SEC involvement in friends and family deal
I am putting together a friends and family deal on an multi-family property and was considering the following structure.
My LLC essentially sells a number of loans for "X" dollars to fund the renovations and down payment of the property. After year one we pay an pre-determined interest payment to everyone, after years two three and four we pay another pre-determined rate and then after year five we pay all the principal back plus interest.
According to my research and in reading @Matt Faircloth's book Raising Private Capital this would not violate SEC regulations because the money is not being invested into a common entity. The investors or debt holders do not have any equity in the deal. However, I want to give investors piece of mind and issue promissory notes, even if they are unsecured.
My attorney, has told me the issuance of promissory notes is in fact a security so then the SEC would need to be involved.
Has anyone had experience with a structure like this before? If so, what did you issue to the investors without violating any regulations?
Most Popular Reply
I'm not sure how big your deal is, but I would just pay the $5-10k for a PPM. Especially with friends and family, where emotions likely get involved if a deal goes South. It'll help protect both sides.