BiggerPockets

Go over to the SEC website and find their rules and regulations in regards to investors.

Originally posted by Jim Barron

Where can I find information on investment money for R.E.
and how to stay compliant and out of trouble with the SEC?

This is a long and complicated topic and you really need a good securities attorney. Jon hit the highlights. Asking for people to loan you money is fine. Once you are raising equity and pooling money for your investments things get dicey quickly. A security is defined as relying solely on the efforts of others for your return.

OPM Guru has some great webinars that will get you up to speed quickly. CM Yates also has some great material to help. Find some local folks that work on bigger deals where reg D. placements are common. These folks are usually investing in deals between $1M and $5M...bigger stuff generally attracts institutional money from REITs.

You can also get an attorney to help you with a "no action" letter from the SEC once the security and marketing materials are designed to make sure you aren't doing things improperly. The penalties are STIFF if you screw up...like go to jail stiff...so make sure you engage an expert attorney....unless you like orange jumpsuits.

Speaking to an attorney won't really help much either in my experience. The SEC is like the IRS...they decide what is "bad" AFTER the fact. So if an investor decides to start whining to the SEC about a deal they will look for ways to prove you are guilty regardless of the merit of the case.

The trouble is that the SEC has UNLIMITED resources to go after you if they get a burr up their rear-end to do so. You could spend tons of money keeping yourself out of jail if an investor wants to extort you.

My suggestion would be:

1. Make sure you know your investors VERY well before you accept money from them

2. Don't lose money....Pick deals with large margins of safety if you use other's funds to do them and do what you say you will do

3. If you are making a really big bet make sure you get very qualified counsel and deal only with accredited investors...and use only a portion of their net worth

4. Get a no action SEC letter if possible

Asking for loans IS a security because the investor is relying solely on the efforts of others for their returns. If you take a securities analysis class in a MBA program you will study equities AND debt.

From experience, debt isn't enforced as tightly because the bets are generally smaller and that tranche of the capitalization generally carries security too. Consequently, the money investor has a harder argument that they were duped.

People generally understand debt much more easily than equity too because they are familiar with car loans, home loans, etc. My guess is that is why the state securities regulators and the SEC don't enforce the regs as heavily on those securities.

Some states have "finder" forms you can file if you are soliciting money frequently too...not sure if that adds any value.