entire document. If we’re being specific, the PPM is the section that outlines your business plan, risks, how returns are earned, and how the fund is managed. This is where you’re extremely transparent about everything. You spell out how the fund makes money, how investors get paid, the risks involved, and how you’ll respond to problems like defaults or market downturns.

It also defines the rules you, as the fund manager, must follow. For example, our PPM explicitly states that funds must go toward real estate debt, not things like crypto or stocks. Now, to Abel’s question: is the subscription agreement part of the PPM? Sort of. It’s included in the full set of documents, but it’s technically its own piece. So when we send the PPM to investors, it comes bundled with the subscription agreement and the promissory note. We send them as one long PDF, and the investor signs all of it if they want to move forward.

What’s our process for signing up investors?

Question 3: What’s your process for signing up investors? Is it really just: check they’re accredited, send the docs, get the signature, and send wiring instructions? More or less—yes. But we’ve built out a structured process for this. We operate under a 506(c) fund structure, so all our investors need to be accredited. That means they’ve either earned $200K/year ($300K if married) for the last two years and expect the same this year—or they have a net worth over $1 million, not including their primary residence. When someone expresses interest, I ask them if they’re accredited. Most people don’t know what that means, so I explain the basic criteria.

If they say yes, I still send them to a third-party verification service. We’ve used Accred and InvestReady before. It costs us $55–$100 per investor, but I cover that cost. The investor uploads tax returns or statements, and the service verifies their status. Once approved, I get a letter stating they’re accredited. I save that in Google Drive for compliance. After that, I send them the full PPM packet (which includes the subscription agreement and promissory note). They review it. Then we both sign. Then I send them wiring instructions, and they’re officially in the fund.

When do investors earn returns?

Question 4: Do investors earn returns from day one, or do they wait until their money is deployed? In our fund, they earn from day one. It doesn’t matter if their money is immediately placed into a loan. That’s one of the challenges with a fund model. You’re on the hook for interest payments even if capital isn’t currently deployed. With a co-lending model, investors only earn when their money is in a deal. Personally, I like the fund model better. It gives us consistency. Every month, I know exactly how much I owe my investors and how much I’m bringing in. The math is clean.

If I’ve got $2 million in the fund and I’m paying 10%, then I owe $200K/year or $16.6K/month. Anything over that is profit. In a co-lending setup, you’re constantly adjusting based on deal performance. It can get messy. I also trust that I’ll find deals fast enough to put new capital to work quickly. If I have a lull and some money sits idle for a few weeks, I’m okay with that. The cost is minimal compared to the upside of having predictable obligations and the ability to move fast. You just need to always be marketing and always be looking for solid deals.

What happens when a deal closes?

Question 5: What happens when a deal closes and a home sells? Does the lender get paid out and exit the fund, or is the money automatically rolled back into the fund? This is another area where the fund model really shines. In a co-lending setup, the investor is only tied to a single deal. Once that deal ends, the money is returned, and it’s up to them whether they want to roll it into another loan or use it elsewhere. But in our fund model, it’s very different—and much simpler.

When a borrower pays off a loan, those funds go directly back into the fund’s operating account. We don’t send the money back to the investor; instead, we immediately look for the next opportunity to deploy it. This approach means less downtime, less coordination, and a more stable investment experience for the investor. For me as the fund manager, it gives a massive advantage—I don’t have to scramble to chase down investors or deal with capital that’s constantly entering and exiting. When a borrower approaches me with a new project and needs funding quickly, I can look at our account and give a clear yes or no within minutes. No juggling. No need to line up five different investors for one deal. I’ve done that before, and it’s exhausting. Plus, there’s no risk of someone backing out last minute.

With co-lending, even if you think you have the capital, you might not. Maybe the investor changed their mind or needs the cash for a personal project. That uncertainty is frustrating. In the fund model, it’s our money to manage. The investor remains invested and trusts us to make solid decisions with their capital. For deal flow, consistency, and speed, this structure wins hands-down.

Lockout periods?

Question 6: What’s your opinion on lockout periods—one year, two years, etc.? I personally don’t implement lockout periods. I don’t require investors to keep their capital with us for any set duration like a year or two. The only requirement is a 90-day redemption notice. If someone wants to pull out their funds, they must give us a 90-day heads-up. That said, we’ve never actually taken 90 days to return someone’s funds. The reason for this policy is simple: real estate isn’t as liquid as a stock or bond. You can’t just sell it instantly and have the funds returned in three days. Real estate is a physical, illiquid asset.

If all our capital is deployed and project timelines are extended, we don’t want to be in a bind where we can’t honor a redemption request. Again, while the 90-day policy is in place, we typically return funds the same day or at least within the week—unless everything is tied up. We usually maintain a cash cushion of 10–20% of the fund’s value to handle situations like this. We’re actively funding new deals all the time, so having cash on hand is a smart operational move. Why don’t I enforce a lockout? Because I try to think like an investor. If I were investing in a fund, I’d want the freedom to come and go. I don’t want to feel stuck. So we don’t require long-term commitments.

Open-ended vs. closed-ended – which one’s better?

Question 7: Open-ended fund vs. closed-ended fund—what are the pros and cons? I’ve heard that open-ended funds can be more complicated from an accounting standpoint. Honestly, I don’t know if I agree with that. Maybe it’s more complex if you’re constantly processing people entering and exiting. But in practice? Not really. A closed-ended fund is often used in a syndication model. You raise a set amount—say $20 million for an apartment complex—and once the capital is raised, you stop. That’s the end of the raise. In contrast, our open-ended fund is always active.

We’re consistently accepting new investors and redeeming capital as needed. Yes, there’s more movement, but the accounting isn’t any harder. It’s just journal entries: funds in, funds out. So in my experience, I wouldn’t say an open-ended fund is more difficult. Maybe slightly more active, but not more complicated

Did I build our website?

Question 8: Did you build your website yourself? First off, thanks Abel! Appreciate the kind words. Yes, I did build it myself. You can check it out at holbrookcapital.com/invest. That site includes info about returns, fund structure, FAQs, redemption periods—all the essentials. Like our PPM, I try to make the site clear and transparent. No surprises. I come from a software background, so building websites is second nature. It was hand-coded it, and it only took me a day to get everything launched. I also had an attorney review the disclaimers, just to be safe. And if you want to use our site as a template—go for it.

I’m not protective about it. Use whatever helps you get started. One thing I want to emphasize—and I’ll cover this more in a future episode—is the importance of neutral language. When I first built the site, I was overly optimistic. I used language like “this is super safe” or “here’s what your return will be.” That’s a compliance issue. The SEC doesn’t like that kind of language because it’s considered misleading, even if you believe it to be true.

Now, we’ve revised the site to strike a better balance. We mention the risks. We note that returns are based on past performance and not guaranteed. Even though we’ve had great results, we don’t want to imply future returns will be the same. So if you’re building your site, be transparent and stay neutral. Talk about pros and cons. Let people know what could go wrong—even if it hasn’t happened yet.