BiggerPockets

I have the Cowgill study course. It has a lot of great info in there to get you on the right track. Remember, though the material is good, you will actually have to make it work and put the material to use.

You just have to be really careful when advertising for private money. You don't want the SEC sniffing around and claiming you're soliciting investors for a security. I'm weary of anything that comes from a guru, so if you're using techniques taught by a guru, make sure you run any advertising you do surrounding soliciting private money through your attorney to make sure you're not violating any securities regulations. It sounds silly, but sadly it's a reality.

Check your local SEC reg laws

James, the SEC does not have localities, it is the same rules in all states as far as the SEC is concerned.

Much appreciated!!!

To comment on the links that Josh posted, the first is so generic, with very little details and all in theory in my opinion. It really lacks the "how to". On top of that, it suggests getting funds from multiple individuals to raise a lump sum. That is a SEC violation and suggesting that an investor do that is foolish and irresponsible of the author.

Will -
I'm not sure if you saw the details, but here is the exact quote from the article:

"Thirdly, you can have seminars and try to bring in private investors. Or place ads in the newspaper to attract private investors. Now, I'm not a lawyer, but be very careful when you do this. There are many "gurus" who pitch this method in violation of SEC laws. So, make sure you consult with a lawyer so you don't get slapped with a fine or end up in jail (the SEC has a ton of laws about the way you can advertise for private money and the number of private money lenders you can have)."

I believe the author was being far from irresponsible by the above post. It seems pretty clear that he warns people to consult with an attorney and to stay within SEC guidelines.

but how do you know who has money, where do you get their info, what do you say to get them there, what do you say once they are there, and finally, how do you get them to say yes? These are important questions that most investors just don't know the answers to.

Maybe you could answer the above questions for us.

Thanks!

I see. I am not a securities attorney, and cannot speak to the legalities of getting loans from Prosper.com. That said, the website was shut down by the SEC I believe, and has since reopened, compliant with the SEC. If you want to continue to discuss the article or any of the others, I recommend posting your thoughts there. It seems like the most appropriate venue.

As for responding to the questions you pose, you can certainly do it on your blog here on the site or maybe you could start a new forum thread about it.

Thanks!

Joey,
I will probably blog about it on my blog very soon and will inform you all in this thread that I have done so. Better yet, if you go to my profile and join my blog feed, any blog posts I make will send you a notice that I have made a blog post. This way you get to follow all my blog discussions.
It is not permitted to post a link here to my blog, so all I can do is state that I blogged about it.

As for your other question, there are only two ways I know of to pool money into one investment legally and avoid the SEC.
1. Place each investor with scaling lien positions, in other words, investor one who put up the most money gets a first lien on the deed of trus, second investor gets second position lien, third investor gets third and so on. Obvioulsy, any halfway intelligent investor will be quite leary of taking any position beyond 2 and 3 would be the tops in my opinion.
2. Create an LLC or LP (limited partnership) and each investor gets a piece of the pie. Don't quote me, but I belive there is a maximum number you can have in the entity before having to deal with the SEC and that number (guessing from the top of my head) is between 20 and 30 investors. Somebody with the actual specific knowledge of the number can post if they know it.

Hope that helps.

Hi, and no more than 5 individuals to pool funds so as to be compliant. An LLC may be formed with members contributions as capital contributions, as well as by loans to the LLC. The LLC can provide a principal part mortgage with one security agreement (DOT), so you can have any number of beneficiaries in one note under one deed of trust, like gifting to kids or grandchildren..Bill

Originally posted by nationwidepi

Check your local SEC reg laws

James, the SEC does not have localities, it is the same rules in all states as far as the SEC is concerned.
That's a little misleading. The SEC does have local offices. The SEC sets the rules at the federal level but each state will have different rules of disclosure, allowable offerings and "legends" which is the required verbiage on the offering.

I am not an SEC attorney but I have had long conversations with several of them. As part of my business investing in Multifamily properties we syndicate our deals.

There are several points I will comment on.

1. Solicitation of investors.
You can invite investors to come to an educational event, and talk about different aspects of RE investing. At this contact you cannot tell them about a particular deal, the type of returns they can expect, or your past performances. You can however allow them to fill out a form in which you can call them and establish a "relationship" with them. Email, snail mail, advertisement, internet contact is all solicitation, requiring you to form a "relationship" prior to talking about a deal or returns.

2. Private loans

If a group of people loan you money at a set interest rate, not based on the profit from the deal, it is not a security and not regulated by the SEC. You still have the problem of lien order or other collateral.

3. Number of investors.

Using Reg D exemption rule 505 (yes this is a security regulated by the SEC, but exempt from registration. Look it up for more info) You can have an unlimited number of accredited investors and 35 non-accredited. You are limited to raising a max of 5 mil per 12 month period.

Using Reg D exemption rule 506 You can have an unlimited number of accredited investors and 35 sophisticated investors. No raise limitation.

4. Number of pooled investors to be a security and regulated by the SEC.

If you have two people that go into a venture with the expectation of profit (not interest) and that profit depends solely on the performance of another, it is an security. If the investor does not have equal say so in the conduct of the business and his return is based on someone else's performance you are treading on SEC territory.

On all of these you may get away with not following the rules until someone is not happy with the return or money is lost. Then they turn you into the SEC and you have big fines and possible jail time.

Speak to an SEC attorney before you venture into profit sharing ventures.