What are the SEC requirements for soliciting private money?
Investor · Charlotte, NC · Member since 2008 · 217 posts · 12 votes
What are the SEC requirements for soliciting private money?
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Real Estate Investor · Southern, CA · Member since 2010 · 84 posts · 30 votes
15yBE CAREFUL when advertising for PML. Know the SEC guidelines. It is not illegal to advertise, however GENERAL solicitation IS!!! The following items are not allowed ever:
==> Advertising in newspapers, Craigslist, radio, billboards
==> You can NEVER guarantee ANYTHING! (Nothing is guaranteed)
==> You can NEVER say 'SAFE' (IE Your money is Safe with our investment) (This is kind of along the lines of guarantee. Nothing is ever safe. Nothing is ever guaranteed.)
==> You can NOT advertise your returns. (IE Make 10% or more on your money by investing with me now!)
==>You can NOT come out and say 'I'm Looking for Investors!'
If you solicit with fliers, make it about teaching someone about how to become the bank, or how to transfer their sitting 401K funds from old jobs into a self directed IRA to invest wherever they want and the requirements for doing so.
The first and best way is to tell everyone you know personally about your business and the opportunities that are out there. You can solicit the particulars ONLY if you have a personal relationship with them, meaning, you know their financial situation is and have qualified them as able to do private lending (some states only allow 10% of a person's net worth to be used for private financing). Examples are Coworkers, neighbors, your doctor, lawyers, CPAs, other investors or entrepreneurs, etc. Here are some legal and accepted ways to advertise for private lenders.
Here are 3 simple ways to legally and safely advertise
*Luncheons (Keep it GENERAL,like I explained above for advertising)
*Work with a mortgage broker (one that specializes in investment property financing) (they act as a middle person to find the private lenders. They’ll examine the offering and market it to their private lenders for you)
*Online Marketing (if you do that, its fine, you MUST make sure not to DETAIL your offer!) Mention what your COMPANY does, successes; BUT password protect your OFFERINGS and documents. People must have to jump through hoops to get to your offering! (This is why I'd be careful what you put on a flier)
THE RULE OF 45: It you are cold calling (meaning trying to get someone you do not know to do private lending with you), there is a 45 day wait period, in which you MUST have communication with the person on at least 3 occasions (can be email, direct mail, etc) but ONE of them must be in person or by telephone within the 45 days.
33 Replies
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
Dan....
There are state requirements and SEC requirements as well. The general idea is that generally soliciting is not allowed. - Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes15y
Dan Inc, send me an email (in signature line). I may be able to help. For solicitation, I believe you can run ads that require accredited investors and intrastate (NC residents) for amounts less than $1M per year... per SEC Q&A page
- Real Estate Investor · Southern, CA · Member since 2010 · 84 posts · 30 votes15y
BE CAREFUL when advertising for PML. Know the SEC guidelines. It is not illegal to advertise, however GENERAL solicitation IS!!! The following items are not allowed ever:
==> Advertising in newspapers, Craigslist, radio, billboards
==> You can NEVER guarantee ANYTHING! (Nothing is guaranteed)
==> You can NEVER say 'SAFE' (IE Your money is Safe with our investment) (This is kind of along the lines of guarantee. Nothing is ever safe. Nothing is ever guaranteed.)
==> You can NOT advertise your returns. (IE Make 10% or more on your money by investing with me now!)
==>You can NOT come out and say 'I'm Looking for Investors!'If you solicit with fliers, make it about teaching someone about how to become the bank, or how to transfer their sitting 401K funds from old jobs into a self directed IRA to invest wherever they want and the requirements for doing so.
The first and best way is to tell everyone you know personally about your business and the opportunities that are out there. You can solicit the particulars ONLY if you have a personal relationship with them, meaning, you know their financial situation is and have qualified them as able to do private lending (some states only allow 10% of a person's net worth to be used for private financing). Examples are Coworkers, neighbors, your doctor, lawyers, CPAs, other investors or entrepreneurs, etc. Here are some legal and accepted ways to advertise for private lenders.
