How to structure this company?

Question

Good morning everyone,

I have been investing in real estate for years but have recently come to the thought that I'd like to set up a company that would act as a small REIT. However, I know there are tremendous legal liabilities when doing something like this.

I'd like to structure the company where I advertise to investors to make a minimum contribution of $10k in return for a 10% annual dividend paid out quarterly over a 2 year term. After the 2 years is up the investors can receive their principal back. Now I understand that I am basically offering asset back securities to these investors. Has anyone ever heard of a small company being set up this way? Can I advertise dividends of 10% to the general public? I'm just looking for preliminary answers to these questions from the forum, I understand before acting on this a consultation with my attorney is in order.

Thanks,

Dan

Account Closed · Answer

You are describing the issuance of a security which is a somewhat heavily regulated activity (in some cases both at the federal and state level). Issuing securities isn't something you want to bungle as you could be almost easily get charged with 'securities fraud'.

Ralph Sherman · Answer

Please consider using a Reg. D 506 offering, and actually, using both a Reg. D Rule 506 (b) and a Regulation D Rule 506 (c) offering. The b offering lets you raise an unlimited amount of capital from both accredited and unaccredited investors. The c offering lets you advertise nationwide, and there is no restriction on having unaccredited investors view your ads, including in emails and on social media. You may only raise funds from accredited investors in a c offering, and there's no limit on the amount of money you may raise nationwide.

I'm a securities attorney who works with clients raising capital all over the country. There is a way to raise capital from both accredited and non-accredited investors now, and I have a patent pending on it. Please let me know if you'd like to talk.

Dion DePaoli · Answer

Can you solicit with the proper filings?  Yes.  Without the proper filings?  No.More than likely you do not want a REIT, that will be too costly.  Look up Regulation D offerings here in BP and other places, that might be the more costly approach.  Still gonna cost a couple bucks.  It's not clear what the capital raise target is so there might be other structures to look into.  Bryan Hancock is floating around here working with some crowdsource funding projects and it seems he is having success.  That might also be something to look into.  I just don't think REIT is the answer, the administrative burdens are pretty high.  The two year lockup and redemption is a concern.  That said, I don't know how you plan to liquidate the asset so it may work.