Raising Your First $5-10M Infill Fund: Small Fund, Big Opportunity
For emerging Operators and first-time investors, entering the real estate market with a $5-10M fund focused on modular infill development presents a unique opportunity. While smaller in scale, these funds allow for agility, faster capital deployment, and higher returns—without the complexity of larger funds. For those looking to transition into development, modular infill housing, particularly Detached Accessory Dwelling Units (ADUs), bungalow courts and cottage courts, provides fertile ground to grow a diversified portfolio with minimized risk.
This blog will explore starting a $5-10M infill fund aligned to emerging housing policies and modular manufacturing can help you attract LPs that are aligned with you.
Fund Size Optimization: The Power of a $5-10M Fund
A $5-10M fund might seem small compared to more significant institutional real estate funds, but this size can be a significant advantage for infill housing projects. Modular manufacturing, particularly for ADUs and infill developments, operates efficiently within this range while you get started, allowing you to focus on multiple smaller projects without spreading yourself too thin.
The key advantage? Agility. Starting with a smaller fund, you can move quickly, capitalize on zoning changes, and navigate urban markets where larger developers often struggle due to scale. A fund in this range can target underutilized lots or small parcels of land in high-demand urban areas, which typically require less capital but offer better returns, especially when using cost-effective modular manufacturing. Since projects move faster, you can also build credibility with your LPs and show them a growth path more rapidly than other asset types.
Economies of Scale in Modular Manufacturing
Modular manufacturing allows you to lower build costs while maintaining high-quality standards. While these projects are smaller they still have enough scale to get you discounted pricing from factories and some cost savings for the site work. A $5-10M fund can deploy capital efficiently, balancing risk across multiple modular builds by focusing on a handful of well-chosen projects in areas with high housing demand. Due to their smaller scale, these projects tend to stabilize faster, allowing you to refinance and deploy capital into additional projects.
Investment Strategy: Aligning with Modular Infill Development
The investment strategy needs to focus on the unique advantages of modular infill projects. Unlike large-scale developments, modular infill is about working within the existing urban fabric—taking advantage of smaller land parcels, faster approvals, and the ability to integrate new housing into more dense communities, often with proximity to transit.
Strategic Locations: Focus your investment strategy on urban opportunity zones or areas with recent zoning changes that allow for higher-density housing, such as ADUs. Cities like Los Angeles, San Jose, San Diego, and Sacramento have seen increased demand for modular infill projects due to relaxed regulations and housing shortages, making them ideal targets for smaller funds.
Project Selection: Smaller infill projects—with multiple ADUs or cottage court developments—can generate reliable cash flow with relatively low overhead, but they require smart site selection and a deep understanding of local regulations.
Attracting Investors: Why a $5-10M Fund Appeals to High-Net-Worth Individuals
Attracting investors is often the most daunting part of raising capital for first-time Operators or even experienced operators pitching a new strategy. However, a $5-10M fund uniquely appeals to high-net-worth individuals (HNWIs), family offices, and accredited investors looking for niche opportunities.
Smaller Commitments, Higher Returns: A $5-10M fund allows LPs to invest smaller sums while gaining exposure to an emerging real estate sector like modular infill. For HNWIs, the chance to diversify their portfolios into a niche asset class with relatively low capital commitment is attractive.
Personalized Investment Experience: Unlike larger institutional funds, a smaller fund gives investors a more personalized experience. As a new Operator in this asset class, you can build close relationships with your LPs, offering them more insight into individual project decisions and progress. This level of engagement is often appealing to family offices and HNWIs who prefer hands-on involvement.
Niche Appeal: Modular infill housing is still a relatively niche market that works in your favor. Investors interested in innovative construction techniques and urban real estate trends will be drawn to the potential growth in this sector. Present modular infill as a forward-thinking, scalable investment opportunity in housing-constrained urban markets.
Myth vs. Fact: Addressing Common Misconceptions About Small Funds and Modular Manufacturing
Myth: "Small funds can't scale effectively in real estate."
Fact: Smaller funds have the advantage of flexibility and focus, especially in niche sectors like modular infill housing. Modular manufacturing’s lower costs and rapid build times make it ideal for smaller funds to scale across multiple projects, delivering reliable returns without massive capital.
Myth: "Modular manufacturing limits design options and reduces project value."
Fact: Advances in volumetric modular manufacturing reduce waste and increase quality. Finished units are indistinguishable from traditionally built homes. Modular manufacturing can offer unique designs that integrate seamlessly into urban neighborhoods.
Conclusion: Taking the First tp Towards a Successful $5-10M Fund
Raising your first $5-10M fund for modular infill projects is a manageable, lucrative entry point into real estate development. By leveraging modular manufacturing's speed and cost efficiency, you can execute multiple small-scale projects with higher returns. This fund size appeals to various investors, from HNWIs to family offices, who all appreciate the opportunity to deliver to this housing market segment efficiently and effectively.
At Bequall, we understand the challenges and opportunities faced by first-time Operators. Our modular manufacturing and infill housing expertise can help you navigate regulatory complexities and optimize your investment strategy. Whether you’re looking to raise your first fund or expand into modular infill, we’re here to guide you every step of the way.