Here’s another gem from the quick interview I did with Alan Cowgill to answer questions I’ve been getting about how to raise private money for deals.
QUESTION:
“What exactly is a security in real estate?”
ALAN’S ANSWER:
The term “security” is broadly defined to mean “any certificate or instrument, or any oral, written, or electronic agreement, understanding, or opportunity, that represents title to or interest in, or is secured by any lien or charge upon the capital, assets, profits, property or credit of any person or of any public or governmental body, subdivision, or agency.”
This definition includes such common items as shares of stock, warrants and options, promissory notes, membership interests in limited liability companies, bonds and debentures.
Limited partnership interests are considered to be securities, while general partnership interests are generally not considered to be securities.
The statutory definition additionally includes the term “investment contract,” which has been construed by court decisions to include numerous investment opportunities and business opportunities, which at first glance may not appear to fit within the definition of “security.”
Does that mean private lending may be considered securities?
When you are borrowing money from private lenders, you are offering them a security. You’re making an IOU to them, by borrowing their money and promising to pay them a fixed interest rate over a certain time period or when the sale of a property is concluded.
When a company sells shares or stock, it’s giving the purchaser of the securities an ownership interest. Shareholders make their money when they get dividends on their investment or when they sell their stock. Private lenders in real estate are lending you funds and they make their money by receiving the interest rate you’ve promised them.
All states allow securities to be offered to lenders when they are either registered or offered under a proper exemption from registration. Securities laws do define debt as a type of security. It means that securities laws and regulations apply to the real estate business.
I will explain everything clearly at my three (3) Traction REIA events next week.
#1. IN-PERSON: Washington DC Main Monthly Meeting
TOPIC: “Private Money Made Easy”
SPEAKER: Alan Cowgill
Thursday August 19th IN-PERSON
Marriott Dulles Airport
6pm to 9pm
#2. IN-PERSON: Full Day Training Event with Alan Cowgill
TOPIC:
“Private Lending with Family, Friends, Associates & Strangers (with full SEC Compliance)”
Saturday August 21st IN-PERSON
Marriott Dulles Airport
9am to 1pm
****SPECIAL BONUS PACK FOR ATTENDING — Hit the link for details*****
#3. ONLINE: “Private Money Made Easy”
SPEAKER: Alan Cowgill
Tuesday August 24th
ONLINE using Zoom
Works Nationwide. Join us from anywhere.
8pm to 9:30pm Eastern
7pm to 8:30pm Central
6pm to 7:30pm Mountain
5pm to 6:30pm Pacific
Click here to get the Zoom link (no charge)
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Thanks again Alan for your great detailed answers to these questions.
Looking forward to your events next week.
Tom Zeeb
President
Traction REIA:
12+ Consecutive Year Recipient of the
National REIA “Honors of Merit” and the “Award of Excellence”
For Best Real Estate Investor Association!