Here are 3 simple ways to legally and safely advertise
*Luncheons (Keep it GENERAL,like I explained above for advertising)
*Work with a mortgage broker (one that specializes in investment property financing) (they act as a middle person to find the private lenders. They’ll examine the offering and market it to their private lenders for you)
*Online Marketing (if you do that, its fine, you MUST make sure not to DETAIL your offer!) Mention what your COMPANY does, successes; BUT password protect your OFFERINGS and documents. People must have to jump through hoops to get to your offering! (This is why I'd be careful what you put on a flier)THE RULE OF 45: It you are cold calling (meaning trying to get someone you do not know to do private lending with you), there is a 45 day wait period, in which you MUST have communication with the person on at least 3 occasions (can be email, direct mail, etc) but ONE of them must be in person or by telephone within the 45 days.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
If partners have voting interests then you won't have a security. You still can't generally solicit for partners though.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes15y
I don't disagree with some of Zion's post. Avoiding the word 'guarantee', front end web sites, etc., are very good practices and good advice. Personally, in NC, I would always target accredited investors just to be safe. The 10% net worth stuff is not applicable to NC from a statutory perspective.
I'm going from NC state specific information since the OP claims he is in NC. I am also an NC resident. The fact is that unless Dan Inc is brokering for someone else's properties (his post say these are his properties), he will meet state securities exemptions**. I assume his post is accurate in that he anticipates financing less than $2.5M and as an issuer (and not a dealer) per our state securities law. On a federal level, see the link I posted before for Q&A, specifically the "Intrastate Offering Exemption". As the SEC says, "This exemption facilitates the financing of local business operations." The SEC doesn't want to stomp on private enterprise... just follow the rules and don't defraud people. To qualify for the intrastate offering exemption, your company must:
* be incorporated in the state where it is offering the securities;
* carry out a significant amount of its business in that state; and
* make offers and sales only to residents of that state.That's not too hard to do for financing a single deed of trust.
**Per NC state law, the following transactions are exempted from G.S. 78A-24 (Registration requirement) and G.S. 78A-49(d) (Rules, forms, orders, and hearings):
Any transaction in a bond or other evidence of indebtedness secured by a lien or security interest in real or personal property, or by an agreement for the sale of real estate or chattels, if the entire security interest or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit. - Investor · Charlotte, NC · Member since 2008 · 217 posts · 12 votes15y
All great info, let me clarify one thing, by partner I meant lender, not someone with voting or ownership rights in my business.
There is a lot of knowledge here on the subject,, and i'm sure many of you know the rules but don't solicit, but does anyone actually actively solicit and feel confident that they are in full compliance?
- Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes15y
Be careful, I would just look for partners in real estate. Perhaps run and ad stating "experienced real estate investor looking for cash or credit partners to expand business."( I would still tread lightly though.)Good luck!
- Investor · Charlotte, NC · Member since 2008 · 217 posts · 12 votes15y
What I'd like to do is a direct mail campaign to free and clear high value homes in my area. I'd really like the ability to solicit strangers.
- Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes15y
I know what my answer would be, but I'll resist, the better part of valor....
You're treading into a very regulated area and shouldn't take the word of BP members imo. Go seek professional advice from someone in this field that will back up his answers in writing for you. Rich - Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes15y
Originally posted by Dan Inc:
What I'd like to do is a direct mail campaign to free and clear high value homes in my area. I'd really like the ability to solicit strangers.Then spend a million bucks and do a public offering.
If its purely a loan with one person giving you a loan for one property, you're on solider ground than if they're buying units in an LLC. But still shaky ground to do any sort of public (i.e., strangers) solicitation. Follow Rich's advice and find a good securities lawyer.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes15y
Dan Inc, I'm still waiting for an email:), per my 04/22/2011 post. I'm still looking for low LTV investments for my SDIRA.
Regarding solicitation, I provided my opinion (prior posts) for the SEC and the state. We (meaning others in the BP nation) are clearly not all on the same page. I'm just reading the SEC's own text about exemptions like Rule 504, which says:
"Rule 504 provides an exemption for the offer and sale of up to $1,000,000 of securities in a 12-month period... in general you may not use public solicitation or advertising to market the securities... However, you can use this exemption for a public offering of your securities and investors will receive freely tradable securities under the following circumstances:
* You register the offering exclusively in one or more states that require a publicly filed registration statement and delivery of a substantive disclosure document to investors;
* You register and sell in a state that requires registration and disclosure delivery and also sell in a state without those requirements, so long as you deliver the disclosure documents mandated by the state in which you registered to all purchasers; or,
* You sell exclusively according to state law exemptions that permit general solicitation and advertising, so long as you sell only to "accredited investors," a term we describe in more detail below in connection with Rule 505 and Rule 506 offerings."(Note, I added the emphasis above.)
