Concerned about Securities Law when seeking Private Money?

2 Replies

I'm looking to grow my business and start implementing private lending. Up until this point I have flipped with my own funds or with partners.

I have a few leads on possible private money guys.  I have created a .pdf file introducing myself, how we analyse deals, past success stories, etc.  

I guess my main question is should I be concerned about securities law when seeking private money? For example I know the big thing with securities is solicitation, which is what I would be doing.  I'm I right in my thought process though that I'm looking for a loan and am not trying to sell the investor anything like you are when selling securities?

If anyone has experience with this I would love the input.  Would also love to here how you pitched your private lenders to get on board.

Sam Erickson, Real Estate Agent in WI (#57119-90)
262-271-0251

You have to be specific when you write, "Seeking Private Money," @Sam Erickson .

Are you seeking a silent equity partner or group of investors to form a pool you can draw from and provide a return to, or do you simply want a loan. If either of the former, you have to ensure you scrupulously comply with all appropriate state and federal security laws, which usually include making the SEC happy. This is big deal and can get very expensive very fast, but I have a feeling it's not what you are doing.

When you write you have "a few leads on possible private money guys" I assume you mean some hard/private money lenders. In this case, you can ask away. So long as these are just loans from one person for one property you can ask anyone you want to loan you money. We are asked for money all the time and no one risks getting into trouble for that. It's encouraged.

Borrowers initially approach us to inquire about our terms, overall processes, and requirements. They will want to know our lending criteria, including what we look for in a borrower and their deals, what our rate and terms are, etc. This is not a securities solicitation. We in turn, will ask them about their background, related experience, and financial situation. Often, we'll go to lunch or dinner to get to know our borrowers, but most lenders don't care. They only want to see a deal in contract.

A lenders safety comes from knowing you can pay them back and that you know what you are doing. If you are approaching professional lenders (i.e. not your aunt Edna) please spare everyone the "credibility kit," explaining how we can make money investing our IRA and exceed bank CD rates. We want to know your direct experience, financial background, evidence of deals done, etc. This might involve copies of HUD's, before and after MLS listings, and the numbers. Some, but not all, lenders might want to see credits reports, bank statements, tax returns, etc. It just depends with whom you are dealing. Ask first, and don't assume.

These posts always go down the usual "What's a security" path, emphatic recommendations that you must see a lawyer, I knew a guy who knew a guy who went to jail, etc. Asking someone for a loan is not illegal and violates no security laws, if that's all you are doing.

Jeff S Na

Thanks for the great response.  I simply want a loan, we would escrow the funds, I would buy the property with those funds and they would have a 1st mortgage on the property.

I did not mean hard/private money lenders.  My two leads are just individual guys that work 9-5 jobs that I have done business with in the past, they are not professional lenders.

I do have a pdf file that is just what you explained above, my background, deals completed, sample reports, etc. Both my leads work in the financial sector and within their circles have a lot more people with the means to be a private lender.  Though I would love for my name to get in front of those people as well do I need to be concerned with my presentation being passed along to them unsolicited?

Someone also told me that I need to be careful with crossing state lines? Can I send you my .pdf file? I would love your thoughts on it and if I need to be concerned with anything in it.

Sam Erickson, Real Estate Agent in WI (#57119-90)
262-271-0251

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