I did a quick interview with Alan Cowgill to answer questions I’ve gotten about how to raise private money for deals.
QUESTION:
“I want to do more deals and I have multiple people wanting to put money into my deals. Am I safe doing this as long as I use a good contract?”
ALAN’S ANSWER:
You need to be super carful and follow both Federal law and the laws of your specific state.
When you pool money from private lenders, you’re putting funds together from two or more different private lenders on the same promissory note.
Securities laws and regulations vary from state to state and the Federal Securities & Exchange Commission (SEC) has its own set of laws and regulations. All states have a filing that allows for pooling private lenders’ money in running your real-estate investment business. This filing also allows advertising. You will need to file paperwork with your state and provide a disclosure document to your potential private lenders.
You should use or form a new business entity which could be an S-corporation, C-corporation or an LLC. Some states have different filings available depending upon whether you have a corporation or an LLC, and LLC’s are sometimes treated as partnerships. Most states won’t allow you to pool money when you’re operating as a sole proprietorship or DBA.
You should use one of your state’s filings that allow for pooling money.
These filings require you to fill out paperwork, informing the state regulator about your business and what you’re doing. It usually requires you to disclose information to your potential private lenders, which is for your benefit as well as your private lenders’ benefit.
You’ll pay a fee to your state regulator when you file your paperwork.
One of the things I’ve taught my students and continue to stress is that you shouldn’t be pooling money from private lenders unless you make sure you’re in compliance with SEC Regulations.
In order to be in compliance with your home state’s securities laws, you’ll need to find the proper exemption, filing or registration option and comply with its requirements.
The following is some general information on staying in compliance with your state’s requirements.
When you use an exemption to bring in private lenders, you are making an offer and sale of a security. It’s important to understand that an offer to sell is usually treated the same as a sale when it comes to securities compliance.
Two key concepts to understand when you sell securities are that there are exempt securities and there are exempt transactions. Whether you’re selling stock, equities, borrowing money, or debt, these are treated as securities. An exempt security usually means a security issued by a governmental agency or authority.
An exempt transaction refers to the sale of a security not issued by a government agency that has been given an exemption under state law (or federal law) because of the nature of the security and how it’s sold.
Some states may offer you more than one choice, so you’ll want to evaluate those choices.
As a final important note, don’t go this alone. At this level you need the guidance of a competent SEC attorney.
I will explain everything clearly at my Traction REIA events this month.
#1. IN-PERSON: Washington DC Main Monthly Meeting
TOPIC: “How to Easily Attract Private Money”
SPEAKER: Alan Cowgill
Thursday April 20th IN-PERSON
Hilton Garden Inn Tysons Corner
8301 Boone Blvd
Vienna, VA 22182
6pm to 9pm
#2. IN-PERSON: Full Day Training Event with Alan Cowgill
TOPIC:
“MASTERCLASS :: The Easiest & Safest Way to Get Private Money”
Saturday April 22nd IN-PERSON
Hilton Garden Inn Tysons Corner
8301 Boone Blvd
Vienna, VA 22182
9am to 3pm
#3. IN-PERSON: Sarasota/Tampa Monthly Luncheon
Friday April 28th IN-PERSON
Gecko’s Grill & Pub
Clark Road & Honore Ave
5585 Palmer Crossing Circle
Sarasota, FL 34233
12Noon to 2pm
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Thanks Alan for your great detailed answers to these questions.
Looking forward to your events this month!
Tom Zeeb
President
Traction REIA:
13+ Consecutive Year Recipient of the
National REIA “Honors of Merit” and the “Award of Excellence”
For Best Real Estate Investor Association!
