What exactly is a “security” in real estate?

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 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

Click here to RSVP

#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

Get your ticket now

#3.  IN-PERSON: Sarasota/Tampa Monthly Luncheon

SPEAKER: Alan Cowgill

Friday April 28th IN-PERSON

Gecko’s Grill & Pub
Clark Road & Honore Ave
5585 Palmer Crossing Circle
Sarasota, FL 34233

12Noon to 2pm

Click here to RSVP

—–

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!

Facebook Comments Box

HEAR WHAT OTHERS ARE SAYING…

“Tom Zeeb has the formula for success.  You just need to follow what he says.”
– David McGrady

“The best help from Tom was the negotiation techniques & tactics. His Bootcamp got me on track.”
– Ryne Lambert

“I used your marketing. I used your contract. I got the deal and got it done.”
– Danisha Byrd

“I’m so happy today, I am about to do my first rehab property all thanks to you.”
– Eric Nkemtaji

“I implemented what was shown. I just started doing it & BAM! my first deal came in.”
– Godfrey De La Rosa

“I started implementing exactly what you said, used your contract, & signed the deal up!”
– Dominic Mason

Ready To Move Your Real Estate Investing Forward, Faster?

Our TOTAL TRACTION Program may be a fit for you. Just click below & find out more.