Bullet 1: NC doesn't require publicly filed registration statement for exempt transactions
Bullet 2: Disclosure in NC not applicable for exempt transactions
Bullet 3: Sell to accredited investors, as permitted by NCGS 78A-49.(d) for exempt transactionsFor those who don't know, an accredited investor == high net worth investors.
The short answer to "...does anyone actually actively solicit and feel confident that they are in full compliance?" is Yes. Until I see case law or a document from an SEC page showing otherwise, I've outlined my view. I like Zion's approach to luncheons and password protecting pages. I already to the latter. The former is a technique Allen Cogwell and others use. Probably a good idea if your "sell" is impeccable. Helps if you are also an accredited investor or have an incredible (and verifiable) track record.
And yes, I think you should be careful in your ads. Seek you own legal guidance if you feel compelled because I am not an attorney. For sure the "safe" routes are do nothing or do a full registration. I believe both are not ideal ideas given your context... but I'm not you.
- Investor · Charlotte, NC · Member since 2008 · 217 posts · 12 votes15y
You know, it sounds like a lot of work, and I probably don't want it bad enough to go through the hassle considering that I only want to take down a few more properties. I'll just stick what's been working. I'll keep all this information for future reference as I change my mind on a regular basis :)
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes15y
I think a lot of people reading this post will see the OP say "I have a dozen single family homes all cash flowing nicely, but I'm about to run out of spare cash to buy... and the lost opportunity is killing me!!" followed by "...I'm still waiting for an email... I'm still looking for low LTV investments for my SDIRA." followed by "You know, it sounds like a lot of work, and I probably don't want it bad enough to go through the hassle..." and wonder what the RE market has come to.
Sign of the times, I guess.
- Investor · Charlotte, NC · Member since 2008 · 217 posts · 12 votes15y
Originally posted by Chris Martin:
I think a lot of people reading this post will see the OP say "I have a dozen single family homes all cash flowing nicely, but I'm about to run out of spare cash to buy... and the lost opportunity is killing me!!" followed by "...I'm still waiting for an email... I'm still looking for low LTV investments for my SDIRA." followed by "You know, it sounds like a lot of work, and I probably don't want it bad enough to go through the hassle..." and wonder what the RE market has come to.Sign of the times, I guess.
touché
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
It is definitely a lot of work Dan...there is no way around that. Going to networking events where you try to stir up private money via trust deeds is not likely to get you in trouble in my experience. Don Konipol has some posts on the legality of this if you dig on BP.
No matter how you slice it....it is going to be work. Once you start to perform and people can brag at cocktail parties about money you have made for them you will start to get referrals.
- Real Estate Investor · Southern, CA · Member since 2010 · 84 posts · 30 votes15y
It may sound intimidating, but if you meet with an SEC attorney and spend a few hundred dollars to do dozens of deals, this is a small investment to make. The SEC is not anything to be afraid of or not pursue private money because of the SEC. It is not as complicated as you're making it.
It sounds like you are willing to give up on it pretty easily. :shoot: :cry:
- Wholesaler · Fort Myers, Cape Coral, Naples, FL · Member since 2009 · 185 posts · 33 votes15y
I am going through the same thing now. Trying to put all the pieces together to determine if you are SEC compliant has not been easy.
I may end up meeting with an attorney on this, unfortunately whenever I meet with one all I ever seem to get are gray answers.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Originally posted by Zion:
Here are 3 simple ways to legally and safely advertise
*Luncheons (Keep it GENERAL,like I explained above for advertising)*Work with a mortgage broker (one that specializes in investment property financing) (they act as a middle person to find the private lenders. They’ll examine the offering and market it to their private lenders for you)
*Online Marketing (if you do that, its fine, you MUST make sure not to DETAIL your offer!) Mention what your COMPANY does, successes; BUT password protect your OFFERINGS and documents. People must have to jump through hoops to get to your offering! (This is why I'd be careful what you put on a flier)
While the first two are great ways to introduce yourself and your business, IMO, most investors are absolutley unaware of the legal aspects of soliciting investors.
Simply by having a seminar and then using terms in your presentation, like "investment", "return of investment", "yield of investment" or any other financial term should not be in a begginer's vocabulary!
Presenting investment stratigies to a group of people is not an exception.
As to the last comment, (as I recall Zion is married to an attorney, not sure) I disagree that making people jump through hoops to get to a solicitation is the way to open up your spiel.
