Posted by John on September 12, 2004 at 13:13:59:
Steve,
Good catch on the possible issue with usury. Each state varies on that.
John
Investor Needed Ad, would this one work? - Posted by Frank A
Posted by Frank A on September 10, 2004 at 21:42:08:
Hello,
I am trying to secure funds to obtain and rehab property in a nearby city where the real estate market is starting to boom.
I was thinking of placing an ad in a local paper to see what kind of response I would get.
Here is a sample
Investor Needed
Secured by R E, 40K for
2 to 6 months, 15K interest
xxx-xxx-xxxx
Would this work? Is there a better way? If so, how? Can’t get financing the usual way. How do I atract sincere investors and not people like “loansharks”?
I am looking for the lawyers, accountants, dentists. People looking to fund short term rehab projects and make a good return on their investment.
Thanks in advance for any guidance.
Frank A
Check with an attorney first! - Posted by Steve (Austin, TX)
Posted by Steve (Austin, TX) on September 12, 2004 at 05:59:12:
The SEC has some very strict rules on advertising for investors to protect the public (I believe you need to register a public offering before you can do it?), so be very, very careful, and definately check with an attorney - he’ll be able to tell you for sure.
There also may be exclusions for accredited investors (which I think the SEC defines as net worth of >$1m and income of over $200k, but you still have to qualify investors before offering them deals and make it clear the deal is for accreditied investors only).
Dealing with people that you already have a relationship with is a different issue, so-called “friends and family” funding - the SEC is looking to protect the general public.
Also might want to try posting on the legal forum on this site, I am not an attorney, this is not legal advise, but I’ve been involved in several funding rounds for various companies and from my experience I definately would get legal advise before running that ad.
Re: Investor Needed Ad, would this one work? - Posted by James Strange
Posted by James Strange on September 11, 2004 at 13:06:50:
Leave out the “15K interest”. Why pay that if you don’t have to? When they call explain what you can do and feel them out. Besides you could scare some off. They may think that it must be risky to offer that kind of return.
They may want a set return say 15% or they may want a % of the profit.
Re: Check with an attorney first! - Posted by John
Posted by John on September 12, 2004 at 08:48:56:
Steve,
The general warning is good but the facts are incorrect.
Real estate transactions are exempt from the conditions you site. There
is a fine line between offing a security to the public (where your
warning applies) and real estate.
If a person is advertising for an investor and the deal is real estate with
the investor evaluating the property details before they make a
decision then the deal is real estate in nature.
If you are looking for an investor and you expect that the investor will
put up cash in a ‘blind pool’ which will later be used for a real estate
transaction they you are selling a security. The investor did not have
the opportunity to evaluate the specific real estate transaction before
the funds were committed.
If a person is not sure then check with an attorney. I am not an
attorney. The principle that applies is real estate transactions are
exempt while selling fractional interests in an investment pool (that
invests in real estate) is not.
John
Need More Explanation - Posted by JohnSee
Posted by JohnSee on September 14, 2004 at 04:36:52:
“Real estate transactions are exempt from the conditions you site. There is a fine line between offing a security to the public (where your warning applies) and real estate…If a person is advertising for an investor and the deal is real estate with the investor evaluating the property details before they make a decision then the deal is real estate in nature.”
======================================================
Hello John:
I am interested in learning more about this. Where did you find this? What is your source. Can you refer me to a statute, or book or other reference where I can read up more about it. Do I understand you to say that it may be okay to advertise to the general public for an investor in a real estate deal so long as the investor is able to inspect the property/ deal details before they invest? Does the investor have to be on the deed of the property?
Please tell me more. Thanks.
JohnSee
All depends on how it’s presented… - Posted by Steve (Austin, TX)
Posted by Steve (Austin, TX) on September 12, 2004 at 10:49:59:
If it’s a specific property and the investor will be on the title, then you are probably right, I have no experience there.
The impression I got from the original ad, was he looking for long term investors investing in the ‘business’, and I assumed (possibly incorrectly) that meant there was a partnership or LLC behind it, in which case you may have do a Reg D, SCOR or LPO type filing with the SEC first to stay out of trouble.
However, looking at the ad again, I see the 15% “interest”, which implies it may not be an investment, but looking for a loan from a private individual instead - in which case again I’d strongly recommend seeking an attorney to make sure you don’t accidently run afoul of your states usury laws etc…
I guess the bottom line is, without knowing the proposed deal structure behind the ad, it’s pretty hard to say what the risks might be, and getting proper legal advise on how to structure the deal is the right answer regardless - the same attorney could then also advise on the wording of the ad.