Can I partner with an accredited investor?

Question

I know that a lot (see: most) funds require investors to be accredited (which I'm not) but I have a close friend who is and we're both interested in investing in multi-family units.

My question: Is he able to go out and invest as an accredited investor but use money that both he and I put together into our own real estate investing company. We'd have our own ownership/profit sharing agreements in place for whatever properties our company invests is.

Account Closed · Answer

@Nick Ruffini

I am NOT an SEC attorney BUT that sounds like a slippery slope.

Find a team of operators that allow qualified sophisticated investors to participate in their syndications.

506b allows you and you friend to invest (separately &/or together) and it's 100% above board if you qualify as sophisticated.

Really get to know each-other (it goes both ways), build confidence and trust over time; learn the business inside and out and when they present an opportunity that's aligned with your criteria - invest alongside of them.

The SEC requires them to have a substantive preexisting relationship before collaborating on an investment. Allowing them to conducting a needs-analysis to better understand what you are looking for in deal specific multifamily investments & completing and SEC qualification questionnaire will help them understand your qualifications, knowledge level, and ability to make investment decisions.

Hoping this was helpful.

Don’t hesitate to reach out- message me.

Dino

Greg Dickerson · Answer

@Steve Hall Jillian Sidoti of Crowdfunding Lawyers who is an expert securities attorney has done several videos on doing deals with someone as a JV partner/investor and how his actually violates securities law. Check out their Facebook page. They have lots of videos on this topic as most people are not following the law.

As I stated the best practice is to always talk to a securities attorney to make sure you are covered.

Nick Ruffini · Answer

@Amy Wan ok, that makes total sense. Thanks Amy

Nick Ruffini · Answer

@Jillian Sidoti thank you! I’ll check out your videos.

Jillian Sidoti · Answer

Hi - Just saw this message. If you go to my facebook page, I have a public video on JVS. I hope this helps. If you are a managing member of the company, you do not need to be accredited. What this sounds like is just a straight partnership. Based on what you have here - I really think this isn't a securities issue unless you do it with more than one friend.

Amy Wan · Answer

If you and your own friend are investing in your own deals (i.e. you guys are taking down properties by yourself), you're generally okay. If you guys are combining money via an LLC o invest in other people's deals, securities laws apply and the company wouldnt be an accredited investor (because for the company to be accredited, it has to have a net worth of $5M AUM or all members must be accredited).

Greg Dickerson · Answer

Google Howey test for securities.

https://consumer.findlaw.com/securities-law/what-is-the-howey-test.html

It’s pretty clear most people are actually violating the law without realizing it.

Nick Ruffini · Answer

Interesting to hear the difference of opinions here. I'm going to keep digging and I appreciate the feedback so far. Essentially, it's my best friend and he's accredited and we've done other investments before (non-real estate investments). We were thinking I'd give him $25K-$50K and he'd take $25-$50K of his own money and we'd invest the total into some RE and have a side agreement that we're splitting any profits, losses, etc.

Steve Hall · Answer

@Nick Ruffini I disagree with @Greg Dickerson on everything in his post.

Being accredited opens doors for accredited investors. It does not prohibit them from buying a property with their close friend (even if the accredited investor takes a passive role.)

Regarding pooling your non-accredited money with an accredited investor's money "to go in on someone elses' deal"... this happens all the time in 506(b) deals. Keep in mind that if you and your accredited friend are partners of a LLC, then the LLC is NOT accredited.

I suggest you consult with your attorney before making any decisions based on BP forum advice.

Can I partner with an accredited investor?

Most Popular Reply