Having the general public jump thorugh hoops like joining a site and having passwords, while it may take the issue out of the general public arena, it does not circumvent other requirements. If you do not "qualify" your prospects as to other requirements, net worth or business relationship for example, they are still a pool of the public!
Each state has financial requirements as well as those of the SEC. No one on this site is familiar with all of them, I'm sure.
I have not commented on this thread before this as some have because I do not want anyone to read the advice here and assume that by following such advice that they can go out and begin solicitations. While there are many here who do have very good comments and ideas, to take any of these comments as gospelwould be a great error in prudent business practices. Frankly, if you're getting advice from opinions on how to solicit funds in this manner, you're headed for trouble.
This should be your first step, to get ideas and be familiar with the concerns voiced. Then take that to an attorney who is familiar with financial laws in the state you intend to operate in. Then follow that advice very closely.
Just wait til you get money from some little old lady (old really being any mature age of someone who has been around the block) and you fail to live up to what you said, or have any snag at all with a late payment....and see how things can easily come unraveled for you. I have seen this time and time again!
Good luck.
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes15y
Moderators, I'm trying to keep my comments and this thread as constructive as possible. I do not intend to post again in this thread.
Jon says "...spend a million bucks and do a public offering." That's funny stuff! Spend $1M to raise $20K... even $100K. Well, I've not seen any filing like this. Is this real? Please post a link.
If you want a practical filing, one that didn't cost a million bucks, take a look at this filing that had $6,250 in expenses related to its filing... leaving $993,750 to the issuer. This was their beginning. They should have stayed small. This company went on to file a small business preiminary prospectus with restricted securities as you can see (look for 'suitability requirements') targeted only to accredited investors (or California limited offering exemption).
This SEC-generated letter is a good reason (I see at least 59 reasons) to not file a registration and instead seek an exemption from filing... unless you have people like Charles on your team.
This company failed in part because their expenses were way out of control.
For all the talk about doing a registration (in a context consistent with the OP's parameters), I'll bet a dollar no one can produce a link to an SEC filing because there aren't any. IMO, the "security instrument" is a deed of trust regulated by the state, not a federal Reg. D filing.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Chris, had to vote you up on the last sentence, the deed of trust is a security instrument and it is specifically exempted.
However, providing a deed of trust as a collateral interest to investors or a pool of lenders will then fall under SEC as a security.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes15y
The bottom line is that you need to talk with a securities attorney if you are raising money and pooling it into one pot. You should also speak with them before you solicit publicly. Not doing so saddles you with a lot of risk. Do so at your own peril!
- Real Estate Investor · Southern, CA · Member since 2010 · 84 posts · 30 votes15y
Originally posted by Financexaminer:
As to the last comment, (as I recall Zion is married to an attorney, not sure) I disagree that making people jump through hoops to get to a solicitation is the way to open up your spiel.[/quote/
Oh no, I'm not married to an attorney at all. All ideas should ALWAYS be run by a competent SEC attorney in ones area. I have taken a very thorough private money course which has helped build my knowledge, however, I do not by any means look to myself; I have my attorney look over everything! NO WAY to know even close to all of it; especially with ever changing rules!
Just wait til you get money from some little old lady (old really being any mature age of someone who has been around the block) and you fail to live up to what you said, or have any snag at all with a late payment....and see how things can easily come unraveled for you. I have seen this time and time again!Good luck.
That is why disclosures are VERY IMPORTANT when getting any private money lender. If you have a lender, full disclosure is always a must, or you stand to get yourself in huge trouble.I use my website (2nd one in siggy) to give a basic overview of what private money is and offer a free report as an introduction of what a good company will do when lending private money.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
I suggest you put more emphasis on the investments you do instead of trying to develope a pile of disclosures. You could say I promise I will lose every dime you give me, but that does not keep you from the aftermath that gets many who think they know what they are doing in trouble.
Absolutely do not get anything off the internet as an investment pool deal, IMO.
Running such a site might well be in compliance in the state you are in, problem with the internet is that it isn't just in "your" state!
Get with a local securities attorney. Otherwise, go do some small deals and earn your way up.
I understand that all the hot shot kids out there want it all now, from someone who seems they have a way and a good spiel, don't fall for it in this arena. - 15yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
You should invest a few dollars into your RE education and purchase Alan Cowgills Private Money course. That is the best place to get all the info you need. ( this is not a plug for him, just my experience )
Curt Davis - KAIZEN Realty538 Reviews
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